International trade and participation in global value chains have underpinned growth and development in Asia and the Pacific for decades, backed by more open trade policies and lower tariffs, infrastructure, and trade facilitation and finance. Indeed, some form of trade finance, such as trade credit and insurance, has been used for an estimated 80% of international trade. Yet, unmet demand for trade finance—the trade finance gap—remains persistently large.

That gap—which the latest Asian Development Bank (ADB) study estimates at about 10% of global merchandise trade—represents lost economic and development opportunity. More importantly, the trade finance shortage is even more acute for micro, small, and medium-sized enterprises (MSMEs), which comprise more than 90% of firms and the bulk of employment in developing Asia. Strengthening their participation in trade is thus crucial for inclusive trade and economic growth.

As such, the trade finance ecosystem plays a key role in facilitating trade flows, and understanding it is important. Lacking data on the scope of trade finance, therefore, ADB and other institutions have conducted surveys to gauge the needs of market participants and determine the policies needed to mitigate this unmet demand.

This report provides a retrospective of ADB’s Trade Finance Gaps, Growth, and Jobs Survey, conducted since 2012. It reviews the trends, research findings, and lessons of the past decade and discusses new developments, including rapid digitalization in trade and trade finance markets. Authorities should address and coordinate their responses to the chronic trade finance shortage in Asia and the Pacific by enhancing public finance and through digitalization, nonbank financing, and multilateral support for trade finance, digital infrastructure, and knowledge development.

Given the dominance of MSMEs in Asia, enabling their participation in international trade would promote greater inclusivity in growth. But these firms usually lack the resources and collateral for qualifying for trade finance loans and the know-how for navigating the complex and fragmented trade finance system.

Moreover, banks and other trade finance providers face high regulatory compliance costs.

Digitalization, which has accelerated during the pandemic, could drive down the cost of trade and trade finance by simplifying the complex and redundant manual processes and reducing transaction costs.

But it requires strong policy support for domestic reforms and international cooperation to reduce barriers,establish common standards, and connect isolated “digital islands” that have arisen.