Trade finance is a critical element for international trade, facilitating the movement of goods across borders — often playing a pivotal role in the growth of emerging markets. According to the Asian Development Bank (ADB), despite the steady evolution of trade finance markets on the back of rapid digitalisation, there remains a wide gap that affects the ability of Southeast Asian businesses — especially micro-, small- and medium-sized enterprises (MSMEs) from accessing crucial funds.

But it’s not just access to funds, transactions, too, can be a cause for operational friction. Too often waiting for an international payment to clear can take days, exacerbating MSMEs’ cash flow challenges. With ADB estimating some 71 million MSMEs in Southeast Asia, their significant contribution to the region’s economy requires that the uncertainty this foments in a core business process must be swiftly and decisively addressed.

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If they aren’t, however, these hurdles could derail the region from realising its full potential; which in 2021 alone was able to produce 25 new unicorns inspite of the extant digital trade challenges.

Unnecessary costs and delays are inhibiting growth

Due to its complexity, the global trade finance ecosystem is mired by too many processes involving various providers for banking, shipping lines, warehousing, logistics, customs, audits, and regulations.

To make matters worse, these processes still use paper, which further lengthens already long turnaround times that are neither an efficient use of time or costs. In a world that expects fully digital transactions, without friction, and in real time, these issues pose an even greater challenge.

With the centrality of Southeast Asia in global trade, securing trade finance is imperative. For instance, Letter of Credits (LC) under documentary credit transactions as a widely used financial instrument involving multiple stakeholders, need a single pane of glass view. 

However, this needs digitalisation to boost collaboration and enable authentication of documents covering LC transactions. Otherwise the flow of data and documents will continue to be restricted, hampering multi-tier and multiple geographies from adding value to the LC digitalisation process.

 This is also critical to facilitating sustainable sourcing and ‘green’ financing, which is gaining greater importance in the region, according to World Bank.

Overcoming hurdles to drive business potential

To surmount these barriers, providing the liquidity necessary for companies in a timely fashion is essential to enabling the seamless completion of cross-border transactions. With blockchain-based cross-border payment solutions, parties involved in cross-border trade can shift away from legacy processes and eliminate unnecessary hindrances to unlock new growth and innovation opportunities.

Distributed ledger technology – which includes blockchain – can be a major enabler that powers a new manner of doing things. By facilitating the establishment of an ecosystem that connects buyers and sellers in a safe and efficient environment, there exists the conditions for faster transactions through greater transparency, security and trust.

For one, financial institutions will acquire unprecedented control over data held by importers and exporters, which then codifies the commercial and shipping aspects of a contract involving multiple parties. The eliminated risk allows a whole segment of businesses like MSMEs to access funds that were previously out of their reach.

Furthermore, trade finance digitisation platforms that utilise blockchain technology to deliver multi-enterprise supply chain business networks trade contract conditions can generate alerts that occur when certain conditions – such as successful shipment of goods – are fulfilled, which then allows the payment to proceed with payment.

Transparency also improves in this instance by way of allowing everyone with the necessary authority to have a real-time view of the same information, which strengthens confidence and eradicates fraud.

This added control benefits commerce by enabling enterprises to be in charge of credit facilities, reduce fees, and speed up application and other business processes. Subsequently, businesses will be able to multiple transaction volumes without the need for additional credit facilities.

Unlocking new revenue streams

Leveraging blockchain technology’s inherent characteristics of immutability, security, record keeping, and flexibility enables financial institutions to uncover new revenue streams. At the same time, businesses across Southeast Asia – including MSMEs – will be able to unleash a host of previously unachievable benefits that reduce operating costs and power growth.

Southeast Asia’s potential to be a global commerce hub is limitless, and with a highly competitive landscape it is little wonder that investors are flocking to do business in the region. However, this potential needs to be fostered through trade finance digitisation that improve current processes, mitigates potential financial risks, and speeds up cross-border trade for buyers and sellers alike.

The article titled “Realising Southeast Asia’s potential via blockchain-powered trade finance” was contributed by Samir Neji, CPO & Founder, DLTledgers

About the author

A sought after global speaker in business blockchain, digital transformation, dltledgers logistics Apps, Business model innovation for industry transformations. He has build two platforms for transforming global trade and extended supply chain in blockchain.

Over 22 years of building mature and sustainable business models in APAC, Orchestrating hybrid solution skills across disruptive digital business platforms, Blockchain apps for early adoption in large enterprise. Initiating and driving these transformation models into business for industry level leaderships. He has consulted with more than 100 + global fortune companies and 300+ Asian conglomerates.

Start up enthuse, advisory, entrepreneurial approach, problem solving mindset, attitude and ability to build cross functional teams and execute. Proven track record in building several business from conception to maturity.

Apart from his day job as Founder/CEO of the most acclaimed business blockchain company in Singapore, he is researching and speaking on Industry specific business model innovations and “Next Gen disruptions” in blockchains, network concepts in extended supply chains, business modelling.