Global Trade Finance Market Report and Forecast 2024-2032

Global Trade Finance Market Outlook

The global trade finance market size reached approximately USD 45.79 billion in 2023. The market is projected to grow at a CAGR of 4.3% between 2024 and 2032, reaching a value of around USD 66.74 billion by 2032.

Key Takeaways

• A primary function of trade finance is to manage risks associated with international trade, including credit risk.

• Supply chain finance is a growing segment within trade finance, focusing on optimising working capital and strengthening supply chains.

• The trade finance market is undergoing significant digitalisation, with technologies like blockchain, AI, and the Internet of Things (IoT).

Trade financing represents a range of financial instruments and products used by companies to facilitate international trade and commerce and deals with domestic and international trade financing activities such as insurance, loan issuance, and lending, among others. It is essentially the fuel that drives global trade by mitigating the risks associated with transactions that involve multiple parties, often in different countries with different laws, customs, and levels of economic stability.

The trade finance market growth is being driven by the need to improve inventory management as well as increased digitalisation and the development of tools for risk management. The availability of easy procedures for short-term financing is another major advantage provided by the trade finance sector. Technological advances and enhanced strategic formulation, along with the adoption of structuring and pricing tools, also offer various opportunities for market growth. Rapid economic growth in emerging markets leads to an increase in import and export activities as businesses in these markets are increasingly seeking trade finance services to facilitate their international trade endeavours.

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Key Trends and Developments

Growth of sustainable and ethical trade financing; increased focus on SMEs; supply chain finance (SCF) growth; and cross-border collaboration and partnerships are the major trends in the trade finance market

Trade Finance Market Trends

Sustainable trade finance is an emerging trend that aligns financial services with sustainable development goals, focusing on supporting trade transactions that meet specific Environmental, Social, and Governance (ESG) criteria. This approach integrates sustainability considerations into financial operations, aiming to promote responsible business practices and contribute to a more sustainable global economy.

Trade finance instruments are increasingly used to support transactions involving goods and services that have a positive environmental impact. This includes the trade of renewable energy equipment, sustainable agriculture products, and other goods that contribute to environmental conservation and the reduction of carbon emissions, promoting the trade finance market expansion.

In October 2023, supply chain FinTech firm Twinco Capital, secured a significant financial boost by obtaining an additional facility of USD 53 million from BBVA Spark. This funding was a strategic move to support small to medium-sized enterprises (SMEs) in emerging countries by providing them with much-needed access to trade finance. The financial support from BBVA Spark was aimed at addressing a crucial gap in the market which is the lack of accessible financing options for SMEs in developing regions.

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Market Segmentation

“Trade Finance Market Report and Forecast 2024-2032” offers a detailed analysis of the market based on the following segments:

Banks occupy a dominant trade finance market share as they are instrumental in offering the services required for international trade

Banks offer various products and services to mitigate risks involved in international trade, such as credit risk, currency risk, and country risk which include export credit insurance, foreign exchange hedging, and political risk insurance.

Banks account for a major share of the market due to their pivotal role in providing the financial services and instruments necessary for facilitating international trade. Banks issue LCs, which are one of the most common and trusted instruments in trade finance. An LC provides a guarantee from a bank that payment will be made to the exporter, provided that the terms and conditions stated in the LC are met which reduces the payment risk for exporters and the non-delivery risk for importers.

Meanwhile, trade finance houses, also known as specialist trade finance institutions, hold a substantial share of the trade finance market alongside traditional banks. These institutions specialise in providing trade financing solutions and services, and they play a crucial role in facilitating international trade, particularly for small and medium-sized enterprises (SMEs) and in markets where access to traditional banking services may be limited or more restrictive.

Trade finance houses specialise in trade finance and often possess deep expertise in this field and understand the complexities of international trade, including the various risks and regulatory requirements, and can provide tailored solutions to meet the specific needs of businesses.

Exporters and importers account for the majority of the trade finance market share as they form a crucial part of the international trade

Companies involved in export services face the risk of non-payment or delayed payment from foreign buyers. Trade finance instruments like letters of credit (LCs) provide assurance to exporters that they will receive payment, as the issuing bank guarantees payment upon fulfilment of the terms in the LC. Trade finance solutions help exporters manage their cash flow as export transactions can have long lead times, and exporters often need to invest in producing or procuring goods long before they receive payment.

The importers, who are key participants in international trade, also influence the overall demand. Importers, or businesses that purchase goods or services from foreign countries, face unique risks and challenges when engaging in cross-border transactions. Trade finance provides importers with a variety of financial tools and services to facilitate and secure their international purchases and contribute to the trade finance market development. Importers are concerned about the risks associated with the non-delivery or delayed delivery of goods and trade finance instruments like letters of credit (LCs) offer assurance to importers by ensuring that payment is only made upon the confirmation that the goods have been shipped as per the contractual agreement.

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Competitive Landscape

The market players are increasing their collaboration efforts and are focusing on mergers and acquisitions to gain a competitive edge in the market

Other players include BNP Paribas, HSBC Holdings PLC, Euler Hermes, and Standard Chartered Bank, among others.

The players in the trade finance market are increasingly collaborating to promote green trade finance as part of a broader shift towards sustainable business practices and environmental stewardship. Companies are recognising the importance of addressing environmental challenges such as climate change, resource depletion, and pollution and by collaborating, they can pool their resources, expertise, and influence to support environmentally sustainable trade practices.

Trade Finance Market Analysis by Region

The demand for trade finance in North America is shaped by a variety of factors. North America, primarily driven by the economies of the United States and Canada, features robust economic activity, including significant import and export operations. The need to finance and secure these trade activities fuels the demand for various trade finance solutions. With extensive global trade relationships, businesses in North America require trade finance services to mitigate the risks associated with international trade, including currency fluctuations, non-payment, and supply chain disruptions.

The Asia Pacific trade finance market is expected to continue to grow, driven by the region's robust economic development, expanding trade activities, and increasing technological improvements. Many countries in the Asia Pacific region are experiencing rapid economic growth, leading to an increase in trade activities both within the region and with the rest of the world and this growth fuels the demand for trade finance to support and secure these transactions.

Key Highlights of the Report

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