The estimated $2.5 trillion trade finance gap – which many refer to as the small and medium-sized enterprise (SME) finance gap – is a barrier to global growth, innovation and inclusion. Unlocking micro and SME (MSME) potential through access to finance, particularly in emerging markets, will help to diversify economies, expand employment and spread prosperity.

The barriers to MSME finance are well documented, including high compliance costs, capital constraints, shrinking correspondent banking, information gaps, macroeconomic and geopolitical risks, and limited adoption of digital platforms. 

By overcoming these and other challenges, the Trade Finance Conference of Parties (TF COP) aims to halve the trade finance gap by 2030 and eliminate it by 2040, defining it as an environmental, social and governance issue. At the launch of its task force in July, it pledged to engage with the United Nations (UN) to achieve formal recognition of the trade finance gap as a critical obstacle to attaining the UN Sustainable Development Goals (SDGs). 

Its fourth meeting since the inaugural event in October 2024 was held at Crown Agents Bank’s London offices on November 21. The summit brought together more than 150 trade finance practitioners from across the ecosystem, including commercial banks, multilateral development banks (MDBs), fintechs, insurers, trade associations, and non-bank financial institutions (NBFIs), to share information and design solutions to address the gap.

In his keynote address, John Sam-Kubam, CEO for Africa at Crown Agents Bank, issued three calls to action: “First, we need to champion SME inclusion. Second, let’s activate blended finance, using the momentum of the Compromiso de Sevilla and TF COP to design programmes that combine guarantees and insurance with commercial debt. Third, let’s measure and report. We need to track SMEs served, trade flows and value enabled, and make the data public so we can identify success, refine the models and replicate that success.”

Shona Tatchell, Director – Trade Facilitation Programme, European Bank for Reconstruction and Development (EBRD), stated that the time when sustainability and inclusion will be embedded in every transaction – “ensuring that growth is both green and fair” – is not far away with the advent of real-time data, artificial intelligence, digital identities and tokenisation. 

“Imagine a world where every viable business, regardless of size, sector or geography, can access the capital it needs to trade, grow and innovate,” said Tatchell. “In this future, trade finance is not a privilege for the few, but a foundation for inclusive and sustainable economic development. The tools and frameworks to achieve this vision already exist in some form. The challenge and the opportunity is to bring them together at scale through bold leadership, collaboration and a relentless focus on inclusion.”

Solution designing

The TF COP’s main focus is on developing and showcasing innovative and practical solutions to close the trade finance gap. To enable brainstorming around new solutions, the summit divided into 11 breakout rooms covering topics such as the sustainability agenda, legal frameworks, technology and data, insurance-led solutions, and Africa. 

One suggestion that came out of the workshops is to launch test environments, or sandboxes, in a minimum of 10 markets over the next 12 months. Adopted formally by the TF COP Task Force Incubator, the sandboxes aim to develop locally relevant solutions by bringing in multiple market stakeholders, including academics, think tanks, SMEs, asset managers, central banks, local banks, regulators, technology enablers, etc. Starting with a limited number of pilots is a core part of an iterative process, allowing for testing, gathering feedback and refining the solution before rolling it out to other markets.   

In addition, the breakout sessions discussed proposals around:

• Coordinating engagement with African regulators, as well as developing education programmes for regulators, SMEs and Tier 2 and 3 banks;
• Creating a market infrastructure for trade finance to make illiquid markets liquid, and establishing a secondary market for trade finance instruments;
• Advancing a simplification of payment obligations for trade transactions, expanding the invoice registries concept and unlocking priority treatment in restructuring;
• Developing insurance solutions to address the lower tiers of risk and push capital deeper into high‑impact segments;
• Legal entity identifiers and e-invoice frameworks; 
• Changing MDB mandates to align SME financing with the UN SDGs. 

In addition to the breakout workshops, participants had the opportunity to hear about three next‑generation solutions in the TF COP Incubator’s “Pitch. Partner. Prosper.” session.

Morgan Lépinoy, Global Head of Trade Facilitation at Viatrans, a provider of digital and financial solutions for trade across Africa, and Product Lead, TF COP Incubator, kicked off the “Dragon’s Den” style pitch session with a shipment liquidity facility (SLF), which Viatrans is working on with Rand Merchant Bank, Finverity and a few others. SLF is a flexible end-to-end transaction-level liquidity facility for financing across the shipping chain, from discharge to transport, customs and warehousing. It’s commodity agnostic, as well as scalable and replicable across other markets. 

Ahanna Anaba, Head of Sales, Finverity, a supply chain finance technology provider, and Chair of TF COP Africa Working Group, presented a standardised trade finance digitalisation playbook for domestic banks to increase their financing to local SMEs. Aimed at capacity building and education for Tier 2 and 3 banks, the playbook will help institutions understand the requirements and workflows of specific solutions, such as invoice discounting. They can do a self-assessment, which in turn helps them create a business case to get funding and resources.   

George Wilson, CEO of ARM Africa Trade Finance Fund, and Chair of the TF COP Sustainability Working Group, pitched a five-layer capital-multiplication model to direct African institutional capital into SME trade assets at scale. Wilson advocated using African banks as portfolio aggregators and securing revolving liquidity against government bonds. Leveraging what he termed the “FI Trade 3.0” approach, banks can convert fragmented SME exposures into investable, super-senior financial institution trade assets, effectively creating a new asset class and a liquid secondary market through which banks can package up the assets and sell to international investors as short-term senior secured risk on African trade finance. 

