Author: Sanne Wass

IFC and Citi expand US$1.2bn trade finance partnership

From Global Trade Review (GTR) | By Sanne Wass

IFC and Citi have extended their trade finance partnership by another four years, signing a US$1.2bn risk-sharing facility for the support of trade in emerging markets. It is the third time for the two parties to extend the facility that was first launched in 2009, under IFC’s global trade liquidity programme (GTLP). The goal, the institutions say in a statement, is to “expand the availability of trade finance at a time of reported global scarcity”. The facility extension will allow Citi to originate and fund more trade finance transactions to bank clients in emerging markets over a four-year span through a risk-sharing structure. Areas of coverage include banks in Africa, Asia, Central and Eastern Europe, Latin America and the Middle East, which will then extend financing to local importers and exporters. IFC and Citi will each contribute US$600mn to the facility. Since its inception, the collaboration between the two has financed a total trade volume of US$29bn (up US$9bn since its last extension), with around US$11.1bn in low-income and lower middle-income countries. This has been achieved through 4,092 trade transactions performed by 163 banks in 46 emerging market countries. Commenting on the facility, Paulo De Bolle, director of IFC’s financial institutions group, says the partnership is an important tool to support trade flows in “an environment challenged by derisking and continued volatility”. The funding is expected to support emerging market trade of another US$5bn through 2022. IFC’s GTLP programme is a global initiative that brings together governments, development finance institutions and private sector banks to support trade in developing markets. Launched in 2008, it has become a vital financing tool since the financial crisis. Some of the world’s biggest commercial banks have signed up. Over the last few years, for example, SMBC and Standard Chartered have each entered and renewed similar risk-sharing deals with IFC as part of GTLP. The post IFC and Citi expand US$1.2bn trade finance partnership appeared first on Global Trade Review (GTR).

Trade finance distribution platform to expand AI capabilities after US$6.3mn investment

From Global Trade Review (GTR) | By Sanne Wass

Tradeteq, a trade finance-focused fintech startup, is to expand its distribution platform and release new applications and services after raising US$6.3mn of equity investment.

The seed extension funding round was led by venture capital firm ADV, with the participation of several of Tradeteq’s existing individual and family office investors. It is the company’s most significant investment to date, bringing the total raised thus far to US$7mn.

Tradeteq is the provider of a trade finance distribution platform that connects trade finance originators with institutional investors and enables them to interact and transact. The aim is to open up the trade finance market to a broader set of investors, using advanced technology such as artificial intelligence (AI) and machine learning to provide sophisticated credit analytics, reporting, investment and operational solutions for their trade finance exposures.

So far, assets worth US$150mn have been processed through the platform, which went live earlier in the year after a soft launch in 2017.

The founders, Christoph Gugelmann and Nils Behling, worked together at Bank of America Merrill Lynch and then Galena, the asset management arm of commodity trader Trafigura, before setting up Tradeteq, run out of London.

Speaking to GTR, Behling says the new investment is a “significant step” for the company and its vision of making trade finance investable and establishing trade finance as an alternative asset class.

“It’s building on the foundation that we have laid over the past months, but it will really be bringing our offering to the next level,” he says.

Investment delivery is one of the areas where Tradeteq will now look to enhance its offering: within the next few months the firm will launch a flexible repackaging offering that transforms exposures into notes that can be purchased, held and transferred as traditional fixed income instruments. This will make it more straightforward for institutional buyers to invest in trade finance exposures.

Another focus area will be the implementation of AI for credit scoring: Tradeteq will now be able to “speed up the development, to hire additional resources and to expedite building further on what we have”, explains Gugelmann. He adds that the firm will also seek to “expand aggressively by teaming up with third parties in non-core areas, such as credit insurance and fraud detection systems”.

The company opened a Singapore office in March, from which it is now building its Asia client base. The firm also plans to open an office in the US by the end of the year.

