Closing the Gap Without Missing the Firm
This final chapter answers the series’ central question: why can the firms that most need a letter of credit be the least able to obtain or use one? The subject is the interaction among firms, banks, counterparties, and trading corridors—not letters of credit in isolation. The final judgment is conditional. The evidence supports a structural access paradox and a set of mechanisms that can ease it, but it does not support claiming that one product, technology, or policy has already solved the global gap.
Why the paradox is structural
A letter of credit is valuable because it addresses a problem that the importer and exporter cannot safely solve alone. The exporter worries about non-payment after shipping; the importer worries about non-delivery after paying. Bank intermediation conditions payment on agreed documentary evidence and asks the importer to commit to the bank. This makes a risky transaction more credible, but it also creates work, documentation, collateral, liquidity, and monitoring costs.
The paradox follows from those two effects. When private information about a counterparty is weak, the risk-reduction value of the bank is high. But weak information also makes the bank’s verification task harder. A young or small firm may have a viable order and a real need for risk sharing while lacking the history, collateral, scale, or banking relationship that makes the transaction inexpensive to assess. The product becomes most useful at the same point where it is most difficult to provide.
This is not a contradiction in the ordinary sense. It is a predictable interaction between need and cost. The firm wants to exchange an unsafe private promise for a bank-backed commitment. The bank wants enough information and compensation to take on the monitoring and settlement risk. If the value of protection exceeds the full cost, the letter of credit can make trade possible. If the cost exceeds the benefit, the parties may use cash in advance, open account, another form of finance, or no trade. A firm’s non-use therefore does not reveal its situation until the alternative is known.
The firm-level evidence gives this structure empirical weight. In the Vietnamese study, firm-year variation accounts for 37.45% of the variation in import LC use and 25.02% of export use, compared with 5.63% and 11.58% for country-product-year variation. Those are explanatory shares within a 2016–2022 study of Vietnamese firms, not global rejection probabilities. Their importance is conceptual: payment choice is not merely a response to the product traded or the country entered. It is also a response to what the particular firm can show, afford, screen, and finance.
The same characteristic can improve one side of the calculation and worsen the other. Age, size, and productivity may lower bank monitoring costs, making an LC more affordable. Foreign ownership and accumulated importing experience may improve private screening or provide alternative finance, making an LC less necessary. The Vietnamese results reflect this competition. Existing LC users are, on average, older, larger, more productive, and more experienced than other traders, but foreign-owned importers are substantially less likely to use an LC in the main specifications. That pattern does not mean that one group is simply stronger. It means that the observed payment decision combines bank pricing, firm capability, relationship structure, and demand for protection.
Selection into trade makes the title’s implication sharper. The main payment-choice results concern firms that have already entered international markets. Within that selected population, larger importers are more likely to use LCs, consistent with lower costs and larger transactions. After a selection correction that considers the broader industrial-census population, the size relationship reverses: large firms may have more access to alternative finance, while smaller potential or first-time traders may depend more on bank intermediation when they can obtain it. The successful user is not necessarily the firm that was easiest to exclude; it may be the firm that was already able to cross the entry threshold.
The ADB evidence supplies the global scale that the Vietnamese study cannot. The 2025 benchmark puts unmet trade-finance demand at $2.5 trillion, unchanged in dollars from 2023 and around 10% of merchandise trade in the newer comparison rather than 10.6% previously. More than 110 providers contributed to the survey, possibly representing up to one-third of the market, but the total market is unknown. The benchmark establishes persistence and magnitude. It does not identify every firm that was rejected, every firm that self-rationed, or every transaction that could have generated additional trade.