Information sharing

While the TF COP is determined not to be just a talking shop, an important component of the summit was the exchange among different constituents of the trade finance community, outlining specific challenges, ways of working and potential collaboration. 

The MDB panel, which included African Development Bank (AfDB), British International Investment, EBRD, IDB Invest (Inter-American Development Bank Group), and the Multilateral Investment Guarantee Agency, discussed some of the lessons learned in their pursuit of increasing SME finance. 

Alba Quilez Llopis, Senior Investment Officer, IDB Invest, spoke about how it’s expanding the channels through which it finances MSMEs beyond banks to other intermediaries such as fintechs and anchor buyers, as well as expanding advisory services in recognition of the fact that access to finance is just part of the problem. IDB Invest has also invested in technology to disperse financing with 24 hours, which previously took 10 days. 

MDBs should be thinking in terms of how to be systemic, according to Quilez Llopis. “Random reverse factoring programmes or an SME fund here or there is not going to move the needle in the trade finance gap. We need to design financial products that are scalable,” she said.

Lamin Drammeh, Trade Finance Head at AfDB, which will soon publish its study on the African trade finance gap, outlined three lessons learned from its work to close the SME finance gap. “First, solutions are beyond any one participant, so there needs to be more structured collaboration among the various partners. Second, solutions go beyond the provision of financing and guarantees to providing capacity building or digitalisation support. And third, MDB trade finance experts need to hone their negotiation skills to convince colleagues within their own organisation [to support SME finance],” he said.  

Marco Nindl, Senior Banker in the Trade Facilitation Programme, EBRD, emphasised the  need for cooperation among MDBs to increase risk-taking capacity, especially in countries that have become unbankable, like war-torn Ukraine. 

An innovation barrier that emerged during the summit is outdated MDB mandates. For example, the sustainability breakout workshop discovered that MDBs’ sustainable trade finance programmes are linked 100% to green finance, not SDGs. One potential solution is starting a discussion among MDBs on getting shareholder approval required for a mandate change.

The discussion among five major trade associations – Bankers Association for Finance and Trade (BAFT), Berne Union, Factors Chain International (FCI), International Credit Insurance and Surety Association (ICISA), and International Trade and Forfaiting Association (ITFA) – covered regulatory and compliance challenges, coordinated advocacy, and the importance of education and digitisation, such as e-invoicing, in solving the trade finance gap. 

With regards to the impact of Basel III’s capital rules constraining banks’ ability to deploy trade finance, Tod Burwell, CEO and President of BAFT, spoke about the need to go beyond advocacy work with regulators to engage with politicians that will hear real economy arguments. “We’re at a place now where we’re going to have to deal with local regulators on how they implement the capital framework under Basel III,” he said. “The best way to do that advocacy is to find stakeholders who care and identify what they care about, which is more often than not economic growth and activity. Then use those stakeholders as your advocates within the regulatory context.”

Sean Edwards, Chairman of ITFA, spoke about advocacy work around the EU Late Payment Directive with a proposed amendment to mandate a strict 30-day limit for all commercial payments. “The effect would be a material reduction in the market liquidity,” he explained. “Our argument did eventually get through and the proposal has been pushed back. But now the UK has come up with a more radical proposal.”

As illustrated by Burwell and Edwards’s remarks, the regulatory environment is diverging as each country intentionally goes its own way. From Burwell’s perspective, the trade finance community needs to build its capacity for advocacy on a local level, making the arguments relevant in a local context. “But we can do it with a global mindset,” he added. 

Effective collaboration 

While there are numerous initiatives worldwide to improve SME access to finance, the TF COP has successfully pulled together the main ecosystem constituents to collaborate quicker, more consistently and more effectively in an effort to make a dent in the $2.5 trillion trade finance gap. 

As EBRD’s Tatchell said: “No single actor can close this gap alone. The TF COP Task Force exemplifies the power of collective action, bringing together the private and public sectors, governments, MDBs, banks, insurers, fintechs and industry. By sharing data, setting global standards for interoperability and trust, and leveraging advanced analytics, this ecosystem can deliver solutions at scale and pace.”

However, there were several noticeable absences in London, such as regulators, central banks and, to a large extent, the SMEs themselves. One audience member remarked on the importance of having the central banks in the room, as when under pressure they often resort to panic tactics that can stifle market innovation, such as sustainable hedging solutions. 

The pilot of 10 sandboxes in local markets throughout the next  year will go a long way to expand engagement and get more stakeholders involved. And the willingness of TF COP participants to boost collaboration is a positive sign. 

Yet despite a rise in overall volumes, the trade finance gap remains at the 2023 level, according to the Asian Development Bank. Therefore, the TF COP will need to keep the momentum going and accelerate activities to reach its target of halving the gap by 2030. 

The way forward is through innovation and cooperation. As Tatchell said, “The trade finance gap is not inevitable; it’s a design flaw. Together, we can redesign the system, but only if we act boldly, collaboratively and with vision.”