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New programme to support African factoring firms

From Global Trade Review (GTR) | By Sanne Wass

Afreximbank and the African Development Bank have agreed to support the development of factoring in Africa with a US$950,000 grant commitment. Signed at the Afreximbank annual meeting in Abuja last week, the two institutions describe the new agreement as a “big step” towards their “unrelenting drive and commitment to continue enabling extra and intra-Africa trade”. The deal will see the African Development Bank make a US$500,000 investment through its Fund for African Private Sector Assistance (FAPA), while Afreximbank will contribute US$450,000. The aim of the programme is to upgrade the capacity and skill sets of up to 20 emerging factoring firms through on-site training, provision of back-office support systems and customised manuals for marketing, credit and risk policy, finance and operations. It will also provide advisory services for established factoring companies as well as a platform for them to network, exchange ideas and share best practices. Factoring is a form of debtor finance in which a business sells its accounts receivable/invoices to a third party (called a factor) at a discount. Focusing on this specific area, the goal of the new programme is to ultimately bring more finance to African SMEs that trade regionally or globally on open account terms. Afreximbank’s president Benedict Oramah says that the agreement “will reinforce and grow the availability of effective factoring across the continent and increase awareness of its availability”, adding that he sees factoring as a solution to bridge the funding gap facing SMEs in Africa. Also commenting on the agreement, Ebrima Faal, a senior director at the African Development Bank, emphasises the “multi-sectoral impact of factoring”, and expects the agreement to benefit firms particularly within agriculture, manufacturing, telecoms and power generation. The two institutions have already identified a number of the “emerging factoring firms” that will be supported under the programme, but these have not been publicly named. The post New programme to support African factoring firms appeared first on Global Trade Review (GTR).

Accuity expands compliance offering with acquisition

From Global Trade Review (GTR) | By Sanne Wass

Accuity is enhancing its compliance software offering with the acquisition of Safe Banking Systems (SBS), a specialist provider of know your customer due diligence and anti-money laundering solutions.

Accuity is a provider of data and software to manage risk and compliance, as well as tools that optimise payments pathways through its Fircosoft, Bankers Almanac and NRS brands. The acquisition of SBS, the firm says in a statement, will provide Accuity with an enhanced account screening solution and complement its transaction and trade screening offerings.

SBS’s solutions perform advanced false positive reduction and risk assessment in the account screening process across a number of sectors, including high-volume banks and non-bank financial institutions.

SBS is already a long-standing partner of Accuity, leveraging the Fircosoft filter in its solutions. According to Accuity, the two firms “share many mutual customers, which benefit from their complementary offerings”. The acquisition, it adds, will allow Accuity to “strengthen these benefits to clients as they face an evolving, complex and costly regulatory environment”.

Also commenting on the acquisition, SBS’s CEO David Schiffer calls Accuity “the natural home for SBS”, explaining that the move affords the firm “the opportunity to build on our existing partnership and success to date, grow our investments in our business, and expand globally”.

“Bringing our expertise and teams together will enable us to accelerate the development of innovative approaches to managing risk through advanced entity resolution and reducing false positives,” he adds.

SBS has approximately 50 employees and is based in Mineola, New York.

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R3 and 39 firms trial new blockchain-based KYC utility

From Global Trade Review (GTR) | By Sanne Wass

R3 has trialled a global, blockchain-powered know your customer (KYC) utility together with 39 banks, firms and regulators.

The four-day collaborative trial, which took place in May, saw the completion of more than 300 transactions on an application designed and built by Synechron on R3’s Corda blockchain platform.

It enabled participants, which included the likes of BNP Paribas, Deutsche Bank, ING and Société Générale, to communicate and manage test customer KYC data across the network. The solution works as a “self-sovereign” model, allowing corporate customers to create and control their own identities, including relevant documentation. Banks can request access to the data, whilst customers can approve requests and revoke access.  Any updates that are made become automatically visible to banks with permission to access the data.

R3 says in a statement that the trial reduced duplication and costs by eliminating the need for each institution to individually attest to and update KYC records.

A utility like this could be a game-changer for the trade finance industry, where the cost and complexity of compliance with regulation, including KYC requirements, remain a big barrier to the availability of finance. A shared utility could help ease mundane compliance processes that are often duplicated across financial institutions.

While KYC utilities have already being explored by other firms, to date most have had limited success due to low uptake.

But R3 and Synechron believe that the use of blockchain technology will make their solution more appealing to the industry.

“We’ve had increasing demand from our network for blockchain-based KYC solutions as they recognise that blockchain can address many of the challenges facing existing utilities,” Jane Kenyon, project lead at R3, tells GTR.

