Global trade continues to rely heavily on paper documentation despite its legal, financial, and practical drawbacks and inefficiencies.
Existing laws dating back to the 1800s previously meant that exporters and importers had to use paper documents to transfer ownership of the goods they were shipping. This paper-based process has many deficiencies and inefficiencies. It results in economic loss, substantial costs, delays, and fraud risks for governments, traders, and financial institutions. Moreover, it contributes to environmental degradation and stifles the inclusion of SMEs in the trade process.
A typical trade transaction can take 2-3 months to complete and involve up to 27 paper documents. Four billion paper documents float through the trading system at any given time, and only 1% of bills of lading (an important trade document) are currently handled digitally.
As per the Asian Development Bank, the global trade finance gap has reached an estimated $2.5 trillion in 2022, which affects mostly SMEs. Rejected Trade Finance is mostly due to a lack of business relationships with financial institutions, poorly presented documentation, and issues related to know-your-customer (KYC) compliance.
The complexities and inefficiencies are inherent in traditional trade documentation have long been recognised as a challenge in the global trade landscape. Industry players have mapped out the technology, the understanding of the subject matter, and the pain points associated with the shift towards electronic trade documents and the exchange of data.
Moving in the right direction
After years of advocacy by the International Chamber of Commerce, alongside organisations such as the Bankers Association for Finance and Trade, the UN, WTO, as well the UK government, and others such as Singapore, we are now ready to embrace the use of technology in cross-border trades.
Electronic versions of Trade Documents are legal in the UK from 20 September 2023. The UK now joins 7 other countries that have done similar acts in their respective legislation. Germany, France, the US, China India, and many others are also in the process of passing such acts. There is a tremendous tailwind pushing for the acceptance of electronic trade documents. With the recent commitment by nine of the world’s major ocean carriers to achieve 100% eBL usage by 2030 it is indeed very encouraging.
Digitalisation is fundamental to making trade more sustainable because it enables companies to gather accurate, real-time data on the movement of goods, services, and finance across borders. As a result, companies, governments, and consumers can all make better-informed decisions and choices.
With so many nations actively working to push through the enabling regulatory frameworks the future of trade is looking very digital.
A reliable technological infrastructure is critical for the facilitation of widespread volume distribution of trade assets, particularly for the distribution of short-term assets. By aligning policy and technology developments for trade finance assets to become a liquid, investible asset class, a large number of institutional investors have emerged as new entrants in trade finance and extend liquidity to originators of various sizes and in various locations. This represents an opportunity to link trade finance and capital markets, by expanding as a confirmed securitised asset class for the MSMEs.
A timely solution from XDC Trade Network
XDC Trade Network has released a solution very timely working with the industry. This solution addresses all the known pain points of cross-border trades. The solution is aligned with the UNCITRAL Model Law on Electronic Transferable Records (MLETR). This solution has 2 key features –
1. Help create all types of trade documents digitally adhering to the latest standards available today. These documents have the legal validity of electronic transferable records that are functionally equivalent to paper-based transferable documents and instruments including bills of lading, bills of exchange, promissory notes, and warehouse receipts.
2. Shippers can avail of receivables finance as soon as they submit their trade document created in an MLETR-supported solution.
Working with partners, XDC is looking at lowering compliance costs, easing access to capital for SMEs, allowing monitoring of logistics chains in real-time, and even helping prevent documentary fraud. Our solution works with the current ecosystem to enable various useful functionalities. We offer interoperability with various similar platforms bringing network effect.
XDC has all the components to provide the trade participants with the necessary tools to go 100% digital. Their solution consists of regulated custodians, an ISO 20022 messaging platform, a real-world asset tokenisation product, 24/7 payment settlements, and large fund houses to support the Trade Finance.
Partnering with the best in the industry
Our solution is designed with an end goal in mind, we work to support and improve SME finance globally, and through our technology innovation and partnerships, we make this a reality.
Any financing requirement is confirmed with documentary proof. We work with you to help create these documents working with your trade/business participants. All the documents created on our solution are adhering to MLETR and the ICC DSI Data Standards. With these documents, you can avail –
· Purchase Order Financing
· Account Receivables Finance
· Asset Based Lending
· Distributor Finance
· Approved Payables Finance / Reverse Factoring
· Dynamic Discounting
· Risk Participation / Syndication
· Purchase Order to Pay
Our solution covers the end-to-end customer journey from onboarding to origination, management, and servicing. With direct connections to customer accounting packages and a range of third-party data sources, our platform allows for comprehensive risk profiling and a seamless customer experience.
We have simplified your borrowing needs and matched with the liquidity providers to ensure same-day settlement using the existing payment rails to sophisticated atomic settlement.
Our mission is to address liquidity requirements by bringing together proven solutions into a singular powerful technology platform designed to help scale your business. Our platform is easy to use and our expertise addresses the complexity of the technology deployed in the background.
Get started by registering on our website and our friendly on-boarding executive will be in touch.
Visit https://www.xdctrade.network/
Benefits of going digital
· UK economy set to see over £1 billion boost over the next decade, with UK businesses enjoying huge cost savings – Department for Science, Innovation and Technology, Nigel Huddleston MP, and Paul Scully MP
· According to the Commonwealth’s own business case, this would deliver $1.2Tn in economic growth by 2026 reduce trade transaction costs by 80 percent and enable more SMEs to participate.
· 100% Trade Finance availability from XDC Trade Network when using digital documents by the UK SME traders
· Across the Commonwealth, it is estimated that legal reform aligned with the UNCITRAL
Model Law on Electronic Transferable Records (MLETR) could bring $1.1 trillion in
economic benefits by 2026
· In the UK alone the ability to use digital documents instead of paper-based processes would improve SME efficiency by 35%. The number of processing days would be reduced by 75% and free up efficiency savings of £224 billion. Digitalising trade documents would generate £25 billion in new economic growth for SMEs.
