Access to Finance
View ResourceRisk and Insurance (Trade Finance Global)
This guide on risk and insurance from Trade Finance Global covers topics ranging from guarantees, bonds, and credit issuance to surety and claim management. There are links to related podcasts, videos, briefings, frequently asked questions, and more.
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Blockchain trade finance solutions
This website features explanatory videos, articles, online tools and services, blogs, reports, and explainers about the use of blockchain for trade finance.
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SME Finance Forum
To foster a small business network to address the challenges and possibilities for improved access to finance
View GuideBusiness Identification and the Legal Entity Identifier
What is a legal entity identifier (LEI)? An LEI is a 20-character, alphanumeric code that provides a clear and unique identification to businesses and other entities participating in financial transactions (for a detailed description of the code itself, please see the Global Legal Entity Identifier Foundation website). It contains information on business ownership structures that regulators require to assess financial risks and promote market integrity. LEIs are part of global standards that rely on high data quality for enhancing transparency in marketplaces. More information on what an LEI is can be found at the Global Legal Entity Identifier Foundation’s website and at LEI Worldwide. Following the 2008 financial crisis, there was an acknowledgement by regulators of the difficulty in identifying the parties to a transaction across markets, products, and regions (see the Financial Stability Board’s article on the LEI). The LEI became a regulatory response to this issue, allowing for the incorporation of key information for legal entities in a financial transaction (including digital) on “who is who” and “who owns whom.” Although the LEI was initially adopted for use in trade of financial derivatives, it has a host of other applications, including for loan issuance and business identification. For more information on the history of the LEI, see the Financial Stability Board’s website, along with SWIFT and this McKinsey report. Why does an LEI matter for MSMEs and trade? Although an LEI is not a legal requirement, there are several benefits for small businesses. For one, the LEI reduces the cost of onboarding clients, which are sometimes prohibitively high for bringing in new MSME clients. For trade finance, LEIs can speed up access to finance through better identification and can enable faster processing of letters of credit. LEIs also help with KYC (Know Your Customer) requirements, which are financial services guidelines requiring that identity is verified. Working with others that have an LEI number can also provide MSMEs with security in knowing about suppliers and partners and doing business overseas. Finally, LEIs can help MSMEs to comply with international regulations, secure their brand identity, and enhance their compliance reporting requirements. More information can be found in LEI Worldwide. How can policymakers help? Governments and policymakers have a role to play in encouraging the adoption of the LEI, namely by raising awareness that this tool exists and has particular uses. Not only is it important to understand that an identity solution such as the LEI has been developed, it is also important to raise awareness of the ways it can benefit MSMEs by reducing their transaction costs and increasing their access to financial markets. Where can policymakers learn more about policy frameworks and guidelines? Why a Trusted Identity is the First Step to Financial Inclusion for SMEs: This publication underscores the role that trusted digital identities can play for increasing financial inclusion for small businesses. Access this page at the GLEIF website. The LEI in Digital Certificates: The Global Legal Entity Identifier Foundation provides a variety of resources that policymakers and regulatory authorities could use to embed LEIs into certificates and seals, when they are issued in a business context. Visit the GLEIF website. Thematic Review on Implementation of the Legal Entity Identifier: This publication presents a peer review on cross-country and cross-sector LEI implementation progress conducted by the Financial Stability Board (FSB). Visit the FSB website. Where can policymakers access best practices and national examples? Recommendation on the Use of Legal Entity Identifier (LEI) in EU countries: This recommendation outlines information items required under EU regulations to obtain a pre-LEI code for reporting purposes. Visit the European Banking Authority (EBA) for more. The LEI: The Key to Unlocking Financial Inclusion in Developing Countries: This resource identifies ways in which financial institutions in developing countries can increase financial inclusion by providing capacity to small businesses to adopt LEIs. It provides Africa-specific examples. Access this resource at the GLEIF website. How Legal Entity Identifiers Will Transform Small Business in Asia: This resource provides insights on the role that LEIs could have to help small businesses to increase their access to finance and participation in supply chains. Visit the Asian Development Bank (ADB) website.
