Trade financing inadvertently falls short to the needs of even the viable transactions from smaller firms. In 2018, an average of 57 percent of the total value of trade finance applications from firms in Central Asia Regional Economic Cooperation (CAREC) were rejected, almost half of which no longer seek alternative finance to push through a potentially viable trade activity. Applying the Heckman two-step correction model to analyze a cross-section of firms in various waves of the ADB’s Trade Finance Gaps, Growth, and Jobs Survey, the paper validates that smaller firms experience higher incidence of trade finance rejections relative to larger firms, owing largely to their unfavorable financial health and history. Interestingly, the results suggest the potential of fintech in reducing the unduly high incidence of trade finance rejections among smaller firms, thus advancing financial inclusion. The paper maps the financial ecosystem in CAREC countries and explores the potential opportunities and limitations of fintech adoption and entry points for intraregional cooperation. Policy proposals put strong emphasis on efficient financial structures, effective regulatory frameworks, and the needed capabilities to advance inclusive trade and finance.

JEL codes: G21, G23, G28, O16