WT/WGTDF/W/74/Rev.1
2 February 2015
(15-0713)  Page: 1/22
Working Group on Trade, Debt and Finance   
 
 IMPROVING THE AVAILABILI TY OF TRADE FINANCE  
IN DEVELOPING COUNTRIES: AN ASSESSMENT OF REMAINING GAPS 
NOTE BY THE SECRETARIAT1 
Revision 
 
TABLE OF CONTENTS 
 
 
LIST OF CHARTS, TABLES AND BOXES .............................................................................. 2  
ABBREVIATIONS .............................................................................................................. 2  
1   INTROD UCTION  .......................................................................................................... 3  
2   TRADE FINANCE MARKETS: RESILI ENT, BUT SUBJECT TO DISLOCATION 
DURING FINANCIA L CRISES ........................................................................................ 3  
2.1   What is trade finance? ................................................................................................ 3  
2.2   While being very safe, trade finance markets can be subject to dislocation during 
financial crises ....................................................................................................... 5  
2.3   Do shortages of trad e finance affect  trade? ................................................................... 6  
3   STRUCTURAL DIFFICULTIES IN DEVELOPING COUNTRIES .......................................... 7  
3.1   Regular reports by the Expert Group on Trade Finance .................................................... 7  
3.2   The G-20 had expressed concerns and recommendations regarding the situation of 
low-income countries .............................................................................................. 7  
3.3   Where are we now? Looking at recent information .......................................................... 9  
4   ADDRESSING TRADE FINANCE DIFFIC ULTIES IN DEVELOPING COUNTRIES ............. 15  
4.1   Supporting MDBs in establishing a global network of trade finance facilitation 
programs ............................................................................................................. 15 
4.2   New initiatives to meet the needs in low-income countries .............................................. 16 
4.3   Avoiding the unintended consequences of Basel III on trade finance, particularly for 
developing countries .............................................................................................. 17 
4.4   Enhancing the capacity of the lo cal banking sector to support trade ................................. 19 
4.5   Looking into the future: What more  can the WTO do? (for the discussion of 
Members) ............................................................................................................ 20 
 
 
 
                                               
1 This document has been prepared under the Secret ariat's own responsibility and is without prejudice 
to the positions of Members or to thei r rights and obligations under the WTO. WT/WGTDF/W/74/Rev.1 
 
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  LIST OF CHARTS, TABLES AND BOXES 
Chart  2.1  Change in the composition of trade finance business, IMF-BAFT Trade 
Finance Survey ............................................................................................. 4 
Table  2.1  Analysis of short-term trade financ e products – risk characteri stics ....................... 5 
Box     3.1  Priorities set out at recent G-20 Summits .......................................................... 8 
Chart  3.1 African banks' reasons for rejecting letters  of credit applications, AfDB 2014. ....... 10 
Table  3.1   Africa trade credit pricing .............................................................................. 11  
Chart  3.2  Factors limiting companies' ability to obtain trade finance, ADB (2014). ............... 12 
Chart  3.3  The extent in which access to trade finance forms an obstacle to company 
exports, broken down by region. .................................................................... 12 
Chart  3.4  The most problematic factors for exporting in Afri ca, WEF 2013  ......................... 13 
Chart  3.5  The most problematic factors for exporting in Pacific Alliance and in Latin 
America and the Cari bbean, WEF 2014 ........................................................... 13 
Chart  3.6  Impediments to Trade Finance according to respondent banks, ICC Global 
Survey 2014  ............................................................................................... 14 
Chart  3.7   Public views on the main barriers in  connecting firms to value chains .................. 15 
Table  4.1   Overview of the main trade facilitation programs .............................................. 16 
Chart  4.1   IFC’s supply chai n solution s .......................................................................... 17 
Box  4.1   Operating in new frontier countries: the ADB's trade finance program in 
Myanmar .................................................................................................... 19 
 
 
ABBREVIATIONS 
 
ACP African, Caribbean & Pacific 
ADB Asian Development Bank 
AfDB African Development Bank 
BAFT Bankers Association for Finance and Trade 
BCBS Basel Committee on Banking Supervision 
BIS Bank of International Settlements 
CBI Centre for the Promotion of Imports from developing 
countries, Dutch Ministry of Foreign Affairs 
CCF Credit Conversion Factor 
EBRD European Bank for Reconstruction and Development 
ECA Export Credit Agency 
GDP Gross Domestic Product 
ICC International Chamber of Commerce 
IDB Inter-American Development Bank 
IFC International Finance Corporation 
IMF International Monetary Fund 
ITFC Islamic Development Group 
LICs Low Income Countries 
LGD Loss Given Default 
MDB Multilateral Development Bank 
OECD Organisation for Economic Co-operation and Development
SME Small and Medium-sized Enterprise 
SWIFT Society for Worldwide Interbank Financial 
Telecommunication 
US$ United States Dollar 
WEF World Economic Forum 
WGTDF Working Group on Trade, Debt, and Finance (WTO) 
WTO World Trade Organization 
 WT/WGTDF/W/74/Rev.1 
 
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  1  INTRODUCTION 
1.1.  At the 29th meeting of the WTO Working Gr oup on Trade, Debt and Finance (WGTDF), held 
on June 13, 2014, WTO Members reached a consensus on requesting a background note to the Secretariat describing the situation in trade finance markets and subsequent challenges faced by 
developing countries in accessing trade finance on affordable terms. This Note has been prepared 
in response to that request. 
1.2.  Until the financial crises of the 1990s and that of 2008-09, trade finance had been taken for 
granted. However, the recent financial crisis reve aled that trade finance markets can be subject to 
dislocation, making policy interventions necessary given the strong linkage between the availability of trade finance and trade flows.  Following the G-20 support "package" implemented in 2009-10, conditions returned to normality in the main mark ets, albeit not everywhere and not for everyone. 
1.3.  The structural difficulties of poor countries in accessing trade finance have not disappeared – 
and might have been worsened during and after th e banking crisis. In fact, there is a consistent 
flow of information indicating that trade finance markets have remained characterized by a greater 
selectivity in risk-taking and flight to "quality" customers. In that environment, the lower end of 
the market has been struggling to obtain affordable finance, with the smaller companies in the smaller, poorer countries most affected. This note looks at recent available information, in an area 
where statistics are difficult to find. It discusses various initiatives in which the WTO and partner 
institutions are involved to alleviate in part this situation. 
2  TRADE FINANCE MARKETS: RESILIENT, BUT SUBJECT TO DISLOCATION DURING 
FINANCIAL CRISES 
2.1  What is trade finance? 
2.1.  Finance is the lubricant of commerce. A very  large share of trade transactions are supported 
by some form of financing, e.g. a credit, guarantee and/or insurance. For example, a credit is most 
often required to bridge the gap between the time at which exporters wish to be paid (at dispatch, 
at the latest; with the order, at the earliest), and the time at which importers will pay (at the earliest, on receipt of the merchandise). The credit can be accorded by the buyer to the seller 
directly ("buyer's credit") or inversely by the seller to the buyer, without banking intermediation. 
Such "open account" financing may nonetheless require the intervention of banks, not the least to manage the large amount of "receivables" and "payables" involved in modern global supply-
chains. The ability of firms to extend direct credit to their trading counterparties may be enhanced 
by possibilities to either discount their receivables (to forfaiting companies), and the possibility to 
mitigate payment risk by purchasing trade credit insurance.  
2.2.  Alternatively, banks may support the trade transaction by bearing most of the payment risk. 
The importer's bank assists by providing a letter of  credit to the exporter (or the exporter's bank) 
providing for payment upon presentation of cert ain documents related to the trade transaction. 
The exporter's bank may make a loan to the export er on the basis of the export contract. Letters 
of credit, while still dominant in South-South trade, involve a relatively long and labour-intensive 
process. With the expansion of global supply-chains, buyers and sellers have asked their banks to provide the necessary liquidity and credit to fund the numerous and regular orders on "open 
account" basis. This less cumbersome form of finance may actually prove more risky when the 
economic cycle faces a reversal. The rapid expansion of open account finance has been a major 
feature of trade finance trends in recent years. 
2.3.  As noted by the Bank of International Settlements (BIS, 2014), there is no single, 
comprehensive source of statistics allowing for an  evaluation of trade finance's exact composition 
and market size. BIS data captures part of the "bank-intermediated" share of trade finance, although " coverage differs significantly across countries, and in many cases is limited ".
2 According 
to previous global surveys by the International Monetary Fund (IMF) and the  Bankers' Association 
for Finance and Trade  (BAFT), the share of bank intermediated and non-bank intermediated trade 
finance seems to be relatively comparable, as shown in Chart 2.1, although some banking 
                                               