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Trade Insurance
What are the challenges and risks in international trade? Transactions across borders can be complex and risky. From not getting paid to geopolitical crises, businesses that trade across borders face many uncertainties. These can partly be eased by insurance. From the moment a transaction is started, there can be doubts about the trustworthiness of a business partner, whether the specified amount and quality of goods will be shipped, when the goods will be received, and more. Businesses should consider which risks they are most likely to face with any given transaction and weigh up the costs and potential benefits of purchasing some form of trade-related insurance. What types of trade-related insurance are available and what do they cover? Bonds are a financial product that ensures payment of a transaction. It is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in cases where the issuer of the bond or security has defaulted on payment. Credit insurance is a frequently used type of trade insurance. Importers guarantee to exporters that they will pay them in full when the contractual conditions are met. If the buyer does not fulfil the contract and defaults on payment, the insurance company compensates the seller. Foreign exchange risk insurance is a forward operation where a contract can be arranged with a financial institution to buy/sell currency on a specific date at a pre-defined exchange rate. This type of insurance is offered by financial institutions to lessen the loss from exchange rate fluctuations. Financial guarantees are binding, non-cancellable promises backed by banks or insurers to underwrite a contract and make payments to a recipient if terms are not met. Besides protecting the exporter against non-payment, guarantees can also protect importers against the risk that the supplier will not fulfil the contract. Political risk insurance covers the risk of the overseas government intervening in the investment, and if events that are considered “political” in nature interfere with a transaction. Examples of the latter situation include the expropriation of assets or the outbreak of violence. Although sometimes sold separately, it is important to note that many credit insurance contracts also cover political risk. Product liability insurance covers risks from litigation if the product fails to comply with national regulations. Surety is a guarantee issued by a third party to pay the loss suffered by one party in a contract in the event of complete failure to fulfil a contract. In this case, the third party assumes the responsibility of paying the contract. Transit insurance, for merchandise that is currently being transported, includes: Marine cargo insurance, which protects the shipment of merchandise via a cargo vessel, including from ship to terminal. Air cargo insurance, which provides protection against loss, damage, and sometimes the delay of shipments via aircraft. Ground transportation insurance, which is available for additional coverage for goods shipped by road and rail. This type of shipper is usually already liable for delivering the merchandise as received, with certain exceptions. Links to Supporting Information Trade Finance Global Risk and Insurance – Trade Finance Global An overview of the various types of trade insurance available and guides on how they work. Trade Finance Global Bond Insurance Policy Information on Bond Insurance
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Trade Finance Providers
What kind of trade finance lending do I need? Small businesses and new exporters can often find it difficult to access credit and finance, there are however lots of different resources MSMEs (Micro and Small Medium Enterprises) can explore. Who are the Trade Finance Lenders? There are several types of trade finance lenders to consider. Below are brief descriptions of some of the most common: Corporate and Commercial Banks: These banks can provide a range of trade credit options to businesses, including accepting letters of credit or bills of exchange, or facilitating documentary collection (see Trade4MSMEs guide on Trade Finance). Corporate banks typically service very large transactions, whereas commercial banks are more accessible to smaller traders. Alternative Finance Providers: These are non-bank lenders. These can include private investment, crowd-funding options, or other fintech that allows users to access financial services other than through a traditional bank. Alternative, or non-bank, finance can sometimes be more accessible to smaller traders because they do not face the same regulations as traditional banks, which can make traditional banks unwilling to spend the resources required to enable smaller transactions. Alternative finance providers based on new technologies may also be able to look at different types of collateral, which can open new areas of funding for businesses including Supply Chain Finance (SCF) (see Trade4MSMEs guide on Supply Chain Finance). Development Finance Institutions (DFIs): These provide trade finance help to businesses to promote economic development. They might be funded by national governments and tend to be country or region-specific. DFIs usually operate as joint ventures in emerging markets and can provide insurance and guarantees against political and socio-economic risk to encourage investment. Like commercial banks, they may also provide standby letters of credit, invoice discounting facilities, and project finance from mid-term to long-term projects. Although DFIs may have an overall objective of increasing small business finance, they often do not lend directly to businesses. Export Credit Agencies (ECAs): This financing is used to assist exporters through loans, loan guarantees, and insurance. The transactions supported by ECAs are capital intensive, such as machinery for large-scale projects. They have long-term financing maturities with attractive conditions, as they are usually provided through government financing facilities. ECAs may have minimum requirements, such as the size of a transaction, which could exclude certain smaller traders. What do I need to access this finance? Lenders have different requirements and criteria to access their financing options based on the level of risk, interest rate, and repayment conditions. If you are interested in accessing trade finance, first understand your financial needs and then reach out to your targeted lenders. Links to Supporting Information International Trade Centre (ITC) How to Access Trade Finance A guide for small exporters. Trade4MSMEs guide Trade Finance Introduction Trade4MSMEs guide Supply Chain Finance United Nations OHCHR | Development finance institutions OECD (Organization for Economic Cooperation and Development) Development finance institutions and private sector development – OECD The ITC’s SME (Small and Medium Enterprises) Trade Academy Export Finance and Payments Course Online training course Trade Finance Global Trade Finance Explained, an SME Guide for Importers and Exporters, is a publication co-authored by Trade Finance Global, the ITC, the Federation of Small Businesses (FSB), the Institute of Export & International Trade (IOE&IT), the British Exporters Association (BExA), the Forum of Private Business (FPB), and the International Finance Corporation (IFC).
