Today the World Trade Board unveiled the Trade Roadmap, a framework to address the lack of trade finance available to micro and small businesses (MSMEs) as part of a program to address financial inclusion. It’s an area where DLT and other technologies can play a significant role. The Board is looking for feedback.
The MSME trade finance challenge
The trade finance gap for MSMEs was estimated at $1.5 trillion for years but increased to $2 trillion in 2020. MSMEs represented 23% of applications that year but 40% of rejections.
A key reason is the high perceived risk of financing small businesses. That’s a critical area that technology can help to address. Potential solutions may or may not use blockchain. For example, centralized supply chain finance solutions have already helped some SMEs rely on their customer’s creditworthiness combined with the confirmation that the customer will pay the SME’s invoice.
Another factor is most small businesses are unknown to the bank or financier. So there’s a heightened risk of fraud. Hence the importance of legal entity identifiers as well as decentralized identity so that a person can prove they have the authority to speak for the company.
Former European Commissioner for Trade Pascal Lamy, who is Strategic Advisor to the World Trade Board commented, “Representing approximately 90% of businesses and more than 50% of employment worldwide, these companies are the foundation of the global economy.”