Tim Coates, US blockchain lead at Synechron, emphasises the fact that the application is decentralised and gives parties control of their own data as key differentiators from existing utilities.

He adds: “Blockchain’s immutability used as a new verification mechanism, and its peer-to-peer nature enabling greater data privacy are two of the native features that have attracted many in the KYC sector to blockchain.”

While Kenyon could not give details on a specific future timeline, she did say that R3 is working with a number of partners to develop applications on CorDapps to facilitate KYC on Corda, adding: “We are open to working with members who want to take these solutions forward in their institutions.”

The banks and corporates involved in the project include: ABN Amro, ALD Automotive, Alfa Bank, Bank ABC, Bank of Cyprus, BCI, BNP Paribas, China Merchants Bank, Commercial International Bank, CTBC Holding, Deutsche Bank, DNB, Hana Bank, ING, KB Kookmin Bank, Banca Mediolanum, Natixis, National Bank of Egypt, NH Nonghyup Bank, Qiwi, Raiffeisen Bank International, RCI Bank and Services, SBI Bank, Shinhan Bank, Société Générale, US Bank and Woori Bank.

In addition, a number of regulators and central banks took part, including Banco de la República (Colombia’s central bank), Federal Reserve of Boston, Superintendencia Financiera de Colombia and Superintendencia de Banca Seguros y AFP de Peru.

According to Kenyon, a planned feature of the fully developed KYC application would include an observer node that would be assigned to the regulators, giving them visibility on the entire network.

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First four banks go live on we.trade blockchain platform

From Global Trade Review (GTR) | By Sanne Wass

The we.trade blockchain platform is now live across 11 European countries, with four banks closing seven trade transactions.

The pilot transactions, which took place over the last five days, were carried out by 10 companies across five countries. The four banks involved were HSBC, KBC, Nordea and Rabobank.

Powered by Hyperledger Fabric, we.trade is a solution for managing, tracking and protecting open account trade transactions between SMEs in Europe. It connects parties involved in a trade deal in one place, helps SMEs initiate new trading relationships and provides them with easy access to a range of financing solutions.

we.trade has nine founding members, which also include Deutsche Bank, Natixis, Santander, Société Générale and UniCredit. The project’s IT vendor is IBM. In April, the banks took a crucial step toward the commercialisation of we.trade, creating a legal entity to manage and distribute the platform.

In a statement, Roberto Mancone, COO of we.trade, calls the live transactions a “massive achievement”, adding that they prove that the platform is a “robust and commercially viable proposition”.

“This really is collaboration at its finest. Not only has we.trade built a technical solution, it has also managed to create real collaboration across multiple banks and increased the connectivity of the trade ecosystem,” he says.

HSBC played a major role, taking part in four of the seven pilot transactions. While we.trade is primarily aimed at cross-border trade, it can equally be used for domestic transactions. As such, three of HSBC’s pilots was done internally between HSBC branches in the UK and Ireland, while one was executed together with Nordea.

The trade with Nordea involved UK-based company Fluid Pumps, which used the platform to complete an open account sale with GPS Food Group in Finland, supported by a bank payment undertaking.

The other banks in the consortium are currently working to complete their first transactions over the coming few months. The next step will be for the banks to bring a commercial product to the market in the fourth quarter of 2018, which will include onboarding more banks and their customers in Europe. The intention is to expand globally in 2019, with Asia being the next target market.

Other banks can join we.trade by purchasing a licence. This is designed to expand the usership as quickly as possible.

At present, we.trade is operating across 11 European countries: Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden and the UK.

“We have a very extensive list of banks knocking on the door, in various stages,” Raphael Barisaac, global co-head of trade finance at UniCredit, told GTR on the sidelines of the Blockchain Summit in London last week. But, he added, “for now, we have decided to focus on getting the commercial version up and running full steam ahead – thus enabling as many clients possible to use the platform”.

He noted that the customer feedback so far has been “very positive”.

“The customers are very enthusiastic about this solution,” he said. “The clients couldn’t care less whether you use a technology that is 20 years old or 10 years old or blockchain. They care about the value you are adding to their business. At the end of the day, the technology per se doesn’t bring any value as a stand-alone, it is an enabler – the value comes with what you are able to provide to the client as a service. And yes, by using the distributed ledger technology we are providing something extra.”