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Trade Finance Introduction – for Businesses
What is trade finance and why may I need it? There are many definitions of trade finance, varying by organization and purpose. Trade finance...
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Supply Chain Finance
What is Supply Chain Finance (SCF)? Supply Chain Finance (SCF) is a cash flow solution that businesses can adopt to help free up working capital stuck in global supply chains.
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Trade Finance
What is trade finance? There are many definitions of trade finance, which vary by organization and purpose. According to a trade finance paper issued by the Bank for International Settlement’s Committee on the Global Financial System, trade finance refers to bank products that help businesses manage their international payments and associated risks when undertaking cross-border trade transactions. Trade finance products are typically of a short-term nature, but longer-term options are available in the market. One of the most common and standardised trade finance instruments is a letter of credit, which enables a bank to pay an exporter on behalf of an importer once the delivery of the goods is confirmed through required documentation. For more information on the different types of trade finance and how to access it, see the International Trade Centre’s (ITC) How to Access Trade Finance, the International Chamber of Commerce (ICC) Academy’s What is Export Finance, and Trade Finance Explained, an SME Guide for Importers and Exporters, co-authored by Trade Finance Global, the ITC, the Federation of Small Businesses (FSB), the Institute of Export & International Trade (IOE&IT), the British Exporters Association (BExA), the Forum of Private Business (FPB), and the International Finance Corporation (IFC). Why does trade finance matter for small business to engage in trade? Estimates suggest that 80-90% of global trade relies on some form of trade and supply chain finance. Financing trade matters because of the various roles that international trade plays in sustaining livelihoods, creating employment, and improving development conditions worldwide, especially in developing countries. Trade finance covers a wide range of financial products and can aid companies in increasing the volume of transactions, fulfilling large contracts, and scaling operations internationally. Yet there is a global trade finance gap of USD 1.7 trillion as of 2020, a 15% increase from two years earlier. Firms face a variety of obstacles in obtaining access to trade finance. For example, many companies do not have the necessary working capital to self-finance exports in those instances where payment might only be received after the goods arrive at the purchaser. They may also be unable to pay up-front for imported goods that are being shipped from abroad. Another concerning factor is the high rejection rates of trade finance requests observed among some firm groups, with small businesses and women-owned firms reporting 40% and 70% of their applications being totally or partially rejected. Because of the time between purchase and delivery and the many possibilities for disruption that can occur due to transportation mishaps, purchaser demand, or economic and political events, international trade has many risks that can be alleviated through trade finance. What are different types of trade finance payment terms? A letter of credit (LC): Letters of credit are defined by Trade Finance Global as “financial, legally binding instruments, issued by banks or specialist trade finance institutions. An LC guarantees that the seller will be paid on behalf of the buyer, if the terms specified in the LC are fulfilled.” For more detailed information, see Trade Finance Global’s guide on Letters of Credit. A Bank payment obligation (BPO): This is similar to a letter of credit and obliges a bank to pay if appropriate documents, in this case digital, are presented. According to the United Nations Economic Commission for Europe (UNECE), a ” BPO is an irrevocable undertaking given by one bank to another that payment will be made on a specified date after successful electronic matching of data according to industry-wide rules set by the International Chamber of Commerce Banking Commission (ICC).” For more information, see the UNECE website. Documentary collection: This mostly involves interaction between banks. In the case of a documentary collection, the seller/exporter) will request payment by presenting its shipping and collection documents to their remitting bank.” These documents are then forwarded to the buyer/importer’s bank and the exporter’s bank will be credited by the importers. Unlike a letter of credit, no payment guarantee is made, no document verification is made, and no credit or country risks are assumed by the bank. Payment is solely based on the available funds of the buyer. Bill of exchange or promissory note: These are documents between two transacting parties that confirm a financial transaction has been agreed upon. Open account transactions: These are arrangements for buyers to pay sellers within a certain amount of time (typically 30-90 days) with no additional formalities. This type of payment is very beneficial to buyers but can leave sellers open to risk of non-payment. Where can policymakers access other resources on policy guidelines and frameworks? The International