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### Need for comprehensive trade finance data
- About 80 percent of international trade is financed by some form of trade credit (WTO 2017), most of which is short term and thus vulnerable to shocks.
- The 2008–09 Global Financial Crisis prompted a large-scale $250 billion trade finance program to channel liquidity via the banking sector into the real economy.
- Comprehensive data on international trade finance are not available; such data are needed to assess whether targeted interventions were adequate and effective.
- A global stand-alone dataset should capture:
  - the level of outstanding trade finance,
  - its terms,
  - the main providers,
  to support policy analysis and early warning of liquidity crunches.
- The dataset should be consistent with: System of National Accounts 2008 (2008 SNA), BPM6, GFSM2014, MFSMCG, and the External Debt Statistics Guide for Compilers and Users (2013 EDS).

### Structural changes in trade finance markets
- Market innovations driven by global value chains (GVCs) and integrated physical/financial supply chains.
- Structural shifts include:
  - Phasing out of bank-intermediated Letters of Credit (L/Cs) in many cases.
  - Movement toward inter-firm open account trading, often supplemented by third-party financing of suppliers.
  - Growth in providers and borrowers, including SMEs as third-party suppliers, producers, and distributors within GVCs.
- Data collection templates must reflect market innovations and the broader set of providers and instruments.

### Role of SMEs and direct investment relationships
- SMEs within direct investment (DI) relationships often access internal capital markets, intra-company netting, retained earnings, commercial papers, or in-house banks, or are financed via parent equity or debt.
- SMEs at arm’s-length are more vulnerable to liquidity constraints and less likely to be served by traditional lenders.
- Integration of trade finance and value chains to promote SME participation is important for economic growth.
- Financial disruptions at a supplier can produce ripple effects across upstream and downstream firms; the 2008 crisis highlighted systemic risks to supply chains.

### New providers and instruments: Fintechs and SCF
- Fintechs characteristics:
  - Non-bank institutions using digitized technologies; not currently subject to bank regulations, transparency, consumer protection, or capital requirements.
  - Specialize in risk-assessment and evaluation models, cost-reduction via automation, onboarding suppliers, and managing buyer-supplier relationships.
  - Provide Supply Chain Finance (SCF) solutions allowing suppliers to raise finance based on the credit-rating of the company at the head of the supply chain; early payment is bridged by a third-party.
  - May qualify as money-creating intermediaries providing loans to goods suppliers and use securitization markets to raise trade finance capital.
- “Fintegration”: collaboration between Fintechs and banks; Fintechs increasingly see major financial institutions as partners or shareholders.
- Fintech offerings include marketplace lending, micro-lending, and “robo-investment platforms.”

### Blockchain and smart contract innovations
- Blockchain can act as a digital ledger to record and verify transactions, facilitating tracking and tracing across multiple actors and integrating necessary information into one digital document.
- Cited benefits:
  - Improved efficiency and transparency.
  - Secure digital records and improved traceability along the supply chain.
  - Ability to trace change of ownership and unlock payments.
- Smart contracts: self-operating programs that automatically execute when agreed triggering events occur (e.g., a scanned arrival code), potentially replacing manual documentary verification by correspondent banks.
- Pilot projects and proof-of-concepts involve tech companies, global banks, credit insurers, and logistic providers; industrialization may take time.

