mf-journal.com Open in urlscan Pro
2a02:4780:42:53e3:95e2:1e66:9205:a33b  Public Scan

Form analysis
1 forms found in the DOM

POST https://mf-journal.com/search/search

<form class="navbar-form navbar-left" role="search" method="post" action="https://mf-journal.com/search/search">
  <div class="form-group">
    <input class="form-control" name="query" value="" type="text" aria-label="Search Query" placeholder="">
  </div>
  <button type="submit" class="btn btn-default">Search</button>
</form>

Text Content

This website uses cookies to enchance your browsing experience. Learn more
Got it!
Themes by Openjournaltheme.com
Quick jump to page content
 * Main Navigation
 * Main Content
 * Sidebar

 * Register
 * Login

Toggle navigation

 * Home
 * Current
 * Archives
 * Announcements
 * About
   * Imprint Information
   * Privacy Statement
   * Contact


Search
 1. Home
 2. Archives
 3. Vol. 2 No. 2 (2024): Modern Finance
 4. 

Review


BLOCKCHAIN IN TRADE FINANCE: THE GOOD, THE BAD AND THE VERDICT

Tarik Kellaf (1)
(1) Laboratory QUALIMAT-GRTE, Faculty of Economics, Law and Social Sciences,
University of Cadi Ayyad, Marrakech, Morocco
https://doi.org/10.61351/mf.v2i2.206
?
? Total citations
? Recent citations
n/a Field Citation Ratio
n/a Relative Citation Ratio



ARTICLE SIDEBAR

Issue
Vol. 2 No. 2 (2024): Modern Finance
Submitted
5 November 2024
Published
26 December 2024
Keywords:
 * blockchain
 * trade finance
 * smart contracts
 * letter of credit
 * factoring
 * supply chain
 * trust
 * transparency
 * cost
 * scalability
 * security
 * regulation

PDF XML
 * Abstract
 * Authors
 * How to Cite
 * License


ABSTRACT

This study explores the potential of blockchain technology to optimize trade
finance processes and to address inefficiencies and fraud risks in centralized
systems that contribute to a growing global trade finance gap, particularly
affecting SMEs. Through documentary analysis and the case of Morocco's OCP
Group, with insights for practitioners, we explore the benefits and challenges
of integrating blockchain into trade finance. Our findings suggest a hybrid
solution integrating blockchain into existing infrastructure, relying on both
off-chain and on-chain governance mechanisms in smart contracts. This approach
aims to bridge the gap between traditional and blockchain solutions in trade
finance and discusses the potential for a more pragmatic way forward for the
industry.


FULL TEXT ARTICLE

Generated from XML file



1. INTRODUCTION

The financial landscape is profoundly transforming in an era of rapid
technological advancements. Trade finance, a critical component of global
commerce, is crucial in facilitating international trade by providing the
financial infrastructure and instruments to reduce risks and improve liquidity.
However, it is traditionally plagued by inefficiencies, high costs, and a lack
of transparency. Integrating new and innovative technologies becomes imperative,
and enterprises constantly seek ways to improve productivity and gain
competitive advantage. Among these technologies, blockchain stands out as a
revolutionary force and the most disruptive, capable of reshaping trade finance
processes. However, despite advancements in this technology, there remains a
lack of comprehensive studies addressing how blockchain can specifically enhance
trade finance operations.

This study explores, through documentary analysis, the potential of blockchain
to optimize trade finance processes, which have traditionally relied on
inefficient, paper-based systems involving multiple stakeholders. Our findings
reveal that blockchain offers significant benefits for trade finance, including
reduced cost and time, increased efficiency, transparency, and security.
However, its implementation faces several challenges that hinder widespread
adoption in banking sector operations with its decentralized distributed ledger
architecture.

The key contribution of this research is to propose a hybrid solution that
integrates blockchain technology into existing banking systems for trade
finance. This approach addresses the limitations of traditional methods and pure
blockchain-based solutions, offering a pragmatic path forward for the industry.
We also explore how OCP's Moroccan Group has used blockchain in one of its trade
finance operations and how this technology can improve SMEs' access to trade
finance by removing barriers and paper-based processes.

Our study aligns with recent developments in the field, such as implementing
blockchain-based trade finance platforms by major banks while providing a more
nuanced approach to overcoming technological and regulatory hurdles. By
proposing this hybrid solution, our study addresses the gap between on-chain and
off-chain governance regarding smart contracts' use and primary impact. It
provides a potential pathway for banks to realize the promised benefits of
blockchain technology, as described in the literature review.

Delahaye (2015) describes the distributed ledger of blockchain technology as "a
huge notebook, which everyone can read freely and for free, on which everyone
can write, but which is impossible to erase and indestructible"; with this
characteristic, blockchain technology possesses the capability to transform
trade finance through the resolution of inefficiencies and obstacles encountered
within conventional paper-centric systems. It can diminish friction while
offering benefits like efficiency, transparency, collaboration, and auditability
(Neelika et al., 2020; Shuchih et al., 2019). Integrating blockchain technology
with trade finance can streamline the entire process and notably decrease
transaction time (Ferri et al., 2020; Kamble et al., 2020; Singh et al., 2019;
Bonson, 2019). Using distributed ledgers and smart contracts, blockchain can
alter the trade finance landscape and enhance financial mechanisms (Chang et
al., 2019).

Smart contracts play a central role in on-chain governance, enabling the
automated execution of rules and decisions without human intervention (Wright &
De Filippi, 2015). This automation increases transparency and reduces the need
for intermediaries, making transactions more efficient and cost-effective.

This technology facilitates automated financial decision-making and ensures the
validity of transactions, which fosters greater trust and security. Platforms
based on blockchain can potentially disrupt traditional finance procedures, such
as payment through Letter of Credit (LC), and establish a trustless environment
for participants in international trade. Prospective implications encompass the
possibility of automation and restructuring financial processes within trade
finance. The blockchain can alter the foundations of trust that underpin how
society organizes the transfer of values. Blockchain technology, as the
underlying technical infrastructure of crypto-currency, possesses qualities such
as decentralization and immutability (Gao et al., 2018). Catalini and Gans
(2019) argue that the idiosyncratic market design choices underlying Bitcoin go
beyond mere speculation. The capability to monitor transaction characteristics,
finalize transactions, and enforce agreements across a wide range of digital
assets distinguishes blockchain technology as a general-purpose innovation. It
mitigated the drawbacks associated with traditional trade finance, such as cost,
time, and the errors involved. With its new paradigm shift based on a
decentralized system, businesses can leverage blockchain in the domain of trade
finance to provide an adept model and shift the business model of banks in trade
finance, simplifying the end-to-end process. Blockchain technology can
successfully solve the information asymmetry problem in warehousing, logistics,
and supervision (M. Du et al., 2020).

In this context, the concept of a "paradigm shift," introduced by Thomas Kuhn
(1962), refers to a radical change or a revolution in a scientific discipline in
terms of personal beliefs, basic concepts, thought patterns, and technological
or social system practices (Gutting,1980), we concur with Guo and Liang (2016)
that blockchain has the potential to bring about a significant transformation in
the conventional operations of the banking sector, especially in payment
systems, by establishment of a decentralized and less-intermediated framework.
Meanwhile, blockchain technology in logistics is believed to offer solutions to
logistical challenges, which require sifting through complex trade finance
procedures and exploring the restructuring of LC processes to illustrate
blockchain's innovation and paradigm-shifting capabilities. With traditional
processes in trade finance, many studies, such as those of McDaniel and Norberg
(2019), Ciccaglione (2019), Rijanto (2021), and Sun et al. (2021), suggest that
SMEs are facing increasing challenges in gaining access. Recent regulatory
modifications, such as Basel III, result in heightened capital requirements for
banks. Nevertheless, supply chain finance involves stakeholders beyond banks,
particularly noticeable in the diverse backgrounds of supply chain participants
from various countries. Consequently, the risks associated with international
trade typically encompass a wide range of challenges that firms from distinct
countries or regions may confront in their cross-border trade and business
activities, culminating in trustless interactions.

In the subsequent sections, we will delve into a comprehensive review of trade
finance figures, SMEs' access to finance, and the benefits and challenges of
blockchain technology in trade finance. We will also present a case study of the
OCP Group in Morocco, illustrating a practical application of blockchain in
trade finance operations. This will be followed by a discussion contextualizing
these findings within the broader landscape of trade finance, concluding with
implications for practice and suggestions for future research.


2. RESEARCH METHOD

Regarding a large number of academic articles and popular press that revolve
around the blockchain, we focused our attention on peer-reviewed scholarly
articles and the pertinence of the information they provided to ensure the
quality, credibility, and usefulness of the studies in our investigation of
blockchain technology's utilization in trade finance, Certain articles,
research, or even press pieces may not have been directly cited in the study.
However, we were instrumental in shaping the concepts that underpinned the
research.


2.1. RESEARCH STRATEGY

This study is focused on documentary analysis of several sources such as
official reports, studies, scientific articles, press articles, statistical
studies, and others to provide a holistic view of the topic. This multi-source
qualitative approach may help identify gaps in the literature and highlight
different perspectives on blockchain's impact on trade finance. To secure the
comprehensiveness of our study, a specific keyword string was employed during
literature searches, encompassing terms like "blockchain in trade finance" and
"decentralized finance" or "decentralized finance" (with the capital Z) to
encompass articles pertinent to the innovative financial framework given the new
paradigm in finance with this decentralized ledger technology. Furthermore,
"Blockchain in the supply chain" was added to enhance the analysis of the supply
chain's relationship with blockchain and trade finance.