Finance Corporation’s (IFC) Global Trade Finance Program: This offers partial or full guarantees that cover payment risk on banks in emerging markets for trade related transactions. Visit the IFC website. The International Monetary Fund’s (IMF) Towards a Framework for Reporting Trade Finance: This resource updates a previous policy paper that aimed to address the measurement of trade finance in macroeconomic statistics. Visit the IMF website. The Organisation for Economic Co-operation and Development’s (OECD) Trade Finance for SMEs in the Digital Era: This resource explores policy approaches that can support the ability of small businesses to benefit from digital advancements to have greater access to trade finance. Visit the OECD website. The Wolfsberg Group, International Chamber of Commerce, and Bankers Association of Finance and Trade (BAFT) Trade Finance Principles: These consist of standards for designing trade finance products and operations that mitigate financial crime risks in the context of open account trade transactions. Access this resource. World Trade Organization – International Finance Corporation (WTO-IFC) Trade Finance and the Compliance Challenge: This describes the global business and regulatory environment of trade finance and showcases capacity building programs where countries can participate. Access this resource. Where can policymakers access good practices and national examples? The Asian Development Bank’s (ADB) Effective Practices in Trade Finance Examinations: This resource presents experiences from bank regulators and commercial banks to provide guidance for examiners of commercial banks’ trade finance businesses. Visit the ADB website. The African Development Bank’s (AfDB) Trade Finance in Africa – Overcoming Challenges: This resource assesses trade finance developments in Africa and provides policy recommendations for reducing barriers that prevent small business access to trade finance. Visit the AfDB website. The Inter-American Development Bank’s (IDB) Trade Finance Facilitation Program (TFFP): This program promotes access of financial intermediaries to trade finance in Latin America, with the aim of expanding and diversifying funding sources available to importers and exporters. Visit the IDB website. The IFC’s Priorities in Financial Institutions: This resource is about the IFC’s work with local intermediaries to support MSME access to finance. Visit the IFC website. Informal Working Group on MSMEs: Drawing from recommendations submitted by business associations, the Informal Working Group has prepared a consolidated document that includes the of topic trade finance.
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Legal Entity Identifier
What is a legal entity identifier (LEI)? A Legal Entity Identifier (LEI) is a 20-character, alphanumeric code that provides unique identification to businesses and other entities participating in financial transactions. The LEI contains information on business ownership structures, that regulators require in order to assess financial risks and therefore promote market integrity. LEIs are part of global standards that rely on high data quality for enhancing transparency in marketplaces. More information on what an LEI is can be found at the Global Legal Entity Identifier Foundation’s (GLEIF) website, and at LEI Worldwide in the links below. How can my business benefit from having an LEI? Although an LEI is not a legal requirement, it does provide benefits to businesses, such as international recognition and credibility with investors and customers, because LEI data will optimize business procedures for market transactions. Having an LEI number can also enhance business security by providing more detailed information about suppliers and partners when doing business overseas. An LEI may encourage a financial institution to give your company a loan, and an LEI can help your business to comply with many international regulations, secure your brand identity, and enhance reporting requirements. How can I get an LEI? LEI Worldwide has a website where you can sign up to get a new LEI code or renew an existing one. The process begins with completing an application form, with basic company details such as name, addresses, and telephone number. You will also be asked to provide ownership information for your company with supporting documents. Once you submit your form, you will receive a confirmation within a few hours, depending on the country where your business is located. It is important to note that although LEIs can provide a number of benefits, they do require an annual fee. Learn more about the LEI application process at the LEI website. Where can I learn more about LEIs? Some institutions offer online materials and courses that can help you learn more about LEIs and the legal landscape around business and trade. Global Legal Entity Identifier Foundation (GLEIF): The GLEIF has an online archive on their website of videos and podcasts that explain relevant LEI facts so that you can make the most of their potential benefits. Links to Supporting Information Global Legal Entity Identifier Foundation’s (GLEIF) website Introducing the Legal Entity Identifier (LEI) – LEI – GLEIF Legal Entity Identifier (LEI) Worldwide What is a Legal Entity Identifier – LEI Worldwide (lei-worldwide.com) Learn more about the LEI application process at the LEI website LEI Application – How to get an LEI Code – LEI Worldwide (lei-worldwide.com)