### Trade finance instruments and working capital management (Box 1)
- Working capital fundamentals:
  - Working capital ratio = current assets/current liabilities.
  - Suppliers seek early payment; buyers seek delayed payment; balanced cash management is a liquidity-versus-profitability trade-off.
  - Supplier responses to slower cash collection include: extend the credit line; take out short-term bank debt; use accounts receivable as collateral; extend payables.
  - Friction between suppliers’ and buyers’ objectives was magnified during the 2008 financial crisis.
- Letters of Credit (L/Cs):
  - About 91 percent of all L/Cs are used for cross-border transactions.
  - L/Cs overcome lack of trust due to distance, country risk, and legal differences; also used domestically where relationships are unestablished.
  - Suppliers receive financing at advanced points in the transaction cycle; L/Cs are costly, complex, often paper-based.
  - SMEs in developing countries often face structural constraints: large collaterals, high fees, long waiting times, foreign currency risks, and time restrictions.
  - Macroeconomic statistics capture trade credits and advances but do not cover L/Cs and other short-term documentary credits or guarantees (these are off balance sheet instruments).
- Open account trading:
  - May account for as much as 70–90 percent of trade finance.
  - Buyers may take 30, 60, or up to 120 days to settle invoices.
  - Open account trading is most attractive to buyers and least secure for suppliers.
  - Rejected trade finance requests from SMEs and the global financial and economic crisis exposed an incomplete market with demand exceeding supply.
- New SCF solutions:
  - SCF uses the largest company’s superior credit rating to give lower-rated suppliers access to financing at more favorable rates, lengthening buyer payment terms and shortening supplier terms.
  - Operational flow: suppliers upload invoices to a portal; buyer approves; SCF provider transfers full invoice less a financing fee to supplier; at maturity buyer pays the finance provider (if sold) or supplier’s bank account (if not).
  - Expectations: Internet of Things (IoT) and smart contracts could enable real-time tracking and big data sources.
  - Unmet demand estimates: more than US$90bn for Africa and $425bn for Asia annually.
  - ICC 2018 Global Survey: respondents estimated processing about $9 trillion global value of trade finance transactions during 2017; 43 percent of respondents said that SCF rose in 2017 compared to traditional techniques.
  - SCF categories:
    - Approved Payables/Receivables Financing: supplier’s claim moves off its books; supplier receives advance less a discount.
    - Loan/advance against collateral: loans recorded as liabilities; suppliers repay loans at maturity with interest on an accrual basis.
    - Special cases: loan/advances against inventory (asset-based financing, Finetrading); inventory repurchase (repo) or buy-back agreements.
    - Finetrading: Finetrader acquires goods and pre-finances them on behalf of the buyer for a defined financing period.
- Secondary markets and securitization:
  - Fintechs access securitization markets by issuing securities backed by trade receivables.
  - Trade receivables securitizations nearly halted during the global financial crisis.
  - Fintech platforms can structure receivables and match them with investors, enabling risk transfer beyond banks; SCF and securitization may contribute to a decrease in financial stability depending on market size.

### Macroeconomic measurement gaps and how trade finance appears in statistics
- No comprehensive global dataset separately covering trade finance statistics currently exists.
- Standard classifications (2008 SNA and BPM6) cover equity, debt instruments and other financial assets/liabilities, but trade finance spans a wider range requiring additional breakdowns.
- Traditional L/Cs are contingent instruments, off-balance sheet, and not recorded as financial assets—extensions to macro-statistical frameworks are required.
- How trade finance appears:
  - Trade credits and advances: capture open-account trade finance directly between exporter and importer; do not include loans to finance trade (classified as loans).
  - Loans – short-term: include loans to finance trade from banks or non-bank financial institutions not in the form of securities.
  - Debt securities – short-term: include bankers’ acceptances eligible for rediscounting.
  - Direct investment external sector statistics—debt instruments: include trade finance extended between affiliates.
- Many trade-financing categories (third-party working capital financing, traditional bank-intermediated techniques, newer SCF instruments) are not separately distinguished or captured.
- Trade credits and advances are often not directly measured but approximated or calculated as a residual item.
- Existing attributes in other investment data (institutional sector, original maturity, currency composition) provide bases for liquidity or solvency assessment but lack a direct link to trade.

### Proposed scope and data template focus (Satellite Table)
- Purpose: collect information on main players and instruments:
  - Main players: financial corporations (FCs), non-financial corporations (NFCs) including Fintechs.
  - Instruments: open account, Supply Chain Finance (SCF), and traditional trade finance (including L/Cs).
- Satellite table features:
  - Modelled on institutional sector accounts showing liabilities of one sector as assets of the other.
  - Side-by-side cross-border and domestic finance relationships.
  - Inclusion of contingent accounts payable and receivable (off-balance sheet).
  - Memo items capturing country-specific complementary support programs (e.g., export credit agencies).
- Three broad instrument categories covered:
  - a. Open-account inter/intra-firm trade finance: Trade credits; Trade advances.
  - b. Supply chain financing (SCF) and other working-capital-related financing:
    - i. Payables Finance (Receivables Discounting, Forfaiting, Factoring).
    - ii. Receivables Finance (early discounted payment for accounts receivable).
    - iii. Loan/Advance against Receivables (advances collateralized with receivables).
  - c. Traditional bank-intermediated instruments: types of letters of credit and similar instruments; off-balance sheet until conditions are met.
  - d. Memo item on private and public export credit agencies: credit lines (drawn; by maturity), credit guarantees, short-term lending of working capital, others.
- Table design notes:
  - NFCs = nonfinancial corporations (buyers and/or suppliers).
  - FCs = financial corporations.
  - Further breakdown of FCs into other depository corporations (ODCs) and other financial corporations (OFCs) would facilitate consistency with external sector and financial sector statistics.
  - Information about securitized trade receivables could be included separately.
  - Cells shaded in grey are not applicable (e.g., inter/intrafirm trade credits are only between NFCs).

