Small and medium-sized enterprises (SMEs), especially those in developing countries, have historically struggled to gain access to trade finance, which, over time, has led to a global gap that the Asian Development Bank (ABD) estimated at US$1.5 trillion in 2018.
The COVID-19 outbreak is further exacerbating these challenges with new research by the International Chamber of Commerce (ICC) projecting a capacity of US$1.9 to US$5 trillion in the trade credit market just to return to pre-COVID-19 levels. By 2025, the World Economic Forum (WEF) believes the global trade finance gap could reach US$2.5 trillion.
SMEs face the biggest challenges obtaining trade finance, a 2019 ADB research found, with the rejection rate of SME proposals standing at 45%, higher relative to mid-sized and larger-sized firms (39%) and multinational corporations (17%).
Banks cited anti-money laundering (AML) and know-your-customer (KYC) regulations as the biggest obstacles to expanding their trade financing operations. While these regulations are critical to ensure that the global financial system is not used to fund terrorism or launder money, they can inadvertently cut off legitimate companies in less-developed markets from the financial support they need to grow. But technological advances are bringing new hopes for the sector with fintech and digitalization expected to help bridge the trade finance gap, particularly amongst SMEs.
Blockchain in trade finance
Besides alternative funding players, Asia is also home to a number of startups that are using blockchain to improve traceability, transparency and operational efficiencies in trade finance.
Dltledgers is another tech startup from Singapore that uses blockchain to facilitate cross-border trade digitization and execution. Dltledgers essentially works as a registry of trade finance transactions. Details associated with trade documents are submitted to the platform, which can then determine whether financing is being sought multiple times for the same cargo.
The project is jointly led by Standard Chartered and DBS Bank but brings together several other international financial institutions including ABN Amro, ANZ, CIMB, Deutsche Bank, ICICI Bank, Maybank, OCBC and UOB. It is supported by government agency Enterprise Singapore, with the Association Banks of Singapore acting as an advisor.
Since the first transaction went live in early 2018, Dltledgers claims it has executed over S$3 billion worth of live trade finance transactions involving 400+ traders, 65+ banks and tertiary partners.
Other noteworthy startups reinventing trade finance in Asia include Capital and Credit Risk Manager (CCRManager) from Singapore, a global digital platform for the secondary trading of trade finance obligations, as well as Liberatrade, a company from Hong Kong that uses AI for supply chain funding, logistics and predictive demand.
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25+ Banks and counting. A central bank platform, Tradedoc validation runs in collaboration with banks to steer clear of double financing, consequently offering liquidity for international trade. Singapore MAS and ABS along with the support from ESG have completed this with 25+ banks in Singapore, While several other countries also have begun pioneering on our platform.