Digital Dynamite: Lighting up African Trade
By Kevin Holmes, Head, Trade Product Management, Standard Bank
African trade stands on the cusp of a revolution. As a result of bank-led trade initiatives, regulatory standardisation, new technologies, and fintech partnerships, African trade is now becoming a focus for many global corporates. And for domestic entities, intra-African trade is opening up a host of growth opportunities.
The combination of digitisation and Africa’s market dynamism is one of considerable opportunity for regional and international corporates. With this in mind, improving access to trade finance is something the banking sector is working hard to deliver across the continent.
However, with a US$1.5tr. trade finance gap, the opportunity to meet the needs of global business is, to a degree, offset by the demands of effective risk assessment around trade fundamentals. One major issue here is the inconsistency of available KYC information. This causes banks to experience difficulties in identifying underlying beneficial owners, a problem largely attributable to data accessibility.
For the banking sector to meet the widening trade finance gap, it needs to increase its credit risk appetite. A crucial remedial step must therefore be the streamlining of technology, helping to unblock process bottlenecks, not least in the KYC area.
In response to this and related challenges, the Asian Development Bank (ADB) is working on draft proposals to facilitate greater trade finance accessibility. Under its auspices, a series of bank-driven working groups, representing global interests, has been established. Technology is underpinning the effort as stakeholders seek transparent, user-friendly regulatory-compliant solutions. It’s a work in progress but the need to address the accessibility issue is clearly acknowledged, and Standard Bank is putting Africa on the map through its work with the ADB.
Leaving paper behind
Fintechs are also starting to challenge the trade status quo in Africa. Advanced trade platforms, such as Voltron, are working towards using blockchain as international trade finance consortia open up to digitisation. The idea is that corporates can connect with their trade partners via a single, simplified channel, enabling the exchange of documents and value across an open network. In addition, trade documents produced on external networks by a corporate’s supply chain partners can be digitally sent, verified and processed in Voltron.
Standard Bank is proud to be part of this collaborative movement to deliver an open platform for documentary trade, using Corda blockchain technology to bring significant efficiencies to transacting Letters of Credit through digital channels.
Other technology-driven initiatives around open account trading are exploring the leveraging of blockchain in the issuance of guarantees, remedying a major pain point for banks globally. It’s anticipated that some solutions emerging from ADB’s KYC workstreams will overlap with these initiatives, helping to ease client on-boarding.
With KYC workstreams seeking to address the issue of trade finance accessibility, and specifically data accessibility issues, the development of data repositories is already making life easier for corporates. Compliant documentation can be uploaded to a central utility, accessible by banks and thus removing the painful repetition of KYC document provision There have been efforts made to create a unique KYC identity for corporates across the globe. SWIFT’s own KYC Registry is complemented by solutions from third parties (including a development bank in North Africa), for example. And the potential benefits for banks and corporates, as well as global trade, are clear to see.