Digitalisation and the deepening trade finance gap were among the key themes at the recent GTR MENA conference. With SMEs often at a disadvantage, leading fintech players are stepping in with solutions to bring about equal opportunities.
GTR MENA 2022 returned to Dubai in February and if there was any doubt about the city’s efforts to reopen and reposition itself, this was an in-person gathering.
Two years since the pandemic put many lives and livelihoods on hold, there were important discussions to be had about the rapidly changing backdrop of a turbulent global economy, the future of trade and the opportunities available.
What is clear is that even though digitalisation is transforming trade finance, the global trade finance gap widened to a record US$1.7 trillion in 2020, according to the Asian Development Bank.
In plugging this hole, the financial industry needs to help small and medium-sized enterprises (SME) or even micro-SMEs by bringing them opportunities for financing so that they can expand and help their communities.
Leading fintechs like Contour can help advance the digitalisation agenda for SMEs and it all boils down to three areas – EVA: Efficiency, Veracity and Availability.
– Carl Wegner, CEO, Contour
I was part of a panel “Conveying a New Vision for the Global Trade Ecosystem” alongside some of the main players in trade finance that included leading banks and fintechs.
Yusuf Ali Khan, Managing Director, Head of Trade & Working Capital Solutions, Middle East, North Africa & Pakistan at Citi who moderated the session said he is witnessing many strategic joint ventures between banks and fintechs, which is pertinent for the MENA region where SMEs make up 60 to 70 percent of the economic backbones of many of these countries.
It was a sentiment shared by another banker – Syed Hassan Javed, Head of Trade Finance at Gulf International Bank. He said that banks are proactively addressing the needs of the SME sector, and this contributes to his optimism about the future, especially with the healthy collaboration between banks and fintechs.
Fintechs narrow the gap
Leading fintechs like Contour can help advance the digitalisation agenda for SMEs and it all boils down to three areas: EVA – Efficiency, Veracity and Availability.
First: Efficiency. Fintechs such as Paypal, were first born through B2C ecosystems, where scaling and low-cost processing were the only way to compete with the banks – using technology like the internet was the tool to level the playing field.
For SMEs to get financing, the first requirement is to automate the process. Fintechs have made it more efficient so that the cost of acquisition of a customer and processing of information can be automated as much as possible. This has been done to a certain extent by some consumer banks. They’ve learnt how to automatically rank customers on intersecting data points, but this is now an area where fintechs can help by bringing in the data for the bank to decide on risk levels. Some companies might do that risk analysis themselves for the bank, if the bank is willing to accept or define the risk parameters. Being able to make credit decisions on these new data points will certainly take a different level of bank risk approver in the future, but this is going to be the way going forward.
Second: Veracity. Having electronic data throughout the transaction will not only be more efficient for all sides, but from the financier’s perspective, it will also provide better clarity on the documentation details. When blockchain is added to that, it allows the information to be verified earlier and consistently in the process, which brings down the risk as well as the cost of processing. Which blockchain system is being used is not a key factor as long as it can be accepted by the financial institution and the regulatory authorities.
Finally: Availability. While not everyone has internet access, a significant number of the unbanked SMEs or micro-SMEs at least have internet access. Having a browser-based technology, eventually even going to the smart phone screen, is a way of democratising the data flow to banks and the financial system. Internet access is already a key target for economies to achieve.
Driving digitalisation for SMEs
At Contour, we are making our network more accessible to SMEs by providing easy access through our SaaS-based trade finance solution. We are also making adoption a lot easier through Contour Import, a new and simplified way of allowing importers (or buyers) to join Contour by making the need for beneficiaries to be on the network optional – allowing the buyer to use Contour for all their import LC needs with a multi-bank platform.
The ability of fintechs to lower the barriers to adoption will certainly help drive financial inclusion for SMEs, and in turn, narrow the trade finance gap. The last two years have been about the digital transformation of industries, and this will remain topic number one for years to come.
If you would like to explore how Contour can help you with your digital trade journey, or if you’d to learn how Contour Import can work for you, reach out to us here.