“Trade Finance” refers to the domestic and cross-border financial transactions supporting the trading of goods. Trade transactions involve a supplier and a buyer of goods and services, facilitated by intermediaries such as financial institutions, providing funding and mitigating credit risks.
Efficient trade finance relies on the availability of three main factors:
The physical movements of goods
The financing of goods
The movement of money
Trade finance addresses these requirements with well established instruments to provide:
Financing;
Tracking; and
Execution of payments.
One of the difficulties involved with trade finance is the large volume of paper-based documents sent back and forth between suppliers, buyers, funders, shipping companies, insurers and other parties. As a result, there is a restricted profile of viable trade finance customers, limiting scalability and liquidity in the trade ecosystem. Management of credit risks and regulatory requirements on trade finance such as:
Sanctions
KYC (Know-Your Customer)
AML (Anti-Money Laundering)
Fraud Protection
The blockchain can place all the necessary Trade Finance information as a digital document, which is updated nearly instantly and is viewable be all members of the trade ecosystems in a decentralized manner at the same time.
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