2.2. SELECTION CRITERIA

Stringent criteria were applied to the articles chosen, ensuring quality and
relevance through methodological clarity, analytical rigor, and result validity.
Only articles from reputable, peer-reviewed scientific journals were considered
for our analysis.


2.3. ANALYSIS OF FIGURES

Official data and metrics from recognized sources such as the World Trade
Organization (WTO), The International Fund Monetary (IFM), The Asian Development
Bank (ADB), The International Financial Company (IFC), The International Chamber
of Commerce (ICC), as well as other reports.


2.4. AN EXAMPLE CASE

Alongside the theoretical examination, a specific example case about using
blockchain technology in trade finance in Morocco was selected. This case
centered on a unique operation within the OCP Group in Morocco, a leading global
phosphate derivatives and fertilizers industry entity.


2.5. LIMITATIONS

It is important to acknowledge potential limitations in this study. The
selection of sources may introduce biases based on availability and
accessibility, particularly regarding peer-reviewed literature, official
reports, and studies versus popular press articles. Additionally, the rapidly
evolving nature of blockchain technology means that some recent developments may
not be fully captured within the existing literature.


2.6. ADDRESSING THE LOOK-AHEAD BIAS

To maintain methodological rigor and ensure the validity of our findings, it is
crucial to emphasize that only information available during prediction formation
was used in this study. Our exploratory research is based on empirical and
documentary analysis and - in addition to the benefits of blockchain in trade
finance - focuses on examining potential challenges and barriers to blockchain
implementation in trade finance. By strictly adhering to contemporaneous data
and maintaining a chronological perspective in our analysis, we have taken
deliberate steps to mitigate look-ahead bias.

This approach ensures that our examination of blockchain's potential impact on
trade finance remains unbiased. It reflects the information landscape as it
existed at each relevant point, enhancing our conclusions' reliability and
practical applicability.


3. FINDINGS

Speaking at the World Trade Organization's (WTO) 2023 Annual Conference in
London on 6 October, Deputy Director-General Angela Ellard highlighted the
significant opportunity to improve international trade through various
technological solutions, such as artificial intelligence, blockchain, and
electronic customs declarations. These tools can potentially significantly
reduce trade costs (WTO, 2023). According to her discourse, blockchain
technology can enhance the transfer of information between companies and customs
officials, thereby streamlining customs procedures. She highlighted the case of
BConnect, a platform that links customs authorities of Mercosur countries, which
has been praised as an innovative initiative using blockchain technology to
speed up the exchange of customs information between stakeholders (WTO, 2023).
The WTO (2021) suggests that blockchain has emerged as a highly efficient method
in the rapid development of international trade. This assertion is based on
using blockchain technology in asset management, expediting payments, and
establishing robust transaction monitoring mechanisms.

As noted by experts from the WTO (2023), blockchain is deemed to have a
transformative impact on trade finance and the advancement of financial
enterprises (Derindag et al., 2020; Sirimanne & Freire, 2021). According to the
analysis conducted by the WTO, approximately 80% of the total financial flows in
international trade are facilitated by conventional financing methods (Sirimanne
& Freire, 2021). The implementation of blockchain has the potential to enhance
the financing process, resulting in increased speed, reliability, and
inclusivity. Numerous financial institutions recognize these benefits and
integrate this technology into their operations to enhance the overall quality
of their offerings. Recent research indicates that many banks are interested in
using Distributed Ledger Technology (DLT).


3.1. CURRENT TRADE FINANCE FIGURES:

According to the analysis of Gartner experts Kandaswamy and Furlonger (2018),
the project that the economic importance attributed to blockchain technology
will experience a significant increase, reaching a valuation of just over $360
billion by the year 2026. Subsequently, this value is expected to experience a
significant surge, exceeding $3.1 trillion by 2030, as indicated in the 2018
Gartner Trend Insight Report (Figure 1).



Figure 1.Blockchain Business Value Forecast, 2018-2030. Source: Gartner Report.
Kandaswamy and Furlonger (2018).

However, according to ADB (2023), the global trade finance gap is estimated at
$2.5 trillion in 2022, representing a significant increase of 47% from the $1.7
trillion reported in 2020, as highlighted in its latest report (Figure 2). This
increase includes the widening gap arising from the COVID-19 crisis and the
corresponding escalation in the rejection rates of trade finance applications.
Systemic issues related to macroeconomic factors and geopolitical tensions,
including the Ukraine-Russia war, further complicate matters (ADB, 2023).



Figure 2.Global Finance Trade Gap. Sources: ADB. 2023 Trade Finance Gaps,
Growth, Jobs Survey - Banks; and World Trade Organization.

About 20% of the banks surveyed in the Asian Development Bank’s report said that
some trade finance applications - meaning requests from companies for financial
support to back their import or export operations - were rejected. Reasons for
this included factors such as perceptions of high country risk, lack of
collateral, poorly presented documentation, and issues related to
know-your-customer (KYC) compliance issues (ADB, 2023) (Figure 3). Rejected
applications had a more significant impact on SMEs than larger firms or
Multinationals, particularly evident in 2022. In that year, SMEs accounted for
38% of the total applications submitted to banks but faced a higher percentage
(45%) of rejections, as reported by ADB (2023) (Figure 4).



Figure 3.Reasons for Rejecting Trade. Source: ADB. 2023 Trade Finance Gaps,
Growth, and Jobs Survey—Banks.



Figure 4.Trade Finance Application and Rejections by Major Client Segment in
2022. Source: ADB. 2023 Trade Finance Gaps, Growth, and Jobs Survey—Banks.

Grounds for rejection included perceptions of increased country risk, lack of
collateral, inadequately prepared documentation, and concerns associated with
adherence to KYC compliance (Figure 3).

Lack of collateral remains required for lenders who adhere to conventional
credit and risk assessment methods when dealing with SME clients. SMEs often
lack transaction records or established long-term relationships with financial
institutions, which makes it challenging to assess their creditworthiness or
risk levels. Moreover, insufficient credit or performance history further
complicates the risk assessment. The prevailing market conditions also play a
role in this scenario. According to the ADB's Jobs Survey (2023),73% of surveyed
firms attribute the rejection of their trade finance applications to these
combined factors. Also, 73% of the surveyed firms recognize the substantial
enhancements in productivity and efficiency that can be attained through the
digitization and standardization of trade documentation processes, including
increasing rates of paperless trade (ADB, 2023). Banks also express a similar
view, with more than 70% of the bank participants intending to enhance their
assistance to SMEs by leveraging technology. This aligns with the recognized
benefits of digitization, as noted by banks (ADB, 2023). Over 63% of banks agree
that the extensive integration of digitization facilitates regulatory compliance
checks while allowing for better client profiling and risk management for SMEs
(ADB, 2023).

However, the traditional approach to trade finance still has weaknesses that can
be exploited, ultimately leading to inaccurate and/or undesirable outcomes.
First and foremost, it is a costly and time-consuming process involving numerous
follow-up steps by either the importer seeking goods or the exporter seeking
payment (ADB, 2023).In addition, trust assumes a pivotal role in instances of
trade taking place among entities across the globe. In today's technological
landscape, the generation of manual contracts presents a notable drawback
(Neelika et al., 2020). The importer sends the sales contract to its financial
institution, which then checks it before forwarding it to the exporter's bank,
first within the banking sector as part of a letter of credit, and at the same
time within the supply chain or sometimes the factoring company; this leads to
redundant but essential verifications by intermediaries, causing delays in
deliveries (Neelika et al., 2020). This predicament can be categorized as a
delayed timeframe. A similar scenario may unfold for the exporter, resulting in
a payment deferral.

The gap and rejection rate is much greater in Africa, according to a survey
conducted by the IFC (2022) on the trade finance gap in West Africa, and
rejection rates for trade finance applications are high, at an average of 21 %
of applications and 25 % in value terms.

Rejections fall disproportionately on SMEs, particularly those owned by women.
Overall, they calculate that the unmet demand for trade finance—the trade
finance gap—is around $14 billion annually for the four economies combined
related to Cote d'Ivoire, Ghana, Nigeria, and Senegal. The same survey of
financial institutions in the four ECOWAS4 countries revealed that trade finance
supports only 25 % of merchandise trade in these countries, far below the
African average of 40 % and the global average of 60–80 % (IFC, 2022).

(Nyantakyi et al, 2021) Highlighted that strict compliance measures drive up due
diligence costs, which forces less-productive banks to shun the trade finance
sector in Africa. Support is needed thus to minimize the cost of AML/KYC
compliance. We believe that one way to do so is to consolidate the credit
records of firms with interoperable credit systems that allow multiple banks to
share and access records on exporters and importers in real time.


3.2. BENEFITS OF USING BLOCKCHAIN IN TRADE FINANCE:

Yaga et al. (2018) posit that trust in blockchain technology is enabled by four
of its key characteristics: the use of an append-only ledger to provide an
entire transactional history, a cryptographically secure mechanism, a shared
ledger, and a distributed protocol that allows for the expansion of the number
of nodes on the network, thereby enhancing resilience to attacks. However, other
robust and effective mechanisms may also benefit trade finance.

3.2.1. SMARTCONTRACT

One of the most valuable applications of blockchain technology is the smart
contract, a set of promises agreed upon by parties and encoded in software. The
smart contract is executed automatically when the agreed-upon criteria are met
(Morris et al., 2014).

