WEF Research: Blockchain could add $1 Trillion to Trade Finance
By tapping into the financial streams of small and medium-sized Enterprises (SMEs) in emerging markets, blockchain technology could facilitate a more efficient financial function which can bridge the $1.5 trillion supply-demand gap in the global economic system, confirms a new report.
The report was conducted by the World Economic Forum and the global management consultancy giant, Bain & Company. It signifies the importance of blockchain in a connected financial order, one that can boost trade finance by $1 trillion.
As it stands, the global trade finance gap is $1.5 trillion and by 2025, it will skyrocket to $2.4 trillion, according to estimates by the Asian Development Bank. The research highlights the inability of SMEs to access and disseminate funds as a reason for this significant gap. Moreover, these sectors are left out of the global financial world, because of which opportunities to receive credit are scant. Also, their current supply chain network is traditional and needs to be modernized.
Blockchain is suggested as the remedy for this gap and researchers have pointed out that the amount can be reduced to $1 trillion given the technology “is used more broadly”. With the help of this technology, SMEs will be incorporated into the larger network by sharing business records along institutions and supply chains, which will in turn build the foundations of a truly globalized and transparent financial system.
Additionally, their incorporation would “help mitigate credit risk, lower fees and remove barriers to trade.”
The report further added, “if implemented, the main beneficiaries are set to be SMEs and emerging markets, which suffer most from a lack of access to credit and have ample room to grow trade. ”
Asian economies will be the main beneficiaries of this revolutionary technology as they account for 7 percent ($105 billion) of the gap with 75% supply chain-based transactions being document-based.
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