2 Bank-intermediated trade finance includes to a larg e extent letters of credit and pre-shipment trade 
loans of less than one year. WT/WGTDF/W/74/Rev.1 
 
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  institutions argue that the share of open account transactions is dominant in global supply chain 
transactions.3  
Chart 2.1  Change in the composition of trad e finance business, IMF-BAFT Trade 
Finance Survey (percentage of respondents) 
  Oct '07   Oct '08   Jan '0948%45%42%33%35%36%19% 20% 22%
Cash-in-Advance Transactions
Bank-Intermediated Transactions
Open Account Transactions
 
Source:  IMF-BAFT (International Monetary Fund-Bankers' Association for Finance and Trade) (2009), "IMF-
BAFT Trade Finance. Survey: A Survey among Banks Assessing the Current Trade Finance Environment.", report by FImetrix for IMF and BAFT, Washington, DC. 
2.4.  Based on the assumption that the larges t share of the US$18 trillion of annual trade 
transactions is not paid cash and involves some form of finance (credit, insurance or guarantee), 
the market for trade finance, considered in its wide st definition, is very large – certainly well above 
US$10 trillion annually. For bank-intermediated short-term trade finance only, the BIS (2014) considered that a " flow of some US$6.5-8 trillion was pr ovided during 2011, of which around 
US$2.8 trillion was letters of credit ". The BIS adds that " about one-third of global trade is 
supported by one or more bank-intermediated trade finance products ".
4 "The remainder was 
financed by inter-firm trade credit " (non-bank intermediated). Inter-firm credit is increasingly 
supported by the global factoring industry.5 
2.5.  While the commercial risks involved in an international trade transaction seem in principle to 
be larger than in a domestic trade transaction (risk of non-payment, risk of loss or alteration of the merchandise during shipment, exchange rate risk), trade finance is actually considered to be a 
particularly safe form of finance, as it is underwritten by strong collateral and documented credit 
operations. The low risk nature of short-term trade finance is supported by data collated in the International Chamber of Commerce’s (ICC) Trade Finance Loss Register, set up in 2011. According to the ICC 2013 Global Risks – Trade Finance Report, the average transaction default 
rate on short-term international trade credit is no more than 0.021 per cent, of which 57 per cent 
is recovered though the sale of the underlying asset, the merchandise.
6 Table  below provides 
more detailed risk characteristics across specific categories of short-term trade finance 
instruments.  
                                               
3 IMF-BAFT surveys have been discontinued in 2011 an d merged with that of the International Chamber 
of Commerce (ICC). In its 2014 Global Trade and Finance Survey, the ICC reports that commercial letters of credit as a proportion of overall trade finance products are in slow but steady decline, from 44% of total export 
trade finance products in 2011 to 41% in 2014, and from 44% in import trade finance in 2011 to 36% in 2014. 
Cash transactions seem to be stable at 15 to 17% of the total. 
4 This estimate is short of a few percentage points of that of the ICC and the BAFT. 
5 Broadly speaking, factoring is a financial transactio n in which receivable assets are sold to a third 
party (generally a financial institution, a factoring company, forfeiter, bank) against cash or is used as collateral against cash or lending. Given the very high  rate of payment in international trade, international 
trade invoices, contracts are highly valued collateral or assets. In international trade, factoring is called 
forfaiting when the exporter sell s its receivable to a forfeiter. 
6 This would imply a transaction-level economic loss rate of approximately of 0.012 per cent (i.e. 
0.021% x 57%) for short-term trade finance transactions. WT/WGTDF/W/74/Rev.1 
 
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  Table 2.1  Analysis of short-term trade finance products – risk characteristics  
Total 2008-11 Transaction 
default rate Implied 
maturity 
(days) Recovery 
rate1 Defaulted trans-
action loss rate2 Specific 
transaction-level 
loss rate  
Import L/Cs 0.020% 80 71% 42% 0.008% 
Export Confirmed L/Cs 0.016% 70 40% 68% 0.011% 
Loans for Import 0.016% 110 45% 64% 0.010% 
Loans for Export: Bank 
risk 0.029% 140 32% 73% 0.021% 
Loans for Export: 
Corporate risk 0.021% 70 51% 57% 0.012% 
Performance 
Guarantees 0.034% 110 18% 85% 0.029% 
Total 0.021%* 90 52%  57% 0.012%** 
Note: L/Cs stands for Letters of Credits.  1 Observed recoveries as a % of defaulted exposure across 
products. 2 Estimated economic loss rate as a percentage  of defaulting exposure after discounting 
and costs.  
* Over 2008-2011, the average observed annual issuer-weighted corporate default rates for Aa rated 
customers was 0.14%. 
** The total average and the product-level annual transaction-level loss compare favourably with the 
average observed annual credit loss rate for M oody’s customers over the same period of 1.49%.  
Source: International Chamber of Commerce, (2013)  "Global Risks – Trade Finance Report 2013". ICC 
Banking Commission.  
2.2  While being very safe, trade finance ma rkets can be subject to dislocation during 
financial crises 
2.6.  Despite trade finance being a routine task, it is universal and vital for trading activities. Until 
the financial crises of the 1990s and 2008-09, trade finance had become easy to take for granted. But the emergency created distortions in the relevant markets that made policy interventions necessary.  
2.7.  The attention of policy-makers had been raised by some severe disturbances experienced in 
global inter-bank links connecting traders and investors during the Asian and Latin American crises of the late 1990's. At the time, foreign "correspondent" banks reconsidered existing exposures to 
local banks in the context of solvency crises affecting local financial institutions. The fact that a 
credit crunch could affect both exports and imports to the point of stoppage, as was seen in Indonesia (WTO, 1998) and elsewhere for several weeks, led the international and trading 
communities to be concerned about the availability  of trade finance during periods of financial 
crisis. A "debriefing" exercise took place in 2003 and 2004, based on a proposal by the Managing 
Director of the IMF and the Director-General of the WTO (in a dedicated session of the WTO 
General Council on Coherence) to create an Expert Group on Trade Finance for a review of "what 
happened". The group had been created partly in  response to the concerns expressed by WTO 
Members in the WGTDF on the situation of trad e finance. The "debriefing exercise" involved 
experts from the IMF, the World Bank, Multilateral  Development Banks, and the private sector; it 
aimed at identifying possible market failures, best practices and cooperative action in response to 
the crisis.  
2.8.  The conclusions of this work are contained in IMF (2003); and
 WTO (2004). Building on such 
reports, the WGTDF reported to the fifth Ministerial Conference in Cancún that, " based mainly on 
experience gained in Asia and elsewhere, there is  a need to improve the stability and security of 
sources of trade finance, especially to help deal with periods of financial crisis. Further efforts are 
needed by countries, intergovernmental organizati ons and all interested partners in the private 
sector, in particular in exceptional circumstances of financial crises " (WTO Document 
WT/WGTDF/2). The IMF and WTO documents had identified elements of market failure, herd reaction and other disruptive behaviour affecting trade finance, and listed a number of 
intergovernmental programs aimed at restoring conf idence during such periods. The IMF went as 
far as to recommend a number of steps to be taken, notably the use of multilateral programs to facilitate the financing of trade (see Section 4.1  for a discussion of the main trade finance 
facilitation programs).  WT/WGTDF/W/74/Rev.1 
 
