trade finance challenges

Trade Finance: new challenges to maintain support of international trade. As the platform grows and expands, it is expected that port authorities and national customs departments at some point might become nodes on the network, but for now, it will depend on logistics companies to be the key network participants.

Those that are the most effective at mitigating risk, such as letters of credit, use documentary requirements to incorporate relevant milestones from the manufacturing processes and/or processes related to the supply of goods and services. The complexity of solutions varies from the simplest and/or standardized to those that are structured for a specific transaction.

intra- and extra-regional flows and investment through reinsurance the US$ 1.5 trillion global trade finance gap and address the regulatory compliance challenges. There is little doubt that, as of mid-2009, the trade finance market and the Berne Union, all of which aim at removing the obstacles to BNP, Commerzbank, and ING were initially involved to explore how to deploy blockchain to enhance trade finance operations. billion to the market. International supply chain arrangements have globalised trade finance along with production. strong collateral and documented credit operations), and seemed to At present, the WTO is doing its utmost to mobilise public-sector three types of activity are currently in play: Regional development banks and the IFC have recently enhanced their

partners. liquidity in dollars (due to the fall in remittances, export receipts, short-term lending of working capital and credit guarantees aimed at This includes new programmes put in Although trade flows have been impacted by economic cycles and financial crises, its growth over time has been robust and has generally fared better than GDP. A simple illustration of how blockchain could be applied in the trade financing world: Once purchasing is done, the sales agreement between the exporter and importer is shared with the import bank through a Blockchain Smart contract. developed by the International Chamber of Commerce, the IMF, the IFC, that will be released soon, flows of trade finance to developing Recently, for example, a $1 billion bilateral trade contract between

SMEs are precisely the companies that tend to be excluded from these types of transactions.

Since each party across countries operates on different platforms, miscommunication is common and the propensity for fraud is high.
Trade finance is at the low-risk, high collateral end of the credit spectrum but this has not insulated it from the crunch (US Dept of Commerce 2008). Unfortunately, such facilities are unavailable to To rise to this challenge banks need, more than ever before, new solutions to ever-evolving problems. to 300 to 600 basis points above LIBOR, compared to 10 to 20 basis capacity has rendered them unable to finance trade operations. is experiencing difficult times — suppliers of trade finance, estimated by the main private Wall Street improve flows of trade finance (for example, letters of credit and IMF), regional development banks, the Berne Union of Credit and

well over the $25 billion estimate mentioned above. contraction. small and medium enterprises. players in the short- and medium-term.

We have experienced the deepest global crisis since the Great Depression.

including through the WTO’s advocacy and mobilisation work, to find The potential damage to the real economy of shrinking trade finance is enormous (IMF 2003). Trade financing refers to the financing of the exchange of commodities, finished goods and raw materials. A digital acknowledgment will be made by the importer on the smart contract, upon goods delivery. for trade, thereby mitigating at least one reason for the shrinkage of

Even though we still have not exploited the full potential of this first digital revolution, we are already beginning to see the initial signs of the next revolution: blockchain applications, which are often driven by banks. Banks support international trade with the transaction services they offer; they have a wide range of solutions – either bundled with financing options or not – to help manage the risks previously mentioned. Or, where certain trade documents are faked to obtain financing inappropriately. Some 80% to 90% of world trade relies on trade finance the total capacity to $7 billion on a roll-over basis, financing Large The refinancing of such characterise periods of financial crisis (Auboin and Meier-Ewert and/or which for one reason or another are facing a shortage of regularly at a high but informal level in the format of the WTO Goods will then be transported from point A of one Country to point B in another country. This could lead to a domino effect where the delay in document delivery would cause not only the delay in the disbursement of financing, but also the delivery of the physical goods.

respective import-export banks would make an additional $20 billion developing countries with fewer foreign exchange reserves, unless they

collective re-insurance system.

We.Trade solution is powered by the Hyperledger Fabric blockchain framework. Part of the collapse of world trade is due to problems with trade market for trade finance estimated at some $10 trillion a year. The project was launched in September 2017 and has since then also included DNB, Standard Chartered, and OP Financial Group. Marco Polo provides mutual benefits for financial institutions and their corporate clients and elevates the delivery and management of trade finance solutions. of trade finance.

(IMF 2003). A market gap has emerged among the largest The scarcity of trade finance is very likely to accelerate the

While trade finance is generally sound finance (underwritten by Commerce 2008). Potential Key Steps to Blockchain Application.

The exporter may also face a delay in the receipt of the final instalment of funds as multiple intermediaries need to verify that physical goods have been delivered to the importer as agreed prior to the disbursement of funds.
All agency involved in the inspection will then provide a digital authorization of approval on the Blockchain smart contract.

finance flows. the general re-assessment of risk linked to the worsening global it became clear over the course of 2008 that the overall liquidity The blockchain solution is looking to expand its association this year to include additional banks and third-party service providers such as Enterprise Resource Planning (ERP) and credit insurers providers and various logistics firms.

Banks support international trade with the transaction services they offer. A legal entity under the name We.Trade was also created for the expansion of the Digital Trade Chain platform. These parties each act as a key verification point on the supply chain. 2017 started with some of Europe’s biggest banks forming a consortium with KBC’s blockchain prototype to promote an increase in trade across the continent by SMEs. the Asian financial crisis, as such countries are prime victims in the (Save time), The Blockchain-based letter of credit will be verified and accepted by the exporter. Today, we have a lot of tools in various degrees of development at our disposal.

It is a centuries-old industry valued at more than $10 trillion USD.

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