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DIGITIZATION OF TRADE FINANCE IMPACT AND IMPLICATIONS FOR SMES
1
Alisa DiCaprio
Research Economist
Asian Development Bank
3 QUESTIONS
1. How big is the trade finance problem?
2. What happens when SMEs don’t get financed?
3. Is fintech the right solution?
2
2016 TRADE FINANCE SURVEY
Financial Inst.
Small banks 52%
Medium 18%
Large 30%
forfaiters, export
credit insurers, factors
Firms
Manufacturing 37%
Services 32%
Agriculture 13%
75% micro & small
18% medium
7% large
337 respondents
114 countries
791 respondents
96 countries
3
How does trade finance
impact development?
• Emerging economies
• SMEs
HOW BIG IS THE TRADE FINANCE PROBLEM? Q1
4
Risk mitigation
Payment facilitation
Finance
Global gap
SME rejection rate
Regulatory compliance
WHAT DOES A $1.6 TRILLION GAP LOOK LIKE?
• Americas: lowest rejection rate
• Asia: highest need, highest
rejections
US banks report low rejection rates
(for trade finance proposals)
6
Rejection share
45% 44% 20%
53% 35% 9%
Proposal share
SMEs
Large corporates
MNCs
Gaps by client
segment
7
IT IS NOT EXPECTED TO ABATE IN 2017
8
Cost of due diligence on a
partner bank (annual)
• 2016: $75,000
• 2017: $150,000 (e)
Impediments to expanding trade finance volumes
REJECTION: CAPITAL MISALLOCATION
46
32
35
64
58
63
30
18
22
30
39
43
0 20 40 60 80
All respondents
Europe
LAC
North America
Africa
Asia
Required trade finance (% of trade-
dependent activities)
Trade dependent (% of total
business)
11
REJECTION: TRADE FOREGONE
No alternative
found 9%
Formal alternative found but not used
10%
Used informal financial providers
10%
Did not seek alternative
71% 16
30 40
38
33
29
47 37
31
0
20
40
60
80
100
Africa/Middle East Asia/Pacific Latin America
used informal financial providerno alternative foundformal alternative found but not used
12
DIGITIZATION IS CHANGING 2 AREAS
Faster transactions
Increase efficiency
Reduce cost of providing
Reduce the cost of finance targets underserved
populations
Increase access to finance
not trade finance
Ban
ks
Fin
tech
14
RECOGNITION AND UPTAKE
• 70% firms unfamiliar with
Fintech
• Uptake for P2P highest
overall (54% in Africa)
16
USERS OF FINTECH ARE DISTINCT
No difference by firm size, sector, trade dependence or market with which they’re trading
0%
10%
20%
30%
40%
50%
60%
70%
rejection rate by banks propensity to seek
alternative when rejected
female ownership
fintech user non-users
27%
14%
32%
59%
43%
31%
• Higher rejection rates
by banks
• Higher propensity to
seek alternatives
• women-led firms more
likely to pursue digital
finance (35% vs 20%)
17
WHAT DOES ALL THIS MEAN
18
Cost reduction (banks)
Financial access (SMEs)
Size of the market (fintech)
WHAT DOES ALL THIS MEAN
19
FINTECH
is making inroads to trade
finance, creating new
visibility measures
PROFITABLITY increasing recognition that
SMEs are a potentially
profitable segment
DATA
shows no evidence that
SMEs as a client segment
are gaining
BANKS Still matter. Fintech is not
replacing traditional trade
finance
VISIBILITY
remains a problem for SMEs