Utilizing Blockchain Trade Finance to Promote Financial Inclusion
This paper examines the use of blockchain, or distributed ledger, technology for the potential supplantation of the antiquated process of international trade financing. Using the technology for this purpose has the potential to narrow the enormous gap in unmet demand for trade finance experienced by small and medium sized enterprises in the developing world. The current process of trade finance is still paper based and relies heavily on manual labor. After the 2008 Global Financial Crisis, banks became restrictive in their lending, especially to small and medium sized enterprises in developing countries, leading to the aforementioned trade finance gap. Blockchain technology could narrow this gap by digitizing and automating key steps in the trade finance process, which will lead to efficiency gains along the trade finance process. By allowing users to establish a verifiable identity, blockchain also increases compliance with 'know your customer' and anti money laundering requirements. Currently, permissioned blockchains are better suited for trade finance as evidenced through recent initiatives, whereas permissionless blockchains have more to offer to individuals at the "bottom of the financial pyramid" who are typically excluded from the formal financial sector. Financial inclusion refers to the delivery of basic financial services in a nondiscriminatory way. Blockchain can help lift the large unbanked and financially underserved populations in the developing world out of poverty and into the global economy, contributing to sustainable economic growth.