By Kanak Kansal, Researcher, Nitisara

With the world trade finance gap standing at a staggering value of $2.5 trillion and MSMEs experiencing rejection rates of more than 60%, the need to re-engineer trade financing is more pressing than ever before. This article examines ways in which solutions such as supply chain finance, digitised platforms, and blended finance have the potential to revolutionise India’s trade infrastructure. According to the ICC and the WTO, over 80% of global trade depends on some form of trade financing

Introduction

Cross-border trade, industrial manufacturing, and economic development depend on global supply chains, which are still vulnerable to disruptions due to geopolitical tensions, pandemics, logistical inefficiencies, and financial constraints. Trade financing is a vital leverage in improving the resilience and liquidity of such supply chains. The Asian Development Bank (ADB) puts the global trade finance gap in 2022 at $2.5 trillion, with more than 40% of MSMEs’ trade finance requests in emerging countries declined. This ongoing gap erodes the ability of small and medium-sized enterprises to compete internationally. Trade finance involves a set of financial instruments, such as letters of credit, export factoring, and supply chain finance that reduce counterparty risk and provide working capital availability throughout the trade cycle. With global consumption patterns moving toward quicker, more sustainable, and digitally tracked supply chains, the requirement for integrated and scalable trade finance platforms is all the more pressing. This piece examines the market of trade finance instruments, evaluates India’s institutional response, and uses international best practices to suggest the way forward.

Trade Finance Challenges in India

Despite having a range of export financing schemes, Indian exporters, particularly MSMEs, face acute difficulties in accessing and utilising trade finance. Key issues include:

1. Documentation Bottlenecks

India’s trade finance system still relies heavily on paper documentation. Exporters have to navigate between several agencies, such as customs, DGFT, banks, and port authorities, to ship a single consignment. As per DGFT’s Trade Facilitation Framework (2023), a typical export transaction incorporates more than 40 documents across 10+ agencies. The absence of digitized and standardized formats leads to duplication, manual mistakes, and time-consuming processing. This raises the cost of transactions and slows down disbursement of credit, particularly targeting small exporters who tend to have limited compliance teams.

2. Poor Access to MSMEs

Micro, Small, and Medium Enterprises (MSMEs) are the strength of India’s export industry but are poorly served in trade finance. Conventional banks tend to view MSMEs as risky because they have slender credit files, irregular cash flows, and poor access to formal banking. On average, only 38% of MSMEs in India succeed in accessing trade finance, leaving a large portion out of the formal credit system. This results in cash flow interruptions, lost export orders, and reliance on informal or high-interest lending channels.

3. High Perceived Risk and Legacy Credit Models

Indian financial institutions still depend on traditional risk assessment models that focus on balance sheets, collateral, and past performance. These models do not consider critical supply chain indicators like buyer ratings, purchase orders, or contract-backed receivables. Consequently, a large number of sound MSMEs are excluded from financing only because they have no fixed assets or a long credit history. The lack of dynamic, real-time risk assessment tools further magnifies financial exclusion and inhibits innovation.

4. Disjointed Platforms and Systemic Inconsistency

Failure to integrate the trade-related platforms like ICEGATE (Customs), DGFT websites, RBI platforms, and banking networks leads to time gaps and procedural variations. For example, delayed e-BRC (Electronic Bank Realization Certificate) generation or wrong submission may delay post-shipment credit sanctioning. Likewise, variation in invoice formats and manual reconciliation delay approval of export incentives and insurance claims. Such fragmentation not only heightens transaction friction but also erodes trust between exporters and financial institutions. 

5. Limited Awareness and Capacity Gaps

A large percentage of Indian MSMEs are not aware of the entire array of trade finance products that they can avail. Most are unaware of innovative instruments like supply chain finance, factoring. Financial literacy gaps, preparation of documentation, and knowledge about regulatory standards further limit their access to trade finance providers. Lacking proper training and advisory guidance, MSMEs are unable to make the best use of available resources or meet eligibility standards.

6. Insufficient Risk Mitigation Tools

Though the Export Credit Guarantee Corporation (ECGC) offers credit insurance, awareness and usage at MSMEs are limited. Claims take a long time to process, and there are gaps in coverage for high-risk markets or longer tenures. Accordingly, exporters are left vulnerable to payment defaults, currency fluctuations, and political risks—all discouragement factors for venturing into new markets or high-value contracts.