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TradeIX to “aggressively” grow blockchain ecosystem after ING investment

From Global Trade Review (GTR) | By Sanne Wass

Fintech firm TradeIX will look to accelerate the growth of the Marco Polo blockchain project, after receiving a US$16mn investment from ING and other financial players.

TradeIX is the world’s first trade finance specific open-source blockchain platform, which allows financial institutions to develop their own trade finance applications with open APIs.

The company announced last week that it had closed a series A funding round led by ING Ventures, the venture capital arm of ING, and joined by BNP Paribas, Kistefos and Tech Mahindra.

In a statement, TradeIX CEO and founder Rob Barnes calls the investment “a significant stepping stone” for the company, adding that the cash injection will be used to boost hiring, accelerate customer acquisition and platform development.

One of TradeIX’s flagship projects is Marco Polo, a platform for open account trade developed with R3 and 10 international banks, including ING and BNP Paribas.

Powered by R3’s Corda, it enables real-time connectivity between trade participants, improves visibility into trade flows and simplifies access to credit and risk mitigation services throughout the trade lifecycle.

Daniel Cotti, CFO at TradeIX, tells GTR that pilots are currently being prepared and are scheduled to begin in October. The platform will then move into production and be commercialised next year.

He says the funding round will allow TradeIX to “accelerate resources to the Marco Polo project to ensure that we maximise the potential of the industry initiative with additional trade orchestrations”, also adding that the firm will be “growing the Marco Polo ecosystem aggressively”.

The banks involved in the project at this point are Bangkok Bank, BNP Paribas, Commerzbank, DNB, ING, OP Financial Group, RBS, SMBC and Standard Chartered, with Natixis being the latest to join in late May.

Two other banks are “about to sign”, according to Cotti, who could not publicly reveal the names, but added that “we are talking to many other interested banks”.

A number of other financial institutions, including Barclays, BBVA, Bladex and Wells Fargo, were part of the original consortium developing the proof of concept, but decided to leave the project as it entered its pilot phase.

“We needed the banks to help us pay for this,” Cotti explains. “And some of the banks had too many other projects or didn’t have the budget, or weren’t able to present a business case internally that was approved.”

ING and BNP Paribas, together with Commerzbank, were the core banks driving the proof of concept throughout the second half of 2017.

With ING’s investment, the bank is now “intensifying our co-operation with TradeIX”, says Mark Buitenhek, the bank’s head of transaction services. He emphasises that while ING sees “a lot of opportunity in distributed ledger technology”, it is TradeIX’s open platform that makes it appealing.

“‘Open’ is what ING thinks the future of financial services is going to be,” he adds.

According to Benoit Legrand, chief innovation officer of ING and CEO of ING Ventures, the investment means the bank can offer TradeIX’s solution to “even more clients in the near future”.

The announcement comes just a few weeks after another blockchain consortium announced it is going into production with a similar blockchain solution. The we.trade platform is powered by Hyperledger Fabric and is developed by nine European banks together with IBM.

Speaking at the Money2020 fintech conference in Amsterdam in early-June, Joost Volker, lead product manager of trade at Rabobank, said we.trade is “now in a production environment” and will host its first transactions later in the same month. He added that the consortium will “use the period after summer for a large roll-out” to the broader market.

While there are technical differences between the Hyperledger Fabric and Corda blockchain frameworks, we.trade is, like Marco Polo, a solution for tracking and financing open account trade. However, we.trade is mainly focused on SMEs trading within Europe, whereas Marco Polo will be a global platform for all types of clients.

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Kenyan bank and fintech firm launch supply chain finance platform

From Global Trade Review (GTR) | By Sanne Wass

Commercial Bank of Africa (CBA), Kenya’s largest privately-owned bank, has launched a new supply chain platform to finance more SMEs.

With Kenya’s commercial interest rate capped at four percentage points above the central bank’s benchmark rate, the move could provide a much-needed capital to small businesses in the country.

CBA has launched the solution in partnership with Nairobi-based fintech firm Ennovative Capital (ECap), which built the platform, and the African Guarantee Fund for Small and Medium-Sized Enterprises, which funded the acquisition of the technology.

