Blockchain technology crucial to improve current trade finance system

Implementing digital technologies such as blockchain, artificial intelligence (AI), machine learning and robotic process automation can resolve inefficiencies in India's current trade finance system, and make the process efficient at the bank's, buyer's, seller's, as well as the SMEs/MSMEs end, an ASSOCHAM-Deloitte joint study noted.

"Banks in India should start conducting POCs (proof of concept) in this DLT (distributed ledger technology) to get a deeper understanding of its (blockchain technology) implications from the dimension of deployment in trade finance," noted the study titled 'Role of trade finance for inclusive growth.'

However, before a widespread adoption, blockchain must address certain implementation challenges such as on-boarding users, regulatory acceptance, changing role of banks, infrastructural issues and firms/businesses operating on small scale. The ASSOCHAM-Deloitte study further noted that innovation in AI is also moving very fast, and has enormous application to solve real problems. It could be used to detect transaction quality, or provide an opportunity to market cross channels, to ensure banks are utilising their resources optimally.

While the year 2017 saw global trade expansion as a consequence of acceleration in global trade growth in the first six months of the year, India's slow growth of trade has been a concern, the study said. This short-term down turn was largely being attributed to a negative fallout from economic reforms such as demonetisation and the Goods and Service Tax (GST).

"India's trade deficit hit a 35 month high, at USD 14 billion as exports declined, for the first time in 14 months by 1.12 per cent in October 2017, to USD 23.1 billion. Exporters faced a liquidity crunch after paying GST for four months in a row without any refund. Fine-tuning GST data that feeds IT (information technology) platforms will have a significant impact on trade finance," the study stated.

In terms of ease of doing business, the ASSOCHAM-Deloitte study lauded government initiatives for the role played in improving ease of doing business ranking from 130 in 2016 to current rank of 100.

"India significantly lags on key metrics such as: turn-around time and operating costs, reliance on physical documentation, requirement of liaison with multiple stakeholders on disparate systems and lack of transparency, increase the cost of compliance. These limitations, limit trading volumes, which in turn limit the speed and efficiency of trade finance," said the report.

However, the study stated that with new models of credit and funding guarantees backing the trade, the current trade finance process can be changed significantly. It also said innovation over the years has helped bring efficiency and wider coverage to trade finance, and as both buyers and sellers push for greater efficiencies, the focus on innovation is likely to further increase in 2018.