Trade Finance Digitisation: Integrating Systems and Cultures

Published: February 12, 2021

After years of discussion, trade finance digitisation is finally gaining momentum. While acceptance is growing, challenges are still present in digitising an industry as traditional as trade finance.

One well-known challenge is how new technologies and platforms such as Contour can be integrated and made interoperable with legacy IT systems that will continue to be required. Ensuring ease of integration will speed up adoption and also maximise the value that users will see from the new solutions. Integration goes beyond how banks and corporates of all sizes can connect to their internal systems. Interoperability can also be between networks – such as the integration of new and open platforms into the complementary networks of development banks, shipping or logistics. This will build an inclusive, intertwined and yet common global trade finance network for all.

While Contour continues to make advances with its integrations and interoperability, there is also another form of integration that cannot be overlooked: culture. The different social and cultural nuances in each market can affect how financial institutions conduct business and a global trade finance network must account for these variations.

This is entirely achievable and, following the recent Shariah-compliant transaction between the International Islamic Trade Finance Corporation (ITFC) and Bangladesh-based City Bank, Contour is keen to build a network that’s open and inclusive in every sense of the word.

The transaction in detail

Contour recently facilitated the first-ever blockchain-based, Shariah-compliant letter of credit (LC), showcasing the value of a solution that works across both cultural and geographical boundaries. The transaction saw City Bank partner with the International Islamic Trade Finance Corporation (ITFC), the trade solutions arm of the Islamic Development Bank (IsDB) Group, which acted as both the advising as well as financing bank.

The LC was issued on behalf of Debonair Group, a leading Bangladeshi ready-made garments (RMG) manufacturer, for the import of clothing accessories from a Hong Kong-based exporter, Apparel Link (HK), and showcased all the key benefits of paperless trade finance. By cutting out paper documents and hand deliveries, the LC’s drafting, issuance and advising took just 38 minutes – compared with the typical 24 to 72 hours required for the same steps in a regular cross-border LC.

It’s worth noting the security benefits as well: using Contour’s blockchain technology enables parties to own and manage their data throughout the transaction, while information shared with trading partners and financiers can also be accessed seamlessly and securely. As a result, not only does this improve transparency in transactions between trading partners but it also significantly reduces the potential for forgery and fraud.

At a time when physically visiting a bank is not feasible, a digital network for trade finance ensures that everyone can view, track and share the relevant information from anywhere. In this case, the ITFC was able to advise Apparel Link without having any physical presence in Hong Kong. 

A trade finance ecosystem for all

With 53% of bilateral trade now involving at least one emerging market, these countries have perhaps the most to gain from digitisation, given their status as some of the world’s biggest exporters. Rather than being an obstacle, technology can help businesses in emerging markets tap into the opportunities global trade provides.

For example, Bangladesh is one of the biggest trade finance markets in the world, and one where paper-driven processes remain prevalent – making it ripe for digitisation. In addition, as a Muslim-majority state where Shariah-compliant banking is becoming increasingly popular, it is also important to make sure technological innovation can work alongside the existing business practices of its people.

In many respects, a network such as Contour can make it easier to be compliant with Shariah banking. Rather than relying on manual processes and physical documentation, a digital solution can establish controls that avoid any mistakes or confusion.

As this is not the first time Contour has been used in Bangladesh, it’s clear that appetite for innovation in South Asia continues to grow – and with good reason. A digitised world of international trade would drive trillions in new global trade flows and spur the growth of smaller corporates as well as large.

By ensuring inclusivity in all its interpretations is built into the network from the start, we can provide a trade finance ecosystem that is available to all so that the benefits can be extended to all industry participants and the communities they support globally.