In his paper, Szabo (1994) defines smart contracts as computerized transaction
protocols that meet the conditions of a contract, reducing exceptions and the
need for intermediaries. Digital cash protocols, such as online payment systems
that retain the features of paper cash, serve as illustrative examples. In a
subsequent publication (Szabo, 1997), the author elucidates that smart
contracts, as protocols integrated with interfaces for secure network
relationships, are informed by legal, economic, and technical considerations
inherent to their design. The stipulations of a smart contract are initially set
forth as a mutual understanding regarding the terms of the contract.
Subsequently, these terms are delineated in program code, crafted to accept
specific data, analyzed following predetermined logic, and generated new
information derived from the analysis outcomes. Additionally, the code
encompasses directives that are automatically executed (Valeria et al., 2022).

These smart contracts are executed on a blockchain as general-purpose
computations on a distributed ledger technology (DLT) (Buterin, 2014). This
configuration enables the implementation of efficient, transparent,
cost-effective payment flows and tamper-proof record-keeping (Roturier et al.,
2017). Since 2008, there has been a notable acceleration in the advancement of
this technology. As Buterin (2014) notes, a proposal for a second-generation
blockchain has been put forth, enabling users to formulate more complex smart
contracts. Consequently, this facilitates the establishment of automated digital
protocols, such as the automatic execution of payment upon the arrival of a
shipment. Once transactions have been validated, they are transformed into an
immutable, auditable, enduring, and safeguarded state within the blockchain.
(Swan, 2016) further supports this proposition by introducing additional
attributes of blockchain technology that facilitate financial transactions.

The blockchain offers trade stakeholders a more secure, transparent, auditable,
and automatic transactional environment when used with smart contracts. The
underlying event-driven mechanism enables interactions between smart contracts
(Swan, 2016). As de Filippi and Wright (2015) posit, blockchain may facilitate
the transfer of authority from governmental regulations to code-driven protocols
within decentralized blockchain networks. This may occur because trust in
blockchain technology may be able to replace trust in and through the government
and central authority (Kevin Werbach, 2018).

This proposal brings us to the question of on-chain and off-chain governance in
smart contracts. On-chain governance refers to the decision-making processes and
rules encoded directly in the blockchain protocol. In contrast, off-chain
governance encompasses the decision-making processes outside the blockchain
network (Wright & De Filippi, 2015).

Smart contracts can also be used in off-chain governance, and one of their key
aspects is integration with existing systems. It can be designed to interact
with off-chain systems and processes, bridging the gap between on-chain and
off-chain environments.

3.2.2. IMPROVINGTHE SETTLEMENT IN TRADE FINANCE

To illustrate, the World Food Programme's blockchain-based Building Blocks
system, which is employed for managing payments for food assistance to Syrian
refugees in Jordan, underwent a redesign to operate on a permissioned version of
the Ethereum protocol, as reported by experts from the BCG consulting firm
(Philipp Bender et al., 2019). This modification resulted in a notable decrease
in transaction expenses, reducing approximately 98% compared to conventional
bank-dependent options (Philipp Bender et al., 2019). Many banks have initiated
adopting blockchain technology, engaging in collaborative efforts to reduce
financial and temporal expenditures. Examples of such initiatives include
Ripple, Marco Polo R3, Corda, eTrade Connect, Voltron, and Komgi, which are
engaged in partnerships with conventional banks and other stakeholders to
enhance operational efficiency within the sector (ICC, 2019).

Using letters of credit (L/C) represents a prevalent method of facilitating
settlements. However, a recent shift was observed favoring open accounts
(Derindag et al., 2020) (Narayan et al., 2022). Nevertheless, conventional
financial frameworks entail supplementary expenses (potentially reaching 1% of
the transaction), which presents challenges for many companies and limits
opportunities for enhanced, more dynamic development (Valeria S. et al., 2022).
Instead of relying on the SWIFT system, commercial banks may collaborate on
decentralized system-based cryptocurrencies such as stablecoins. In this
context, the advent of blockchain technology can potentially transform SWIFT,
such as its impact on the Telex system, which was previously utilized for
comparable operations (Kellaf, T, 2023). The increasing cybersecurity measures
and the growing number of participants in a decentralized network provide an
opportunity to introduce a payment system. It is recommended that payments
related to trade financing activities be incorporated into smart contracts
(Möser, M., 2014). The capacity to execute transactions on the platform will
enhance the speed and efficiency of trade finance operations.

3.2.3. REDUCTION ININTERMEDIATION COSTS AND TIME

Weiyangx (2016) illustrated that the collaboration between Wave and Barclays
Bank led to implementing blockchain technology within the blockchain
infrastructure established by Wave, resulting in a drastic reduction in the
duration of the transaction process. The typical 7 to 10 days was reduced to a
mere 4 hours. Hofmann et al. (2018) and Tribis et al. (2018) offer insights
indicating that blockchain has the potential to yield substantial benefits for
all stakeholders involved in SCF operations. This is achieved by enhancing
process efficiency and reducing the overall costs of financing programs.

Carson et al. (2018) posit that in the immediate timeframe, the primary benefit
of integrating blockchain technology within organizations is the reduction of
costs, as opposed to the processes of disintermediation or disrupting existing
business models. Other studies by S. Benjaafar et al. (2018), D. Allen et
al.(2018), A. Pinna, and W. Ruttenberg (2016) further corroborate the conclusion
drawn by Carson et al.(2018). In a study conducted by The International Monetary
Fund (IMF Fintech Note, 2023), the experts posit that the market maker may
replicate the traditional correspondent banking model but with differences in
cost and competition. The digital marketplace model reduces costs and boosts
competition through a multi-ownership model. Market makers can engage in various
transactions, including trading A-coins, exchanging currencies, and offsetting
exposures without a reverse payment. Managing liquidity, credit, and exchange
rate risks is more straightforward in the marketplace. Introducing coins as a
standardized contract, open to any market maker's bidding, enhances the
competitive nature of market making. The necessity for a specific bilateral
relationship with issuer A is no longer a prerequisite for market makers to
conduct business, thereby enhancing participation and reducing costs for
cross-border payments. This is consistent with findings by Catalini and Gans
(2019) and Tapscott (2016).

A study conducted by analysts at Juniper Research (2018) projected that by 2030,
financial institutions worldwide would save more than $27 billion annually in
cross-border settlement transactions through blockchain technology. Moreover,
the study indicates that implementing blockchain-driven solutions will result in
an 11% reduction in operational costs for banks (Juniper Research, 2018). These
findings corroborate the assertions made by Catalini and Gans (2019) regarding
the comparative benefits of blockchain networks over traditional marketplaces,
namely the reduction in the cost of networking and verification. According to
experts, it would be unwise to anticipate a rapid cost reduction, emphasizing
the necessity of patience (Juniper Research, 2018). Incorporating existing
verification methodologies alongside blockchain-based techniques will occur
gradually and phased over an extended period until a unified standard is
reached. The Juniper study anticipates the potential for yearly savings of $1
billion by 2024 (Juniper Research, 2018).

3.2.4. TRUST AND TRANSPARENCY

Banks serve as financial guarantors and payment operators in trade finance, with
their primary objective being facilitating rather than creating and maintaining
proprietary technological systems. Consequently, they initiated participation in
existing blockchain platforms that exhibit characteristics such as trust,
transparency, and impartiality in decision-making (Walport, M., 2015). Prominent
consortiums like R3 and Fabric Hyperledger are noteworthy among these platforms,
which have already introduced multiple software solutions tailored to the needs
of banks and businesses. These solutions include the Corda and Digital
TradeChain blockchain platforms that streamline trade finance operations
(Walport, M., 2015). It is conceivable that the blockchain could also enhance
transparency concerning transactions and supply chain traceability (Chang et
al., 2019; Kshetri, 2018). Tapscott (2016) and Vigna (2015) underscore that as
blockchain technology progresses, it gains the capacity to tokenize and
decentralize currencies and various limited assets, thereby significantly
broadening its disruptive capabilities. Blockchain can reshape the frameworks of
trust that underpin the exchange of values within society.

The issue of information asymmetry among relevant stakeholders in the supply
chain is addressed, reducing the costs associated with information dissemination
through establishing a corporate information infrastructure. Consequently,
implementing an online supply chain financial framework provides an efficient
and expeditious avenue for funding or delivering additional financial products
to supply chain businesses (Z. Li et al., 2019; Bohannon, 2016).

Benton et al. (2018) emphasize blockchain technology's advantages in
establishing provenance. The authors delineate the historical challenge of
creating a cost-effective and trustworthy information pathway, a hurdle that can
be overcome by adopting blockchain-generated records. Furthermore, the scholars
underscore the strategic advantages arising from the operational efficiencies
provided by blockchain systems, including the detailed nature of the data, which
can prove invaluable in supply chain management.

Returning to the smart contract, its transparency and immutability have been
highlighted as key benefits of on-chain governance. All network participants can
verify the terms and execution of these contracts, ensuring complete
transparency in decision-making processes (Wright & De Filippi, 2015). This
feature is particularly valuable in Decentralised Autonomous Organisations
(DAOs), where smart contracts facilitate collective decision-making by voting on
proposals using governance tokens.

3.2.5. ENHANCEDSECURITY AND FRAUD PREVENTION

The blockchain's underlying protocol enables participants to monitor and
document transactions and assets without relying on a centralized trust
institution like a bank. Blockchain networks can create proof of ownership
throughout the end-to-end trade finance process with digital signatures that
rely on encryption keys known only to authorized members. This reduces the
potential for fraud and collusion (Satoshi Nakamoto, 2008).

