A new approach to closing the trade finance gap
The mismatch between demand and supply for trade finance is wider than it has ever been. Explore how Olea bridges the trade finance gap with blockchain.
Unlike during the global financial crisis, liquidity is available in the market, but it isn’t getting to where it’s needed. A new partnership between Standard Chartered and supply chain technology solution provider Linklogis bridges this divide, contributing to sustainable economic growth and keeping the wheels of trade turning.
Lower trade finance availability threatens economic growth…
According to the latest figures from the Asian Development Bank (ADB), the trade finance gap has increased by 15% to a record high of US$1.7tn, and small and medium enterprises (SMEs) are the hardest hit. Without swift action, this financing shortfall will impede the full potential of trade to deliver growth, jobs and poverty reduction – just when the contribution of SMEs to broader social and economic objectives is critical to a sustainable global recovery.
The difficulties SMEs have in accessing trade finance are manifold, from meeting the collateral and documentary requirements of banks through cumbersome paper-based processes, to demonstrating their creditworthiness.
“Credit decisions and pricing are based on my own financial statements even though I supply to big buyers,” says one supplier in a March 2021 interview. “Sometimes we need to provide collateral to obtain credit facilities.”
Another supplier adds: “There are too many documents required in the loan application process. I don’t want to start, unless I know upfront the probability of receiving a loan.”
Faced with these barriers, many simply give up. “Loan approval takes up to two months, with no communication from the bank. Once I got rejected, I got discouraged and stopped applying,” says a third supplier.
Across markets, collection periods have increased, and without the working capital they need to stay in business, many suppliers are finding themselves unable to grow – or even having to let go of large customer relationships.
… but for investors, it represents an attractive asset class
For the past 13 years, the International Chamber of Commerce (ICC) has been tracking the risk profile of trade finance in its annual Trade Register. Its latest report, published in September 2021, found that despite the upheaval wrought by the pandemic, trade finance has held firm as a low default asset class – due in large part to its nature as the financing of real economic activity, with shorter maturities and shorter times to recovery than other asset classes.
At a time when the prevailing low yield environment is forcing investors to choose between extending maturities or taking on greater risk to maintain income, the consistent returns offered by trade finance make it an attractive asset class to investors. This liquidity from investors would help meet the needs of suppliers and power the global economy out of recession.
However, to enter the trade finance market at scale, investors need solutions that are tailored to their needs.
“I don’t have time to invest in invoices one-by-one,” explains one institutional investor.
Olea bridges the gap
Olea, a joint venture by Standard Chartered and Linklogis, solves for the issues faced by both sides. A fully digitised trade finance origination and distribution platform, it brings together institutional investors seeking opportunities in an alternative asset class with businesses requiring supply chain financing.
For suppliers, this means a radically transparent, fast and hassle-free way to access working capital. Olea’s interactive portal means businesses can raise financing requests online, and have their financing needs matched automatically to investors’ demand criteria. Suppliers can access finance based on their buyer relationships and the quality of their performance. Meanwhile, to speed up processing times, the platform uses artificial intelligence to automate cognitive tasks such as document verification.
For institutional investors, Olea makes a low-risk asset class even less risky. Using blockchain technology, the platform creates an information trail from multiple data sources to track the details of underlying goods such as sources and related invoices. This allows investors to better assess the authenticity of transactions and manage their portfolio with greater confidence.
And for investors looking to put their capital to work for ESG purposes, Olea’s technology allows for the traceability of the underlying goods, to ensure the reliability of sustainability claims.
A trusted partner
Tackling an issue as big as the global trade finance gap requires an end-to-end approach, and Olea’s rigorous risk analytics and secure platform brings together the strengths of two market leaders to do just that.
By marrying Standard Chartered’s international trade and risk management expertise and unparalleled knowledge of Asia, Africa and the Middle East with Linklogis’ innovations in supply chain technology, Olea is uniquely positioned to help close the trade finance gap and be a force for good. Learn more about Olea at www.olea.net
