New research conducted by Bain & Company and World Economic Forum indicates that the blockchain technology has the ability to fill the $1.5 trillion dollar supply-demand gap in global trade finance.
This would be possible through easing financing of small and medium-sized enterprises in emerging markets.
Blockchain Research Fuels Optimism
The research indicates that by deploying the distributed ledger technology, companies around the world can generate an extra $1 trillion in trade finance which might otherwise be missed.
According to calculations by the Asian Development Bank, the global trade finance gap currently stands at $1.5 trillion. It’s estimated to hit $2.4 trillion by 2025. The research explains how limited access to credit and loans by Small and Medium-sized enterprises (SMEs) that are looking to expand their operations creates the lost opportunity.
The researchers argue that by applying the blockchain, this missing funding will reduce by $1 trillion. This is because distributed networks can share business records across different financial institutions which operate within the same supply chain.
This will add an element of transparency to businesses’ credibility. It will also help lower fees, mitigate credit risk and remove barriers of trade.
According to these researchers, the main beneficiaries will be SMEs and emerging markets. These two sectors suffer the most when it comes to accessing credit whereas they have an ample room to grow trade.
The researchers added that the distributed ledger based trade finance system will particularly boost Asian economies as they account for $105 billion (7 percent) of the trade finance gap. These economies also have 75% of the global paper-based transactions across supply chains.
Recently, it was reported that authorities in Hong Kong and mainland China are working towards launching a blockchain based trade finance systems. This is meant to help small and medium-sized enterprises gain more access to financing tools and end fraud.
Already, a blockchain trade finance platform, being developed by the Chinese central bank, has entered the testing phase. We can expect the official rollout of the system to happen be soon.
Basil has three years of freelance experience writing on disruptive technologies. He focuses on breaking news and education pieces; helping to spread the gospel of Blockchain. He hopes to have his own blockchain company one day; helping the world through its innovative ledger technology