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Background
Transformation For The Traditional Financial Market
Technologies have reshaped the world, especially so, in the last two decades. Its innovation and accessibility has transformed our society. It changes the way people communicate, learn, think and live. We’ve seen the rise of Fintech technology and the inception of AI. Despite this, the financial world seems to continue with elements of its archaic past, it seems that the lending world has currently failed to evolve. Large institutions continue to dominate the market. Large businesses have been served well to the liquid markets with the cost of capital as low as an average of 1%. SMEs, however, still have to pay as high as 15% for the borrowing cost while non-performing loans as low as an average of 2%.
The Huge Trade Finance Gap
- Trade finance is a stable, established asset class that supports sustainable development.
- According to the 2019 ICC report, global trade finance transactions have low default rates below 1% and corporate lending is statistically riskier than trade finance lending.
- A centuries-old global market traditionally dominated by commercial banks is now opening up to institutional investors.
- This growing market offers lenders opportunities for yield pick-up and diversification benefits.
- Global trade now faces a $3.4 trillion financing gap according to one CNBC article.
Huge Credit Gap In The Traditional Financial World
- The global market opportunity for SMEs (Small and Medium-Sized Enterprises) credit is estimated to be $8 trillion, but more than half of it goes unmet.
- Traditionally, SMEs are generally hard to secure finance from banks due to various reasons such as: a lack of security, a lack of track record, taking too long to make a decision, disengagement etc.
- With the rise of digital technologies, there has been a vast increase in the opportunities to capitalize on SME lending, as we progress we foresee the opportunities becoming safer and more accessible.
- SMEs represent more than 95% of registered firms worldwide.
- SMEs account for more than 50% of jobs worldwide.
- In high-income countries, they contribute to 50% of GDP and are responsible for over 60% of employment.
- It is calculated that between 55% to 68% of formal SMEs in emerging markets are either unserved or underserved by financial institutions.
- The International Finance Corporation (IFC) estimates that SMEs in developing countries, alone, have an unmet financing need of $5.2 trillion every year.