Here, we find out that InventoryClub, a Commonwealth-focused trade finance application developer, is re-inventing trade finance in global trade, beginning with a blockchain platform to support a thriving trading community
The estimated $1.5 trillion deficit in the annual global trade finance requirement and complex trade flow systems are failing micro, small and medium-sized enterprises (MSMEs) in the world’s southern Commonwealth countries. It’s not that the capital doesn’t exist, it does. It’s become a question of freeing up the funding that’s locked-down behind intense regulatory and compliance requirements and redefining perceptions around trading with MSMEs, particularly producers and manufacturers in South America and Africa.
Forming a vibrant ecosystem of distributed ledger technology (DLT) applications to manage product inventory warehousing, promote peer-to-peer member financing and encourage cross-border trade among businesses of all sizes in Commonwealth countries, InventoryClub has designed a platform and process for enabling financial inclusion and equity. Through the InventoryClub platform, smaller-scale producers and manufacturers have access to competitive markets and can accordingly set their own prices which are visible to members willing to finance their trade.
Terry Igharoro, founder and CEO of InventoryClub, is driven to solve the problems of global trade finance, to connect sellers from smaller Commonwealth states with buyers from around the world, while mitigating risk through the use of smart contracts. He clarifies: “InventoryClub is bridging the $148 billion trade finance funding gap in emerging economies with our non-credit based peer-to-peer trade finance platform. Where the banks and global financial sector have failed MSMEs we believe the people will succeed. The African diaspora accounted for $66 billion in remittances to the continent in 2018 and its predicted peer-to-peer lending will reach up to $897 billion by 2024. The global commodities market is valued at approximately $30 trillion so we’re focusing our efforts on providing an alternative market to connect producers with merchants backed by global financiers, which in turn enables them to move up the value chain and claim a bigger slice of the pie.”
Access to finance
Vital for the creation and continual growth of the economies of the world, access to finance can make all the difference to the traction a company gains within a market. Accomplished multinationals with firm track records tend to dominate as banks and venture capital organisations provide these large enterprises with diversified funding options while MSMEs find their prospects of accessing finance appropriate to their level of innovation and business size are severely limited. In particular, small businesses in emerging economies face more pronounced funding gaps than are found in well-developed countries. Many MSMEs do not have access to traditional credit options provided by banks and venture capital firms.
While in recent years, there was some improvement in the economic environment in which MSMEs operate, including their finding it a little simpler to access credit, banks have also modified their business models and adopted stronger credit selection criteria. Higher interest rate charges attach to MSMEs perceived as having higher risk profiles. Micro-enterprises, innovative start-ups and businesses based in rural or remote areas are among those who are commonly excluded from any formal sources of external finance.
Stronger financing structures
While trends head toward business environments with less credit, rigorous rules and regulations are on the increase. In this climate, it is ever more urgent to reduce the dependence of MSMEs on borrowing as a model and to replace this with evergreen capital structures that improve the resilience of emerging economies. Along with alternative finance instruments, better trade finance models that lower perceived risks and improve opportunities for gain by all parties involved in a transnational trade are on the rise. Allowing a seller to set his own price, financial backers and traders who fairly connect buyers to sellers to obtain satisfactory marginal profits and a buyer to pay a price he is prepared for, one that is standardised by a competitive market.
While some MSMEs in emerging Commonwealth nations have improved access and availability to alternative financial instruments, many are averse, for example, to losing equity to obtain it. Building a system for trade finance on a decentralised blockchain, where identity data, inventory data, shipment tracking and the tracking of individual products from one geophysical location on the globe to another are all possible, has the potential to simplify the cumbersome paper-based systems that are the legacy of international trade, provide full provenance data and render transparent the finance and pricing structures within an industry.
Digital and financial inclusion
Emerging economies in smaller member state countries, such as those in Africa and South America that have sufficient infrastructure to access DLT solutions, which provide a frictionless money-transfer experience backed by an ecosystem that supports effective trade across borders, may benefit from InventoryClub’s platform and process for ensuring widespread digital inclusion. DLT’s promise of cost reduction increases margins while the consequential nature of the trust structures inherent in smart contracts and the decentralised ecosystem allows members to back trades that they may not have in legacy systems. Alternative valuation systems, inventory financing and receivables discounting are a few of the mechanisms that may be made available to members within a digital trade finance community.
The development of DLT and blockchain solutions which counter collateral shortage and information asymmetries through innovation and which display a drive toward equity are proving a popular space for MSMEs to enter competitive markets with confidence. Through 2019, InventoryClub is progressing with the growth of its InventoryClub platform for peer-to-peer financing, the ComodX marketplace and VNTPay applications, reducing barriers to entry for many MSMEs in the Commonwealth.
Please note: This is a commercial profile