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  2.9.  In the heat of the 2009 financial meltdown, the collapse of worldwide trade was accelerated 
by the shortage of trade finance, linked to th e temporary inability of private sector banks to 
respond to their customers’ financing needs. The London G-20 Summit took the initiative to muster US$250 billion in additional short-term trade finance and guarantees, based on input 
provided by the WTO Director-General Expert Gr oup on Trade Finance. This was a most welcome 
development that helped restore confidence in the market. Large traders were able to benefit from 
rapid export credit support and risk-sharing me chanisms mobilized by international financial 
institutions: within a year of implementation, th e initiative had helped mobilize US$170 billion in 
additional capacity, mainly from export credit  agencies, of which $130 billion had been used.
7 In 
the summer of 2009, it was felt that the outlook fo r global trade finance had improved, in part due 
to improvements in overall financial markets and partly due to a recovery of trade. 
2.3  Do shortages of trade finance affect trade? 
2.10.  Interest from academia in the role of trade finance has grown in the context of the recent 
financial crisis and subsequent global economic downturn. The "trade finance" hypothesis has 
gained popularity among some economists in thei r search of plausible explanations for the "big 
trade collapse" of late 2008 to late 2009, when glob al trade outpaced the drop in GDP by a factor 
that was much larger than anticipated under standard models. As summarized by Eichengreen and 
O'Rourke (2012): " the roots of this collapse of trade remain to be fully understood, although 
recent research has begun to shed light on some of the causes  (see Baldwin, 2009; and Chor and 
Manova, 2009) ". While most authors agree that the fall in demand has been largely responsible for 
the drop in trade flows, the debate focused on the extent to which other potential culprits, such as 
trade restrictions, a lack of trade finance, vertical specialization, and the composition of trade, may 
have played a role.8 The problem for allocating a proper "share" of the trade collapse to trade 
finance has been one of measurement, not methodology. Empirical work on trade finance has been 
limited by the lack of a comprehensive dataset, despite the existence of market surveys pointing 
to the sharp fall of trade finance during the financial crisis (ICC, 2009; and IMF-BAFT, 2009). Although the exact amount of "missing" trade finance may remain unknown, the literature 
produced in this context made great progress in  highlighting the wider link existing between 
financial conditions, trade credits and trade.  
2.11.  Firm-level empirical work has considerably helped in establishing this causality. Amiti and 
Weinstein (2011) established the causality between firms' exports, their ability to obtain credit and 
the health of their banks. Bricongne et al. (2012) demonstrated that export-oriented firms in 
sectors more dependent on external finance have been most affected by the crisis, while Chor and Manova (2012) showed that the cost of external finance may prevent firms, originally fit to export, 
to actually do so. Auboin and Engemann (2013) found a causal link between trade credit and trade 
at a macro level through a full cycle. Using quarterly data for 91 countries in the period 2005-2011, they found that a 1% increase in trade credit granted to a country leads to a 0.4% increase 
in real imports of that country. 
2.12.  As summarized by the BIS (2014, page 27), "changes in final expenditure were the main 
contributor to the decline in global trade observed during the crisis of 2008-09, (but) given the magnitude of the reduction of trade volumes at the onset of the Great Recession, the unexplained 
residual after taking into account compositional effects remains quite significant in economic 
terms. (…) Taken together, the literature suggests that credit shocks, including working capital and trade finance, possible account for 15-20% of the decline in trade during the crisis". BIS own 
calculations showed that "tighter financial conditions, surges in risk aversion and dollar funding 
pressures have all been correlated with declines in trade finance. They also reveal that emerging and developing economies have been more affect ed in this process than developed countries. 
                                               
7 The Reports of the G-20 Group on Expert on Trad e Finance, monitoring the G-20 initiative, can be 
found at: http://www.g20india.gov.in/pdfs/August2010_G20_Trade_Finance_Experts_group.pdf ; and at 
http://17g20.pa.go.kr/Documents/g20_trade_finance_experts_august_report_v1.pdf . 
8 Eaton et al. (2011) find that demand shocks can explain between 60 and 80% of the decline in trade, 
depending on countries. WT/WGTDF/W/74/Rev.1 
 
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  3  STRUCTURAL DIFFICULTIES IN DEVELOPING COUNTRIES 
3.1  Regular reports by the Expert Group on Trade Finance  3.1.  The Director-General's Expert Group on Trade Finance has been instrumental during the crisis 
and beyond in providing insights on trade fi nance market trends. The Secretariat reported 
regularly on the Expert Group's assessments to the WGTDF. The latest report is contained in 
document WT/WGTDF/W72. Expert Group assessments have also been regularly integrated into the WTO “Monitoring Reports” to the General Council and G-20 meetings (see in particular WTO 
Document WT/TPR/OV/W/8 of 27 June 2014).   
3.2.  The prevailing view of the Expert Group is that global trade finance markets stabilized in the 
course of 2010. In the period 2010-2012, markets experienced several periods of stress, notably 
at the end of 2011, in the context of deleveragi ng of banks' balance sheets and the euro-zone 
crisis. In general, since the end of the financial crisis, leading trade finance banks have been 
"shedding" assets – in particular European ones – to reduce the size of their balance sheets, in part to comply with new capital adequacy regulations. However, with the expansion of new 
suppliers of trade finance, notably from large em erging economies, and relatively easy monetary 
policies, tensions in the main "routes" of international trade subsided in 2013 and 2014. 
3.3.  At the same time, Experts have also highlighted the greater selectivity in risk-taking and 
flight to "quality" customers in trade finance markets. In particular, they reported on the 
increasing difficulties faced by low-income countries to access trade finance on affordable terms. Part of these difficulties existed prior to the financial crisis. "Structural" constraints range from the lack of know-how in local banks to mistrust, resulting in traders having to set aside large collateral 
requirements for a loan in addition to high fees. These problems in accessing affordable trade 
finance may have worsened somewhat since the 2009 crisis. The downsizing of some key global financial industry players since 2009 has certainly contributed to this situation. Capital for lending 
in low-income countries had become scarcer and the selectivity of risks greater, so negative 
expectations regarding the cost of doing business  in poorly (or non-) rated countries translated 
into higher costs for traders locally, or simply in less finance available. Several global banks had 
been reducing their network of "correspondent banks" in these countries, thereby limiting the 
scope of local banks to find suitable counterparties internationally.
9 Emerging countries' banks, 
while generally gaining market shares, have not fi lled the gap, because of the "start-up" cost of 
doing business in these new countries. 
3.2  The G-20 had expressed concerns and recommendations regarding the situation of 
low-income countries 
3.4.  The problems faced by low-income countries (LICs) in accessing affordable trade finance 
have been taken seriously by the G-20. At the G-20 Summit in Seoul, Heads of States and 
Governments had been sensitive to the risk of a "trade finance divide", between recovering 
mainstream markets and, at the "periphery" of grand trade routes, growing difficulties. In the 
Seoul Summit Document, they asked that " the G-20 Trade Finance Expert Group, together with 
the WTO Expert Group on Trade Finance and the OE CD Expert Credit Group to further assess the 
current need for trade finance in LICs, and if a gap is identified, will develop and support measures to increase the availability of trade finance in LI Cs. We call on the WTO to review the effectiveness 
of existing trade finance programs for LICs and to report on actions and recommendations as for 
the consideration by the Sherpas through the G-20 Development Working Group in February 
2011".
10 
3.5.  The report from the WTO Expert Group on Trade Finance was presented to the March 2011 
meeting of the G-20 Sherpas. It revealed that only  a third of the 60 poorest countries in the world 
benefited regularly from the services offered under these trade finance programs. The lack of risk 
                                               