Implementation of the system started in April last year, and CBA has been running pilots with one of its big corporate clients since December.

It has also been piloting by buying goods itself, financing its own suppliers (including marketing agencies, IT vendors, suppliers of food, water and cleaning services) via the platform.

The technology enables CBA to offer reverse factoring, a form of financing that allows suppliers of its corporate clients to get paid before the stipulated credit period. The platform works as a marketplace where suppliers can trade their approved invoices, with no need for credit assessment.

Speaking to GTR, CBA’s value chain financing manager Euster Seghete Gerald says the bank has had “substantial interest” from corporate clients in the new solution.

She expects CBA to onboard at least five corporates and their suppliers over the next year, but going forward this specific form of financing is “a very clear growth area for the bank”.

“We have buyers who do over €200mn of supply payments in a year. So the potential is immense,” she adds.

Supply chain finance has been of interest to banks around the world for many years, as it offers them an opportunity to move away from traditional trade finance instruments like letters of credit, towards open account trade.

In Kenya specifically, however, it could be a crucial way for banks to be able to provide funding to SMEs under the country’s current interest rate cap.

Since September 2016, Kenya has capped commercial lending rates at four percentage points above the central bank’s benchmark rate, which now stands at 9.5%. While the aim was to limit the cost of borrowing for businesses and individuals, it has to a large extent had the opposite effect, with banks deeming SMEs too risky to lend to under the cap.

“Supply chain financing is big because, with the interest rate capping in the industry, many banks are looking at lending to the SMEs without having to take the risk of the SME,” Gerald explains. “Supply chain financing offers that comfort where the actual beneficiary of the funds is the SME, but the payment is coming from your corporate buyers. So the risk is way lower than any other financing, it’s almost risk-free if you are comfortable with the buyer”.

The new platform is also open to overseas suppliers, which according to ECap’s CEO Kefa Nyakundi makes it “a perfect solution for boosting intra-Africa trade and therefore facilitating the aspirations in the Africa Continental Free Trade Area agreement signed earlier in the year”.

His statement follows doomy predictions from Moody’s saying that lack of trade finance and other non-tariff barriers would limit the full potential of a continental free trade.

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Euler Hermes’ insurtech brand expands coverage for exporters

From Global Trade Review (GTR) | By Sanne Wass

Insurtech startup Credable is expanding the geographical coverage of its invoice insurance offering to cater for a large demand from exporting SMEs.

Credable, which was launched in Sweden in March, is the first stand-alone brand that has come out of the Euler Hermes Digital Agency. Using the latest insurance technology (insurtech), its fully digital platform offers Swedish SMEs an on-demand insurance option that covers against late or unpaid invoices on a single invoice or buyer.

During the pilot phase, which started in September 2017, Credable focused on insuring SMEs’ business in the four Nordic countries, but added another 13 European countries, including Italy, France and the UK, at the product launch. Now, adding another seven countries, Swedish SMEs can get coverage in 24 jurisdictions across Europe.

Speaking to GTR, Credable’s managing director Richard Garnier says this geographical expansion was only planned for later in the year, but the firm decided to “accelerate” its efforts in direct response to feedback from existing and potential clients.

“We’re continually talking to our users and prospects to understand their real-world experiences. One theme that kept emerging time and time again is how concerned SMEs are when they trade internationally, and how having the support of Credable and Euler Hermes is of interest to them,” he says.

Of the new countries covered by Credable are Germany, Belgium and the Netherlands, which Garnier describes as “significant additions to the portfolio”.

He adds that export is a “particularly good use case for our customers”, as the product provides reassurance to companies that their clients in distant territories are trustworthy financial partners and their payments are protected if any problems arise.

This is done through the platform’s two main features: first, it provides an instant “traffic light” risk calculator for an SME’s potential customer. Once a Swedish SME has been accepted onto the platform, it can search a database and see the creditworthiness of a firm it is about to do business with. For this, the platform uses an API (application programming interface) to access Euler Hermes data on millions of companies around the world in real time.

Secondly, the user can automatically get a quote for insurance coverage of an invoice, and instantly buy it. The platform calculates the premium cost, based on the invoice size, the payment terms offered and the credit rating of the buyer.

