How International Trade Finance Has Reshaped Economic Growth
Posted by Liamh Smith on January 19th, 2021
International trade finance is the lifeline of global business. It is inexorably associated with exporters and importers.
It is essential for the growth of GDP. International trade finance impacts the economy. It is imperative to facilitate international trade finance as part of financial policy.
Regardless of a country’s economic standing in the world, it is equally important. Countries with trade-friendly policies are likely to grow, innovate and provide better opportunities.
Let’s examine why international trade finance is such an accelerating force for the economy.
International trade finance opens new horizons of business. In free markets, finance empowers exporters. It enables traders to explore new possibilities and mitigates risk levels.
International trade finance throws a lifeline to all cross border business transaction issues. It enables businesses to expand their global value chain and consequently generates employment and GDP growth.
It can also reduce inflation.
International trade finance has helped emerging markets to participate in global trade.
The Economic Landscape
The easier it is to make global transactions, the easier it is to move goods across borders. With technological advancement, International trade finance has evolved. This is primarily due to the opening of free markets, easy payment terms and the removal of certain exchange controls.
When foreign institutions invest in domestic markets, ease of trade and solid economic policies must be in place. Banks are a traditional source of financing. However, often this is not a feasible option, especially for small to mid-level businesses.
When the economy is opened to international markets, useful sources of finance become available to business. Working capital plays a central role in global trade. If businesses have sufficient working capital, they can quickly scale.
The History of Emerging Markets
Historically, International trade was complex and cumbersome. Traders had to go through long and cumbersome processes This was not viable for every business . As a result, many businesses were confined to within their domestic boundaries.
It wasn’t just the working capital constraint but complying with international regulations that was challenging as well. Businesses had to manage manufacturing, shipping and logistics.
• Lack of an ecosystem
• Inadequate infrastructure
• Complex regulations
• Poor investor sentiment
• Dominance by major market players
In the 1990s, the value of international trade started to become recognised.
There were certain issues to be addressed:
• Reducing risk. International trade always brings risk. Trade finance helps to reduce risk.
• International trade finance can help to secure transactions.
• Markets were not fully competitive. The dominance of state-sponsored large enterprises was a barrier to the true potential of entrepreneurs.
International trade finance fueled growth and transformed the markets and the economy.
Lower payment risk
International trade finance reviews the importer’s payment history and mitigates the risks associated with business transactions. Exchange currency fluctuations and volatile political situations are examples.
It can ensure that exporters receive payment on time and importers receive goods in agreed condition.
Sufficient working capital
SMEs often struggle to maintain cash flow. It directly impacts their productivity. It can confine them within certain boundaries and prevent expansion.
Trade finance assists with the required working capital to streamline workflow and eliminate monetary constraints.
Compliance with international regulations
Cross border transactions include a host of regulations.
Empowering small businesses
This is the primary purpose of international trade finance. It enables small businesses to compete with large enterprises.
These issues are difficult for SMEs to overcome without trade finance. Traditional banks finance may not be viable. International regulations can be difficult to understand and comply with.
International trade finance has evolved.
Free markets cannot be sustained without a robust ecosystem that facilitates both buyers and sellers. It essentially simplfies the complexities of supply chain and expedites business operations through export import finance that bridges the gap to accelerate growth.
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About the AuthorLiamh Smith
Joined: December 3rd, 2020
Articles Posted: 3
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