Trade Finance Global (TFG) has released our latest research on the viability of SME trade finance from a European outlook.
Despite high inflation, record energy prices, and geopolitical uncertainty, demand for trade finance SMEs is on the rise.
The 70-page report comes amid a tumultuous macroeconomic landscape of high inflation, record energy prices, and geopolitical uncertainty and seeks to explore the interest that European SMEs have in trade, inventory, and invoice finance.
TFG surveyed firms in the target regions of Belgium, the Netherlands, Germany, and the UK to better understand SMEs’ trade finance usage norms and their propensity to pay for these trade finance products and services.
This report suggests that there is sufficient market demand at a 4%-8% annualised price point for trade finance lending over the next 5 years and that the beneficiaries of new trade finance products would be firms that generate up to $30 million in annual revenue and hold up to $2 million of inventory.
The Asian Development Bank estimates the current trade finance gap to be $1.7 trillion, with SME applications disproportionately rejected due to stringent regulations and large manual processing costs.
Regardless of the reasons, banks and MSMEs agree that access to trade finance is a major barrier that must be addressed
TFG’s latest report begins with a brief overview of relevant economic and geographic information in each market to establish a backdrop for the remaining analysis.
This is followed by data (supplied by Trade Data Monitor) on the international trade activities, SME involvement in that trade, popular financing mechanisms, and an overview of each country’s general atmosphere of digital openness.
Next, TFG’s independent market research survey data provides an insight into the factors influencing SME interest in and propensity to pay for new trade finance services.
Of the 64 firms surveyed, which collectively operate across 31 countries, 90% exhibited an interest in new trade finance services.
The largest reluctance to pay 4-8% annualised for these services came among firms that currently pay 2-4% annualised, with interest dropping from 94% generally to 59% at this suggested price point.
Analysis of the survey data also revealed that firms that use letters of credit showed a higher interest in new trade finance services than those that do not use this traditional trade finance instrument.
The full report delves into several other variables such as firm revenue, inventory levels, debt utilisation, number of lenders, firm type, and operating location, among others.
Co-authored by Deepesh Patel, editorial director and Carter Hoffman, editorial assistant at TFG.