Expert opinion: Trade financing needs a strategic vision, now

True progress and advancement is never linear. Progress is a process that sometimes appears clear, decisive and directionally consistent, whilst at other times, it looks a great deal like regression in the short term. Between those extremes, progress seems to have a cybernetic quality – that of constantly refining and adjusting trajectory in the pursuit of a longer-range target.

This moment in history, seen from a lens of trade, multilateralism and rules-based international order certainly feels like an extreme one, where decades of progress, stability and peace are under threat. Important institutions, values and principles of global organisation face what appears to be existential threat, possibly from several directions.

Let’s admit it: trade, and the institutions that have supported and enabled its growth around the world, are imperfect. The benefits of trade have not been (even close to) equitably distributed, and several key institutions in the architecture of today’s global order are deficient. It is no coincidence that we have recognised the need for geopolitical discourse to shift from G7 to G20 economies, and now beyond, nor is it surprising that there are active efforts underway to counterbalance the global influence of countries and institutions that are perceived not to be inclusive enough.

Nor should it be surprising that questions of fair trade, sustainability and inclusion are now well embedded into the mainstream discourse. This includes in the realm of trade financing, now widely acknowledged as an indispensable enabler of international commerce, and therefore, critically important to trade-based economic development and trade-related international security.

Taking a wider view

Taking a wider view, it is perhaps comforting to note the sometimes-erratic path to progress, and the relatively temporary nature of certain types of regression, particularly when they are born of frustration that has not found an effective alternate channel of expression or resolution. That wider view also highlights ample opportunity to alter course, to redefine the character of the target(s) we are collectively aiming at, and to ensure continued ‘progress’ over the medium and longer term despite what may appear to be fundamental and concerning changes in the fabric of the international community now.

The wider view, a bit like looking through the wrong end of a telescope, can also highlight the risk of apathy or inaction by bringing into focus, the lost opportunity to champion a way forward despite the clear opportunity to do so.

Trade financing has a long history, arguably through 2009, of operating ‘in the background’ with little visibility except among clients and providers, and only a limited sense of its own value (therefore responsibility) in the broader context of economic value-creation and inclusion. Trade financiers, particularly those from the private sector active in this area, did not often consider their role beyond a purely transactional perspective where the focus was on successful conclusion of a trade transaction without financial loss. Certain export credit agencies and multilateral institutions engaged in trade financing would have taken a different view by the nature of their public policy and development-related mandates, but even those institutions had little need to take a wider view.

In need of champions

Today, those who believe in the positive power of international commerce must champion its benefits and help evolve its enabling institutions, even as we recognise imperfections and actively seek ways to address them. Advocacy in support of international trade must shift from an ivory tower, intellectually interesting but otherwise uninspiring tone to one that connects with a much wider audience.

There is a perfect parallel relative to trade financing – whether we refer to traditional trade finance, or fast-emerging supply chain finance.

The (largely unwanted) profile and visibility thrust onto trade financing at the peak of the global financial crisis brought with it both an opportunity and a responsibility: an opportunity to articulate the value of trade financing, and the responsibility to advocate for it across a range of stakeholder communities, many of which would have given it scant attention until then.

There has been some useful and constructive progress over the last decade.

Trade financing is the subject of increasingly high-quality academic and industry research. It has attracted positive support from the most senior levels of important international institutions like the WTO, the IMF and others, and been the focus of valuable analysis by the Asian Development Bank, the International Chamber of Commerce, BAFT and many others. The visibility of trade financing within international banks appears to have increased, and this rather specialist branch of finance has recently attracted significant attention from a variety of non-bank providers.

The time is right for leaders in the industry – from senior executives to frontline experts, to product and operational specialists, to take a much more strategic view of the business of trade financing.

This means collectively ‘raising our heads’ from the daily activities involved in providing financing that supports trillions in trade annually, to better see, analyse and understand the broader context in which trade financing takes place. In so doing, we must identify critical strategic priorities on which we need to educate, advocate and deliberate, to drive progress in trade financing, trade and trade-based inclusion and security.

Raising the veil of complexity

The veil of complexity and secrecy around trade financing is irrevocably lifted, and the days of hoping to operate undisturbed in the shadow of cross-border trade are gone. With these realities comes the opportunity – and the responsibility – to champion a business that supports important real-economy activity and that underpins one of the few truly global commercial activities that touches the largest multinational as well as the smallest micro-enterprise.

Taking a strategic view means looking beyond the short-term incentives related to sales targets, operational metrics or market share numbers, or even the bonuses that could be attached to such outcomes. It means understanding – and communicating broadly – the value that is created through trade financing. It means engaging in advocacy work through industry bodies and international institutions, driving evolution such as digitisation and championing appropriate, risk-aligned regulatory treatment.

Taking a strategic view means looking at the big questions – like the persistent presence of a trade finance gap in the range of US$1.5 trillion annually, as a problem with far-reaching implications, and one to be solved by leaders and visionaries acting in the interest of something larger than their own institutions. It means doing more than paying lip service to issues like sustainability and trade-based economic inclusion.

Yes, banks are most commonly commercial, profit and shareholder-value driven institutions. Yes, there are competitive realities to consider. But it is equally true that banks occupy a unique place in the societies in which they (mostly) thrive. They are woven tightly into the social and economic fabric, and their role as providers of trade financing is particularly illustrative of that unique positioning.

There is, in trade financing, the seed of truly meaningful impact.

The view of trade as a win/lose dynamic is anachronistic and short-sighted – a reality brought to life by increasing focus on a supply chain, ecosystem view of trade that includes practices aimed at ensuring the viability and health of global supply chains, starting with ‘strategic suppliers’ but reaching increasingly into the long tail of the most complex supply chains. These arteries of global commerce are the veins through which trade-based growth can be pumped into the most remote, challenging markets, and through which trade-enabled international security can be made more robust.

The questions that matter

Let’s begin the conversation around a strategic vision for trade financing, by asking a few important questions:

• What would be the benefit globally of addressing unmet demand for trade financing among SMEs based in developing markets? Having validated the existence of the gap, what measure can we identify to address it, and how do we begin?
• How can industry leadership encourage a more thoughtful and strategic view of the business across the various functions in trade financing, and how do we translate that into a value proposition for clients, colleagues and stakeholders?
• How can financing be leveraged to encourage positive commercial behaviours like sustainable sourcing, inclusion and trade-based conflict resolution?
• What is the single most important action around which we should convene and energise the industry globally, under current conditions?

What could the solutions to these questions look like, if they were simple?

We face both an urgent imperative and an unprecedented opportunity to take a more strategic view of trade financing. The benefits of doing so today are intuitively obvious. The cost of not doing so, of abdication of responsibility, may be as serious as contributing to the implosion of the global architecture for trade as we know it today.

Some may cheer that prospect. Those who appreciate the linkages between trade, inclusion and global security certainly do not. Time to take a strategic view of trade financing. And then, time to action that view.