### Indicators, data compilation challenges and recommended sources
- Key analytical uses of a satellite table:
  - measure overall size of trade finance and market shares of banks versus Fintech to evaluate systemic risks;
  - inform on market shares of bank-intermediated and interfirm financing products to assess resilience before, during, and after uncertainties;
  - facilitate comprehensive and reliable data on trade finance flows for targeted policy interventions.
- Compilation challenges:
  - Avoid omissions and double counting.
  - Conceptual issues combining contingent trade finance (e.g., L/Cs) with existing instruments (e.g., trade credits, loans).
  - Third-party intermediation (e.g., Payables Finance) can extinguish instruments in supplier books while appearing on intermediary books.
- Recommended data sources and institutional arrangements:
  - Collect open-account trade credits directly from NFCs.
  - Source data from financial intermediaries to capture off-balance sheet L/Cs and SCF intermediation, as well as direct loans and advances to suppliers/buyers.
  - Hybrid systems combining existing and new data sources may be necessary.
  - Close collaboration between national statistical agencies and adherence to international standards.
  - Separate surveys could target companies in supply chains and active in import/export business.
  - Breakdown into “between related and between unrelated at arms-length buyers and suppliers” is of particular analytical interest.
- Historical precedents:
  - IMF and BAFT conducted four ad hoc surveys of banks between 2008 and 2010 on volume, prices, and drivers of trade finance; World Bank sponsored a bank and company survey in 14 developing countries.
  - G20 and BOPCOM have requested coordinated, comprehensive, and regular collection of trade credit; BOPCOM supported developing a proposal.

### Conclusion — key findings and proposals
- Existing macroeconomic datasets do not adequately capture the large and growing trade finance market.
- The paper proposes a template to build a global new dataset of the main instruments and institutions comprising the trade finance market.
- Methodological consistency:
  - The proposed table is consistent with macroeconomic statistical methodology, notably the 2008 SNA, BPM6, and MFSM.
  - It proposes additional instruments and further breakdowns of institutions.
- Reception and next steps:
  - The satellite Table of Comprehensive Trade Financing was presented to BOPCOM; during the 2018 meeting, members agreed on the analytical usefulness of a framework for collecting and disseminating data on trade finance.
  - Pilot tests will review data availability, discuss data collection with a small sample of relevant companies, and provide suggestions on changes or refinements during the 2019 BOPCOM meeting.
  - Pilot testing may result in a hybrid system combining existing and new data sources.

### Annex I highlights — Accounts receivable centric SCF and Forfaiting
- SCF definition (Global Supply Chain Finance Forum): financing and risk mitigation practices/techniques to optimize management of working capital and liquidity in supply chain processes and transactions; typically applied to open account trade and triggered by supply chain events; visibility of underlying trade flows is necessary and can be enabled by a technology platform.
- Accounts receivable centric techniques (supplier-led):
  - Supplier can sell all or parts of outstanding claims to a financial intermediary that takes full legal and economic ownership; supplier receives advance less a discount.
  - (1) Receivables Discounting:
    - Reserved usually for investment-grade suppliers with a minimum credit rating.
    - Can be “without recourse” (finance provider bears buyer non-payment risk).
    - At maturity buyers pay invoice amounts into: (i) supplier’s bank account with limited access; (ii) finance provider’s account; or (iii) supplier’s account without restriction.
  - (2) Forfaiting:
    - Forfaiter purchases, without recourse, future payment obligations and trades these as negotiable debt instruments on the secondary forfaiting market.
    - Used in international trade, mostly medium-to-long-term maturities, common in large sales of capital goods.
    - Transaction flow: buyer obtains a bank guarantee and provides documents; supplier receives 100 percent cash payment against delivery of the payment obligation; forfaiter collects future payments plus forfaiting costs via guarantor.
    - Risk allocation: without-recourse sale eliminates supplier risk; forfaiter charges for credit risk and political, commercial, and transfer risk.
    - Pricing linked to loan length, currency, and repayment structure; costs higher than commercial bank financing but more cost effective than traditional trade finance tools.