Security is a widely discussed aspect of blockchain and often ranks at the
forefront of any enumeration of benefits that this technology may offer to a
particular sector. The trade finance industry currently relies on many
communications and documentation exchanges between various entities,
predominantly through email and traditional paper-based procedures (Toorajipour
et al., 2022). This situation is particularly vulnerable to exploitation and
cyber threats. Recently, there has been an increase in illicit financial
activities linked to international trade, which emerged to support radical
organizations and their activities. The security provided by blockchain
technology is derived from its encryption capabilities and the immutable
characteristics of data retention (Shelley, 2020).

Transactions are grouped into blocks and then subjected to a verification
process conducted by a distributed computing network before being appended to
the blockchain. Subsequently, the block is assigned a hash value and a timestamp
and is integrated into the blockchain. Consequently, the data becomes
tamper-proof, necessitating the alteration of all succeeding blocks and the
cooperation of the majority of the network for any modifications
(Martinez-Rendon et al., 2022). Moreover, the deployment of smart contracts has
the potential to automate the monitoring and enforcement of terms within a trade
agreement. All these aspects collectively result in trade finance operations
being conducted on a highly secure platform resilient against the industry's
prevailing threats.

3.2.6. BLOCKCHAININ THE SUPPLY CHAIN

The theories of information asymmetry and principal-agent posit that the
entities involved in SCF selectively disclose their advantageous information
during business collaborations, leading to a lack of comprehensive business
information (Sappington et al., 1991). The efficiency of capital flow and
logistics in the supply chain is contingent upon the complete exchange of
financial information and its trustworthiness. The predominant challenges
currently facing SCF can be attributed to the inherent credit risk associated
with it. The extant supply chain financial framework is beset with difficulties
in acquiring reliable data and mitigating risks. It is, therefore, imperative to
establish a platform that facilitates data sharing to address these issues.

One of the key factors contributing to blockchain technology's efficiency in the
context of supply chain management is its capacity to enhance traceability
(Zhang et al., 2021). Utilizing blockchain technology in the context of supply
chain management enhances traceability by providing an immutable record of
transactions and the movements of goods (Zhang, 2020). Mao et al. (2018)
consider that the blockchain can be conceptualized as a system that extends
beyond its primary function of enhancing traceability to bolster the
effectiveness of supervision and management in a food supply chain. The system
collates traders' credit assessment text through smart contracts on the
blockchain, employing machine learning algorithms to perform semantic analyses
(Hofmann et al., 2018). CargoX (2020) provides electronic transport documents on
the Ethereum blockchain, including a blockchain Bill of Lading, developed and
exchanged via the platform, offering an enhanced electronic format that boasts
superior reliability, security, and confidentiality while being incredibly
user-friendly.

The platform Wave connects banks, carriers, traders, and other trade-related
entities, obviating the necessity for creating electronic duplicates of
documents, thereby enhancing trust and reducing costs (Bianchini & Kwon, 2020).
As indicated in a report by McKinsey (2022), an electronic Bill of Lading could
save $6.5 billion in direct costs and enable between $30 billion to $40 billion
in new global trade volume.


3.3. BLOCKCHAIN IS USED IN TWO MAIN INSTRUMENTS OF TRADE FINANCE

Letter of credit (L/C) and factoring. It can be significant in trade finance
operations, as it provides financial security and liquidity for businesses
involved in international trade. However, L/C is widely used in international
trade finance (Chang et al., 2019).

3.3.1. LETTER OF CREDIT-BASED BLOCKCHAIN

The estimation provided by The WTO (2016) indicates that a substantial
proportion, precisely 80 %, of international trade heavily relies on trade
finance or credit insurance. An essential element inherent in international
trade dealings is a temporal gap between the departure of the product from the
seller and its arrival at the buyer's location. In this context, exporters and
importers rely on external entities to provide assurances of payment backed by
collateral and to guarantee the protection of the exporter, importer, and other
relevant entities in the event of damage, theft, or loss of the goods during
transit. Before issuing an L/C in trade finance, banks typically require
prospective clients to demonstrate a robust credit history and a healthy
financial position. These requirements tend to favor larger establishments, as
evidenced by The Capital Source Group (2019).

In different stages of the processes for a transaction related to an L/C and its
related operations. There are various forms of risk, including fraud, that can
also depend on 1) false exchanges of information;2) maintenance and record
keeping, which makes it more prone to human error and lack of accountability ;
3) Custom rules that require multiple transmissions of information primarily
using physical documentation mean that critical paperwork often gets lost in the
shuffle; 4) Forged documents: Buyer can forge the L/C with fake bank's
credential and send them to advise bank; 5) Seller ships the goods, but no
payment is received; 6) Besides, the seller can forge the bill-of-lading from
the shipping company without the actual shipping of goods; 7) Bill of Lading can
be made by using fake names for carriers or shipping companies; 8) Delayed
timeline: The international shipping industry carries 90 % of the world's trade
in goods and still relies on paper documentation (Subramaniam, 2020). The
process would take days and weeks to complete, involving multiple parties in
each L/C-related transaction. That is why the distributed data shared by all
stakeholders and its immutability (Crosby et al., 2016; Lu, Y, 2018;
Viryasitavat et al., 2018) may reduce significant risks and prevent them, and
the digitization of paper-based documents on a blockchain platform will indeed
reduce time consumption and the carbon footprint.

Furthermore, implementing conventional payment techniques entails the necessity
for additional documentation, which imposes an additional burden on financial
transactions. Using L/C in transactions leads to the generation of additional
documentation, which in turn necessitates the involvement of at least a dozen
personnel from banking institutions (Valeria S et al., 2022). Several
institutions have sought to streamline these procedures by converting documents
into a digital PDF format. However, this approach also gives rise to several
additional challenges. The estimated cost of an electronic version of a bill of
lading is approximately 15% of the price of a paper document to be transferred
through the global trade shipping network (Marine Insight News Network, 2018).

Conversely, according to the UNCITRAL Law (2017), a fundamental element of a
paperless trading environment, it may significantly contribute to trade
facilitation. Transferable documents or instruments commonly consist of bills of
lading, bills of exchange, promissory notes, and warehouse receipts (UNCITRAL,
2017). These documents could be particularly pertinent to transportation,
logistics, and finance (UNCITRAL, 2017).

In the context of document presentation, a number of benefits are associated
with DLT within the field of financial technology. The inherent tamper
resistance of these ledgers is of critical importance in meeting the
stipulations of UCP 600, particularly Article 17, which mandates the
presentation of at least one original document per the credit requirements
outlined in Article 9(4)(a) of the United Nations Convention on the Use of
Electronic Communications in International Contracts, established in 2005
(Takahashi & Koji, 2018). Article e9 of eUCP Version 2.1 can fulfill this
obligation by presenting a single electronic record, a provision that may
initially seem inconsequential. However, a more nuanced interpretation reveals
compliance hinges on a trustworthy guarantee regarding the information's
integrity (Takahashi & Koji, 2018). Given their resistance to tampering,
distributed ledgers are better equipped than centralized registries to offer
such a guarantee.

According to the United Nations Economic Commission for Europe (UNECE, 2019),
obtaining a letter of credit typically involves eight main steps; however, the
practical implementation can exceed twenty steps without any changes (Credit
Research Foundation, 2019). Each step is independent of the previous ones, with
some steps requiring the repeated exchange of identical documents for
authentication purposes. It is worth noting that the administrative burden
associated with this process is significantly higher for SMEs than for larger
companies.

A study by the US International Trade Commission (USITC, 2010) of 2,350 SMEs and
850 large firms found that limited access to credit is a significant barrier for
SME manufacturing firms seeking to export or enter new markets. This constraint
is also one of the top three challenges SME service firms face with similar
goals (USITC, 2010). The observed shortfall can be attributed to the complicated
and uncertain nature of trade finance, which often involves numerous
stakeholders, which can lead to the inadequate utilization of available funds
(Deloitte & ASSOCHAM, 2018).

Decentralizing operational business networks could enhance transparency,
real-time tracking, and trustworthy exchanges between participants. Researchers
have highlighted the importance of ensuring a sustainable business environment
through sustainable finance, corporate social responsibility, and performance
(Kant, R, 2016; Guo & Liang, 2016; Tapscott, 2016). With its quality as a
decentralized system, incorporating smart contracts and blockchain technology
into trade finance operations alleviates concerns related to counterfeiting and
unauthorized modifications (Chang et al., 2019).

3.3.2. FACTORINGOPERATIONS

Factoring, especially (Reverse factoring), is one of the most widely used
instruments within various SCF schemes and has been implemented by large
corporations possessing high-quality credit ratings to alleviate the financing
challenges their suppliers face. This practice entails a tripartite agreement
involving a buyer (hereafter, “she”), a factor (usually a bank), and a supplier
(hereafter, “he”). Within this framework, the buyer commits to ensuring timely
payment of invoices resulting from transactions with the supplier to the factor,
thereby enabling the factor to offer a financing solution based on approved
invoices to the supplier. Suppose the supplier desires to get payment for an
approved invoice before its maturity date. In that case, they can sell the
relevant invoice to the factor at a discount determined by the buyer's credit
rating (Lekkakos et al., 2016).

In trade finance, with invoice factoring, the factoring institution pays the
invoice amount at a discount to the supplier or (in the case of a transport
service) the carrier, typically within one day of the goods being shipped, and
the delivery is completed to the shipper. The factoring institution collects its
fee as a discount on the invoice amount. As the case may be, the importer or
shipper pays the invoice amount to the factoring company, typically within 60
days after delivery of the goods (Narayanamet al., 2022). This benefits each
party involved as follows:

• Buyer or Carrier: gains quicker access to money it owes soon after goods
delivery.

• Supplier or Shipper: can get more time from the factoring institution to pay
off the invoice amount.

• Factoring institution: earns by invoice discount.

