By Christoph Gugelmann Founder & CEO and Nils Behling Founder at Tradeteq
In the beginning of April, the Chancellor unveiled a £10 billion capacity grant for UK Export Finance (UKEF), increasing its maximum exposure limit from £50 billion to £60 billion. This augmentation is intended to ensure that no viable UK export falls through due to insufficient financing or insurance, consequently fostering national economic growth and the creation of sustainable jobs.
While this enhancement is advantageous for UK businesses and supports sustainability goals, UKEF’s policies and pricing continue to impede export opportunities. The British Exporters Association (BExA) has advocated for “simplification and digitisation,” underlining the necessity for additional measures to increase trade finance accessibility.
Trade finance is a crucial component of international commerce, as it allows businesses of all sizes to confidently engage in cross-border transactions. As the trade finance landscape encounters uncertainty in 2023, it is imperative for marketplaces to adapt and innovate, empowering investors to successfully navigate the turbulent environment. The lasting effects of the pandemic, combined with supply chain disruptions, shipping delays, and an overall decline in global trade, persist. These challenges have been intensified by concerns that emerged over the past year, such as geopolitical tensions, evolving regulations, and surging interest rates. In order to tackle these obstacles, trade finance must become more accessible and appeal to a broader spectrum of budding investors.
The road to standardisation
The Trade Finance Distribution Initiative (TFDi) was established in 2018 to encourage the standardisation of trade finance and assets. Spearheaded by the International Chamber of Commerce (ICC) Banking Commission and the International Trade and Forfaiting Association (ITFA), TFDi endeavours to expand the distribution of trade finance assets to a wider investor base. The initiative collaborates with prominent financial institutions and service providers to develop standardised best practices and offer guidance on business and regulatory matters.
TFDi has played a pivotal role in fostering dialogue and collaboration among various stakeholders in the trade finance ecosystem, such as banks, non-bank financial institutions, and technology providers. This cooperative approach allows for the exchange of ideas, experiences, and solutions that drive standardisation and innovation within the sector.
The initiative is also committed to addressing regulatory issues and providing guidance on pertinent business matters. By maintaining open communication channels with regulatory authorities and updating stakeholders on regulatory developments, TFDi contributes to a more uniform and compliant trade finance environment.
Digitisation is essential
A crucial aspect of TFDi’s standardisation efforts involves the promotion of electronic platforms to streamline trade finance transactions. By championing the adoption of digital solutions, TFDi aims to improve processes, reduce manual interventions, and minimise errors that may arise from inconsistencies in traditional methods. This digital transformation not only bolsters market efficiency but also facilitates seamless cross-border transactions.
In spite of TFDi’s promotion of electronic platforms, the market has faced considerable challenges during the pandemic. The collapse of digital trade finance platforms like we.trade and Marco Polo has exposed the sector’s instability, as both enterprises failed to scale and achieve profitability. This has resulted in investors struggling to access trade assets and consequently an increased demand for market liquidity. To tackle this issue, TFDi has sought to enhance trade finance market liquidity and decrease funding costs for banks and companies involved in trade finance.
Amid market uncertainties, the future of digitisation in the trade finance sector remains promising with the XDC Foundation and end-to-end private debt platform Tradeteq collaborating last year to launch TRADA tokens; the first non-fungible trade finance-backed tokens.
The Trade Finance Distribution Initiative (TFDi) has made significant strides in promoting standardisation, transparency, efficiency, and accessibility in the trade finance industry. Through the development of best practices, fostering stakeholder cooperation, promoting digital platforms, and addressing regulatory concerns, it continues to drive positive change and innovation in the trade finance landscape. As we navigate an uncertain economic climate, the collaborative efforts of TFDi and the adoption of emerging technologies are essential to ensure a resilient and thriving trade finance market that supports businesses and investors globally.