*Source: IMF working paper extract — “Trade Finance Data to Support Macroeconomic Policy Analysis,” sections I–II; IMF Staff.*

### 1. Proposed Satellite Table of Comprehensive Trade Financing (Liabilities of the Resident

### 1. Proposed Satellite Table of Comprehensive Trade Financing (Liabilities of the Resident Sectors)

### Need for comprehensive trade finance data
- About 80 percent of international trade is financed by some form of trade credit (WTO 2017), most of which is short term and thus vulnerable to shocks.
- The 2008–09 Global Financial Crisis prompted a large-scale $250 billion trade finance program to channel liquidity via the banking sector into the real economy.
- Comprehensive data on international trade finance are not available; such data are needed to assess whether targeted interventions were adequate and effective.
- A global stand-alone dataset should capture the level of outstanding trade finance, its terms, and the main providers to support policy analysis and early warning of liquidity crunches.
- The dataset should be consistent with major macroeconomic statistical manuals: System of National Accounts 2008 (2008 SNA), BPM6, GFSM2014, MFSMCG, and the External Debt Statistics Guide for Compilers and Users (2013 EDS).

### Structural changes in trade finance markets
- Trade finance markets have undergone significant innovation driven by globalized production patterns and integrated physical and financial supply chains (GVCs).
- Structural shifts include:
  - Phasing out of bank-intermediated Letters of Credit (L/Cs) in many cases.
  - Movement toward inter-firm open account trading, often supplemented by third-party financing of suppliers.
  - Growth in the number of providers and borrowers, including SMEs participating as third-party suppliers, producers, and distributors within GVCs.
- Data collection templates must reflect these market innovations and the broader set of providers and instruments.

### Role of SMEs and direct investment relationships
- SMEs that are part of direct investment (DI) relationships often access internal capital markets, intra-company netting, retained earnings, commercial papers, or in-house banks, and may be financed via parent equity or debt.
- SMEs at arm’s-length are more vulnerable to liquidity constraints and less likely to be served by traditional lenders.
- Integration of trade finance and value chains to promote SME participation is important for economic growth.
- Financial disruptions at a supplier can produce ripple effects across upstream and downstream firms in the value chain; the 2008 crisis highlighted the systemic risks to supply chains.

### New providers and instruments: Fintechs and SCF
- Fintechs are important new players in trade finance, offering digitalized services and targeting SMEs, especially in developing countries.
- Characteristics of Fintechs:
  - Non-bank institutions using digitized technologies; not currently subject to bank regulations, transparency, consumer protection, or capital requirements.
  - Specialize in risk-assessment and evaluation models, cost-reduction via automation, onboarding suppliers, and managing buyer-supplier relationships.
  - Provide SCF solutions that enable suppliers to raise finance based on the credit-rating of the company at the head of the supply chain; early payment is bridged by a third-party.
  - May qualify as money-creating intermediaries providing loans to goods suppliers and use securitization markets to raise trade finance capital.
- “Fintegration”: collaboration between Fintechs and banks; Fintechs increasingly see major financial institutions as partners or shareholders.
- Fintechs use big data and cloud-based technology and offer marketplace lending, micro-lending, and “robo-investment platforms.”

### Blockchain and smart contract innovations
- Blockchain can act as a digital ledger to record and verify transactions, facilitating tracking and tracing across multiple actors and integrating necessary information into one digital document.
- Benefits cited:
  - Improved efficiency and transparency.
  - Secure digital records and improved traceability along the supply chain.
  - Ability to trace change of ownership and unlock payments.
- Smart contracts are self-operating programs that automatically execute when agreed triggering events occur (e.g., a scanned arrival code), potentially replacing manual documentary verification by correspondent banks.
- Pilot projects and proof-of-concepts are under way involving tech companies, global banks, credit insurers, and logistic providers, but industrialization of solutions may take time.

### Trade finance instruments and working capital management
- Trade finance instruments help firms bridge the funding gap between paying suppliers and receiving payment from buyers; suppliers require timely funding for material and labor.
- Working capital management decisions have implications across supply chain partners and influence shareholder value via fixed and working capital efficiency, operating cost reduction, revenue growth, and tax minimization.
- Traditional instruments:
  - Letters of Credit (L/Cs) are buyer-centric, bank-intermediated guarantees that transfer buyer default risk to the issuing bank and typically require confirmation by a bank in the supplier’s country.
  - L/Cs remain important for mitigating risks in trade with high-risk destinations but are costly, complex, and often paper-based—factors contributing to shifts toward open account trading.
- New instruments and technological innovations have expanded the set of tools available for supply chain financing beyond traditional bank products.

### Proposed scope and data template focus
- The proposed satellite table seeks information on:
  - Main players: financial corporations (FCs), non-financial corporations (NFCs) including Fintechs.
  - Instruments: open account, Supply Chain Finance (SCF), and traditional trade finance (including L/Cs).
- Annex I provides detailed guidance for data compilers; Section III (not reproduced here) includes the proposed template and underlying accounting.
- International coordination (IMF, World Bank, WTO, OECD, and others) and volunteer country pilots have been used to assess feasibility; the G20 recommended coordinated, comprehensive, and regular collection of trade credit.

