DP World moves to close trade finance gap for SMEs

Reuters/Darren Whiteside

• Digital trade platform builds relations between firms and financiers
• Traditional banking system ‘failed’ to finance the small business sector
• DP World platform tracks cargo through shipment to reduce risk

DP World has launched a digital trade finance platform to build relations between small and medium sized enterprises (SMEs) and financial institutions and boost trade.

The platform gives borrowers access to trade finance while helping lenders assess companies by providing data, visibility and transparency on global trade movements. This allows them to analyse potential areas of risk and identify the viability of new businesses.

SMEs make up around 95 percent of all companies operating in the UAE, and yet according to industry experts the traditional banking system has “failed” the sector when it comes to providing trade finance.

“There’s no other way to put it,” said Sinan Ozcan, senior executive officer of DP World Financial Services.

“That’s not because banks are evil,” he added. ““The SME portfolio is historically perceived as high risk due to lack of transparency and inefficiencies in global trade. Small businesses often lack the sophisticated skills and capacity that the large corporates enjoy.”

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DP World currently handles 12 percent of global trade via its ports and logistics business. Ozcan said around 50 percent of this comes from SMEs but the sector receives just 10 percent of funding available from the traditional banking system.

SMEs also employ around 90 percent of the private sector and contribute more than 60 percent to the country’s GDP, according to the UAE government.

The Asian Development Bank estimated the trade finance gap, which measures the difference between demand and supply of trade finance, at $1.7 trillion in 2020.

Lucy Chow, general partner at WBAF Angel Investment Fund, said that banks reject more than 40 percent of trade finance applications from SMEs. “More work needs to be done to address this widening trade finance gap, particularly in developing countries,” she said.

DP World has access to over 90 percent of the global container shipping on a real-time basis, Ozcan said.

“We plot that on our platform and are able to track cargo throughout the shipment. This helps to significantly reduce the risk.”

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The platform, which is live in almost 50 markets covering close to 80 countries, has onboarded 22 lenders and registered 57,000 companies – 500 of which have been fully onboarded.

Six months ago DP World Trade Finance started direct lending operations as a financial institution on the platform and has built up capacity to finance up to $1 billion in trade annually.

Ozcan said he would like to see that number reach $5 billion worth of direct and indirect trade financing by 2027.

In November last year DP World Trade Finance teamed up with Emirates Development Bank (EDB), signing a memorandum of understanding to provide SMEs access to trade financing through the platform.

As a lender DP World Trade Finance is live in India and the UAE where it uses its own balance sheet. Ozcan revealed plans to expand its lending side with launches in South Africa, the UK, US, Canada, Brazil, Ecuador, Peru and the Dominican Republic.

“At least half of them could be this year,” he said.