9 According to BIS (2014), global banks play a very important role in the market for trade finance. They 
"appear to account for a quarter to a third of the global  supply of bank-intermediated trade finance, with local 
and regional banks providing the remainder" . In 2011, such banks provided US$2 trillion of the estimated 
$6.5-8 trillion of bank-intermediated, short-term trade finance recorded. 
10 The G-20 Seoul Summit Document and the Trade Section of Annex II are respectively available at  
https://www.g20.org/sites/default/files/g20_r esources/library/Seoul_Summit_Document.pdf  and 
http://www.mofa.go.jp/policy/economy/g20_summit/2010-2/annex2.pdf .  WT/WGTDF/W/74/Rev.1 
 
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  mitigation programs in these countries partly  explained the very high fees and collateral 
requirements paid by local importers. Such high f ees were out of line with risk statistics revealed 
by the ICC's Trade Finance Loss Register. Given the strong demand for these programs and their development orientation, the Director-General of the WTO supported the Report' recommendations 
that the priority was to strengthen trade finance facilitation programs where they existed, and 
create some where they did not yet exist. From a geographical point of view, priorities were in 
Africa and Asia.  
3.6.  These priorities were endorsed by Minist erial Reports from the Development Working Group 
to the G-20 Summits in Cannes (2011) and Los Cobos (2012), as outlined in Box 3.1. 
Box 3.1    Priorities set out at recent G-20 Summits 
In Cannes (2011), 
 
"We recognize that the availability of trade finance continues to be problematic for many countries and that a 
significant number of countries have not so far rece ived any trade finance support from the Multilateral 
Development Banks (MDBs). During periods of financial turbulence, maintaining the availability of trade 
finance will be essential in ensuring the resilience of  developing countries. Building on the recommendations 
of the WTO report, we therefore recommend: 
 
a. the G20 to consider further how best to improve data, including with regard to the existing 
database on trade finance. This should allow more accurate tracking of trends and monitoring of 
gaps faced by LICs, including in times of crisis; 
 
b. the establishment of a trade finance facility at the African Development Bank (AfDB), which would 
mean that all MDBs would then have a trade finance facility in plac e". 
In Los Cobos (2012), 
 
"We should remain vigilant with rega rds to the outlook on trade finance fo r developing countries, and LICs in 
particular.  We ask the WTO and World Bank to keep us updated on the availability and trends with respect to 
trade finance. We will continue to support AfDB efforts to  enhance the availability of trade finance in Africa, in 
particular the on-going work to establish a trade finance facility. "
Note: The 2011 and 2012 full reports are available respectively at: 
http://www.g20dwg.org/documents/pdf/view/359/ and http://www.g20dwg.org/documents/pdf/view/361/. 
 
3.7.  In line with the priorities set out at recent G-20 Meetings, the Board of Directors and senior 
management of the African Development Bank agreed at the beginning of 2013 to start a trade 
finance program for African traders, helping to close a gap in the global support network. As a result of these global programs, the international community is now able to support billions of trade transactions by small and medium-sized ente rprises in poor countries, which would not have 
necessarily received support from private markets.  
3.8.  Progress has also been achieved in the kn owledge and understanding of trade finance trends 
and figures, in cooperation with the BIS and the ICC. The WTO has been instrumental in 
requesting the ICC to improve market surveys and compiling several sources of market data in the 
ICC Annual Survey. However, there is still not a single, comprehensive set of official international statistics on trade finance. According to the BIS (2014, page 5): " Aspects of bank-intermediated 
trade finance are captured by statistics in several countries. For the majority, these data cover 
only stocks of trade finance on a quarterly basis. Coverage differs significantly across countries, and in many cases is quite limited or unavailabl e. The partial and heterogeneous nature of the 
national trade finance data is evident ". The BIS acknowledges that further progress on data is 
likely to take time.
11 
                                               
11 In its conclusion, the BIS report says " further steps by the private and public sector could help to 
improve data availability and quality go ing forward, and would be likely to have positive implications for the 
industry. Currently, a more detailed coverage of glob al trade finance activities via harmonized statistical 
reporting frameworks is complicated by ongoing changes to market modalities and the lack of agreed definition 
even amongst banks (…). Consideration could be given to encouraging more genera l and more uniform public 
disclosure by banks of the evolution of their trade finance flows and assets . (BIS, id.)"  WT/WGTDF/W/74/Rev.1 
 
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  3.3  Where are we now? Looking at recent information 
3.3.1  Latest views from the Expert Grou p on Trade Finance and from WTO Members 
3.9.  The last report of the Expert Group on Trade Finance (25 April, 2014, WTO Document 
WT/WGTDF/W72) continued to point to the persistent difficulties faced by small and medium-sized 
enterprises in low-income countries, as well as in the higher-income countries of Asia, Latin 
America, the Middle East, and Africa. " The activity of Multilateral Development Banks (MDBs) was 
a good proxy for the existing market gap ", notes the report, and " from this point of view, the 
demand on MDBs risk mitigation products for trade had never been so high ". As regards 
multilateral efforts, the Group acknowledged that " there was very little appetite by private markets 
to venture into most of Sub-Saharan Africa, leaving the International Financial Corporation (IFC), the Islamic Development Group (ITFC), and the African Development Bank (AfDB) to fill only part 
of a financing gap estimated [at a minimum] of US$30 to 50 billion ". The Asian Development Bank 
had received particularly strong and steady demand from clients in Bangladesh, Pakistan, Sri Lanka, Uzbekistan and Viet Nam. As for the Inter-American Development Bank, their program 
supported an all-time high (an increase of 57% on 2012) due to capital movement reversals, 
higher risk aversion and continued structural weakness in local financial sectors. The report also highlighted that " the European Bank for Reconstruction and Development had been quite active in 
supporting trade in Ukraine and Russia lately, but al so in the Middle East and North Africa region, 
which was also benefitting from ITFC support (Egypt and other countries). IFC's Global Trade Finance Program
 products were equally distributed across the world and were in high demand ".  
3.10.  Several WTO Members have also brought their own evidence to the discussion. For 
example, the delegation of Pakistan recently  provided the following written statement: " We 
recognize that for Asian countries, the ADB has been  helpful in addressing liquidity shortages and 
such debilitating factors as risk perception. However, problems still plague the system. For 
instance, along with an emerging trend of transition to open account, many importers still require 
letters of credit such that a dual, costly and complex system still prevails, putting an added burden on exporters. The cost of letters of credit ha s been on the rise for buyers, and banks that 
tightened or restricted lending with the onset of the crisis have not resumed their prior level of 
lending. It can be said that the decline has been greater than perhaps justified by fundamentals or 
risk profile. Evidently, this financing gap has adversely affected our export performance. The loss of liquidity has forced a resort by the exporters to spot foreign exchange for making necessary 
payments, resulting in an increasing demand for already stressed foreign exchange and further 
compounding problems. We look forward to WTO’s continued interest and action in this area " 
(WTO Document WT/TPR/OV/M/11). 
3.3.2  Few, but some quantitative estimates 
3.11.  The determination of a quantitative gap is a difficult exercise in a context in which the 
availability of trade finance statistics at a global, regional or country level is limited or partial, even 
in developed countries. Most of the evidence is survey-based, hence providing information of a 
qualitative nature. However, surveys provide usef ul information about trends, notably when they 
are conducted on a regular basis (annual survey s by the ICC and the World Economic Forum; 
every three years by the research group of the Dutc h Ministry of Foreign Affairs, the Centre for the 
Promotion of Imports from developing countries, CBI). Such surveys are conducted in a rather 
rigorous manner, from a methodological point of view, and benefit from a large and global coverage (almost 300 banks in over 100 countries for the ICC; thousands of exporting small and 
medium-sized enterprises for the CBI).  
3.12.  Financing gaps seem to be the highest in the poorest countries, notably in Africa and in 
developing Asia. Regarding the African continent, there are two recent surveys, the most recent 
emanating from the African Development Bank (2014), which describes itself as producing the 
most "conservative" estimate of the financing gap in the region. The other study was funded by the European Union for the the African, Caribbean and Pacific Group of States (ACP, 2013), and is on the higher end of gap estimates. The re sults of both studies are described below. 
3.13.  In the recently released report "Trade finance in Africa" (2014), the African Development 
Bank surveyed the trade activities of 276 Afri can commercial banks operating in 45 African 
countries. It found that the market for bank-intermediated trade finance was between US$330-350 WT/WGTDF/W/74/Rev.1 
 
