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The world’s SMEs need £24.7 trillion worth of financing to close the trade finance gap, with UK SMEs needing an estimated £580 billion, the chief economist of the trade credit insurance Allianz Trade warned.

Ludovic Subran addressed the issues around the global trade finance gap and how trade credit insurance can support businesses through uncertain times when he spoke as part of a joint thought-leadership seminar between Allianz Trade and Marsh, an insurance broker and risk advisor, last Thursday.

The leading economist pointed out that UK SMEs would need £108 billion worth of financing to reduce the average number of days taken by a firm to collect payment from their customers after the completion of a sale, otherwise known as Days Sales Outstanding (DSO), by 10 days.

Ludovic delivered his insights to a group of insurance industry leaders and other interested parties as part of a joint thought-leadership seminar between Allianz Trade and Marsh.

The afternoon event also included a headline panel discussion from senior representatives from The World Economic Forum, HSBC, DP World Trade Finance, Pemberton Asset Management, Marsh and Allianz Trade.

The trade finance gap is an issue facing businesses across the UK, with many not aware of how trade credit insurance help. 

With many challenges on the horizon in 2023, such as a recessionary environment, this is an important subject to bring awareness to and help reduce the risk to businesses.

Ludovic Subran, chief economist of Allianz Trade, said, “While cyclical conditions have reduced supply-chain disruptions across developed economies, we are not fully rid of the risk of shortages. In the short-term, tightening funding conditions and rising interest rates are affecting companies and could potentially widen the trade finance gap. This shortfall of funding means that some trade flows cannot materialise, potentially hindering the normal functioning of parts of supply chains.

Widely discussed trade patterns such as re-shoring, near-shoring, and on-shoring could help in dissolving supply-chain bottlenecks, but they seem to be more talk than walk, and the large-scale feasibility can be questioned. Elsewhere, the turnaround in interest rates is helping. The medium-term macroeconomic outlook is also much brighter, despite – or rather because of – the energy crisis.

The consequences, beyond the expected recession in 2023, are already becoming clear: a forced transformation of the economy in the direction of decarbonisation as well as increased risk awareness in all parts of society, strengthening social and economic resilience.”

Marcus Miller, global lenders solutions group leader, Marsh Specialty, added, “The geo-political and economic turmoil over the last 12 months, together with the impact of the lockdowns, has had a very significant effect on global trade and the trade finance industry. As well as reducing liquidity to fund trade it has increased the costs of capital at the same time as inflation has driven rising capital demand. 

Trade finance is a critical growth enabler, which is central to job creation, improving people’s lives, and alleviating poverty, especially in developing countries. 

While the insurance industry already plays a significant part in supporting over 70% of global trade, innovative risk mitigation techniques could further extend the support it provides to corporates and financiers.”