Trade digitalization and financing: New hope for MSMES?

The International Finance Corporation (IFC), the SME Finance Forum and the World Bank Group estimate the entire MSME finance gap to be close to US$ 5 trillion, hindering the ability of MSMEs to grow. This gap, however, is not due to a lack of available funds. A 2019 report by the International Trade Centre (ITC) indicated that “in 2018 global funds held US$ 1 trillion of cash-in-hand equity capital that was seeking investment opportunities”. Of particular concern is the trade finance gap, which disproportionately affects MSMEs. Despite the low-risk nature of short-term trade finance, the trade finance gap alone is estimated at upwards of US$ 1.5 trillion. The rejection rate of MSME proposals for trade finance is 45 per cent. According to the Asian Development Bank (ADB), “among MSMEs initially rejected that sought alternative financing, 47 per cent were unable to find anything appropriate”; this does not include those firms that do not even apply for financing in the first place.