The Lending Market’s Shift From Bankers to Non-Banking Lenders

The Growth of Non-Banking Lenders in Trade Finance

Trade finance has been historically dominated by financial institutions. However, the market is experiencing a shift with a rising number of non-banking lenders joining the business.

The growth of private lender-based debt serves as proof of the above-mentioned, surging to $677 billion in the past five years.

According to a Global Trade View report, the tenfold increase of the British multinational investment bank HSBC asset distribution (from $2 billion in 2015 to $20 billion in 2018) can also serve as an indicator of trade finance’s shift.

However, alternative investors — such as family offices, insurance companies, and funds — account for only 10% of the 2018 investments.

According to HSBC’s Surath Sengupta, the reason for the above-mentioned is the lack of standardization in trade finance, which could make these assets unattractive for alternative investors.

The Issue of the High Trade Finance Gap

While the number of non-banking lenders is increasing in trade finance, the market is facing a major issue.

The trade finance gap — referring to the share of international trade without access to traditional trade finance products (e.g., letters of credit, credit lines to importers and exporters) — remains at the high rate of $1.5 trillion.

As a result, the effect of the global growth facilitation and the deliverance of important jobs are limited. And banks are struggling to solve this issue as their progress is hindered by the tight regulatory environment introduced after the Subprime Mortgage Crisis.

The Demand for a Standard Origination Platform and Distribution Network

SWIFT — a messaging network financial institutions utilize to send and receive quick, secure, and accurate information (e.g., money transfer instructions) — consists of only 1,000 financial institutions, despite over 25,000 banks, 15,000 non-banking institutions, and 15,000 fintech companies present in the world.

And all the organizations mentioned earlier are actively looking to originate pass-through capital.

On the other hand, DeFi — a movement in which traditional financial products are transformed into decentralized alternatives — is on the rise, hitting a $1 billion milestone in February. As a result, the fintech buzz is increasing with cryptocurrency considered as an alternative investor class (or as a “non-bank funder”).

DeFi and fintech’s rise, as well as trade finance gaps, reveal two major problems of the market: the lack of a standard origination platform and the lack of a standard distribution network for loans.

Therefore, to solve the above-mentioned issues of trade finance, the market needs a standard platform that combines loan origination and distribution.

Fortunately, we have a solution close by.

What Is the TradeFinex Network and How Can it Solve the Issues of Trade Finance?

TradeFinex is a blockchain-based decentralized Peer-to-Peer (P2P) distribution network to digitize trade finance assets and distribute them to alternative investors.

TradeFinex Network offers market participants a decentralized way to manage trade finance assets, such as letters of credit and electronic presentations. Via a decentralized blockchain network, buyers, sellers, banks, and carriers can conveniently exchange digital letters of credit, electronic bills of lading, insurance certificates, and other trade documentation with each other.

Moreover, TradeFinex provides standard origination tools and requirements to achieve easy distribution.

Other Advantages of the platform:

Participants can digitize and tokenize documents via the use of smart contracts.

TradeFinex is regulated under the Abu Dhabi Global Market (ADGM) and already a member of RegLab Access.

As the platform is powered by the XinFin Network, participants can use the native XDC utility token to lend and settle trade finance transactions.

With the $1.5 trillion trade finance gap as well as the DeFi market’s recent $1 billion milestone, XinFin’s XDC has a significant role as a major contributor to the trade finance market.

Reference Articles:

Are Banks and FinTechs Shifting to The Originate-To-Distribute Model?

14 banks join forces to standardise trade finance distribution

2019 Trade Finance Gaps, Growth, and Jobs Survey

Subprime mortgage crisis

Value Locked in Crypto DeFi Markets Hits $1 Billion Milestone