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  billion, but could be higher if a significant share of the financing requested by traders had not been 
rejected. Based on an estimate of such rejectio ns, the conservative estimate for the value of 
unmet demand for trade finance in Africa was, according to the African Development Bank, of 
US$110 billion in 2011 and US$120 billion in 2012. The main reasons for rejections of the 
demands for financing are the lack of credit worthiness or history, the insufficient limits granted by 
endorsing banks to local African issuing banks, the small size of the balance sheets (and capital) of 
African banks and insufficient US dollar liquidity (see Chart 3.1). Part of these constraints are 
structural, and can only be addressed in the medium -to-long run: the African banking sector is not 
very concentrated – hence limiting the financing ca pacity of individual banks –, the lack of US 
dollar availability is chronic, and many African banks are risk-adverse in view of the limited 
collateral guarantees presented by small traders. In the light of such constraints, the survey 
argues that the African Development Bank's trade finance facilitation program, as well as those of 
other DFIs, are most needed, and particularly well suited to addressing some of these obstacles. 
Chart 3.1   African banks' reasons for reject ing letters of credit applications, AfDB 2014 
40%16%
13%
9%
9%
4%9%Client credit worthiness
Capital constraint
Balance sheet capacity constraint
Insufficient limits from confirming banks
Limited foreign currency liquidity
Product or instrument limit
Other
 
Source: African Development Bank  (2014), "Trade Finance in Africa", December 2014. 
3.14.  The ACP survey of 2013 is on the higher-end of the financing gap estimate in Africa. It also 
attempts to estimate the unmet demand for trade finance. In this study, the trade finance gap in 
Sub-Saharan African countries is evaluated at US$225 billion a year, as unmet by the financial 
system (part of this gap may actually be met by informal sources of finance). According to the study, the main constraints in filling such gaps are the cost and tenors of facilities notably during 
the periods of crisis; a strong dependency on external sources of trade finance; a vulnerability to 
external shocks; the limited institutional capacity of local suppliers; and limited financial inclusion (in particular with the limited use of bank accounts).  
3.15.  The level of prices for trade-related lend ing provides another useful proxy for the trade 
financing gap. Just like market prices are reflec tions of supply and demand, the evidence of gaps 
in certain regions of the world is logically translated in prices on trade finance instruments. Based on the spreads for emerging market trade credit instruments published by Omni Bridgeway  – a 
leading firm active in trade finance restructuring –, a large number of African countries have 
encountered extremely high spreads on trade financing, consistently high over the years as evidenced in Table 3.1. For instance, interest rates on trade loans in 2013 were peaking to 49% 
per annum in Kenya and 70% in Angola.
12 Apart from a few countries for which political risk may 
account for the main reason, such prohibitive terms on African countries reflect a disconnect between the perception and actual level of commercial risk. 
 
 
                                               
12  In addition to high interest rate s, requirements may include up to three years of financial statements 
and collateral requirements covering up to 30% to 50% of the loans' net present value. WT/WGTDF/W/74/Rev.1 
 
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  Table 3.1  Africa trade credit pricing (annual interest rate) 
Country                Price range as of April 2013 May 2011 
Angola* 65% 70% 60% 65% 
Cameroon 18% 24% 14% 20% 
Congo 22% 26% 22% 26% 
Democratic Republic of the Congo 22% 27% 16% 20% 
Ghana 74% 78% 78% 82% 
Kenya* 39% 49% 39% 49% 
Mozambique 20% 26% 20% 26% 
Senegal 12% 16% 12% 16% 
Sudan 9% 14% 15% 19% 
Tanzania 25% 35% 10% 13% 
Uganda 16% 18% 14% 16% 
Zambia 13% 20% 13% 20% 
Note: Trade credits and their documentation differ from case-to-case and price ranges should therefore be 
considered as benchmark only. Price ranges are based on a monthly compilation of sources and 
analytics. Liquidity on most instruments is very limited and trading may not have taken places for 
some time.  *Spreads are corrected for inflation. 
Source: "Emerging Market Debt Pricing" from Om ni Bridgeway, April 2013 and May 2011 issues. See 
http://www.omnibridgeway.com/  for further information. 
3.16.  Using both a survey and econometric ca lculations, the Asian Development Bank (2014), 
estimated that the unmet global demand for trade finance could be as high as US$1.9 trillion in trade in 2013.
13 In Asian developing economies alone, the estimated shortage could be as high as 
US$ 1.1 trillion, of whic h US$700 billion is attributed to Indi a and China, and US$400 billion to 
other developing countries in Asia, including the poorest (Bangladesh, Cambodia, Indonesia, 
Malaysia, Myanmar, Nepal, Pakistan, Sri Lanka, Viet Nam). 
3.17.  Small and medium-sized enterprises (SMEs) are the most credit constrained; half of their 
requests for trade finance are estimated to be rejected, compared to only 7% for multinational corporations. With 68% of surveyed companies repo rting that they did not seek alternatives for 
rejected transactions, trade finance gaps appear to be exacerbated by a lack of awareness and 
familiarity among companies – particularly smaller ones – about the many types of trade finance 
products and innovative options which exist on the market (such as supply-chain financing, bank payment obligations and forfaiting). A large majority  of firms stated that they would benefit from 
greater financial education. Finally, price constraints cited by firms appeared also as the key 
systemic bottleneck to obtaining trade finance (see Chart 3.2). The survey confirms in this case also that the trade finance programs of multilateral development banks help fill such persistent 
trade finance gaps in Asia and elsewhere. 
                                               
13 This figure represents an  upper limit since responses do not di stinguish the quality of proposals for 
trade finance and the methodology requires extrapolatio n from partial data. Precisely, the estimated value of 
the global gap was calculated in two steps: first, the surveyed banks' rejection rate is drawn from the bank's 
responses to their approximate total value of proposed tr ansactions and to the averag e percentage of rejected 
transactions; and second, this reported gap from the su rveyed population is then projected to the global 
banking environment, obtained by we ighting surveyed banks assets as a proportion of global assets.  WT/WGTDF/W/74/Rev.1 
 
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  Chart 3.2  Factors limiting companies' ability to obtain trade finance, ADB (2014)  
(% reported by firms as very significant and significant) 
38%
34%
25%
21%
19%19%
18%
17%
14%14%20%
16%
25%
23%
16%
13%
16%
20%
10%
12%0% 25% 50% 75% 100%
Interest rates/premiums too high
Insufficient collateral or guarantee
Long processing time
Financial institution's requirements unacceptable
No previous transactions/lack of business relationship
My country has 'high risk' rating
No law on receivables or invoice financing
Documentation requirements are too burdensome
No law on asset based lending
Company records are incomplete/unacceptable
 
