Trade finance ecosystem - The path to inclusive and sustainable growth

Despite an overall dip during the pandemic, the trade finance market has recovered at present and continues to respond to the fluctuating global trade dynamics. Even though India has witnessed a steady growth in overall exports over the last few years, Covid-19 pandemic and the Russian invasion in Ukraine has impacted economy and led to inflation. The global trade growth is expected to slowdown in 2022 and grow at 3.5 percent4 CAGR to ~US$34 trillion over the next five years due to ongoing geo-political tensions, inflationary pressures, and continuing disruptions in supply chains. Shifting supply chains and an increased likelihood of a global economic slowdown can further slowdown global trade growth over next two years.

Amid the geo-political issues and trade sanctions, governments and regulators would play a pivotal role in balancing the trade ecosystem by bringing reforms and policy initiatives. With the ongoing uncertainties, trade participants and finance providers will continue to look up to the government bodies to bolster the Indian trade economy. Digitization of the processes along with banking sector partnerships with FinTech and API integrations can potentially drive inclusive finance trade. NBFCs also need to create innovative solutions customised to smaller organisations, and utilise technology to create integrated platforms, speeding up documentation, credit decisioning, and transaction processing.

ASSOCHAM and Deloitte have jointly released a knowledge report highlighting the issues being faced by the trade finance industry and laid a roadmap for the coming times. The report will help regulators, market participants, government departments and other research scholars understand and create a collaborative and integrated approach across ecosystem that will unlock the true potential of innovation in trade finance market.

3 steps of innovative change -

1. Building wider supply chain financing solutions to streamline cashflows across the supply chain covering multiple tiers and deepening the geographic coverage.
2. Solving the roadblock for scaling the adoption of Distributed Ledger Technology (DLT) which is widely recognized as a solution to bringing efficiency across the system.
3. Institutionalizing common standards and protocols by building on the global initiative on this front to enable interoperability across independent innovations.