*Source: IMF working paper extract — “Trade Finance Data to Support Macroeconomic Policy Analysis,” sections I–II.*

### Box 1. Working Capital is the Starting Point for Trade Financing

### Box 1. Working Capital is the Starting Point for Trade Financing

### Working capital and trade financing fundamentals
- Working capital ratio (current assets/current liabilities) indicates whether a company has enough short-term assets to cover its short-term debt.
- Balanced cash management trade-off: liquidity versus profitability.
- Suppliers need to get paid as early as possible; buyers want to pay as late as possible.
- Supplier responses to slower cash collection:
  - extend the credit line;
  - take out short-term debt with their local bank;
  - use accounts receivable as collateral to raise cash;
  - extend their payables.
- Limited options for suppliers depending on size, location, and credit-worthiness; if alternative financing is not feasible, suppliers may need to slow down their business.
- The friction between suppliers’ and buyers’ objectives was severely magnified during the 2008 financial crisis.

### Letters of Credit (L/Cs)
- About 91 percent of all L/Cs are used for cross-border transactions.
- L/Cs are used mainly to overcome lack of trust due to distance, country risk and variations in legal requirements; also useful for domestic transactions where buyer and seller do not have an established relationship.
- From the supplier perspective, a weakness of L/C financing is financing is received at a very advanced point in the transaction cycle, stretching the time between the buyers-initiated purchase order to the approved invoice.
- Micro, small and medium-sized enterprises (SMEs), especially in developing countries, often face structural constraints: large collaterals against trade loans or high fees, long waiting times, costs with high coordination efforts, foreign currency risks, and time restrictions make L/Cs cumbersome.
- Availability of trade finance often depends on the extent to which the local banking sector is developed and internationally networked.
- Macroeconomic statistics capture trade credits and advances but do not cover L/Cs and other short-term documentary credits or guarantees (these are off balance sheet instruments).

*Source: IMF Staff.*

### Open account trading
- Open account trading is the principal alternative to traditional bank trade finance and may account for as much as 70–90 percent of trade finance.
- In open account trading, suppliers ship goods and documents directly to the buyer before payment is due.
- Buyers typically may take 30, 60, or up to 120 days to settle the invoice.
- Open account trading is the buyers’ most attractive option but the least secure for suppliers, who bear non-payment risk and working capital shortages.
- Traditionally limited to companies with long-term, well-established commercial relationships and low-risk markets; now pursued by companies of all sizes as alternatives to traditional instruments.
- Open account trading can force downstream suppliers to extend payment terms up to 120 days or pass on early payment discounts to cash-rich buyers, increasing suppliers’ reliance on costly loans or export credit insurance.
- Rejected trade finance requests from SMEs and the global financial and economic crisis exposed an incomplete trade finance market with demand exceeding supply.

### New Supply Chain Financing (SCF) solutions
- SCF: instruments allowing the largest company of a supply chain to use its superior credit rating to give lower-rated suppliers access to financing at more favorable rates.
- Benefits: lengthening payment terms for buyers and shortening them for suppliers, improving working capital for both.
- SCF providers include Fintechs or banks; enabled through integrated technology platforms (SCF portals).
- SCF operational flow:
  - suppliers upload invoices to the portal;
  - buyer approves the invoice for early payment by the SCF provider;
  - full invoice amount less a financing fee is transferred to the supplier’s bank account;
  - at maturity, buyer pays the due amount to the finance provider (if the supplier sold the invoice) or to the supplier’s bank account (if not).
- SCF concepts include digitized traditional instruments and new services; programs connect with multi-funding sources to handle multiple currencies and jurisdictions and to work with non-investment-grade or unrated companies.
- Expectations: Internet of Things (IoT) and smart contracts could allow real-time tracking of goods becoming a powerful big data source for real-time data.
- In developing economies, SCF could enable intermediaries to provide funding to SMEs by basing risk assessment on the creditworthiness of onboarding buyers.
- African Development Bank estimates unmet demand for trade finance: more than US$90bn for Africa and $425bn for Asia annually.
- ICC 2018 Global Survey on Trade Finance respondents estimated processing about $9 trillion global value of trade finance transactions during 2017, and 43 percent of respondents said that SCF rose in 2017 compared to traditional techniques.
- SCF categories:
  - Approved Payables/Receivables Financing: financial claims move from suppliers’ books to the SCF provider; SCF provider takes full legal and economic ownership; supplier receives advance payments less a discount; argued attraction: no additional debt creation on either side—only extension of payables for the buyer and a true sale of receivables by the supplier.
  - Loan/advance against collateral: loans recorded as liabilities in beneficiary’s balance sheet; suppliers repay loans upon maturity with interest on an accrual basis.
  - Special cases:
    - loan or advances against inventory (asset-based financing where finance provider obtains title over goods as collateral, e.g., Finetrading);
    - inventory repurchase (repo) agreements or buy-back agreements where inventory stays on the balance sheet and funds received are recorded as liability until repurchase.
  - Finetrading: Finetrader acquires goods and pre-finances them on behalf of the buyer for a defined financing period; for buyers: reduced inventory and improved working capital; for suppliers: immediate payment; typically provided by intermediaries other than banks.