Source: ABD (2014), "ADB trade finance gap, growth, and jobs survey", ADB Briefs No.25.  
3.3.3  Converging qualitative surveys 
3.18.  An interesting feature of qualitative survey s is to help position the lack of trade finance 
relative to other structural, supply-side problems faced by exporters in poor countries. 
Unsurprisingly, lack of access to finance is at the top of concerns when it comes to operating in international markets. A variety of sources indicate that it is a major obstacle for traders in Africa, 
albeit not only in this region.   
3.19.  The survey released by the Dutch gove rnment-CBI (2013), as at the end of 2012, 
specifically asked to what extent small and medium-sized enterprises exporters in developing 
countries faced difficulties in accessing trade finance. Three thousand SMEs were contacted in 52 
countries. Respondents considered the lack of access to trade finance to be troublesome, particularly for SME exporters. Trade finance shor tages affected both exports and turnover, as a 
result of omitted sales to foreign customers. Accord ing to respondents, the local financial sector is 
often unable to support modern international transactions, such as trade receivable financing. SME 
exporters were asked whether access to trade finance was a more serious, equally serious or less serious obstacle than three years before. The results showed that, globally, for one third of 
exporters it was a larger obstacle, while for more than half the situation was unchanged. As shown 
in Chart 3.3 below, the extent to which access to trade finance deteriorated differed across regions. With respect to sectors, access to trade finance in Africa seemed to have deteriorated 
more in the agricultural and manufacturing industry than in the tourism industry. The survey is 
currently being updated. 
Chart 3.3 The extent in which access to trade finance forms an obstacle to company 
exports, broken down by region 
35.0%41.5%40.1%17.0%
41.6%26.8%31.6%66.0%
0% 25% 50% 75% 100%Latin AmericaEastern EuropeAsiaAfrica
Minor obstacle
 Major obstacle
 
Source: CBI (2013), "Access to Trade Finance: First-hand  Perspectives on Bottlenecks and Impacts for SME 
Exporters in the South ", Ministry of Foreign Affairs of  the Netherlands, Page 23. WT/WGTDF/W/74/Rev.1 
 
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  3.20.  These results are corroborated by the 201 4 Global Enabling Trade Report of the World 
Economic Forum (WEF). Published every two years, the Global Enabling Trade Report assesses the quality of institutions, general infrastructures and services available for trade. The WEF ranked the lack of access to trade finance as one of the most problematic factors for exporting in Africa, Latin 
America, the Caribbean and the Pacific Alliance (see Charts 3.4 and 3.5).  
Chart 3.4 The most problematic factor s for exporting in Africa, WEF 2013 
 
Note: From the list of factors above, respondents were  asked to select the five most problematic ones for 
trading in their country and to rank them between 1 (most problematic) and 5. The bars in the 
figure show the responses weighted  according to their rankings.   
Source: WEF (2013), "The Africa Competitiveness Report 2013", Executive Opinion Survey 2012. 
Chart 3.5 The most problematic factors for exporting in Pacific Alliance and in Latin 
America and the Caribbean, WEF 2014 
Note: Same methodology as Chart 3.4 is applied to this figure.    
Source: WEF (2014), "Global Enabling Trade Report 2014", Executive Opinion Survey 2013. WT/WGTDF/W/74/Rev.1 
 
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  3.21.  The latest International Chamber of Commerce (ICC) Global Survey 2014, based on data 
from 298 banks in 127 countries, confirms such findings. According to the survey, 41% of respondent banks acknowledged the existence of a sh ortfall in global trade finance supply, with an 
emphasis on SMEs and Africa. Amongst the main obstacles limiting the access of SMEs to trade 
finance are the increasing compliance and regulatory burdens as well as the low country and local 
banks' credit ratings (see Chart 3.6). In the su rvey, 70% of respondent banks recognized that 
there is a role to be played by Multilateral Deve lopment Banks in providing access to trade finance.  
Chart 3.6 Impediments to Trade Finance acco rding to respondent banks, ICC Global 
Survey 2014  
 
Note: Numbers in brackets are weighted averages of ra tings. The closer the average rating is to 5, the 
higher the level of significance. An average rating close to 1 indicates a low level of importance.  
Source: ICC (2014), "Rethinking Trade and Finance, ICC Global Survey on Trade and Finance", ICC Banking 
Commission. 
3.22.  Finally, with regard to the issue of fina ncing trade in the context of international value 
chains, a survey conducted by the WTO with the OECD in 2013, as background for the 4th review 
of Aid-For-Trade, concluded that lack of access to  trade finance was a key element in the inability 
of low income countries to participate in global value chains (see Chart 3.7). 
 WT/WGTDF/W/74/Rev.1 
 
- 15 - 
 
  Chart 3.7  Public views on the main barriers in connecting firms to value chains   
(percentage of responses) 
 
Source: OECD/WTO Aid-For-Trade Questionnaire Survey 2013 (for the 4th Aid-for-Trade Review) 
4  ADDRESSING TRADE FINANCE DIFFICULTIES IN DEVELOPING COUNTRIES 
4.1  Supporting MDBs in establishing a global network of trade finance facilitation 
programs 
4.1.  In 2011, the Director-General of the WTO and President of the World Bank, with the support 
of the Heads of Multilateral Development Banks (MDBs) drew the attention of the international community to this problem which specifically affected low-income countries. The G-20 Seoul 
Summit Document indicated that: 
"To support low income countries (LICs) capacity to trade (...), we note our 
commitment to (…) support measure to increase the availability of trade finance in 
developing countries, particularly LICs. In th is respect, we also agree to monitor and 
to assess trade finance programs in support of developing countries, in particular their coverage and impact on LICs, and to evaluate the impact of regulatory regimes on 
trade finance." (Fighting Protectionism and Promoting Trade and Investment, 
Paragraph 44) 
4.2.  In the context of the G-20 mandate, the WTO Secretariat has reviewed the efforts already 
deployed by regional development banks and th e World Bank Group (through the International 
Financial Corporation (IFC), its private sector arm) to support trade finance. These efforts are not 
insignificant, as summarized in Table 4.1.  The Asian Development Bank (ADB), the European Bank 
for Reconstruction and Development (EBRD), the Inter-American Development Bank (IDB), the 
Islamic Development Bank (ITFC), and the IFC are operating relatively similar programs. In early 
2013, the African Development Bank (AfDB) opened a permanent program and has already financed close to US$1 billion in trade transactions in Africa and expects to support more than 
US$10 billion over the next four years. The various institutions are often working in partnership. 
For example, the ADB has been working with the IDB and the AfDB to include member banks in 
each other's trade finance programs in order to encourage direct cross-continental relationships between banks and alleviate part of the South-South trade finance gap. WT/WGTDF/W/74/Rev.1 
 
