trade finance

Financing for Smaller Firms

Financing for Smaller Firms

Many of the ICC recommendations involve updating antiquated processes. Trade finance transactions are unnecessarily complex with, as the report shows clearly, complicated shuffling of mostly paper documentation. Firms attempting to work in multiple markets also face regulatory disconnects with unclear processes. To add to the mix, there are three primary product categories for trade financing with different demands and requirements for each: documentary business, supplier-side financing, and buyer-led financing. While unraveling these complex processes would be helpful, with significant gains available, it does not go far enough in providing basic financing to the millions of MSMEs that are currently underserved by the market. What is needed is a new approach that leverages a range of new technologies to reconceptualize the way that small businesses are evaluated and pull in new financing providers. By starting with an MSME-first approach, it is possible to reimagine the provision of capital and start to unlock and unleash the potential trapped inside small firms. The ICC report (full disclaimer—I was part of the conceptual team to help develop recommendations) begins to sketch out some of the conditions for a new ecosystem to support financing for MSMEs in the near term.

Disconnect: Business and Government in Trade Financing

Bewildered is not the right term.  But here is an example.  Many different speakers addressed the issue of trade financing.  They wanted to know why trade financing is still handled today like it was hundreds of years ago, with physical letters of credit demanded in a world that otherwise seems to get by with the push of a button.  Instead, speakers wanted to talk about the digitization of financing or even about the use of blockchain. I’m not certain about this of course, since we had no officials in the room to ask.  But based on my experience with a variety of Asian governments, I’m guessing that many (and certainly not all) would have had no idea what digitization of financing even means, let alone what a blockchain is or what it does or how it might apply to trade.  None of the business speakers ever bothered to explain these concepts.  Nor did anyone really address the practical obstacles that might be preventing the adoption of such concepts to trade today.