The Pulse check report issued by a consortium of multilateral development banks and trade research institutions recounts the views of sub-Saharan banks on multilateral development banks’ responses to uphold a well-functioning trade finance market.
The report, which brought together perspectives and insights from 70 trade finance executives from 20 countries, unanimously called for an urgent switch in the focus of support programs towards the private sector and smaller enterprises to avoid a ‘second wave insolvency crisis’ that threatens greater, and far more widespread, economic hardship on the continent than “we have seen till now.”
Demand for trade finance instruments in the first half of 2020 seemed to have flattened compared to growth expectations, while banks, supplying those instruments, have typically “flown to safety” restricting their lending to existing clients.
Overall, according to interviewees in the report, the market contracted from at least 10 per cent on average from 2019 levels in volume and even greater in value because of furloughed projects and investments. Full recovery is only anticipated by end of 2021 at the earliest.
Banks interviewed mentioned that their main constraints revolved around risk uncertainties and macroprudential limitations to extend credit outside of their comfort zone, especially during a persisting pandemic.
