Geneva, December 13, 2023 - Improving access to affordable trade finance could increase imports and exports by up to 9 percent in Vietnam, Cambodia, and Lao PDR, according to a new report by the International Finance Corporation (IFC) and the World Trade Organization (WTO). This represents an annual increase in merchandise trade of over $58 billion in the three countries combined.
The study, a second in a series of regional trade finance surveys after West Africa, analyzes the regional trade finance ecosystem and provides insights into how importers and exporters can increase international trade with improved support from financial institutions. According to the report, increasing coverage is more important than reducing the cost of trade finance.
Growth in trade in the Mekong region has been uneven. Exports from foreign-owned firms have outpaced those from locally owned supply chains. The study shows that local trade finance is not only scarcely used, but also costly, segmented, and traditional. In 2022, domestic banks supported only 21 percent of Viet Nam's exports and imports. In Cambodia and Lao PDR, that figure was less than 3 percent. Traders cited high collateral requirements and onerous application processes among the main reasons why they did not seek support from local banks.
"I would like to thank the WTO for the great collaboration in producing this report. We have seen time and again the transformative power of trade finance for developing economies," said Makhtar Diop, IFC Managing Director. "But it takes coordinated action by the private sector, policymakers, financial institutions, and international organizations to address constraints to trade finance and realize its full potential for emerging markets."
The report recommends developing instruments like supply chain finance and innovative digital offerings to reduce costs and improve access. This would in turn require stronger regulatory frameworks that address collateral requirements, digital transactions, central bank conditions and accountability frameworks. The report also recommends increasing awareness of how to access trade financing among smaller firms and local suppliers.
"This joint research demonstrates that closing gaps in access to affordable trade finance would result in a substantial boost to trade flows, helping create jobs, reduce poverty, and enable access to critical supplies like food and medicine," said WTO Director-General Ngozi Okonjo-Iweala. "The new report offers insights for governments, financial institutions, and traders on how they can seize these opportunities to accelerate trade, growth, and improvements in people's livelihoods."
IFC and WTO surveyed banks with local presence in the three countries, as well as hundreds of traders in Vietnam. The analysis considers the combined impact of expanding coverage by bank-intermediated finance by 20 percentage points and reducing the cost of financing to international benchmarks.
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