How Blockchain can Help Shape the Future of Trade Finance?

Two years of the pandemic and recent military conflicts have radically altered the future of cross border trade and supply chain. Enterprises began realizing that threats such as these are no longer uncommon and, for better agility and resilience, many have taken important steps to mitigate future supply chain disruptions by enhancing their digital capabilities.

Trade financing, where financial institutions provide credit facilities in order to guarantee exchange of goods, is a centuries old industry that hasn't seen much change with the growth of global trade flows. In 2015 alone, the trade finance market was measured at more than $10 trillion USD.

Nowadays, the economically critical industry of trade finance, which was once a central concern of blockchain technology, has now emerged as a key focus domain in utilizing it to enhance productivity and propel the industry forward. Blockchain technology has gained immense traction as the most innovative technology to revolutionize the global trade industry. By leveraging the blockchain technology, participants in the trade finance domain can resolve some key disputes, including the disputes and fraud, verify the flow of trade assets, and ensure delivery and seizures of trade receivables.

Real-time Review: Financial documents linked and accessible through Blockchain are reviewed and approved in real time, reducing the time it takes to initiate shipment.

Transparent factoring: Invoices accessed on Blockchain provide a real-time and transparent view into subsequent short-term financing.

Disintermediation: Banks facilitating trade finance through Blockchain do not require a trusted intermediary to assume risk, eliminating the need for correspondent banks

Reduced counterparty risk: Bills of lading are tracked through Blockchain, eliminating the potential for double spending

Decentralized contract execution: As contract terms are met, status is updated on Blockchain in real time, reducing the time and headcount required to monitor the delivery of goods

Proof of ownership: The title available within Blockchain provides transparency into the location and ownership of the goods

Automated settlement and reduced transaction fees: Contract terms executed via Smart Contract eliminate the need for correspondent banks and additional transaction fees

Regulatory transparency: Regulators are provided with a real-time view of essential documents to assist in enforcement and AML activities