Underlining recent growth in trade, the integration of ESG principles, the benefits of using distributed ledger technology and opportunities opening up for SMEs, Zul Javaid CEO of Trade Connect, an e& enterprise company, highlights the key role of trade finance in regional economies.

Are you expecting noticeable growth of Trade Finance in our region in the coming years?

In today’s interconnected world, trade finance plays a critical role in facilitating international trade. As businesses expand their operations across borders, the need for efficient and reliable financing solutions continues to grow.

Our region has seen a significant increase in trade activity in recent years. With increasing globalisation and the rise of emerging markets, businesses are seeking new opportunities and tapping into previously untapped markets.

The advent of technology has revolutionised the trade finance landscape. Digital platforms and blockchain-based solutions have streamlined processes, reduced paperwork and risk, and increased transparency. Automated systems for document verification, smart contracts and real-time tracking have accelerated the speed and efficiency of trade finance operations.

The remarkable growth of trade finance in our region demonstrates its critical role in facilitating global trade. As businesses seek to expand their reach and capitalise on international markets, trade finance acts as a catalyst by providing the necessary financial tools and infrastructure. Embracing the latest technologies in trade finance will undoubtedly position our region at the forefront of the global trade ecosystem.

with COP Summits occuring in the region, are ESG considerations influencing trade finance operations?

In recent years, the importance of Environmental, Social and Governance (ESG) issues has grown significantly in various sectors. As countries and companies strive to meet the challenges of climate change and sustainable development, the impact of ESG factors has also shaped trade finance.

The integration of ESG principles into trade finance is driven by the recognition that sustainable business practices are essential for long-term value creation, risk management and stakeholder confidence. As a result, trade finance providers are integrating ESG criteria into their decision-making processes to support environmentally and socially responsible business practices.

Technologies such as blockchain and AI are revolutionising the trade finance landscape, playing a pivotal role in integrating ESG considerations into operations. These technologies offer transparency, efficiency and traceability, making it easier to assess and verify

ESG-related data. Blockchain provides a decentralised and immutable ledger that enables trade-related information to be recorded securely and transparently. It improves supply chain visibility by tracking product origins, certifications and carbon footprints.

With blockchain, trade finance transactions can ensure that the activities being financed meet ESG standards, such as sustainable sourcing and responsible production. In addition, blockchainbased smart contracts automate ESGrelated terms, ensuring compliance and accountability throughout the trade finance process.

Artificial Intelligence (AI) has the potential to analyse vast amounts of data and extract valuable information for ESG ratings.AI algorithms can assess ESG risks and opportunities by analysing trading partner performance, industry trends and environmental data. AI-powered tools can help financial institutions and trade finance providers assess companies’ ESG performance, identify potential risks and make informed decisions. By leveraging AI, trade finance operations can integrate real-time ESG data and improve their ability to support sustainable business operations.

By adopting blockchain and AI technologies, trade finance operations can navigate the complex landscape of ESG considerations and build a more sustainable and resilient future.

Is there a case for the adoption of Blockchain and distributed ledger technology in trade finance?

Blockchain, or distributed ledger technology (DLT), has emerged as a transformative tool in a wide range of sectors, and trade finance is no exception.

The adoption of DLT in trade finance offers numerous advantages, including greater transparency, efficiency and security. DLT provides a decentralised, tamper-proof ledger that records and verifies trade transactions in real time. This transparency allows all parties to access and validate information, reducing the risk of fraud and increasing confidence in the trade finance process. In addition, blockchain’s ability to navigate the evolving landscape of global commerce with greater confidence and efficiency.

Are SMEs in the region able to access trade finance services as readily as larger corporations?

Small and Medium Enterprises (SMEs) are the backbone of the economy, contributing to job creation, innovation and economic growth. However, SMEs often face difficulties in accessing trade finance services compared to larger corporations.

SMEs face a number of barriers to creating an immutable audit trail that enables the traceability of goods and funds throughout the supply chain, thereby supporting ESG objectives.

Fraud is a significant risk in trade finance, resulting in financial loss and reputational damage. Blockchain’s immutable ledger can mitigate fraud by providing secure and transparent trade transactions, ensuring the security and confidentiality of data shared within the trade finance ecosystem. The decentralised nature of blockchain makes it difficult for malicious actors to tamper with transaction records, improving risk management practices and protecting the integrity of trade finance operations.

By leveraging blockchain technology, trade finance operations can contribute to sustainable trade practices and promote responsible business conduct. When it comes to seeking trade finance services, there are a number of issues that can limit the ability to engage in international trade. Some of the key pain points stem from low confidence in lending from banks and financial institutions due to limited financial history, collateral requirements, complexity of documentation and perceived risk.

Through digitisation, alternative data sources, advanced analytics, blockchain technology and open banking initiatives, SMEs can overcome traditional barriers and gain greater access to trade finance services. Banks equipped with technology-enabled risk assessment models, automated compliance controls and effective portfolio monitoring can confidently extend trade finance services to SMEs, driving economic growth, innovation and financial inclusion in the region.

Read the full article on MEA Finance