Many suppliers opt for credit loans instead of factoring, with the initial
interest rate typically between 12% and 15% (Lu Wang et al., 2022). We believe
that with blockchain, this rate can decrease, and access to trade finance will
become more open to SMEs. This system effectively mitigates issues related to
counterfeit seals or fraudulent transactions conducted offline, resulting in a
reduction of problematic financial liabilities (Lu Wang et al., 2022). The
introduction of online lending services undoubtedly improves operational
efficiency by allowing borrowers to access funds within the same day. With the
digital nature of cryptocurrency, a factoring company could integrate the
payment of funds directly into the invoice itself (Narayanan et al., 2022).

The smart contract is one of the advantages of blockchain technology that can be
used in factoring. It has the potential to be an SCF solution in terms of
security and transparency, where sellers, buyers, and financial institutions can
copy encrypted ledger data because the distributed ledgers are guaranteed by
modern cryptography (Hofmann et al., 2011; Lekkakos & Serrano, 2016). On the
other hand, the factoring institution, as a provider of funds, can perform
credit checks on its customers who apply for factoring and core companies using
the blockchain credit management module (M. Du et al., 2020).

Blockchain technology may establish a rigorous regulatory framework by
addressing the issue of information asymmetry. Regardless of SMEs'
creditworthiness and the extent to which profits can be shared through
collusion, the transparent business oversight built by blockchain technology
effectively resolves the challenge of achieving a stable decision-making process
between SMEs and financial institutions. As a result, introducing blockchain
technology reduces credit risks in the SCF, promotes system stability over time,
and significantly accelerates the evolution of decision-making processes. This
enhanced transparency also increases the willingness of financial institutions
to consider business proposals, thereby alleviating the financing constraints
faced by SMEs (Sun et al., 20-21).


3.4. OCP GROUP CASE IN MOROCCO

Using blockchain in trade finance, OCP Group, the world's largest phosphate
miner and leading fertilizer company, has launched a significant export
operation beyond the conventional framework of international banking. On 30
March 2021, the Eastern and Southern African Trade and Development Bank (TDB)
announced blockchain-enabled fertilizer trade finance transactions totaling
US$400 million. At the time, USD 270 million of this amount had already been
executed, with the remaining transactions expected to be completed in the coming
months, according to The OCP Group (2021), as the company engages in pilot
projects that demonstrate how blockchain can facilitate smoother transactions in
its supply chain.

OCP Group has achieved a significant milestone by becoming the first African
company to conduct an intra-African trade transaction using blockchain
technology. Using dltledgers' blockchain platform, OCP Group facilitated the
delivery of phosphate fertilizers from Morocco to Ethiopia. This intra-African
trade endeavor, an integral part of OCP's digitizing strategy, seeks to diminish
the trade finance gap in Africa and enhance inter-African trade, especially
within the fertilizer industry, by embracing digital inclusivity (OCP, 2021).

According to the explanations given by OCP and dltledgers, blockchain technology
enables all stakeholders to carry out the transaction digitally and complete the
import-export operation in less than two hours. Equivalent "paper" transactions
are typically completed in three weeks or more, the same source adds,
attributing this to the time suppliers need to transfer physical documents to
the buyer via the traditional banking system. "With the current slowdown in
global logistics and supply chains, trade finance transactions can take up to
six weeks, as border and airport closures continue to cause further delays,"
says The OCP Group (2021).In this transaction, the parties can upload, view,
modify, and validate documents on a private blockchain simultaneously and in
real time. The benefits of this technology include a low carbon footprint,
transaction security through encryption and verification technologies,
transparency and traceability, and risk reduction through eliminating potential
errors and ambiguities in the exchange and modification of documents. In
addition, the OCP points out that "transactions will take place at a time when
world trade in 2020 will have shrunk by 5 to 10% compared to the previous year"
(Les Ecos. ma, 2021).

Headquartered in Singapore, #dltledgers is the leading autonomous blockchain
platform dedicated to digitizing trade and supply chain processes in a
distributed manner. The platform facilitates the transformation of trade
documents, contracts, and banking interactions for organizations, automating
multi-party transactions, streamlining operations, and reducing costs. The
result is faster, more cost-effective trade execution, improved collaboration
between robust and auditable companies, and an enhanced ability to secure
financial support.

We were invited to attend an online workshop entitled "Digitizing Supply Chains"
hosted by the dltledgers team on 20 May 2024, where we explored their
blockchain-based platform that integrates suppliers, customers, banks,
transporters, and freight forwarders, providing comprehensive details and
references about each participant. The platform provides detailed information
about transactions, including orders, amounts, products, dates, invoicing,
incoterms, LC applications, payments, tracking, provenance, booking, shipping,
and more. It also provides various configuration options for changes,
cancellations, or additions. In addition, the platform includes a discussion
area for participants to collaborate. The primary tool used in this platform is
the smart contract, which executes transactions and program agreements between
partners (dltledgers, 2024).

The platform is only used to exchange documents and agreements, not to make
direct payments or use cryptocurrencies. However, for Morocco, it is essential
to specify that at the time of writing this paper, the Moroccan Central Bank
(Bank Al Maghreb) continues prohibiting the use of cryptocurrencies.


3.5. CHALLENGES AND LIMITATIONS OF IMPLEMENTING BLOCKCHAIN FOR TRADE FINANCE

Despite the advantages of blockchain and its exceptional characteristics, it is
still an immature technology that presents well-known challenges in scalability,
performance, and interoperability with other systems. Furthermore, apart from
the technical hurdles, organizations face formidable management issues as
blockchain applications must be assimilated into complex institutional,
regulatory, social, economic, and physical systems (Lacity, 2018).

One challenge in implementing a technology such as blockchain in an industry
that predominantly relies on paper-based documents in trade finance is
integrating it with existing systems and infrastructure. The trade finance
sector, which continues to rely heavily on paper documents, can be considered
one of the least digitized industries (Burri & Polanco, 2020; Lahkani et al.,
2020). Many business transactions still revolve around manual data entry into
banks' back-end systems, particularly through methods such as letters of credit
and other trade finance instruments. The lack of uniformity in trade finance
banking systems is a notable obstacle to implementing distributed systems, as
blockchain technology is most efficient in replacing systems with standardized
regulations and data management practices (Gencer, 2017).

3.5.1. INTEGRATION WITH EXISTING SYSTEMS AND INFRASTRUCTURE

Wegner (1996) states that interoperability is the ability of two or more
software components to work together effectively despite disparities in
language, interface, and execution platform.

According to the Bank for International Settlements (BIS, 2012),
interoperability is a means, not an end; the aim is to enable banks and other
payment service providers from different systems or jurisdictions to transfer
payments so that end-users can transact with each other seamlessly, regardless
of their geographical location or choice of PSP,while the opposite increases
costs accordingly. Justifying this cost is difficult because trade finance can
be a highly fragmented industry. Justifying these costs is complicated because
trade finance can be a highly fragmented industry. This means that there are a
large number of market participants spread across different global locations.
These participants have varying propensities to embrace new technologies.
Omarova (2020) and Zetzsche et al.(2020) argue that blockchain is the most
effective system when adopted and utilized across the entire network rather than
just at the intra-firm level. This means that in a scenario where only some
market participants use blockchain, its usefulness is reduced (Accenture, 2018;
Choi et al., 2018).

Firms wishing to use blockchain for trade finance prefer a scenario where all
their counterparties and business partners use blockchain (Carson et al., 2018).
In such a situation, firms could use smart contracts to automate the process and
execute transactions with significantly reduced counterparty risk, with
automatic enforcement if contractual obligations are not met. However, in a
fragmented industry, there are fewer opportunities to reap the benefits of
blockchain, as it is challenging to get all counterparties and business partners
to use the technology. Therefore, a company may be deterred from using
blockchain if its partners and counterparties continue to rely on traditional
methods.

Efforts to incorporate blockchain technology into a diverse range of existing
systems will likely result in developing a hybrid private blockchain, with
higher implementation costs and lower transparency and security benefits than a
complete system replacement. The result could be a fragmented blockchain that
operates similarly to the current state of digital record-keeping in trade
finance (Prewett et al., 2020).

3.5.2. REGULATORY AND LEGAL IMPLICATIONS

Complex legal implications are expected to be a norm for blockchain
implementation in industrial systems. Trade finance, known for its strong legal
framework, is particularly impacted by cross-border transactions, transshipment
activities, and different national legal systems (Lehmann, 2021). The
enforceability and admissibility of blockchain-based records and smart contracts
at the national level will likely depend on specific legislative measures to
integrate this technology. This process will involve examining potential
modifications to existing e-commerce laws, electronic transaction acts or
introducing regulations tailored to blockchain technology (Kimani et al., 2020;
Dimitropoulos, 2020).

Recent UNCITRAL initiatives on electronic transferable records may also become
significant. The widespread use of private and permissioned blockchains may
require a clear distinction from public blockchains regarding data security and
integrity while accommodating the former due to its proven effectiveness. This
distinction could be facilitated by establishing blockchain registries and
regulatory sandboxes (Schellekens, 2017). It is important to acknowledge that
the novelty of this technology and the lack of global consensus may initially
lead to legal uncertainty and increased compliance costs (Zetzsche et al., 2020;
Lehmann, 2021).

Global finance also requires a unified legal infrastructure to facilitate
transactions across different jurisdictions, and trade finance would similarly
benefit from an international approach to blockchain regulation. This type of
initiative has begun in data protection and blockchain technologies, with
standards such as the General Data Protection Regulation in the EU providing
much-needed clarity and raising awareness of data control issues unique to the
digital age (BIS, 2021).

