Credit Insurance Credit Risk Mitigation Development Finance Securitisation Trade Finance East Asia & Pacific

Inside the 30-minute challenge to close the SME trade finance gap

Credit Insurance Credit Risk Mitigation Development Finance Securitisation Trade Finance East Asia & Pacific

Inside the 30-minute challenge to close the SME trade finance gap

Carter Hoffman13 Nov 2025

Comparing the Two Approaches: Securitisation vs. Insurance

What would you come up with if you were locked in a room and given 30 minutes to design a solution to one of the most persistent challenges in international trade finance?

That was the situation we set up for a group of trade, finance, and insurance professionals at the ITFA Annual Conference in Singapore, where Trade Treasury Payments (TTP) hosted a closed-door roundtable under Chatham House rules with eight such experts.

They were tasked with designing a trade finance product to improve access to working capital for micro, small, and medium-sized enterprises (MSMEs) in emerging and developing markets.

SMEs make up about 90% of businesses worldwide, but still face major barriers to finance. The Asian Development Bank estimates that the global trade finance gap is around $2.5 trillion. Compounding this, many SMEs lack collateral or reliable financial data, making it difficult to serve them under existing risk and regulatory frameworks.

We wanted the participants to look for practical answers using the tools already available in the market, such as credit insurance, receivables and payables finance, guarantees, securitisation, multilateral risk-sharing, and technology-enabled approaches such as APIs or alternative data scoring.

We divided the group into two teams of four. Each team had 30 minutes to design a product and five minutes to present it.

The final products needed to:

Focus on MSMEs, not large corporates.
Support real trade transactions.
Use insurance or guarantees that qualify for regulatory credit risk mitigation.
Manage credit, fraud, foreign exchange, and operational risks.
Be clear, usable, and profitable at scale.

No small task, but it’s safe to say that we were excited to see their end results!

Comparing the Two Approaches: Securitisation vs. Insurance

The teams took two very different approaches. One looked to capital markets for solutions, while the other turned to the insurance and guarantee ecosystem. Both sought ways to expand lending capacity and bring more SMEs into global trade.

The following table compares their structures side by side.

Aspect	Team One – Securitisation	Team Two – Insurance/Guarantee
Risk transfer mechanism	Synthetically transfer credit risk to capital market investors via tranches in a CLO or asset-backed structure. Bank retains a portion (e.g. senior tranche) and sells the first-loss to investors.	Transfer credit risk to insurance companies or guarantors via TCI policies or guarantees. Bank retains a small portion (uninsured slice), and the insurer covers the rest.
Primary risk takers	Institutional investors (hedge funds, pension funds, etc.) who are seeking yield and diversification from trade finance assets. Multilaterals may also invest or provide mezzanine guarantees to enhance the deal.	Private credit insurers (e.g. Allianz Trade, Coface, Atradius) and/or public guarantors (MIGA, IFC, ECAs) who are taking on SME credit risk for a premium. Often backed by reinsurers or government support in crises.
Capital Relief Path	Through securitisation framework. If Significant Risk Transfer is achieved, the bank’s capital requirement drops for the sold tranche. Capital relief depends on the tranche structure and regulatory approval.	Through credit risk mitigation recognition. The bank uses the insurer’s credit rating to lower risk weights. Under a standardised approach, a claim-paying ability of say AA- could reduce risk weight on exposures from 100% to 20% (if the insurer is treated as a corporate guarantor).
Key advantages	– Leverages capital markets: taps large investor pools; can achieve RWA relief and funding off balance sheet. – Diversification: investors value the low default correlation of trade finance, potentially lowering costs over time.	– Simplicity and speed: easier bilateral execution (buying insurance) than structuring a deal; scalable even for smaller banks. – Limit management: helps banks extend more credit to SMEs by mitigating concentration limits.
Key Challenges	– Complex setup: needs specialised structuring, legal work, and investor education. Not all banks have the resources to do this. – Asset replenishment: trade assets are short-term, requiring active monitoring and a pipeline of new deals to maintain a securitised portfolio.	– Cost of premiums: adds cost to transactions; if SME margins are thin, subsidy or risk-based pricing is needed to keep financing affordable. – Regulatory changes: higher LGD floors reduce capital arbitrage; insurers’ role under scrutiny for systemic risk (regulators worry about bank-insurer contagion, though insurers proved robust).

Conclusion

It is unlikely that either of these proposed solutions is perfect, and given the constraints put around this exercise, that is exactly what was expected. The point, rather, is to start a conversation and a line of creative thought around how to address the problems of MSME financing.

To achieve the UN SDGs and enable SME-led growth, the financing gap must be bridged. Banks, insurers, investment funds, and development agencies each control a piece. Regulators, for their part, should continue to calibrate rules that reward sound risk mitigation and recognise the low risk of well-structured trade finance.

Perhaps by the late 2020s, an SME in an emerging market might get a trade loan from its local bank, that loan could be insured by a global insurer or guaranteed by an MDB, and ultimately the loan might be sold into an investment vehicle funded by a pension fund – all seamlessly, at reasonable cost. Achieving this at scale could unlock billions in working capital for SMEs, fueling jobs and economic development.

The trade finance gap – now at $2.5 trillion – won’t disappear overnight, but each innovative transaction will chip away at it. Ideas similar to those that came out of this roundtable might soon evolve into pilot transactions.

No single institution can close the SME trade finance gap alone – but together, through risk-sharing innovation, there is an opportunity to make real progress.