Innovations and Global Best Practices

1. Digitised SCF Platforms

Blockchain trade finance platforms like Komgo, Contour, and Marco Polo facilitate secure, instant verification of documents. The platforms minimize fraud, decrease operation costs, and accelerate transaction cycles. In Singapore, the platforms lowered document processing time by more than 60%.

2. Multilateral Agency Support

ADB’s Trade and Supply Chain Finance Program has financed over $50 billion annually, targeting risk-sharing partnerships with more than 240 banks. It supported over 10,000 SMEs in 2022 alone, demonstrating that structured support systems can de-risk cross-border trade.

3. Global Regulatory Standards

The ICC’s Uniform Rules for Digital Trade Transactions (URDTT) and Digital Trade Standards Initiative (DSI)  are propelling standardisation of digital documents. This supports cross-border trust and minimizes dependence on hard copies.

India’s Policy and Institutional Response

Scheme Name	Description
Interest Equalisation Scheme	Provides interest subsidies on pre-shipment and post-shipment export credit to make Indian exports more competitive.
Niryat Rin Vikas Yojana (NIRVIK)	Offers increased credit insurance coverage to exporters and simplifies the claim settlement process.
Export Credit Guarantee Corporation (ECGC)	Provides insurance support to Indian exporters to protect against payment risks in high-risk international markets.
EXIM Bank	Offers long-term credit and support for large-value, strategic export ventures, especially in developing markets.

Table 1: Key Government Schemes for Export Finance in India (Author’s own)

Digital Platform/Initiative	Purpose & Description
Trade Facilitation Portal (TFP)	A unified platform by DGFT integrating licensing, shipping, and customs documentation to streamline exports.
ICEGATE (Indian Customs Electronic Gateway)	A digital interface for filing customs documents, e-payments, and document tracking for exporters and importers.
e-BRC (Electronic Bank Realisation Certificate)	A system for electronically transmitting foreign exchange realization data from banks to DGFT for credit claims.
DGFT’s Online EXIM Policy Portal	Provides exporters with access to licensing, incentives, and trade policy-related services in a digitized format.
National Logistics Portal (Marine)	Digitizes end-to-end logistics services including cargo tracking, vessel details, and e-delivery orders.
Electronic Data Interchange (EDI)	Facilitates automated exchange of trade documents between exporters, customs, and other trade stakeholders.

Table 2:Digital Facilitation Infrastructure for Trade in India (Author’s own)

PPP Initiative	Purpose & Description
E-Commerce Export Hubs	PPP-led infrastructure supporting customs clearance, packaging, and logistics for online exporters under the National Logistics Policy.
Digitised Logistics Parks	Smart logistics hubs developed through PPPs with integrated warehousing, transport, and digital tracking systems to reduce turnaround time.
Warehouse Financing Frameworks	Private participation in digitally-linked warehousing that enables exporters to use goods as collateral for supply chain financing.
Freight Smart Cities	PPP-driven urban logistics solutions to reduce last-mile bottlenecks and integrate multimodal transport nodes.
Unified Logistics Interface Platform (ULIP)	Enables data exchange between private players and government systems to enhance logistics visibility and reduce paperwork.
Multimodal Logistics Parks (MMLPs)	Large-scale logistics parks with road, rail, and air connectivity being developed via PPPs to enhance export readiness.

Table 3: (Author’s own)Public-Private Partnerships (PPPs) in Trade Facilitation

Trade finance is not merely a transactional role but a strategic facilitator of competitive, durable supply chains. With India looking to achieve a $2 trillion export economy by 2030, its success in mobilising trade credit via integrated systems, international alliances, and smart risk management will decide the extent of its export ecosystem being inclusive and future-proof. With fintech innovations, robust institutional support, and targeted MSMEs, India can close the trade finance gap and spearhead the next phase of sustainable global trade.

References 

• https://content.dgft.gov.in/Website/TF.pdf 
• https://www.sciencedirect.com/science/article/pii/S1059056025003946 
• https://www.hklaw.com/files/Uploads/Documents/Articles/WhitePaper/SupplyChainWhitePaper.pdf 
• https://www.tradefinanceglobal.com/wp-content/uploads/2020/10/SME-Trade-Finance-Guide-for-Importers-and-Exporters_TFG.pdf 
• https://iccwbo.org/global-insights/global-trade/trade-and-supply-chain-finance/ 
• https://www.adb.org/what-we-do/trade-supply-chain-finance-program 
• https://unctad.org/system/files/official-document/itcdtab56_en.pdf 

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