In response to recent calls from the financial sector for coordination between
blockchain governance and interoperability, bodies such as UNIDROIT and the ICC
could potentially draft conventions to harmonize private international law on
the blockchain or a lex mercatoria for smart contracts. This could be in
addition to future soft law mechanisms and best practice guidelines from
industry associations (UNIDROIT, 2021; Toufaily et al., 2021; Lasse Andresen,
2019; ICC, 2019).

3.5.3. ADOPTIONAND ACCEPTANCE BY STAKEHOLDERS

The potential for blockchain to evolve and change in the future has raised
concerns about its longevity, which may lead to reluctance to invest in the
short term. In its current speculative state, firms may decide to wait for a
clear understanding of the long-term direction of blockchain and its
implementation for trade finance (Swan, 2015). This is from a risk management
perspective, as technological change can bring both risks and rewards, and firms
may wish to allow early adopters and other stakeholders to test the technology
first to catch up with competitors later (Zetzsche et al., 2018).

In Deloitte's Global Blockchain Survey (2018), 'regulatory issues' - cited by
39% of respondents - were cited as the most important factor preventing
companies from investing in blockchain technology (Pawczuk et al., 2018). This
is because the technology introduces concepts and methods, such as cryptographic
signatures and smart contracts, which are not covered by existing regulations
(Schatsky et al., 2018).

Legal implications are closely related to the issue of the acceptance of
blockchain systems for trade finance and the underlying criticism that they
represent a complex solution when compared to existing systems and practices
(Prewett et al., 2020; Kimani et al., 2020). This may result in a limited
understanding of blockchain among trade finance professionals and
decision-makers (Kimani et al., 2020).

However, another study by Deloitte (2020) reveals a measurable shift in
attitudes towards blockchain technology, with executives and managers
recognizing the practical applications and benefits of blockchain-based
solutions. Organizations are moving beyond planning and actively implementing
blockchain in everyday business operations.

Some concerns are that implementing blockchain systems may require different
legal and regulatory changes than the existing legal and regulatory framework
for trade finance. This could create a significant barrier to entry for
blockchain-based systems (Kimani et al., 2020). In order to assimilate the new
technology, it is predicted that the law and legal institutions will adopt what
has been termed 'blockchain law,' which may take a significant amount of time to
define and understand.

This law will likely aim to reduce inconsistencies between countries' legal
structures for trade finance, which affect transactions between importers and
exporters from different countries. Although a change in the law that promotes
technology neutrality is a long-term benefit for all IT-based systems in trade
finance, the Blockchain Act may seek to define what smart contracts mean in a
legal sense. As they are automatically self-executing, the defined terms of
smart contracts could have legal implications and change the current
understanding of letters of credit and transaction settlement.

3.5.4. SCALABILITYAND PERFORMANCE ISSUES

The scalability challenge in blockchain technology is a significant concern
regarding its implementation in trade finance (Chang et al., 2019). Scalability
issues arise from the growing volume of transactions on the blockchain network
(Dicaprio & Jessel, 2018; Kshetri, 2019).

In trade finance, where numerous parties are involved in complex, multi-step
processes, the scalability of the blockchain becomes crucial to ensure efficient
and timely transactions (Dicaprio & Jessel, 2018; Hellwig & Huchzermeier, 2019;
Dahdal et al., 2020). One approach to this challenge is sharding, which involves
dividing the blockchain network into smaller, more manageable parts. As the
trade finance industry seeks to leverage blockchain for its potential benefits,
addressing scalability concerns will be essential for widespread adoption and
success (Fridgen et al., 2021; Belchior et al., 2021; Winn, 2020; McDaniel &
Norberg, 2019).

Trade finance stakeholders are increasingly exploring various technological
solutions to address the scalability challenge in blockchain implementation. One
promising approach is using off-chain scaling solutions such as state channels
and plasma, which enable the execution of off-chain transactions while
maintaining the security and integrity of on-chain settlements. These off-chain
solutions can significantly enhance the throughput and efficiency of trade
finance transactions on the blockchain network (Bogucharskov et al., 2018;
Ciccaglione, 2019; Dicaprio & Jessel., 2018).

In addition to technical solutions, collaboration between industry participants
and regulators is crucial for addressing the scalability challenge in trade
finance blockchain applications. Stakeholders can establish common standards and
interoperable systems by working together, essential for scaling blockchain
solutions across the trade finance industry (Dahdal et al., 2020; DiCaprio &
Jessel., 2018).

Moreover, advances in interoperability protocols can also play an important role
in addressing scalability issues. Interoperability protocols enable different
blockchain networks to communicate and transact, thereby increasing the overall
scalability and efficiency of the trade finance ecosystem (Bogucharskov et al.,
2018; Ciccaglione, 2019).


4. DISCUSSION

Blockchain technology has begun to spread into the banking and finance sector,
with many banks contributing to consortia to establish a blockchain platform for
trade finance, such as Corda and R3. Other platforms have created banking
networks, such as blockchain company Ripple, which has partnered with over 300
banks, including financial institutions such as Santander and Western Union, to
improve the efficiency of cross-border payments. Its RippleNet payments network
uses a decentralized infrastructure to reduce the time it takes to send an
international payment to 3 seconds, compared to up to 5 days for traditional
international bank transfers.

We believe it is important to see The Ripple project in its context,
particularly given that the number of correspondent banks has recently declined
by approximately 20% from 2011 to 2018, according to the BIS quarterly review
(2020). The same review indicates that all regions have experienced a decline,
not just those jurisdictions with records marred by corruption or inadequate
cross-border information sharing (Rice et al., 2020). The decline of
correspondent banks is a potential concern because it could lead to an increase
in the costs of cross-border payments, a decrease in the diversity of products
or services available, or even a loss of access to the world banking system,
which in turn could lead to greater use of informal and unregulated payment
networks. R3, another major player working on DLT for banks, has seen its
technology used by Switzerland’s central bank for a successful pilot to settle
large transactions between financial institutions using digital currencies.
Nevertheless, blockchain technology introduces a secure and cost-effective
method of transmitting payments, reducing the reliance on third-party
verification and outperforming the processing speed of conventional bank
transfers.

As a result, the volume of B2B cross-border payments via blockchain is
anticipated to surge to nearly 1.8 billion by 2025, a substantial increase from
the 122 million transactions recorded in 2020 (CB Insights Research, 2018).In
the supply chain, blockchain can connect the ecosystems and bring together all
parties on a blockchain-based platform with a secure permissions and identity
framework and help to drive accurate information sharing by enabling the
seamless, secure exchange of real-time supply chain information between all
parties to a trade. With its decentralized nature, blockchain can ensure the
container's end-to-end track, according to Louise Wiggett (2019), the WTO
expert.

Nowinski and Kozma (2017) show that blockchain technology can disrupt existing
business models in three crucial ways: authenticating traded goods,
disintermediation, and lowering transaction costs. This will bring solutions in
trade finance based on these benefits for both financial institutions and
SMEs.We believe transparency is the most influential factor in solving the
information asymmetry problem.

The integration of diverse, innovative solutions in trade finance presents the
potential to address current economic problems, given its key role in sustaining
the production cycle. The inadequacy of trade finance in supporting the renewal
of working capital for SMEs is particularly striking in different regions. This
situation can be partly attributed to the lack of reliable mechanisms that
provide transparency to address issues related to asymmetric information
(Bogucharskov et al., 2018).

In a qualitative study conducted by Toufaily et al.(2021), the respondents
appeared to take a pragmatic stance when discussing the value of blockchain
adoption: business process improvements (including cost reduction,
standardization, increased efficiency, and transparency, elimination of errors,
fraud, duplication, and waste) were the most frequently cited benefits across
the sectors and by all respondents.

In the case of Morocco and its most prominent company, the OCP Group, blockchain
is not only concerned with Morocco's existing banking system for trade finance.
It goes beyond it to its potential foreign partner in international trade.

As a major player in the fertilizer industry, the OCP Group's enormous
operations likely incur high transaction costs in traditional trade finance
offered by banks. Blockchain can also streamline lengthy documentation processes
in transactions such as letters of credit, which are common in international
trade transactions but often involve multiple parties and complex document
exchanges. By implementing blockchain solutions, OCP Group can potentially
increase efficiency, reduce processing times, and improve traceability across
its global supply chain and financial operations.

In fact, in recent decades, Morocco has started to work as an emergent economy
with many investments in Africa, with foreign direct investments reaching over
$800 million in 2021; according to the Ministry of Finance, Morocco became the
second largest African investor in the continent- after South Africa - and the
largest in West Africa (IFC, 2024).

However, the development of trade finance itself faces other systematic
difficulties related to all stakeholders in the global market, which may be
summarised in three points: Firstly, various external and internal factors
influence the volume of trade financing transactions, leading to dynamic changes
in the system, such as interest rates, legislation, limited capital, and the
need to provide for depreciation. Secondly, there are challenges in executing
trade finance across the worldwide supply chain. The process requires
significant coordination between suppliers, corporate finance, purchasing, and
IT. Thirdly, incentives are challenging to provide to various participants in
supply chains due to their independent profit-seeking behavior in terms of
asymmetric structure, which can lead to poor overall performance.

This is why integrating off-chain governance is crucial for supply chain
management, where blockchain technology must interface with traditional business
processes.

Consequently, Morocco is concerned with African SMEs' access to trade finance to
foster their operations and related cash flow. A subsidiary of The OCP Africa
was established in 2016 to provide fertilizer solutions tailored to the region's
local conditions and crop needs; it now operates in 16 countries (IFC, 2024). An
alternative to the existing system to boost trade finance seems necessary for
Moroccan companies and their clients in importing and exporting in Africa,
especially as it is a continent with fewer banks.