### Secondary markets and securitization
- Fintechs access securitization markets to finance SMEs by issuing securities backed by trade receivables.
- Trade receivables securitizations nearly halted during the global financial crisis.
- Fintech platforms can select and structure eligible receivables and match them with investors, enabling risk-transfer from banks to a wider pool of investors beyond the banking sector.
- Depending on market size, SCF and securitization may contribute to a decrease in financial stability.

### Macroeconomic measures of trade finance
- No comprehensive global dataset separately covering trade finance statistics currently exists.
- Standard financial account classifications (2008 SNA and BPM6) cover equity and investment fund shares, debt instruments, and other financial assets and liabilities, but trade finance encompasses a wider range of instruments requiring additional breakdowns.
- Traditional L/Cs are considered contingent instruments, off-balance sheet, and not recorded as financial assets—extensions to macro-statistical frameworks are required to measure domestic and cross-border trade finance accurately.
- Most used instruments in traditional trade and supply chain finance are diverse and not fully captured in standard macroeconomic statistics.

### How trade finance appears in macroeconomic statistics
- Trade credits and advances: record trade finance obtained through open accounts or cash-in-advance directly between exporter and importer; do not include loans to finance trade, which are classified as loans.
- Loans– short-term: include loans to finance trade obtained from banks or other non-bank financial institutions not in the form of securities.
- Debt securities – short-term: refer to bankers’ acceptances eligible for rediscounting in a secondary bankers’ acceptance market; usually classified as debt securities.
- Direct investment in external sector statistics—debt instruments: includes trade finance extended between affiliated companies.
- Apart from trade credits and advances, other instruments do not require a breakdown to separately identify transactions/positions linked to trade financing; many trade-financing categories (third-party working capital financing, traditional bank-intermediated techniques, newer SCF instruments) are not separately distinguished or captured.
- Trade credits and advances are often not directly measured but approximated using estimation techniques or calculated as a residual item.
- Existing attributes in other investment data (institutional sector, original maturity, currency composition) provide bases for liquidity or solvency assessment but lack a direct link to trade.

### Compilation of a satellite table on trade finance
- G20 acknowledged insufficient international statistics on trade finance and asked to coordinate a comprehensive and regular collection of trade credit.
- BOPCOM supported developing a proposal for collecting trade finance information.
- Current trade finance instruments in macroeconomic statistics are spread over different functional categories, combined with other instruments, and often proxied or imputed.
- No separate breakdown is available on third-party supply chain financing; current data sources may not capture the variety of traditional and new SCF instruments.
- A single satellite table would:
  - provide a measure of overall size of trade finance and market shares of banks versus Fintech to evaluate systemic risks;
  - inform on market shares of bank-intermediated and interfirm financing products to assess resilience before, during, and after uncertainties;
  - facilitate comprehensive and reliable data on trade finance flows for targeted policy interventions.
- Several countries already have datasets capturing important segments of their trade finance markets (some focusing on domestic borrowing, others on cross-border activities); off-balance sheet items of banks are generally excluded.
- Historically, to fill the data gap during the global financial crisis, the IMF and the Bankers' Association for Finance and Trade (BAFT) conducted four ad hoc surveys of banks between 2008 and 2010 on volume, prices, and drivers of trade finance; the World Bank sponsored a bank and company survey in 14 developing countries.

*Source: IMF Staff.*

### 2009. Regular surveys of banks’ strategies and business outlooks for trade financing are

### wpiea2019165-print-pdf - 2009. Regular surveys of banks’ strategies and business outlooks for trade financing are

### C. The Indicators of the Satellite Table on Trade Finance
- The proposed satellite table is modelled on a template of institutional sector accounts showing liabilities of one sector as assets of the other (Table 1).
- The term "satellite table" uses standard macroeconomic-manual terminology.
- Table features:
  - Side-by-side cross-border and domestic finance relationships.
  - Items from external sector statistics covered under different functional categories.
  - Inclusion of contingent accounts payable and receivable that are off-balance sheet.
  - Memo-items that capture country-specific information on complementary support programs.
- Table 1 displays resident sectors liabilities vis-à-vis resident (domestic) and nonresident (cross-border) sectors by instrument; the mirror table would show the asset side.
- Table 2 shows derived accounting entries for instruments in the books of the supplier, buyer, and financial intermediary.

