A Study on Trade Financing Strategies Practiced in AU Small Finance bank

Abstract

This study examines the trade financing strategies practiced by AU Small Finance Bank, with a particular focus on its role in supporting Micro, Small, and Medium Enterprises (MSMEs). Trade finance plays a critical role in facilitating both domestic and international trade by mitigating risks, ensuring liquidity, and building trust between trading partners. The research adopts an exploratory and descriptive design based on primary data collected during a 45-day internship and secondary data from bank reports and regulatory sources. The study analyzes key trade-finance instruments such as Letters of Credit, Bank Guarantees, and Bills Discounting, highlighting their practical application in managing working capital and reducing transaction risks. Findings indicate that AU Bank has developed a structured, customer-centric, and technology-driven trade-finance framework, with a strong emphasis on MSME inclusion. Digital transformation initiatives have significantly improved operational efficiency by reducing turnaround time and enhancing accuracy in documentation. Furthermore, the research identifies a strong positive correlation between trade-finance activities and the bank’s profitability, establishing trade finance as a key revenue driver. Despite challenges such as documentation complexity, compliance requirements, and MSME credit risk, the bank effectively manages these through robust risk assessment and regulatory adherence. Overall, the study concludes that AU Small Finance Bank’s trade-financing strategies contribute significantly to financial inclusion, business growth, and economic development, making it a vital player in India’s evolving trade-finance ecosystem.