Everything you need to know about trade finance in Singapore

Singapore is one of Asia’s largest trading hubs given its strategic location which boasts high connectivity. With trade financing, importers can make purchases with credit facilities smoothly without upfront cash to suppliers.

The significance of this benefit is large, and this article will share with you what trade finance is all about, the evolution of its growth, prospects of trade and trade finance jobs in Singapore.

 

What is trade finance? 

Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. It covers many financial products that banks, and companies utilise to make trade transactions feasible.

 

Rise in trade-based monetary laundering (TBML)

There have been rising concerns over the threat of TBML globally, as criminals continue to use the international trade system to shift the proceeds of crime. Given the volume and value of trade that pass through Singapore each year, the global trading hub is inherently exposed to such risks – with criminals using all manner of tricks to try to deceive banks, including fictitious trade documents, shell companies and multiple banks accounts spread across different financial institutions.

The Monetary Authority of Singapore (MAS) shared best practice papers which highlight the “red flag” customer behaviours or transaction patterns that financial institutions can look out for to detect illicit financial activities.

On top of this, the trade finance sector is looking to upscale their capabilities with the integration of fintech.

 

Fintech in trade finance

Fintech has the potential to bring considerable efficiencies to processes that have stagnated over the past few years, which can lead to the evolution of trade and trade finance. Trade transactions are still a very manual, traditional paper-process with a multitude of documents for verification i.e sale and purchase agreements, insurance documents, shipping documents and so on. Fintech adoption and integration could reduce both the volume of documents and streamline the flow of documents in trade transactions, reducing transaction costs, speeding up transaction timeframes and introducing greater transparency which with it, security for contracting parties.

  • Blockchain technology to reduce transaction costs and risks within trade finance

The most visible application of fintech to trade finance is by blockchain technology and Smart Contracts. Blockchain technology or “the Blockchain” is a little more than a distributed ledger where a database in which information and data can be stored, with at least more than one person or organisation possessing a copy of that database. This contrasts with centralised solutions, where everyone on the system or platform interacts via a single central organisation, or decentralised, where there may be more than one hub, but essentially everyone interacts on a hub-and-spoke model.

In the context of trade and trade finance, transfers of title, delivery of documents and flows of funds are all capable of being done via blockchain with added benefits of:

  • Real-time visibility of transactions;
  • Increased structural and documentary efficiencies and reduced transaction costs; and
  • Reduced risk of fraud.
  • Automation within trade finance to improve efficiency

After a drastic dip in 2020 as Covid-19 had meant that the borders of countries worldwide were shut, the international flow of goods rebounded strongly in 2021, and significant growth is expected to continue in 2022. According to the World Trade Organisation, 80 to 90% of this flow is dependent on trade finance.

Unfortunately, trade finance is heavily document-dependent at every stage, and the burden of documentation is only exacerbated by the need to verify and process documents along the way. In addition to being environmentally questionable in an era of extreme sensitivity to climate change, the paper-intensive process underlying traditional trade finance are inefficient and create unnecessary access barriers. In fact, automating invoices and payment processing can lead to 15.4% more invoices getting paid on time, which is crucial for many businesses to succeed.

It is somewhat surprising how far behind trade finance remains, given the advances in automation of many other financial processes and the benefits of digitalisation. This can also be impacted by growing concerns of data protection and privacy concerns with higher vulnerability to hacking.

 

Data and privacy concerns

With the benefits shared above, there are still concerns about digitalisation with data privacy and security. These concerns are more relevant than ever in an era where data privacy regulations are becoming more prevalent and stringent, whilst the number of cybercriminals increases rapidly. Nonetheless, there is far more opportunities for data loss and misappropriation in paper-based manual systems.

Organisations can apply today’s advanced cybersecurity standards and tools to build a robust and secure automated replacement for your existing manual processes. And with improvements within the application of artificial intelligence based analytical tools, these can help financial institutions make better decisions about extending finance to market participants, opening access to more organisations and expanding both global trade and the finance market.

 

Success story: World’s first digital trade financing pilot

Singapore’s Infocomm Media Development Authority (IMDA), the MAS and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM), in collaboration with commercial partners DBS Bank, Emirates NBD and Standard Chartered Bank, have successfully concluded the world’s first cross-border digital trade financing pilot of its kind.

The pilot used IMDA’s TradeTrust framework to facilitate the transfer of electronic records between jurisdictions that have adopted the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Transferable Records (MLETR).

Advantages of this pilot:

  • Trading counterparts and transacting banks can validate documents digitally and securely even when they are on different trade finance platforms;
  • Allows highly confidential documents to be exchanged with another party in real-time with reduced vulnerability to hacks;
  • Reducing the operational costs of fraud detection and document verification;
  • Digitisation helps mitigate the risk of fraud, reduce costs, and improve trust and efficiency;
  • Increased legal confidence and commercial predictability to parties in both Singapore and ADGM in the recognition of electronic documents and digitalised transactions;
  • Pave the way for a more seamless, easier, and faster way to transact digitally.

 

Trade finance jobs in Singapore

As the world continues to evolve its trade sector to resolve and mitigate supply problems, global trade finance players have the perfect opportunity to revisit their processes on how they can facilitate international trade.

As such, there has been a spike in demand for trade finance jobs especially those that require digital expertise which includes:

  • Trade Finance Officer
  • Trade Finance Manager
  • Trade Finance Operations
  • Trade Finance Sales & Product
  • Treasury & Trade Solutions

 

If you wish to find out more about talent trends and talent solutions to upscale your trade finance teams, please reach out to us via the form below and a dedicated specialist consultant will be in touch with you. Alternatively, if you are a trade finance professional looking for a job change, feel free to reach out for some of the latest jobs or most confidential roles. You may also look at available openings on our job search page.

Get in touch

Whether you’re a professional looking for a job or a business seeking highly skilled talent, the team at Huxley are here for you.

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