TRADE FINANCE
Smoothing the Path Ali Imran Head of Transaction Banking & Wholesale Digital Services, CBD tells MEA Finance that trade finance is experiencing significant changes, with easier ways and means by which it is conducted and with considerations such as ESG and digitisation taking bigger roles in its processes Ali Imran Head of Transaction Banking & Wholesale Digital Services, CBD
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s were other parts of the financial markets, was the digitisation of trade finance accelerated by the global pandemic?
U n t i l re c e n t l y, a m a j o r p a r t of international trade was conducted using paper letters of credit and bills of lading. However, the pandemic has significantly helped accelerate digitization of trade finance which is a trend we consider irreversible. J u s t l i ke 2 0 0 8 -2 0 0 9 s a w a n exponential behavior shift in the adoption of online commerce, 20202021 is witnessing a similar shift in how trade finance works. For example, Letters of credit (LCs) used to be frequently impacted by delays in the delivery of goods and remote document inspections. However, we have now seen clients move towards online solutions to ensure LCs are issued quickly and trade continues to be properly funded. This
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is partially helped by developments such as legally binding e-signatures to keep funding flowing, guidance being published (globally) on the acceptance of e-signatures and an increase in risk appetite to the new normal-e.g., not needing to see physical paperwork. There has also been an increase in bank-fintech partnerships within the realm of trade and supply chain finance. This includes CBD’s recent fintech partnership with Demica, a fintech based in London, resulting in a fully digital supplier and buyer led solution. This move towards fully digital transaction and document processing, will drive the emergence of a new era of paperless trade.
Do you expect more use of Blockchain based methods, such as CBDC’s being adopted in trade finance? I think its important to clarify that there
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are two types of CBDC’s: a) retail which is a digital equivalent complement to physical banknotes or coins and b) interbank which is accessible to financial institutions to settle transactions. Within interbank, there are two ways to drive adoption: either it is mandated, or it is so intuitive to use that all parties want to adopt the technology. According to the Bank of International Settlement, more than 80% of Central Banks around the world are studying the feasibility of interbank CBDC use-cases. The development of this form of CBDC will clearly accelerate the integration of distributed ledger technologies into existing market infrastructures. In fact, the People’s Bank of China has combined with the Hong Kong Monetary Authority, the Bank of Thailand and the Central Bank of the UAE to explore the possibility to make CBDC interoperable to facilitate cross-border trade based on blockchain technology. Preliminary
