Blockchain Technology to Close $1.5 Trillion Trade Financing Gap

According to research conducted by the World Economic Forum (WEF) and Bain & Company, digitization and advanced technologies, like blockchain technology can help global businesses close the $1.5 trillion trade financing gap.

Traditionally, trade and supply chains involve several stakeholders who make verifying information and reconciliation difficult. However, since blockchain technology operates as a shared database, it can eliminate many inefficiencies present in the existing system.

DLT Solves Inefficiencies in the Supply Chain Industry

Ther report, published on September 13, 2018, noted that trade and supply chain frictions are significant problems for many small and medium-sized enterprises (SMEs). The existing trade and supply chain flows consist of a lot of reconciliation and verification from some participants in the supply chain process.  If these problems are left unsolved, the trade finance gap will increase to over $2.4 trillion by 2025.

Emerging technologies, especially distributed ledger technology can, however, reduce the existing finance gap and even facilitate approximately $1.1 trillion in new trade volumes globally. Unlike the traditional system, distributed ledgers provide validated, transparent information to all networks and provide updates across the network almost immediately.

DLT enables one shared version of the truth which is significantly cheaper, faster, and easier than manual systems. Furthermore, DLT can provide faster credit risk assessments by gauging the transaction history, minimize any human error in document checks, smart leverage contracts to automatically execute workflow steps, and provide instant secure, and low-cost exchange of data.

While most of the argument on DLT in the trade and supply chain industry is centered on efficiency, blockchain technology could, however, address other aspects as well from ensuring that the food products are made from authentic and reliable sources to the mining industry where the company wants to confirm fair-trade practices for the supply chain.

Different Paths for Different Stakeholders

According to the report, different stakeholders involved in the supply chain sector are leveraging DLT in some ways. Banks are looking to replace paper with a digital medium which ranges from using platform providers to partnerships. On the other hand, large corporations are digitalizing their supply chains and are investing in their technology platforms.

Governments are keen to connect the trade industry and ecosystem digitally. New blockchain-related initiatives like the Singapore National Trade Platform, Dubai Blockchain, and Trade Receivables e-Discounting System in India are just a few examples of how Governments are quick to jump on the emerging technology.