Trade finance. Unless you are an importer or exporter, you
probably don’t have a lot of use for this term. Nor do you even know what it
Here’s the thing. When a company in one place sells its goods to
a company in another place, there is a complex process that takes place. And it
often involves the importer of those goods borrowing money from a lending
institution to purchase those goods – money that is to be paid back later, with
interest of course. The exporter may need up-front cash as well, in order to
pay shipping costs until he is paid by the importer.
A lot can go wrong in all of this process. There are a number of
intermediaries and shipping points. At any of these points, loss or theft can
occur, for example. Shipments of goods, especially by sea, for example, can
many as 36 documents and as many as 27 parties involved along the way.
It’s all inefficient and risky.
Can Blockchain Provide a Solution?
Other Industries Have Found it to Be So.
While blockchain technology was originally designed for
cryptocurrency trading, it has expanded exponentially to become a
solution for a wide variety of industries.
In short, any transaction or documentation can be entered into a
“block, time and date stamped and becomes a part of a chain of records that may
not be changed and that provide accountability.
This technology has proven to be especially useful, in addition
to the industries above, in logistics, especially inventories and shipping of
goods from one point to another. At each step of the way, receivers must
document receipt of goods and date and time of shipping it on to the next
point, where the receipt is recorded, and so on, until the final destination is
Given this use in logistics, and given the ability of financial
institutions to record transactions, it only stands to reason that blockchain can
provide a huge benefit to trade finance.
Benefits of Blockchain to the
Trade Finance Industry
Consider a typical scenario:
Obviously, the entire transaction is more
secure, more transparent to all parties, and much more risk-averse.
The trade finance institution knows that the importer has received the goods
and can then begin the collection process for the loan, as agreed upon –
details of which are securely stored in a block.
Global trade is only increasing, as purchasers and suppliers all
over the planet are connecting and doing business. And as this increases, so
does fraud and risk. In its annual risk and fraud report for 2017-2018, for
reported that 84% of surveyed executives stated they had been
victims of fraud in international business transactions. Blockchain can
certainly provide a viable means to mitigate this risk.
Author Bio: Nicole D.Garrison is a content strategist, writer, and contributor at TopWritersReview and a number of platforms for marketing specialists. She is a dedicated and experienced author who pays particular attention to quality research. At her free time, Nicole is a passionate runner and a curious beekeeper. Moreover, she runs her own blog LiveInspiredMagazine.
Image Source themailboxstore.net
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