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  4.3.  The expansion of trade finance facilitation programs and similar schemes do not cost the 
taxpayer any money. These schemes are risk mitigation instruments that are run on a private-sector, demand-basis, with a focus on clients in de veloping countries, in particular the poorest. All 
institutions operating such programs are running net operating profits on it, while serving the 
wider purpose of facilitating trade in places of the word where private markets would not operate. 
These programs strengthen financial and trade inclusion in low-income countries. In effect, they provide risk mitigation capacity (guarantees) to both issuing and confirming banks, to allow for 
rapid endorsement of letters of credit –the main  instrument used to finance trade transactions 
between developing countries players, and be tween developed and developing countries. The 
guarantee provided by the MDB ensures that th e bank (typically the bank of the exporter) 
accepting to confirm a letter of credit (typically issued by the bank of the importer) will be paid 
even if the issuer fails to pay. The guarantee wo uld ensure that the exporting bank is paid. Such 
guarantees are rarely called in but reduce the risk  aversion of conducting trade operations in low-
income countries - as they close part of the "confidence gap" between the existing level of risk and 
its perception. The demand for these programs has increased during the 2009 financial crisis and 
has not fallen since.  
4.4.  All in all, trade finance facilitation programs from multilateral institutions have helped 
facilitate around US$30 billion in trade in 2013, in the most challenging countries in the world. 
Almost a third of IFC's total operations took place in Sub-Saharan Africa and the ADB's risk-
mitigation support mainly caters for the poorest regions in Asia, inter-alia, Pakistan, Bangladesh, Viet Nam, Sri Lanka, Nepal, and Uzbekistan.  
Table 4.1  Overview of the main  trade facilitation programs  
 EBRD IFC IDB ADB 
 
Program title  
Trade Facilitation 
Program (TFP) Global Trade Finance 
program (GTFP) Trade Finance 
Facilitation Program (TFFP) 
  
Trade Finance Program (TFP) 
Number of countries in 
operation 23 96 21 18 
Program 
commencement 1999 2005 2005 2004 
 
Number of transactions 
since commencement 
(year end 31.12.2012) 
 15,508 31,600 4,457 8,338 
 
Value of transactions 
in 2013  
 EUR 1.2 billion  US$22 billion 
 US$1.21 billion 
 US$4.03 billion 
 
Number of confirming 
banks 800+ 1,100 297 124 
Claims to date 2 – no losses zero zero zero 
Note: ADB = Asian Development Bank, EBRD= European Bank for Reconstruction and Development, IDB = 
Inter-American Development Bank, IFC = International Finance Corporation.  
Source: ICC. 2014. Rethinking Trade and Finance, ICC Global Survey on Trade and Finance. ICC Banking 
Commission. Geneva.  
4.2  New initiatives to meet the needs in low-income countries 
4.5.  As shown by the WTO-OECD survey of 2013, la ck of integration of low-income countries into 
international value chains is a major obstacle to their development (see Chart 4.1). In such 
countries, the ability of the local financial sector to provide supply chain finance arrangements is limited. Access to factoring locally is almost inexistent and SMEs are largely excluded from private 
supply-chain financing systems. To address this  challenge, MDBs are extending receivable 
financing arrangements through local banks to help integrate small manufacturers from promising countries into international supply chains. The IFC has recently developed, as part of its trade 
finance program, 1) warehouse finance products which aim to extend working capital to small 
farmers and agriculture producers in food supply chains by leveraging their production, and 2) supply chain products aimed at providing short-te rm financing to exporters in emerging markets 
that sell to large international companies on open  account terms. The ADB and the EBRD are also 
operating such supply chain products.  These are welcome developments that have the potential to 
encourage a greater involvement of the private sector  to extend "receivable financing" as well as WT/WGTDF/W/74/Rev.1 
 
- 17 - 
 
  to mobilise additional finance for trade activities and facilitate the integration of SME 
exporters/producers in supply chains.  
4.6.  As a collateralized commodity transaction, warehouse receipt finance is particularly relevant 
for the pre-export financing needs of the agricu lture sector in emerging markets. Warehouse 
receipt financing is a lending technique that allows farmers/producers/traders of agricultural 
commodities to access bank loans by pledging their warehouse receipts issued against commodities deposited in licensed warehouses. There are a number of prerequisites for a well-
functioning warehouse receipt market: an appropri ate legal and regulatory environment, a support 
from local banks and commodity firms as well as a well-functioning commodity exchange that guarantees price transparency. Chart describes the functioning of IFC's Global Warehouse Finance Program and Global Trade Supplier Finance. To date, the Global Warehouse Finance Program has 
financed over US$7.5 billion of commodity fina nce transactions in more than 41 countries, 
including Burkina Faso, Ethiopia, Ghana, Guinea Bissau, Kenya, Malawi, Senegal, Tanzania, and Uganda.  
Chart 4.1  IFC’s supply chain solutions 
 
Source: IFC's Guide to Products: Global Trade & Supply Chain Solutions, April  2012. 
4.7.  Private markets are also innovating to make trade finance more available to SMEs. In 
particular, factoring is the fastest growing source of short-term financing for SMEs suppliers. 
Unlike in a traditional lending relationship, factoring allows suppliers with weak credit ratings to 
access funding based on the value of their receivab les (confirmed invoices). According to the ICC 
Global Survey (2014), Supply Chain Finance is one of the innovations most likely to change the 
trade finance industry, with 66% of bank responde nts underlining the increasing importance of it 
for their bank. To further bring the benefits of supply chain finance to smaller suppliers, several developing countries are promoting the use of factoring facilities. In Mexico, the Cadenas Productivas program delivers cash against receivables via a secure and on-line technology 
platform. The Reserve Bank of India recently announced a "Trade Receivables Discounting System" 
or "TReDS", akin to the Mexican program.  
4.3  Avoiding the unintended co nsequences of Basel III on trad e finance, particularly for 
developing countries 
4.8.  Traditionally, trade finance – mainly letters of credit and other self-liquidating instruments of 
payments for trade – had received preferred treatm ent on the part of national and international 
regulators on grounds that trade finance was one of the safest, most collateralized, and self-
liquidating forms of finance. This was reflected in the low credit conversion factor (CCF) determined under the Basel I framework for the capi talization of these instruments, which was set 
at 20%, i.e., five times lower than any on-bal ance sheet loan.  However, as the banking and 
regulatory communities moved towards internal rating-based and risk-weighted assets systems 
under the successor Basel II framework, issues regarding maturity structure and country risk emerged. 
WT/WGTDF/W/74/Rev.1 
 
- 18 - 
 
  4.9.  With the collapse of trade in late 2008 and early 2009, the regulatory treatment of trade 
credit under Basel II became an issue and was di scussed by professional banking organizations, 
regulators and international financial institutions. A sentence made its headway into the communiqué of G-20 Leaders in London in April 2009, calling upon regulators to exercise some 
flexibility in the application of Basel II rules, in support of trade finance. Moreover, in the context 
of prudential re-regulation under Basel III, reques ts were made to ask that trade finance, which 
had suffered casualties by contagion from other segments of the financial industry, should not be 
penalized. “Unintended consequences” of increased prudential regulation were to be avoided, 
particularly with respect to the ability of develo ping countries to access trade finance at an 
affordable cost. The banking community was aske d by the then Director-General of the WTO, 
Pascal Lamy, to provide evidence about the high le vel of safety and soundness of their activity by 
collecting statistical information. 
4.10.  In parallel, the G-20 asked at the end of 2011 that the WTO and World Bank, on the one 
hand, and the Basel Committee on Banking Superv ision (BCBS), on the other, engage in a 
dialogue with a view to improve common understan ding of trade finance, and identify any possible 
“unintended consequences” of prudential regulation . This dialogue proved extremely useful, and, 
to some extent, has become commonplace. Prudential regulators have been able to improve their 
grasp on the workings of trade finance and to veri fy, thanks to the data collected by ICC under the 
“pilot” trade finance register, the low-risk charac ter and absence of leverage of the industry. The 
aggregate data delivered by ICC covered more than 20 major international banks, over five million transactions, and revealed less than 1,150 defaults. Discussions with the Basel Committee have 
been conducted by the WTO and World Bank since 2011. 
4.11.  Since then, the BCBS has made three revisi ons reflecting the low level of risk of trade 
finance, and improving its regulatory treatment. 
 - on 25 October 2011, the BCBS agreed to reduce the excessive risk-weighting 
requirements on low-income countries, and to waive the one-year maturity floor applying to letters of credit and the like. Both measures are of great importance in removing obstacles to the 
provision of trade finance in developing countries.
14  
 - on 6 January 2013, the new Basel III guidelines on liquidity (concerning the liquidity 
coverage ratio, LCR) proved to be favourable  to short-term, self-liquidating trade finance 
instruments.15 In its Decision, the Committee allows national regulators to set very low outflow 
rates (between 0 and 5%) for contingent funding obligations from trade finance instruments – 
significantly below previous levels. Banks are allowed to hold fewer liquid assets against contingent trade liabilities, thereby increasing the availability of trade finance. 
 - on 12 January 2014, the BCBS reduced the leverage ratio on trade letters of credit 
and other self-liquidating trade-related instruments, to reduce it from a 100% CCF to a 20% CCF (such for capital purposes) and 50% for trade guarantees.
16 The 2014 modification was hailed by 
the Director-General of the WTO "as being of particular significance for the availability of trade 
finance in the developing world, where letters of credit are a key instrument of payment. This is 
good news for developing countries, for the expansion of their trade and for the continued growth of South-South trade flows.”
17   
4.12.  The situation on the regulatory front is look ing better than it did a few years ago, thanks to 
the institutional dialogues opened by the WTO and the Basel Committee, and the data support provided by ICC. There is no doubt that such initiatives have contributed to improving the policy 
coherence between the prudential and central bank community on the one hand, and the trading 
community on the other. 
                                               