### Scope: Three broad categories of trade finance instruments covered in the Satellite Table (Table 1)
- a. Open-account inter/intra-firm trade finance
  - Trade credits
  - Trade advances
- b. Supply chain financing (SCF) and other working-capital-related financing, comprising three main SCF categories (see Annex I):
  - i. Payables Finance: supplier exchanges its claim on the buyer for a deposit with the financial intermediary. Instruments include Receivables Discounting, Forfaiting, and Factoring.
  - ii. Receivables Finance: supplier receives early discounted payment for accounts receivable; early financing is for 100 percent of the receivables less a discount; buyer pays the financial intermediary directly.
  - iii. Loan/Advance against Receivables: financial intermediary provides advances or loans to suppliers collateralized with future or current receivables.
- c. Traditional bank-intermediated instruments
  - Different types of letters of credit and similar instruments
  - Off-balance sheet until conditions are met and change of ownership established
  - Note: Double-counting needs to be avoided for “loans backed by letters of credit or other trade-related documentation” (see MFSMCG paragraph 4.114).
- d. Memo item on private and public export credit agencies
  - Provides information on programs in place, e.g., short-term lending of working capital, credit lines or credit guarantees for specific market segments, regional trade or supply chain operations.

### Table 1: Structure and instrument/sector mapping (summary of layout and notes)
- Table 1 shows liabilities of resident sectors and assets of:
  - Finance providers (FCs or Fintechs)
  - NFCs (cross-border/domestic; affiliated/non-affiliated)
- Categories listed include:
  - Open account inter/intra-firm trade financing: Trade credits (NFC), Trade advances (NFC)
  - SCF or other working-capital-related financing:
    - Receivables / Payables Finance: Loans, short-term (long-term) (NFC); Deposits (FC)
    - Loan/Advance based Finance: Trade credits (NFC); Collateralized loans (Receivables or Inventory) (NFC); Deposits (FC)
  - Traditional bank-intermediated instruments (L/Cs; etc.) / off-balance sheet: Contingent accounts payable (NFC/FC); Contingent accounts receivable (NFC/FC)
  - Memo items — Private / public export credit agencies (cross-border/domestic):
    - Credit lines (drawn; by maturity) (NFC)
    - Credit guarantees (NFC)
    - Short-term lending of working capital (NFC)
    - Others (NFC)
- Notes:
  - NFCs = nonfinancial corporations (buyers and/or suppliers)
  - FCs = financial corporations
  - Further breakdown of FCs into other depository corporations (ODCs) and other financial corporations (OFCs) would facilitate consistency with external sector and financial sector statistics.
  - Information about securitized trade receivables could be included separately.
  - Cells shaded in grey are not applicable (e.g., inter/intrafirm trade credits are only between NFCs).
- Source: IMF Staff.

### Data compilation challenges and recommended sources
- Challenges:
  - Avoiding omissions and double counting.
  - Conceptual issues combining contingent trade finance (e.g., letters of credit) with existing instruments (e.g., trade credits, loans).
- Potential data source strategies:
  - Collect open-account trade credits directly from NFCs.
  - Source data from financial intermediaries to capture off-balance sheet data on L/Cs and all SCF intermediation, as well as direct loans and advances to suppliers/buyers for supply chain working capital.
  - Recognize that when a supplier sells a claim (Payables Finance), the instrument may be extinguished in the supplier’s books but appear on the financial intermediary’s books; suppliers may sell parts of outstanding claims.
- Institutional arrangements:
  - Data compilation requires close collaboration between a country’s statistical agencies and adherence to international standards.
  - A hybrid system combining existing and new data sources may result.
  - Existing surveys may need more detailed reporting instructions; separate surveys could target companies in supply chains and active in import/export business.
  - A substantive portion of information could be gathered from trade finance departments of banks.
  - A breakdown into “between related and between unrelated at arms-length buyers and suppliers” would be of particular analytical interest.