Apart from the geographical expansion of the platform, today’s announcement also includes the addition of new features, one of which allows SMEs to retroactively insure their invoices.

Credable now has 400 registered SME users, many of whom are now repeat customers. But the insurtech company believes there is much space for growth, noting in a statement that Swedish SME exporters represent “a huge market opportunity”, as most trade credit insurance today does not cater for SMEs’ need for easy and flexible insurance.

As such, Garnier says the quick growth is partly due to Credable creating more awareness around its product.

“Trade credit has been largely contained for a large-corporate audience,” he says. “Here we are taking a new market on a journey, and quite often that starts with explaining the concept, and perhaps the initial transaction being local, with a known supplier, and as we explain the application’s ability and as their trading grows, they look to use it internationally.”

Going forward, Credable will continue to add more countries in which Swedish SMEs can insure their exports. Garnier says countries outside of Europe are “on the agenda”, but can’t comment on the specific timing.

What he can say is that, by the end of the year, the firm will start expanding beyond Sweden to countries in which SMEs can buy Credable’s insurance.

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IBM’s latest blockchain venture brings microfinancing to Africa’s SMEs

From Global Trade Review (GTR) | By Sanne Wass

IBM is rolling out a new supply chain finance platform across Africa, using machine learning algorithms and blockchain technology to extend microloans to small businesses.

The tech giant’s research lab in Kenya announced today that it is working with Twiga Foods, a business-to-business logistics platform for kiosks and food stalls in Africa, on a new concept for disbursing microfinancing to businesses using a blockchain-enabled platform.

The partnership has allowed Twiga Foods, which helps farmers distribute bananas, tomatoes, onions and potatoes to 2,600 kiosks across Kenya, to add financial services to its offering and thus scale its reach. Having piloted the platform with 220 small food retailers across Kenya over an eight-week period, the trial saw its customers increase their order size by 30%.

The platform is now ready to be rolled out across Africa – to new sectors and suppliers – by the end of the year.

The idea is to utilise something that most people in Africa have – mobile phones – to bring them something they haven’t – access to working capital.

During the pilot, all loans were executed via mobile and went directly towards working capital for the businesses. When a retailer had an order delivered from Twiga, they would receive an SMS with options for financing that order. The retailer would then respond, confirming which loan option they preferred. The average loan was around US$30, offered for four and eight days with an interest rate of one and two percent, respectively.

Speaking to GTR, Andrew Kinai, the lead research engineer on the project at IBM Research, says the platform is about “linking SMEs, their suppliers and the banks” and using alternative data to give lenders the confidence they need to provide financial services.

Small businesses are hugely important for most African economies, yet they often have difficulty accessing sufficient credit due to the complexities of financing processes, high loan costs, collateral requirements and lack of a credit score.

“These vendors are quite small, so if they were to go to a bank, the bank would probably want an audited account or collateral and things like that. These small businesses don’t have that,” says Kinai. “So what we’re trying to do with our solution is to use alternate data, which can give a good idea of how well a business is doing and leverage that to provide credit to these small-scale vendors.”

This data, which includes information on purchase history as well as repayment, is crunched by the platform’s machine learning algorithm to predict the creditworthiness of a vendor. Once the credit score is determined, the blockchain platform, powered by Hyperledger Fabric and executed through smart contracts, will manage the entire lending process, from application to receiving offers, to then accepting the terms and eventually repayment.

Connecting multiple parties, blockchain is an optimal technology to manage the loan process, as it becomes transparent to all permissioned parties involved, from the lending bank to the borrower’s bank and the loan applicant themselves.

While the pilot didn’t involve any banks, the next stage of the project will be to bring in lending partners, Kinai says.

The companies are also set to expand the project to more of Twiga Foods’ vendors, as well as to other suppliers, including outside of Kenya, by the end of the year.

“For this pilot, we were doing it with one supplier, but the vendors often have other suppliers. Each of these suppliers has a snapshot of how that business is doing. So in the next step, we’re envisioning we’ll have mutable suppliers, to give an SME or vendor a ‘financial identity’, which is composed of all of these snapshots from various suppliers. A blockchain network would be very important in managing this,” Kinai explains.

It is hoped that such a financial identity stored on the blockchain could help SMEs across Africa access a wider range of financial services in the future.

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