WTO and IFC: Boosting Inclusive Trade Finance for Small Businesses
Supply chain finance (SCF) is essential in today’s global trade landscape, offering working capital to small and medium-sized enterprises (SMEs) to help them compete internationally. As a solution to financial pressures on suppliers, SCF integrates SMEs from developing regions into global value chains. Given SMEs’ substantial role in global employment, enabling access to SCF drives economic development and job creation in emerging markets.
The importance of SCF was underscored at a recent roundtable led by the World Trade Organization (WTO) and International Finance Corporation (IFC). Director-General Ngozi Okonjo-Iweala commended multilateral development banks (MDBs) for expanding SCF but noted the ongoing challenges SMEs face, such as high financing costs, limited infrastructure, and regulatory hurdles. As MDBs expand their support, the outlook for SMEs in global trade grows increasingly optimistic.
The impact of supply chain finance on small businesses in emerging markets
Supply chain finance has transformed how small businesses in developing regions manage cash flow and compete. SCF enables businesses to borrow against outstanding invoices, providing liquidity for reinvestment in operations. This financing approach allows SMEs to bypass traditional, collateral-based lending, which has historically restricted their access to credit.
For emerging market SMEs, SCF’s impact is significant. The IFC’s Global Supply Chain Finance Program, for instance, bridges the finance gap for suppliers in emerging markets by partnering with local banks to provide affordable, short-term financing without requiring collateral. This program gives SMEs the working capital they need to grow and compete internationally.
Despite its benefits, SCF access remains limited for SMEs in many developing regions. Weak legal frameworks, high transaction costs, and limited technology prevent many local financial institutions from participating in SCF programs. In Vietnam and Cambodia, for example, less than 1% of trade is backed by SCF from domestic financial institutions, creating a competitive disadvantage. Bridging this gap is essential to empower SMEs, allowing them to move up the value chain and contribute more to their economies.
SCF holds substantial growth potential. WTO research shows that a 10% increase in international factoring could raise a country’s trade by 1%, underscoring SCF’s transformative potential. To achieve these benefits, MDBs are working to streamline regulations, expand financial products, and provide technical support, making SCF more accessible for SMEs globally.
The role of multilateral collaboration in enhancing trade finance access
The expansion of SCF requires a coordinated approach among global institutions and governments. Recognizing this, MDBs have increased collaboration with the WTO and IFC to reduce SCF barriers. At the recent World Bank and IMF annual meetings, MDBs emphasized SCF’s importance for emerging market firms facing financial challenges from global disruptions.
During a roundtable led by WTO’s Director-General Ngozi Okonjo-Iweala and IFC Managing Director Makhtar Diop, representatives from MDBs—including the European Bank for Reconstruction and Development (EBRD), African Export-Import Bank (Afreximbank), Asian Development Bank (ADB), Islamic Development Bank (IsDB), and IDB Invest—shared strategies to expand SCF programs and improve the regulatory environment for trade finance.
A priority for this collaboration has been digitizing trade finance, which enhances SCF accessibility and efficiency. Digital solutions streamline financing processes, reduce costs, and increase transparency. Digital SCF platforms enable instant transaction verification, reducing delays associated with traditional trade finance. The IFC has supported these transitions through technical assistance and partnerships with local banks to develop digital platforms tailored to emerging markets.
Another priority is promoting green trade finance, which encourages environmentally sustainable practices in global supply chains. By offering financial incentives for green projects, MDBs support SMEs committed to sustainability. This approach helps businesses meet global standards and enhances their competitiveness as eco-friendly practices gain market importance.
These collaborative actions are expected to make SCF more accessible, enabling SMEs in developing economies to engage in international trade. MDBs are also working with local institutions to foster resilience in financial ecosystems, laying the groundwork for inclusive and sustainable growth across global supply chains.
Strategic advancements and the future of supply chain finance
Looking forward, MDBs and organizations like the WTO and IFC are advancing SCF strategies that emphasize accessibility, inclusivity, and sustainability. One major advancement is the development of SCF products that address SME needs, helping them overcome traditional financing barriers. MDBs are introducing new financing options—such as unsecured working capital loans and receivables finance—that allow SMEs to access funds without high collateral requirements, which are particularly limiting in many emerging markets.
Another focus is enhancing SCF technology infrastructure. As digital solutions become central to global trade, MDBs are investing in technology to lower transaction costs and improve transparency. Digital SCF platforms simplify transactions, reducing the cost and complexity of accessing finance.
Sustainability remains a strategic priority, with MDBs promoting green financing to support environmentally responsible practices. This aligns SCF with global sustainability goals by supporting businesses prioritizing responsible sourcing and environmental stewardship.
These advancements in SCF are expected to benefit developing economies. By making trade more inclusive, MDBs are helping small businesses expand, improve productivity, and become more active participants in international markets.
Sources: