Finance platform aims at $2.5trn trade funding hole

Reuters

• Blockchain and crypto token process
• Returns of up to 9% a year
• 50% boost in business expected

A blockchain-based platform that lets institutions and wealthy individuals provide finance to importers and exporters for returns of up to 9 percent a year could help fill a multi-trillion-dollar hole in international trade, it says.

In trade finance, the involvement of third-party financial companies removes payment and supply risks for sellers and buyers respectively. 

Historically, institutions such as banks, insurers and state export credit agencies have given payment guarantees, usually in return for a fee or commission.

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However, today, “banks aren’t providing liquidity as they did before,” said Jean-Charles Devin, co-founder and director of LC Lite, which is regulated in Singapore and has an operational office in Dubai.

“The cost of cash and the cost of liquidity is super high now. There is a need for alternative financing solutions.”

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Devin compared the returns in trade finance to fixed-term bank deposits, where customers can typically earn about 5 percent annual interest in dollars, based on current interest rates, if they do not withdraw their money for a certain length of time, often 12 months.

In contrast, trade finance can provide returns of around 9 percent annually with an average maturity of 90 to 100 days, the typical length of time for which customers’ money is committed, Devin said.

Risks related to international trade include currency fluctuations, the credit-worthiness of the parties involved, political instability and potential non-payment.

The World Trade Organization estimates 80 to 90 percent of global trade relies on trade finance, which is mostly short-term.

However, the most recent figures revealed a $2.5 trillion shortfall between requests and approval for trade finance, the so-called trade finance gap, according to data from 2022 issued by the Asian Development Bank.

LC Lite specialises in blockchain-based trade finance services. It was bought in February by Singapore-based Incomlend, which describes itself as a global invoice finance marketplace for small and medium-sized enterprises (SMEs).

LC Lite

A crypto token on LC Lite’s private blockchain facilitates the financing process.

The price of the token is algorithmically determined according to the amount of trade finance activity generated on the platform; as the number of transactions funded through the token increases, so too does its value.

Likewise, should activity decline, so will the price of the token. The token has a fixed supply.

“The role of Incomlend and LC Lite is to give access to working capital to SMEs around the world by connecting all the participants, that is, exporters, importers, institutional and accredited investors in our marketplace,” Devin said. “We facilitate [and] secure the transactions and the payments.”

How it works

After a shipment is loaded onto a ship and all necessary export paperwork is completed, LC Lite purchases and resells the so-called receivable – the money owed for the goods involved in its marketplace.

Nearly all trades financed through the Incomlend-LC Lite platform are covered by credit insurance, Devin said.

Since launching services in 2017, Incomlend Group has facilitated around 8,000 trade transactions worth together more than $1 billion in invoice face value.

The average size of a transaction on the platform is $100,000, although they range from $10,000 to more than $1 million.

Devin said his company expects to increase the annual total value of invoices financed through its platform by 50 percent this year over 2023.

Only accredited individual investors, who must commit a minimum $100,000, and institutions, which typically invest at least $1 million, are eligible to join LC Lite’s platform.