The use of blockchain is not only dependent on business logic, but policy and
regulation are the first moderate variables to influence its adoption; to this
end, policymakers should encourage and potentially incentivize collaboration
between banks, fintech companies, and technology providers to accelerate the
adoption of blockchain in trade finance. By developing clear regulatory
frameworks, it will be possible to address the use of blockchain in trade
finance. This may include guidelines on digital signatures, smart contracts, and
the legal standing of blockchain-based trade documents.

Within the political logic, cryptocurrencies, as the main application of
blockchain technology, serve as a tool that the BRICS group aims to use to
enhance cooperation and bring integration to a higher level, especially in light
of the war trade initiated by the United States against China, as well as the
economic and financial sanctions imposed on Russia due to its conflict with
Ukraine, in order to isolate it from the global community (Zharikov, 2023). The
subsequent impact of these sanctions, particularly in banking transactions, has
prompted various stakeholders, including governments and financial institutions,
to explore alternatives to SWIFT based on blockchain technology (Kellaf, 2023).
According to a study published by the Congressional Research Service (2022),
which belongs to the US Congress, they highlight that after this war, the
Russian actors may use the "pseudonymity" of cryptocurrency to evade sanctions.
The sanctions evaders may try to obfuscate their blockchain transactions and
evade the measures imposed by the exchanges through some practices, such as
chain-hopping, which is the process of converting one cryptocurrency into
another to hide illicit funds; using unhosted wallets to move the funds;
anonymity-enhanced cryptocurrencies; or using the peer-to-peer (P2P) exchanges
(Congressional Research Service, 2022). However, using cryptocurrencies to
circumvent sanctions remains limited and highly theoretical, as the leading
crypto exchange platforms, such as Binance and Coinbase, are in the US, the
leading country that imposes economic sanctions on Russia (Kellaf, 2023).

Cryptocurrencies are divided into two categories: altcoins and stablecoins.
However, even the stablecoins pegged to the USD, such as USDT issued by the
company Tether, USDC issued by Circle, or BUSD issued by the platform Binance,
have encountered problems with dollar parity, especially after the fall of the
algorithmic stablecoin known as Terra Usd (UST; Jeff Benson, 2022; Kellaf, T,
2023). This went beyond the use of cash reserves in exchange for the USDT
cryptocurrency in unsecured short-term investments; only 6.36% of cash and bank
deposits during the cryptocurrency crash in May 2022, which created a liquidity
problem in the market, as reported by CNBC (2022) and BFM Crypto (2022), and
also undermined confidence in this type of stablecoin. The collapse of some
stablecoins and DeFi platforms has highlighted the challenges of conducting risk
assessments today (Kellaf, T, 2023). While blockchain transactions are
theoretically transparent, accurate information on macro-financial implications
remains challenging.

Going back to all these blockchain-based initiatives, what we are seeing
globally is that all these initiatives are not designed to replace the existing
system. They are all being implemented through collaboration in joint projects
rather than independently. This trend aligns with the challenges faced when
implementing new digital solutions in the banking sector, where progress is
hampered by the lengthy process of obtaining security approvals (DiCaprio et
al., 2018). Therefore, it can be argued that the complex interconnectivity
between banks hinders rapid disruption. All existing systems are interconnected
with other systems, particularly the SWIFT system in trade finance; indeed,
banks cannot invest in blockchain technology without partnering with other
stakeholders in the same ecosystem.

That is why the suggested implementation of the hybrid model may also synergize
on-chain functionality with off-chain operations to address governance
challenges. This model aims to leverage the strengths of both on-chain and
off-chain governance to create more robust and flexible blockchain systems,
including smart contacts.

However, blockchain is still in its infancy, and the shift expected in existing
systems by blockchain tends to be costly and time-consuming. According to the
latest business analytics platform CB-Insights report, CB-Insights argues that
financial services leaders have not written blockchain off. However, they are
not racing to deploy it either (CB-Insights, 2024). There is a need for
investment in solutions that can integrate blockchain platforms with legacy
trade finance systems to ensure a smooth transition and minimize disruption to
existing processes.

The usefulness and suitability of blockchain in trade finance must be high
enough to justify the cost of implementation. The advantage of using blockchain
technology to provide a reliable guarantee over a centralized registry appears
mainly due to its resistance to tampering. However, there may be limitations in
some cases. The technology does not effectively prevent the inclusion of
inaccurate data in the blockchain. It is important to emphasize that the most
serious form of fraud in the letter of credit (L/C) relates to creating
fraudulent documents rather than manipulating documents after issuance
(Takahashi, Koji, 2018).

Thus, the potential use of blockchain in trade finance is still limited to the
exchange of data and digital documents in operations such as letters of credit,
as it lacks the settlement function with cryptocurrencies, which plays a crucial
role in blockchain, including the financing and investment functions. Moreover,
given that cryptocurrencies are volatile assets, such as bitcoin and other
altcoins, that are beyond the jurisdiction and supervision of central banks, the
use of blockchain for counter-payment purposes in trade finance is still a long
way off, especially in countries that continue to prohibit it, such as Morocco,
or even with a major player in international trade, such as China.


5. CONCLUSION

Many of the benefits of blockchain can be applied against traditional trade
finance solutions. However, rather than replacing them, banks are looking for
ways to integrate blockchain into their existing infrastructure as a hybrid
solution to optimize processes, rather than being completely disrupted by
blockchain. On the other hand, the transformation will not be easy due to the
challenges posed by blockchain. Consequently, banks' gradual adoption of
blockchain technology will require adapting existing systems to these new
technological processes, as interoperability remains a significant obstacle.
Therefore, exploring hybrid solutions that combine traditional infrastructure
with blockchain technology can provide a gradual and less disruptive path to
adoption. This is why many banks seek partnerships with fintech companies rather
than investing solely in their information systems.

Even though the interplay between on-chain and off-chain governance in
blockchain systems presents opportunities and challenges, this approach allows
for integrating blockchain capabilities into existing systems, gradually moving
towards a fully decentralized and efficient framework while minimizing potential
disruptions to ongoing operations. It may also improve SMEs' access to trade
finance, based on an efficient technology for accurately storing and sharing
data about them.

In Morocco, the issue has an additional facet; mainly, the aforementioned
initiative relating to the OCP Group is the only one in the country. It mainly
involved the exchange of documents within a business transaction, alongside the
use of the traditional existing payment system, until the moment when the
Central Bank of Morocco (Bank Al Maghreb) banned the use of cryptocurrencies
altogether. Nevertheless, the collaboration between OCP Group, the Trade and
Development Bank, and Dltledgers' blockchain platform is an example of the
growing influence of blockchain technology in trade finance. This collaboration
shows how blockchain may soon revolutionize traditional processes.

Besides commercial banks opening up to fintech startups, Moroccan regulatory
bodies such as Bank Al-Maghrib (BAM) and the Moroccan Capital Market Authority
(MCMA) should engage more closely with universities and higher education
institutions. This collaboration would help promote financial innovation and
scientific research in an underexplored yet promising area. By fostering
partnerships between regulators, academia, and the financial industry, Morocco
can create a more robust ecosystem for fintech development and financial
innovation, potentially leading to new insights and advancements in this rapidly
evolving field, especially as the Governor of the Central Bank of Morocco (BAM)
announced just a few days ago, on 26 November 2024, that Morocco is moving
towards regulating cryptocurrencies with a draft law. This implies that these
decisions have become deterministic, and no longer simple choices, due to the
continuous evolution of blockchain.


APPENDIX A. ABBREVIATIONS FROM THE STUDY

Abbreviations ADB: Asian Development Bank.  BAM : Bank Al Maghreb.BIS: Bank for
International Settlements. BRICS: Group of Brazil, Russia, India, China and
South Africa.DLT: Distributed Ledger Technology. ICC: International Chamber of
Commerce. IFC: International Finance Corporation.IMF: International Monetary
Fund. L/C: Letter of Credit.MCMA: Moroccan Capital Market Authority.OCP: Office
Cherifien of Phosphate. PSPs: Payment Service Providers.SCF: Supply Chain
Finance.SMEs: Small and Medium-sized Enterprises.TDB: Trade and Development
Bank. UNCITRAL: United Nations Commission on International Trade Law.UNECE:
United Nations Économico Commission for Europe.UNIDROIT: International Institute
for the Unification of Private Law. USITC: United States International Trade
Commission. WTO: World Trade Organization. Table 1.Abbreviations from the study

Funding: This research received no external funding.

Conflicts of Interest: The authors declare no conflict of interest.

Disclaimer: All statements, viewpoints, and data featured in the publications
are exclusively those of the individual author(s) and contributor(s), not of MFI
and/or its editor(s). MFI and/or the editor(s) absolve themselves of any
liability for harm to individuals or property that might arise from any
concepts, methods, instructions, or products mentioned in the content.


REFERENCES

Accenture. (2018). Blockchain in logistics: Perspectives on the upcoming impact
of blockchain technology and use cases for the logistics industry. Retrieved
from
www.logistics.dhl/content/dam/dhl/global/core/documents/pdf/glo-core-blockchain-trend-report.pdf

Allen, D., Berg, C., Davidson, S., Novak, M., & Potts, J. (2018). Blockchain
TradeTech. Available at SSRN: DOI: https://doi.org/10.2139/ssrn.3171988

Andresen, L. (2019). World Economic Forum: We need a lex mercatoria for smart
contracts. Retrieved from
https://www.weforum.org/agenda/2019/01/we-need-a-lex-mercatoria-for-smart-contracts/

Bank for International Settlements. (2021). Boar, C., Claessens, S., Kosse, A.,
Leckow, R., & Rice, T. Interoperability between payment systems across borders.
BIS Bulletin No 49.

