The World Economic Forum (WEF) and Bain & Company conducted a joint research indicating that, by deploying blockchain, global businesses can generate an extra $1 trillion in trade finance that would otherwise be missed out on.
According to an Asian Development Bank calculation, the global trade finance gap is currently at $1.5 trillion and is estimated to grow to $2.4 trillion by 2025. The research further explains that this issue largely arises from limited access to credit and loans for SMEs that are looking to expand their businesses.
This joint initiative of the Supply Chain and Transport industries and the System Initiative on Shaping the Future of International Trade and Investment of the WEF. It provides a first look at the narrow topic of trade and supply chain finance, including a snapshot of the status of technological developments. Concrete examples indicate that the technologies could narrow the current trade finance gap of $1.5 trillion, representing roughly 10% of global merchandise trade volumes.
Blockchain is able to fill in much of this gap in global trade finance by easing financing for small- and medium-sized enterprises (SMEs) in emerging markets. International trade and global value chains have been critical for both the wealth of nations and the reduction of geopolitical tensions.
Yet, still more remains to be done. Archaic processes pose a significant obstacle for small and medium-sized enterprises (SMEs) and trade with emerging markets. Transforming paper-based documentation into electronic formats and applying smart tools and technologies help to reduce trade barriers and improve processing times at borders, particularly for small businesses and companies in higher risk developing countries.
The researchers further added that a blockchain-based trade finance system would be particularly beneficial to Asian economies as they account for 7 percent ($105 billion) of the trade finance gap, with 75 percent of the global document-based transactions across supply chains.