Trade finance, an age-old system rooted in the past, is having a tough time with the changes brought by digital technology in today’s global economy. Despite the financial industry’s shift towards a digital-first approach, trade finance remains tangled in a web of paperwork, burdened by issues such as unstructured data, overwhelming document volumes and complex compliance checks as well.

Roberto Azevêdo, the Director-General of the World Trade Organization, highlights the significant reliance on trade finance instruments, with up to 80 percent of global trade depending on some form of financing or credit insurance. But, the old way of doing trade finance is not working well enough for today’s fast-changing global market.

To deal with these problems, banks are looking at something new called blockchain. It seems like a good idea to solve small issues with data and paperwork and simultaneously fix bigger problems in the whole banking system.

The fact that trade finance is not spread out enough is not just a problem for companies, but it also causes bigger issues in how countries deal with each other. Developed countries, with mature financial industries, often take trade financing for granted. However, even in these regions, small and medium-sized enterprises (SMEs) encounter difficulties in securing financing due to factors such as limited collateral, credit history and guarantees.

SMEs in developing countries face similar challenges along with additional hurdles, including smaller, selective and less advanced local financial instruments. Many developing countries have trouble understanding how trade finance works and this causes a big problem. It is not just about companies, but it affects the whole world’s businesses in a big way.

Blockchain is like a shining light in this situation. If we use blockchain in trade finance, it could make things easier, faster and safer.