Accelerating trade digitalization to support MSME financing

Micro, small and medium-sized enterprises (MSMEs) are the backbone of the economy, representing 95 per cent of all companies worldwide and accounting for 60 per cent of employment. They are fundamental to the day-to-day provision of goods and services around the world. Yet, many struggle to grow and trade. Among the many challenges that MSMEs face, lack of access to finance, including trade finance, is frequently identified as a critical barrier to growth. The MSME financing gap is a reality that cannot be ignored and that should be tackled with determination if we wish to ensure that small players are given a chance to thrive.

Digital technologies from cloud computing, to APIs, the internet of things, artificial intelligence and distributed ledger technologies open a range of new opportunities in this respect. New business models and new approaches to MSME financing are emerging. The technology is there, holding interesting promises. Yet, MSMEs continue to struggle to access financing, including trade finance, with ripple effects on their ability to grow and trade. How can we unleash the potential of these technologies?

The current pandemic, which has had a devastating impact on small businesses, has shown that going digital is no longer optional. It is necessary. But digitalization requires more than simply technology. It requires an enabling regulatory environment.

This publication explores how digital technologies can be leveraged to facilitate MSME financing. It provides examples of relevant use cases and discusses challenges faced by practitioners. While the potential of digital technologies to facilitate MSME financing is significant, this publication shows that a more holistic approach is needed to unleash the potential of these technologies to facilitate MSMEs’ access to finance, including trade finance. Coordinated action on issues ranging from standards, to how to leverage data and what type of data, digital identity, regulation and how to close the digital divide is needed. Policy-makers, technologists, practitioners, bankers, and all other stakeholders must work together to devise, agree, and then execute upon a roadmap that will catalyze action.

We need to think small and act big!

Foreword, by:

Xiaozhun Yi, Deputy Director-General, World Trade Organization (WTO)

John Denton — John W.H. Denton AO, Secretary General, International Chamber of Commerce (ICC)

TradeTech Hub

Authors

Emmanuelle Ganne, Senior Analyst, Economic Research and Statistics Division, World Trade Organization (WTO)

Deepesh Patel, Editorial Director, Trade Finance Global (TFG)

Foreword from Xiaozhun Yi, Deputy Director-General, World Trade Organization (WTO) and John W.H. Denton AO, Secretary General, International Chamber of Commerce (ICC)
Author’s Introduction
Trade Digitalization and Financing: new hope for MSMEs?
The role of technology
Digital technologies in trade
Appendices

Imagine how different the world might look today if, in 1976, Apple Computer couldn’t get the US$ 15,000 in financing they needed to buy the parts to fulfill their first order. How many entrepreneurial visions with the potential to change the world have fizzled out of existence due to a lack of funds? Dead in the water without so much as a chance for life.

For many micro, small and medium-sized enterprises (MSMEs) around the world today, access to financing can mean the difference between prosperity and bankruptcy. Working to identify, understand, and ultimately overcome the challenges that MSMEs face in their quest for acquiring financing will help ensure that the next Apple Computer doesn’t cease to exist before it has a chance to change the world.

This publication seeks to identify some of these most pressing challenges, understand them, and explore the potential application of digital technologies to mitigating their impact. To that end, interviews have been conducted and surveys administered with experts in the field of MSME financing, including in some cases trade financing, to shed light on these issues and explore the ways that technology can be used.

This publication will begin by examining some of the challenges that have been identified as impacting MSME financing, as well as the role that the COVID-19 pandemic has had in moulding the landscape. Next, it will move on to examine key digital technologies, their potential benefit to the industry, in particular to MSME financing, the adoption challenges they face, a selection of case studies and companies utilizing these technologies, and recommendations for overcoming these challenges. These technologies include cloud computing, optical character recognition (OCR), internet of things (IoT), big data analytics, artificial intelligence (AI), quantum computing, distributed ledger technology (DLT) and application programming interface (API).