14 This decision is explained in the document "Treatment of trade finance under the Basel capital 
framework" of the BCBS, available at http://www.bis.org/publ/bcbs205.pdf . 
15 Details via press release: http://www.bis.org/press/p130106.htm , 6th January 2013. 
16 The revised Text – "Amendments to Basel III's leve rage ratio issued by the Basel Committee" – is 
available on http://www.bis.org/press/p140112a.htm , 12th January 2014. 
17 WTO news, "Azevêdo hails Basel decision on trade finance as good news for developing countries", 
available on http://www.wto.org/english/news_e/news14_e/dgra_17jan14_e.htm , 17th January 2014. WT/WGTDF/W/74/Rev.1 
 
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  4.4  Enhancing the capacity of the local banking sector to support trade 
4.13.  While global lenders tend to refocus on their main customers, opportunities are left for local 
and regional banks to step in when they have th e capacity to do so.  Tier 1 and 2 banks in the 
Asia-Pacific region (China, Republic of Korea, Chinese Taipei, Indonesia, Malaysia), in Latin 
America (Brazil, Columbia) and in the Middle East and Eastern Europe are increasing their market 
shares in the trade finance space. In Africa, according to Yaw Kuffour, lead trade finance specialist at the African Development Bank, " Some of the big players from Nigeria, Kenya and South Africa 
are trying to do more […] to mobilise resources and channel them to this market ."
18 However, 
"African banks still lack the critical mass and muscle to provide the necessary credit so there is a 
need for Development Finance Institutions' intervention. " According to the AfDB's "Trade finance in 
Africa" survey (2014), the vast majority of African commercial banks invest in trade transactions, 
contributing on average for 17% of their earnin gs. While a large number of confirming banks are 
based outside Africa, the study acknowledged the gr owing role of African-based confirming banks,  
though banks in Northern Africa dwarfs those of the other sub-regions. Yet, African lenders are still 
constrained by the relatively small size of African banks' balance sheets.  For instance, the African 
Export-Import Bank (Afreximbank), received demand for products in excess of US$23.8 billion in 2013, but could only process $2.68 billion worth of transactions.  
4.14.  Hence, efforts aimed at strengthening the capacity of developing countries to finance their 
own trade and in building the know-how to handle trade finance instruments are needed. From that perspective, trade finance facilitation programs can bring additionality in low-end markets and increase capacity for smaller local commercial banks as well as to connect them with global 
confirming banks . Box 4.1 illustrates how the Asian Development Bank supports these objectives 
in Myanmar. 
Box 4.1 Operating in new frontier countri es: the ADB's trade finance program in 
Myanmar  
Alongside an expanding trade finance scheme for banks and a supply chain finance facility, the ADB's Trade 
Finance Program (TFP) aims to strengthen the financia l sector governance in some of the participating 
countries. Covering already 18 countries, ADB's TFP is about to expand the initiative to Myanmar.  
After decades of isolation, finance is a binding cons traint on Myanmar’s future development. Its banking 
system and commercial regulatory infrastructure are at an early stage of development and trade transactions 
are conducted to a large extent on a cash basis. For bank s in countries with little experience in trade finance, 
such as Myanmar, ADB's due diligence credit risk asse ssment process and training seminars on trade finance  
are making an important contribution to building the institutional capacity and expertise of local issuing banks 
to conduct trade finance operations. In 2013, ADB's TFP performed substantial due diligence reports and five 
private sector banks have been accept ed as issuing banks for the program, with a total country exposure limit 
of US$10 million.  
The IFC has also accepted to open a US$5 million trade lin e and to provide advisory services to one local bank 
in Myanmar as well. 
4.15.  To this aim, donor technical assistance funds are being used by all institutions offering these 
programs to train bankers in developing countries through seminars or in-situ training (in particular through the IFC and EBRD dedicated trust funds for trade finance training). ECAs have also been very active in institutional building, with Berne Union ECAs (NEXI from Japan, US EXIM, 
Euler-Hermes from Germany, COFACE, ECAs from Nordic Countries) providing technical assistance 
to set up counterpart ECAs in least developed countries . For example, some ECAs have been active 
in supporting the creation of regional ECAs in Africa, and provided in-situ training. 
                                               
18 Retrieved from the magazine "This is Africa", available at 
http://www.thisisafricaonline.com/News/Afri can-banks-look-to-fill-trade-finance-gap , 26th June 2013.  WT/WGTDF/W/74/Rev.1 
 
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  4.5  Looking into the future: What more can the WTO do? (for the discussion of 
Members)  
4.5.1  Continue the diagnosis and advisory role 4.16.  By continuing to monitor closely the market  situation, the WTO should be in a position to 
alert the international community and to mobilize all actors, whenever needed. Recently, the WTO 
and its partners have been considering the policy lessons of the recent crisis, for example in World Bank (2011) and in WTO (2013). This "return on experience" may help improve any contingency 
plan in the future. The WTO will continue to inform on a regular basis its members and the G-20 
about the persistent financing gaps, particularly at the low end of the market as well as to ensure that the solutions proposed by the public sector  meet the demand from trade bankers and traders 
where additionality is most needed. In this re spect, the group of Experts and Members' own 
information should continue to be shared within the context of the Working Group on Trade, Debt 
and Finance, as part of this ongoing monitoring.  
4.5.2  Support the availability of tr ade finance in developing countries  
4.17.  The WTO contributes to support and contri bute to evaluate the efforts by Multilateral 
Development Banks (MDBs) in addressing the structural trade finance gap in developing countries. WTO support helps trade finance issues to be raised, whenever needed, in such fora as the G-20. 
Since the creation of the G-20, trade finance issu es have been dealt with under the trade Track, 
thereby gaining enough visibility for leaders.  
4.5.3  Encourage synergies in th e field of technical assistance 
4.18.  The WTO works with MDBs, export credit agencies and the private sector to disseminate 
knowledge and information on trade finance. The WTO Secretariat has developed e-Learning 
modules available from the WTO website. Technical assistance on the ground (in banks and at the 
level of traders) is already provided by MDBs, through trust funds (e.g. ICC and EBRD), and the 
ICC. The ICC is currently in the process of creating a "trade finance Institute", which will draw on 
existing MDBs and WTO e-learning materials. The pooling of such resources is a welcome development for the traders and the bankers. WT/WGTDF/W/74/Rev.1 
 
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