ICC has contributed to a new report by a consortium of multilateral development banks and trade research institutions, gauging the views of Sub-Saharan banks on the current response from multilateral development banks (MDBs) to maintain a well-functioning trade finance market.
Entitled Pulse Check, the report brings together perspectives and insights from close to 70 trade finance executives from 20 countries. Contribuutors unanimously call for an urgent focus on support programmes that target private sector and smaller enterprises to avoid a ‘second wave insolvency crisis’ that threatens widespread greater economic hardship on the continent.
The report shows that demand for trade finance instruments in the first half of 2020 has clearly flattened compared to growth expectations due to furloughed projects and investments but demand has not collapsed. Furthermore, larger banks interviewed, although sufficiently liquid throughout the period, note they have restricted supply of finance to existing clients, away from new clients/projects.
Overall the finance market has contracted by at least 10% from 2019 levels in volume and even greater in value but has shown early positive signs since June, largely concentrated in traditional sectors like commodities. Still full recovery is only be seen by end of 2021 at the earliest. Main constraints for interviewed banks during the crisis, have focused around risk/macroprudential constraints to extend credit outside of comfort zone, especially since liquidity has been sufficient.
The report makes several priority recommendations for MDBs, including sector-focus on the private sector, increasing availability of risk-sharing instruments as well as more granular funding offering. It also illustrates an increasing emphasis on pooling efforts and resources across MDBs and Development Finance Institutions operating in Africa, to better respond to the unfolding situation.
In addition to ICC, contributing organisations to the report include the African Development Bank (AfDB), the Arab Bank for Economic Development in Africa (BADEA), the Banque Ouest-Africaine de Développement (BOAD), the East African Development Bank (EADB), the International Trade Center (ITC), the International Islamic Trade Finance Corporation (ITFC), and the Trade & Development Bank (TDB).