Supply chain finance—comprising half of the trade finance market—bridges the gap between the time at which the suppliers want to be paid, at the time of shipment, and the time at which buyers want to make payment, which is perhaps 30, 60,or 90 days after delivery.
This lending structure has become increasingly popular with the COVID-19 pandemic forcing firms globally to take greater advantage of trade finance instruments to ensure quicker access to low-cost working capital for themselves and their suppliers.
Volumes have grown significantly in 2021 reaching a total value of $1.8 trillion, up 38% from 2020, and funds in use up by 41% to USD 713bn according to the latest World Supply Chain Finance Report, published by intelligence company BCR. The strongest growth is reported in Asia (43%) and Africa (40%).
Yet significant value remains untapped, as MSMEs lack widespread access to traditional capital. Non-bank financial institutions (NBFIs) are starting to fill an important funding gap, especially for sub-investment grade corporates, where lending has moved from banks to the private debt markets.
The need for supply chain finance is extremely high today as the cost of money surges and suppliers risk getting locked out of markets. Alternative funders see an opportunity for investing in an asset class that presents more attractive risk/return ratios than comparable yield products.
Fintech innovation can spur market growth, by providing the platforms that connect buyers to suppliers and innovating alternative lending structures such as dynamic discounting and payables financing. Many of these platforms leverage technology such as blockchain to make processes like KYC/AML faster, simpler, and more transparent. Meanwhile, the Internet of Things enables tracking and monitoring of goods as they move through the supply chain, and advanced analytics and machine learning are helping fintechs innovate in financing decisions and pricing.
All of this leads to better risk pricing and improves speed, transparency and certainty of credit provision, two key drivers for customer satisfaction and retention.
At Triterras, we continue to increase our investments in technology and accelerate coverage for full value chains in key geographies. As part of our progress, we have fully transitioned from the public Ethereum blockchain ledger to an AWS-managed Hyperledger blockchain and achieved ISO 27001:2013 certification.
Recently, we partnered with Conektr, a digital lower trade, groceries, and HoReCa marketplace platform, through our Invoice Bazaar platform. It’s among the first of its kind to give small businesses in the Fast Moving Consumer Goods (FMCG) space in the United Arab Emirates (UAE) the ability to quickly secure working capital for procurement through a completely digital process and with simple Know Your Customer (KYC) requirements. Over 7,000 retailers are targeted in the first phase of the program.
It is our goal to provide greater transparency and digitization to unlock the potential of trade finance where it is needed most—to support MSMEs and drive economic growth.