Business Desk :
Financial technologies, such as blockchain and artificial intelligence, can enhance the efficiency and availability of trade finance, especially for small and medium-sized enterprises (SMEs) in the Asia and Pacific region, according to a report of ADB and ESCAP.
Asian Development Bank (ADB) and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) launched ‘The Asia-Pacific Trade Facilitation Report 2019’ in New Delhi, India on Tuesday, said an ADB media release.
The report highlighted the need to address the largely unmet demand for trade finance globally, estimated at $1.5 trillion, of which 40 percent is from the region.
SMEs are the most affected as they tend to have higher rejection rates for trade finance applications, compared with larger firms, it said, adding that SMEs account for 45 percent of rejected trade finance transactions as their applications tend to incur relatively high costs for banks to comply with anti-money laundering and know-your-customer requirements.
Low credit ratings of counterparty banks and companies are other barriers restricting access to trade finance, it also said.
“There is an enormous untapped potential in the rapidly evolving digital technologies. Emerging new technologies can help address long-standing issues of high transaction and processing costs, while mitigating the huge trade finance gap,” ADB Vice-President for Knowledge Management and Sustainable Development Bambang Susantono said at the report launch during the Asia-Pacific Trade Facilitation Forum in New Delhi.
Technologies can help cut costs, eliminate manual documentation, and enable accumulated digital information on SME profiles for lenders to assess risks. E-commerce platforms and cloud-based invoicing can allow direct transactions between buyers and sellers, and blockchain technology and artificial intelligence can facilitate due diligence and payments for SMEs. These technologies offer solutions to improve efficiencies at various stages of international trade.
The report notes the digitalization process is far from complete. Challenges include the high cost of adopting some new technologies and the lack of international rules and standards covering digital trade. Fragmented digital technologies also make it difficult for all parties to be compatible and interoperable. Blockchain technology is not free of risks related to incorrect information input, cyber security, and operations.
The report supported three initiatives that can enable widespread technology adoption: Digital Standards for Trade initiative to develop trade ecosystem standards; Global Legal Entity Identifier system to issue unique identifiers for both large and small firms at low cost and help enhance transparency; and model laws on electronic transferable records, electronic commerce, and e-signatures under a UN system to help countries implement legislation in a concerted fashion towards digital trade.It also called for governments to collaborate with private sector and other partners to expand technology adoption to enable cross-border trade financing.