### IV. Conclusion — key findings and proposals
- Existing macroeconomic datasets do not adequately capture the large and growing trade finance market.
- The paper proposes a template to build a global new dataset of the main instruments and institutions comprising the trade finance market.
- Consistency and methodology:
  - The proposed table is consistent with macroeconomic statistical methodology, notably the 2008 SNA, BPM6, and MFSM.
  - It proposes additional instruments and further breakdowns of institutions.
- Reception and next steps:
  - The satellite Table of Comprehensive Trade Financing was presented to BOPCOM; during the 2018 meeting, members agreed on the analytical usefulness of a framework for collecting and disseminating data on trade finance.
  - Data requirements go beyond external sector statistics to include monetary and financial statistics, business statistics, and off-balance sheet data.
  - Pilot tests can identify effective ways to bring the data together:
    - Pilot countries will review data availability, discuss data collection with a small sample of relevant companies, and provide suggestions on changes or refinements during the 2019 BOPCOM meeting.
    - Pilot testing may result in a hybrid system combining existing and new data sources.

### Annex I — New Supply Chain Finance (SCF) Instruments in more detail (Accounts Receivable Centric SCF)
- Definition context:
  - Based on suggested terminology and grouping by the Global Supply Chain Finance Forum.
  - SCF defined: use of financing and risk mitigation practices and techniques to optimize management of working capital and liquidity in supply chain processes and transactions; typically applied to open account trade and triggered by supply chain events; visibility of underlying trade flows by finance provider(s) is necessary and can be enabled by a technology platform.
- Accounts receivable centric techniques (supplier-led programs):
  - Background:
    - Accounts or trade receivables are outstanding invoices that a supplier has vis-à-vis the buyer; recorded as short-term claims.
    - Supplier can sell all or parts of outstanding claims to a financial intermediary that takes full legal and economic ownership; in return supplier receives working capital in the form of advance payments less a financial service charge (discount).
  - (1) Receivables Discounting
    - Allows suppliers with outstanding short-term invoices (mostly vis-à-vis multiple buyers) to sell receivables to a finance provider at a discount.
    - Usually reserved for investment-grade suppliers with a minimum credit rating.
    - Finance provider can offer full or partly “without recourse” financing; i.e., supplier can remove accounts receivable completely or partly from its balance sheet and the finance provider bears the risk of buyer non-payment.
    - Trade credit insurance can limit the finance provider’s risk exposure.
    - Transaction can be made with or without buyers’ knowledge; in some cases buyers may be asked to validate their accounts payables.
    - At maturity, buyers pay invoice amounts into one of:
      - (i) supplier’s bank account with limited access rights of the supplier;
      - (ii) finance provider’s account (the finance provider need not be a bank); or
      - (iii) supplier’s account without restriction, adding risk for the finance provider.
    - Buyer benefits: extended credit terms; Supplier benefits: increased short-term liquidity; Finance provider benefits: services in a relatively stable non-speculative financial environment.
  - (2) Forfaiting
    - Export-oriented SCF where a forfaiter purchases from the supplier, without recourse, future payment obligations and trades these as negotiable debt instruments (bills of exchange, promissory notes, or L/Cs) on the secondary forfaiting market.
    - These payment instruments are legally independent from the underlying trade and require a guarantee by a third party (normally the buyer’s bank).

*Source: IMF Staff.*

### Annex Figure 2. Forfaiting

### Annex Figure 2. Forfaiting

### Mechanism and transaction flow
- Forfaiting occurs in two market settings:
  - Secondary market: forfaiters deal with financial investors.
  - Primary market: the supplier approaches the forfaiter before signing the contract with the buyer.
- Transaction mechanics:
  - The buyer obtains a bank guarantee and provides the documents that the supplier requires to complete the forfaiting.
  - The supplier receives 100 percent cash payment against delivery of the payment (debt) obligation.
  - After receiving 100 percent cash payment, the supplier has no further interest in the transaction, because the forfaiter must collect the future payments plus forfaiting costs (included in the invoice price) via the guarantor from the buyer.

### Maturities, typical uses, and scope
- Forfaiting involves mostly medium-to-long-term maturities.
- It is most commonly used in large, international sales of capital goods.
- Forfaiting is only used in international trade financing.

### Risk allocation and pricing
- Without-recourse sale eliminates all risks for the supplier.
- The forfaiter charges for:
  - credit risks; and
  - covering the political, commercial, and transfer risk related to the importing country.
- The pricing charged by the forfaiter is linked to:
  - the length of the loan;
  - the currency of transaction; and
  - the repayment structure.
- Costs:
  - The costs are higher than commercial bank financing, but more cost effective than traditional trade finance tools.

### Economic and commercial implications
- Forfaiting helps suppliers:
  - trade with buyers of countries with high levels of risks; and
  - obtain a competitive advantage by being able to extend credit terms to their customers.
- From the supplier’s perspective, the without-recourse sale transfers future payment collection and associated risks to the forfaiter in exchange for immediate liquidity.

*Source: IMF Staff.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019165-print-pdf.pdf_