Digitisation is paving the way for SME access to trade finance

Simon Streat, VP Product Strategy

Small-to-medium-sized enterprises (SMEs) are finding huge opportunities to access the trade finance market through digitisation

The rise of more technologically-powered funders is now allowing SMEs to secure funding otherwise unavailable to them, due to the strict regulations placed upon traditional lenders.

Restrictions from such regulations has meant that SMEs mostly do not fit the criteria for banks to justify lending. The demands of anti-money laundering (AML), Know Your Customer (KYC) rules, sanctions and other banking provisions have been deemed too time-consuming and too costly where smaller exporters and importers are concerned.

The result has unfortunately been detrimental to the success of SMEs and unfavourable for international trade. In 2016, the ICC Banking Commission’s report found that 58 per cent of trade finance applications by SMEs were refused. This was a major factor in hampered growth, the report noted, since as many as two out of every three jobs around the world are created by smaller businesses.

There is a growing realisation, however, that if digitisation makes sense for corporates seeking big gains in speed of execution, transaction-visibility and faster access to finance and payment, it will for SMEs. The ICC Banking Commission report of 2017 estimated that the elimination of paper from trade transactions could reduce compliance costs by 30 per cent.

Over the past few years, for example, many trade digitisation platforms have emerged offering innovative business models for supplying trade finance and liquidity, while optimising working capital, and enhancing processes for faster handling and cost savings. Progress is under way, but it requires knowledge and expertise.

Fintechs in trade hubs such as Singapore, where there is huge emphasis on innovation, are taking the lead, transforming the availability and access to finance for SMEs. By making the necessary checks so much faster and easier and opening up direct contact with a greater range of banks, digital platforms enable customers to gain approval for financing of transactions that would otherwise be almost impossible. Not only that, they enjoy shorter transaction times and enhanced connectivity with their supply chain partners.

However, the fintechs cannot do it alone, they need to be part of a network of networks that operates based on established trust and digital efficiency. No technology can work unless it can satisfy the raw business need of bringing together buyers, sellers, the banks into transaction communities. This requires the building of confidence and the establishment of relationships, along with – very importantly – a real understanding of trade transactions and the processes of all involved.

Nonetheless, it seems pretty obvious that digitisation, the market for SME financing in international trade is set for real expansion.

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