Trade Finance: Blockchain, smart contracts, and their role in advancing trade.
Trade finance stands out as a crucial pillar, facilitating smooth transactions between buyers (importers) and sellers (exporters) across borders.
Trade finance is a crucial aspect of international trade, bridging the financial gap between sellers and buyers, ensuring seamless transactions, mitigating risks, and ensuring sellers are paid and buyers receive agreed terms.
How Trade Finance Works
Trade finance is a process where a buyer and seller enter into a contract, with the buyer placing an order and the seller agreeing to supply goods or services. The buyer requests financing from their financer, which serves as a guarantee for payment. The seller then produces and ships the goods, and the buyer processes the payment.
Blockchain technology is revolutionising trade finance by
- providing a transparent, immutable solution for transaction recording,
- reducing risks.
- saving time.
- enabling cost-effective operations
- Minimising fraud, errors, and discrepancies, fostering trust and transparency in international trade transactions.
Smart Contracts
Smart contracts, built on blockchain platforms, automate trade finance processes, reducing delays, risks, and costs. They improve accuracy and efficiency, making verification and compliance checks faster and more reliable. Leveraging blockchain’s to contribute to a resilient and agile trade finance ecosystem.
Conclusion
This article offers a snapshot into how blockchain, and Smart contracts can be applied to improve Trade Finance. Here is a link to a great paper from Deloitte that identifies the transaction flows and benefits of applying blockchain in Trade Finance