World Economic Forum And Bain & Company: Blockchain Solves $1.5 Trillion Trade Finance Problem

A research by Asian Development Bank shows that a huge chunk of current trade and finance gaps, totaling to $1.5 trillion USD, will be filled by integrating blockchain technology. This will ease a major funding problem by easing financing for small- and medium-sized enterprises (SMEs) in emerging markets, the research states.

A research carried out jointly by the World Economic Forum and Bain & Company, stated that the global trade and finance industry could generate an extra $1 trillion dollars if blockchain technology is adopted. The huge deficit is a challenge to the trade finance industry as it stifles economic development across the globe, especially in emerging markets.

The global trade finance deficit gap currently stands at $1.5 trillion USD and is expected to grow steadily to $2.4 trillion USD in 2025 according to an Asian Development Bank calculation. These systems of credit and financial funding will continue to hold back developed and developing countries in the quest to a free world trade initiative.

The $1 Trillion Dollar Solution

The huge gap in trade and finance industry was largely attributed to the limited access to credit and loan services for micro, small or mid-sized enterprises with lack of credit history a huge hindrance. The limited access to credit to these SME’s ensures capital can’t be raised for expansion of businesses. This is however coming to change with Internet 3.0, the so called blockchain decentralized technologies coming to fill in over $1 trillion dollars into the trade and finance gap.

The research stated that this missing funding can be reduced by $1 trillion if blockchain “is used more broadly,” since distributed networks are able to share business records across financial institutions along the supply chain and bring transparency to businesses' credibility.

The Blockchain Solution On Global Trade Finance

Blockchain technologies are set to mitigate credit risk of borrowers, offer low transaction fees and eliminate the expensive barriers to trade for the SME’s in emerging economies. Furthermore, the SMEs and emerging markets will be the main beneficiaries if implementation of blockchain takes global adoption. The two suffer the most when it comes to lack of access to credit and they too have potential to grow the trade finance industry the most.

Asian economies stand to benefit heavily from the introduction of blockchain based trade finance systems. They account for 7% ($105 billion USD) of the trade finance gap, with 75 percent of the global document-based transactions across supply chains.

With an increasing number of blockchain projects coming up in the east of Asia, mainland China and Hong Kong, the launch of blockchain-based trade finance systems have been on the rise in an effort to help SMEs gain more access to financing tools and to prevent fraud. One of the developing projects working directly in the trade and finance industry, XinFin Network, which hails from Singapore.

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