What is Trade Finance?
Trade finance refers to the financing of international trade. It involves a range of financial products and services that are designed to help businesses manage the risks and costs associated with importing and exporting goods and services. These products and services are most often issued by intermediaries and can include letters of credit, export or import credit insurance, and supply chain financing. Trade finance is used by businesses of all sizes, from small and medium-sized enterprises to large multinational corporations, to facilitate international trade and support their growth.
Businesses resorting to trade finance products face challenges that can include complex documentation requirements, limited access to financing, high cost of financing, and various risks related to credit, regulations, politics and currencies.
Trade finance can be especially challenging for small and medium-sized enterprises, which may have limited resources and may be perceived as higher risk by financial institutions.
Atlendis chose to enable FinTechs active in the Trade Finance business that have improved risk assessment models thanks to data collected through Open Banking, and a proven financial record.
How does Atlendis address Trade Finance?
The Atlendis protocol is built on the Polygon blockchain as a decentralized credit market. Lenders can deposit funds into liquidity pools that serve trade finance use cases. Intermediary companies can have access to new additional sources of liquidity through digital currencies and take out loans in order to issue trade finance products to their business customers faster and more efficiently.
Benefits for Lenders
- Steady stream of income: Trade finance investments can provide a steady stream of income in the form of interest and fees.
- Yields above financial benchmarks: Institutional investors often seek trade finance investments for the payout that is usually priced above risk levels, since banks and large institutions tend to avoid trade finance activity for regulatory reasons, among others.
- Diversification: Investing in a FinTech operating in trade finance can help diversify an investment portfolio, and provides exposure to a different asset class than traditional investments such as stocks and bonds.
- Low default rates: Historically, trade finance has had low default rates, which can make it an attractive investment for investors seeking a relatively low-risk option.
- Opportunity to support global trade: Investing in trade finance is an opportunity to support global trade and help businesses grow.
- Increased transparency and accountability: The use of blockchain technologies in trade finance provides transparency that can help reduce the risk of fraud and errors, which can be beneficial for lenders.
Benefits for Borrowers
- Risk management: Atlendis is a series of smart contracts – immutable and public piece of code – on Polygon, and benefits the blockchain’s security, transparency and immutability. It enables Trade finance Fintechs to access financing on a financial network with a different risk profile, which can be a way for them to manage their risk.
- Improved access to financing: Trade finance institutions on Atlendis can have access to additional liquidity that is more capital-efficient than in traditional finance, which extends their lending capacity.
- Greater efficiency: On Atlendis, the use of blockchain technologies for trade finance use-cases can help streamline the trade finance process, by reducing costs and accounting overhead and by improving the speed and cost-efficiency of transactions.
- Quick access to funds: Atlendis’ revolving lines of credit constitute a pool of liquidity made readily available thanks to smart contracts and that can be accessed as needed once the pool is set up.