VIDEO | Why TF COP could finally shift the trade finance gap conversation into meaningful change - Trade Treasury Payments

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VIDEO | Why TF COP could finally shift the trade finance gap conversation into meaningful change

Conversations about the trade finance gap often feel abstract. Another panel. Another graph in a report. 

After years of diagnosing the problem, a new initiative is finally shifting the focus to real solutions, with structure, accountability, and a clear sense of purpose.

To learn more about the real impact of the trade finance gap and a new initiative to help address it, Trade Treasury Payments (TTP) trade editor Carter Hoffman spoke with Duarte Pedreira, Global Head of Trade & Working Capital Finance at Crown Agents Bank and a board member of the International Trade and Forfaiting Association (ITFA).

The real problem of the trade finance gap

The trade finance gap refers to the shortfall (estimated at $2.5 trillion) between the demand for trade-related credit and the amount financial institutions are willing or able to supply. It represents the capital that viable businesses, especially SMEs in emerging markets, cannot access to support their import or export activities.

This oft-cited gap may seem like just a talking point that gets thrown around at industry conferences or another statistic cited in whitepapers and articles, but for impacted businesses, the effects can be catastrophic. 

Pedreira said, “I tend to see the gap at work when I go to places like Africa or Latin America and I talk to my friends there, especially young people who are trying to set up new ventures. They tell me of the struggle they go through in obtaining financing. Some brilliant ideas with very sound and secure business models that simply cannot take off because they don’t have access to financing. Whenever those ideas involve the importation or exportation of goods or services, then the lack of financing is the trade finance gap.”

And that gap is not closing. If anything, it’s getting worse, having risen from what seemed like an insurmountable $1.5 trillion in 2018 to today’s much higher level. What that means in practical terms is that too many good ideas never get a shot because the system doesn’t have the appetite to support them. The private sector is driven by commercial returns and shareholder expectations, and financing small businesses in unfamiliar markets doesn’t tick the right boxes.

What is TF COP?

TF COP, short for the Trade Finance Conference of Parties, was created to move beyond talking about the trade finance gap and start doing something about it. At its core, it’s a platform that brings the public and private sectors together to finally start closing the $2.5 trillion shortfall that keeps so many small businesses locked out of global trade.

The first gathering, known as TF COP 1 or TF COP 2024, took place in Washington, DC, on the margins of the World Bank and IMF meetings in October of last year. Delegates from trade bodies, development banks, commercial lenders, insurers, fintechs, and legal professionals broke off into working sessions to sketch out real, actionable solutions to finally start reducing the gap.

Pedreira said, “When TF COP was put together initially, it was around creating solutions by bringing the public sector and the private sector together under one umbrella to solve the trade finance gap. I know it sounds very ambitious, but this is what we need to move towards.”

Three clear ideas came out of those sessions. First, the creation of first-loss funds to help make SME financing in emerging markets commercially viable. Second, better access to meaningful data that can help make those same SMEs bankable. And third, smarter legal and regulatory frameworks that don’t trip up good ideas before they’ve had a chance to grow.

To make it all official, the group adopted what’s now known as the Washington Declaration, committing to halve the trade finance gap by 2030, eliminate it by 2040, push the UN to formally recognise the trade finance gap as an SDG blocker, and set up a permanent TF COP Task Force to keep things moving between meetings.

A personal drive

Pedreira’s motivation for driving the TF COP project comes from a deeply personal place, particularly his involvement in Rwanda with the NGO Shelter Them. 

Pedreira said, “How did I come about going to Rwanda? Because I do trade finance. I went there on a business trip with Crown Agents Bank, and that’s where I got introduced to Shelter Them. … Through that, I’ve had the opportunity to befriend so many real people, especially young people, who want to move away from a traditional dependency from aid and so-called development flows. … They are entrepreneurs, most of them based on technological solutions and new ways of doing things, but what they’re missing is that initial boost.”

Had they been based in places like London or New York, their ventures would likely receive a completely different level of support, access to early-stage funding, established investor networks, and fewer credibility hurdles. In those markets, capital tends to follow promise. In Rwanda and many other parts of the developed world, that same promise is met with scepticism and silence.

Spreading the message about TF COP

When asked what message he would want to get out to the world about TF COP, Pedreira said, “Join us in having a purposeful impact on people’s lives. People matter. Banking tends to be depersonalised to a certain extent. It’s not. It’s about people. It’s about real lives. So, join us in transforming people’s lives”

To learn more about TF COP 1, you can read the full event report from ITFA.

To find out more about TF COP, please contact the ITFA Secretariat on sec@itfa.org.