The winds of economic change have had an altering impact on the verticals of the financial domain, trade finance market in particular. Amidst a stormy global economy scenario, especially post the Lehman bankruptcy case of 2008, trade finance industry firms have been striving to rapidly balance international trade flows, and have been working toward mitigating the risks involved in international trade transactions. The WTO (World Trade Organization) in fact, claims that a mammoth 80% to 90% of global trade is completely reliant on trade financing.
Advocating the same is a recent move undertaken by the governments of India and the United Kingdom, that has been claimed to have a rather proportional impact on global trade finance market. Armed with the arsenal to cultivate a high level of cooperation between both the nations, Shri Suresh Prabhu, the Indian Minister for Commerce and Industry, officially met up with Dr. Liam Fox, the UK International Trade Secretary to perpetually eradicate any barriers that may threaten the potential of international trade and investment activities. This strategic discussion, in the decades ahead, is targeted toward the consolidation and sustenance of a powerful trading relationship between both the countries, by exploiting the application spectrum of trade finance market.
Trade activity expansions have been on an unfaltering ascent since the recent years, as numerous firms seek optimized solutions in an era where financial ambiguity is on the uptake. For instance, recently, UPS Capital, a subsidiary of UPS, a globally renowned player in trade finance industry specializing in providing supply chain management solutions, declared its plans of broadening the scope of the UPS Capital Cargo Finance solution, that provides SMEs with credit lines for financing goods during shipping. In essence, the global trade finance market player is basically raising the percentage of funding an SME is liable for – the hike being 30% (from the initial 70% of the supplier’s invoice to a planned 100%). The step has been undertaken on the heels of the trade finance market firm’s perspective that local businesses have been unsuccessful in financially supporting SMEs, that account for 40% of the exports of OECD countries. UPS’s decision, as per analysts, is thought out to be rather productive for the profitability quotient of global trade finance industry, especially amidst the backdrop of the fact that SMEs account for more than 60% of the employment in developed nations and 80% in the emerging economies. It has however, been cleared by the trade finance market player that this move is basically designed to accelerate cash flow for companies to have excess working portfolio, and will not be interfering with any existing banking solutions in the supply chain.
Elaborating further on the supply chain finance prototype of trade finance market, it would be imperative to state that as on today, more and more companies from diversified domains have been tapping novel technologies to gradually shift toward supply chain finance. As on today, this prototype of global trade finance industry has evolved a great deal from being characteristic of the original doctrine called ‘approved payables financing’, to expanding its spectrum of providing financial support owing to the increased liquidity. Affirming the same is the recent deal signed by Mizuho Financial Group, one of the most prominent trade finance market, with software provider IBM, to build a blockchain-centric trade financing platform. Having recognized how crucial the timely exchange of trade documents is for shareholders in any supply chain ecosystem, this trade finance industry player, via this agreement, aims to enhance supply chain efficiency through streamlining trading operations.
Trade finance industry, in the ensuing decades, may be one of the most fluctuating yet crucially dominant business spheres in the fintech cosmos. Given the wavering economic scenario, it would be apt to state that since the concept works on the reconciliation of the requirements by both the parties involved in heavy transactions, its demand would observe a perpetual ascent with time, which would indirectly prove to be a driving force for the overall trade finance market expansion.