Premier Launch Video

Assistant Editor and Lead Researcher

Carter Hoffman, Trade Finance Global

Carter is a Research Associate at Trade Finance Global focusing on the impact of emerging technologies on international trade. He holds international business and science degrees from Brock University in Canada and the European Business School in Germany. Carter’s work has been featured in publications and articles supported by the SME Finance Forum, managed by the International Finance Corporation, World Trade Organization, and International Chamber of Commerce.

Want to read our previous papers?

TFG and WTO published Blockchain & DLT in trade: Where do we stand in November 2020. The previous paper, TFG / ICC and WTO’s publication “Blockchain & DLT in trade: A reality check” in November 2019 at the WTO Global Blockchain Forum is available here.

Industry Association Partners

Contributors

Wahida Mohamed Athman Ali, Islamic Fintech Hub of Sub Saharan Africa
Stephen Arnold, Helaba
Raphael Barisaac, UniCredit
Kris Van Broekhoven, KomGo SA
Dai Bedford, Ernst & Young LLP
Oliver Belin, TradeIX/Marco Polo
Colin Camp, Pelican
Andre Casterman, Casterman Advisory, ITFA
Natasha Condon, J.P. Morgan
Nicholas Demetriou, essDOCS
Arnaud Doly, Nabu
Kate Drew, CCG Catalyst
Sean Edwards, ITFA
Thomas Frossard, Tinubu Square
Merisa Lee Gimpel, Lloyds Banking Group
Christoph Gugelmann, Tradeteq
Lars Hansén, Enigio Time AB
Hans Huber, Commerzbank
Agnès Hugot, Fast Track Trade
Daniel Huszár, efcom GmbH
Katrin Kahr, Raiffeisen Bank International AG
Atul Khekade, TradeFinex Tech Ltd.
Michelle Knowles, Absa Group

Joshua Kroeker, Contour
Oswald Kuyler, ICC DSI
Cecile Andre Leruste, Accenture
Rebecca Liao, Skuchain Inc.
Iain MacLennan, Finastra
Pamela Mar, Fung Group
Vinay Mendonca, HSBC
David Meynell, tradefinance.training
Barbara Meynert,Fung Group
Marta Mróz-Sipiora, Asseco Poland
Peter Mulroy, FCI
John Omoti, Bank of China
Samantha Pelosi, BAFT
Joel Schrevens, China Systems
Dr. Paul Sin, Deloitte Consulting
Michael Sugirin, Standard Chartered
Shona Tatchell, Halotrade
Marc Vandermolen, KBC
Michael Vrontamitis, Trade Digitalisation Working Group, ICC Banking Commission

Infographics, Charts & Diagrams

Interconnectivity of TradeTechs

Cloud Computing — The interconnectedness of Digital Technologies in Trade. *Correct as at 1 March 2021.*
Source: Research by ICC, TFG and WTO

Technology Stack

Layers — The eight technologies emphasized here can be thought of as existing within the framework of a technology stack. Each layer can be used to facilitate and enhance the layer(s) above.
*Source: Research by ICC, TFG and WTO*

The Technologies Transforming MSME Financing

Difficulty Adopting — Note: The axis scales for difficulty adopting and industry impact are 4-8 and 5-9, respectively, while the technologies were scored on a 0-10 scale. Depicting the scale in this way allows better visual segmentation into the four quadrants.

Survey results – industry impact

After plotting the aggregate data points in the above matrix, further analysis was conducted to determine if there is any significant variation in these perceptions of impact and difficulty between the different self-identified stakeholder groups represented in the survey responses. Specifically, this analysis focussed on differences between (1) firms using each technology to facilitate financing and firms that are not, (2) firms with a global presence and those with only a regional or local presence, (3) firms identifying as banks and those not identifying as banks, and (4) firms identifying as financiers and firms not identifying as financiers.

Most of the analyses did not unveil statistically significant differences amongst the groups (i.e. firms using cloud to facilitate financing and firms not using cloud to facilitate financing perceive cloud as having, on average, an equal impact on the industry). There were, however, four instances where statistically significant differences were found: