Abstract
Trade finance helps businesses deal with abnormal cash flows whilst managing counterparty risk and enhancing confidence in commercial transactions. It also allows parties to overcome trust barriers that may inhibit commercial activity in both a domestic and international commercial context. Globally, particularly among micro, small and medium enterprises (MSMEs), there exists a significant and widening unmet demand for documentary finance. Securing trade finance is laborious and time-consuming. For MSMEs, the trade finance application process alone, can be an insurmountable barrier that usually ends in rejection. By its nature, trade finance arrangements engage with decentralized stakeholders and diffused information sources across supply chains. Issuers and underwriters of trade finance instruments are required to draw on disparate elements of information, not merely during the application phase, but indeed throughout the life of a transaction. Blockchain technology is similarly decentralized and can capture information in a secure, transparent and immutable manner potentially improving and reinvigorating the trade finance space. As Qatar embarks on a strategy of widening its economic base away from a singular reliance on the hydrocarbon fuel sector, the introduction of blockchain technology holds the potential to overcome the transactional friction associated with trade finance. A more efficient and accessible trade finance sector will ultimately enhance the competitiveness of MSMEs whilst simultaneously fostering the growing FinTech sector in Qatar.
Highlights
Trade finance assists enterprises seeking to capitalize on opportunities irrespective of their current liquidity status
For MSMEs, the trade finance application process alone, can be an insurmountable barrier that usually ends in rejection
Trade finance arrangements engage with decentralized stakeholders and diffused information sources across supply chains
Summary
Trade finance assists enterprises seeking to capitalize on opportunities irrespective of their current liquidity status. The pain points associated with trade finance are being addressed by a new generation of technologies focused on secure data sharing. It will allow smaller players to access global markets; and two, it will give rise to a new and growing sector focused on financial technology (FinTech) and regulatory technology (RegTech) in trade finance and more broadly. For jurisdictions such as Qatar, where facilitating nonhydrocarbon fuel-based trade is a strategic priority, supporting this trend can achieve the diversification outcomes desired and expressed in their national vision (QNV2030).[6]. Within the Qatari legal framework, and amidst the growing fintech sector, the benefits and risks to Qatar illustrate the promise of blockchain and the risks of seeing this new innovation as a panacea
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