Bank for International Settlements. (2021). Fintech regulation: How to achieve a
level playing field (Occasional Paper No 17). Financial Stability Institute.

Belchior, R., Vasconcelos, A., Guerreiro, S., & Correia, M. (2021). A survey on
blockchain interoperability: Past, present, and future trends. ACM Computing
Surveys, 54(8), 1-41. DOI: https://doi.org/10.1145/3471140

Bender, P., Burchardi, K., & Shepherd, N. (2019). Capturing the value of
blockchain. Retrieved from
https://www.bcg.com/publications/2019/capturing-blockchain-value.

Benjaafar, S., Chen, X., Taneri, N., & Wan, G. (2018). A permissioned blockchain
business model for green sourcing. Retrieved from SSRN 3305792. DOI:
https://doi.org/10.2139/ssrn.3305792

Benton, T., et al. (2018). Blockchain for supply chain: Improving transparency
and efficiency simultaneously. Software Quality Professional, 20(3).

BFM Crypto. (2022, February 15). Confirmant sa place de roi des stablecoins,
l'USDT suscite pourtant de nombreux doutes [Article by Pauline Armandet]. BFM
TV. Retrieved from
https://www.bfmtv.com/crypto/confirmant-sa-place-de-roi-des-stablecoins-l-usdt-suscite-pourtant-de-nombreux-doutes_AV-202302150525.html

Bianchini, M., & Kwon, I. (2020). Blockchain for SMEs and entrepreneurs in Italy
(OECD SMEs and Entrepreneurship Papers, No. 20). OECD.

Bogucharskov, A.V., Pokamestov, I.E., Adamova, K., & Tropina, Zh.N. (2018).
Adoption of blockchain technology in the trade finance process. Journal of
Reviews on Global Economics, 7, 510-515. DOI:
https://doi.org/10.6000/1929-7092.2018.07.47

Bohannon, J. (2016). Why criminals cannot hide behind Bitcoin. Science.
Available at
https://www.science.org/content/article/why-criminals-cant-hide-behind-bitcoin.

Bonsón, E., & Bednárová, M. (2019). Blockchain and its implications for
accounting and auditing. Meditari Accountancy Research, 27, 725–740. DOI:
https://doi.org/10.1108/MEDAR-11-2018-0406

Burri, M., & Polanco, R. (2020). Digital trade provisions in preferential trade
agreements: Introducing a new dataset. Journal of International Economic Law,
23(1), 187-220. DOI: https://doi.org/10.1093/jiel/jgz044

Buterin, V. (2014). A next-generation smart contract and decentralized
application platform. Retrieved from
https://github.com/ethereum/wiki/wiki/White-Paper.

Capital Source Group. (2019). Letter of credit financing. Retrieved from
https://capitalsourcegroup.com/letter-credit-financing/

CargoX (2020). Retrieved April 20, 2024, from
https://cargox.io/electronic-bill-of-lading

Carson, B., et al. (2018). Blockchain beyond the hype: What is the strategic
business value? McKinsey.
https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value

Catalini, C., & Gans, J. (2019). Some simple economics of the blockchain (NBER
Working Paper No. 22952). National Bureau of Economic Research.

CB Insights Research. (2018). Banking is only the beginning: 36 big industries
blockchain could transform.
https://www.cbinsights.com/research/industries-disrupted-blockchain/

CB Insights. (2024). CB Insights report. Retrieved from
https://www.cbinsights.com/wp-content/uploads/2024/05/CB-Insights-Report-Financial-Services-Tech-Trends-2024.pdf.

Chakrabarti, N., Chandra Gupta, V., & Agarwal, S. (2020). An intrinsic review on
trade finance using blockchain. DOI:
https://doi.org/10.1109/IBSSC51096.2020.9332181

Chang, E., Luo, H., & Chen, Y.-C. (2019). Blockchain-enabled trade finance
innovation: A potential paradigm shift on using a letter of credit.
Sustainability, 12(1), Article 188. DOI: https://doi.org/10.3390/su12010188

Chang, S. E., Chen, Y. C., & Wu, T. C. (2019). Exploring blockchain technology
in international trade. Industrial Management & Data Systems, 119, 1712–1733.
DOI: https://doi.org/10.1108/IMDS-12-2018-0568

Choi, D., Chung, C. Y., & Lee, K. Y. (2018). Sustainable diffusion of
inter-organizational technology in supply chains: An approach to heterogeneous
levels of risk aversion. Sustainability, 10(6), 2108. DOI:
https://doi.org/10.3390/su10062108

Ciccaglione, B. (2019). Utilizing blockchain trade finance to promote financial
inclusion (Honors Scholar Theses No. 619). University of Connecticut.
https://digitalcommons.lib.uconn.edu/srhonors_theses/619

CNBC. (2023, February 9). Tether records surprise profit as stablecoin giant
aims to put reserve controversy behind it [Article by Ryan Browne]. Retrieved
from
https://www.cnbc.com/2023/02/09/stablecoin-giant-tether-records-surprise-700-million-profit.html

Congressional Research Service. (2022). Russian sanctions and cryptocurrency.
Retrieved from https://crsreports.congress.gov/.

Crosby, M., et al. (2016). Blockchain technology: Beyond bitcoin. Applied
Innovation Review, 2(6), 6–10.

Dahdal, A., Truby, J., & Botosh, H. (2020). Trade finance in Qatar: Blockchain
and economic diversification. Law and Financial Markets Review, 14(4), 223–236.
DOI: https://doi.org/10.1080/17521440.2020.1833431

Deloitte & ASSOCHAM. (2018). Role of trade finance for inclusive growth. World
Trade Organization.

Deloitte. (2020). Global blockchain survey - From promise to reality. Retrieved
from
https://www2.deloitte.com/mt/en/pages/technology/articles/2020-global-blockchain-survey.html

Derindag, O., Yarygina, I., & Tsarev, Yu. (2020). International trade and
blockchain technologies: Implications for practice and policy. IOP Conference
Series: Earth and Environmental Science, 421, Article 022051. DOI:
https://doi.org/10.1088/1755-1315/421/2/022051

DiCaprio et al. (2016). Trade finance gaps, growth, and jobs survey (ADB Briefs
No. 64). Asian Development Bank. DOI: https://doi.org/10.22617/BRF178995-2

DiCaprio et al. (2018). Can blockchain make trade finance more inclusive?
Journal of Financial Transformation.

Dimitropoulos, G. (2020). The law of blockchain. Washington Law Review, 95(3),
1117. Retrieved from https://digitalcommons.law.uw.edu/wlr/vol95/iss3/3 DOI:
https://doi.org/10.2139/ssrn.3559970

dltledgers. (2024). Retrieved from https://dltledgers.com/

Du, M., et al. (2020). Supply chain finance innovation using blockchain. IEEE
Transactions on Engineering Management, 67(4), 1045–1058. DOI:
https://doi.org/10.1109/TEM.2020.2971858

Ferri, L., et al. (2020). Ascertaining auditors’ intentions to use blockchain
technology: Evidence from the Big 4 accountancy firms in Italy. Meditari
Accountancy Research. DOI: https://doi.org/10.1108/MEDAR-03-2020-0829

Fridgen, G., Radszuwill, S., Schweizer, A., & Urbach, N. (2021). Blockchain
won’t kill the banks: Why disintermediation does not work in international trade
finance. Communications of the Association for Information Systems, 49. DOI:
https://doi.org/10.17705/1CAIS.04932

Gencer, A. E. (2017). On scalability of blockchain technologies (Doctoral
dissertation). Cornell University. Retrieved from
https://ecommons.cornell.edu/server/api/core/bitstreams/89f5c7cd-c139-486c-8f35-00f15d7b21fe/content.

Guo, X., & Liang, W. (2016). Blockchain application and outlook in the banking
industry. Financial Innovation, 2, 1–12. DOI:
https://doi.org/10.1186/s40854-016-0034-9

Hellwig, D., & Huchzermeier, A. (2019, September 14). An industry study of
blockchain technology’s impact on trade finance. SSRN.
https://ssrn.com/abstract=3453767 DOI: https://doi.org/10.2139/ssrn.3453767

Hofmann, E., & Belin, O. (2011). Supply chain finance solutions. SpringerBriefs
in Business. DOI: https://doi.org/10.1007/978-3-642-17566-4

Hofmann, E., Urs, S., & Bosia, N. (2018). Supply chain finance and blockchain
technology: The case of reverse securitization. Springer. DOI:
https://doi.org/10.1007/978-3-319-62371-9

International Finance Corporation (IFC). (2022). Trade finance in West Africa: A
study of Côte d'Ivoire, Ghana, Nigeria, and Senegal. (IFC). October 2022.

Juniper Research. (2018). Blockchain deployments to save banks more than $27bn
annually by 2030. Retrieved from
https://www.juniperresearch.com/press/blockchain-deployments-save-banks-27bn-by-2030

Kamble, S.S., Gunasekaran, A., & Sharma, R. (2020). Modeling the blockchain
enabled traceability in agriculture supply chain. International Journal of
Information Management, 52, 101967. DOI:
https://doi.org/10.1016/j.ijinfomgt.2019.05.023

Kandaswamy, R., & Furlonger, D. (2018). Blockchain-based transformation: A
Gartner trend insight report. Gartner.

Kant, R. (2016). Is letter of credit losing ground in international trade?
Vinimaya, 37(3), 42-50.

Kellaf, T. (2023).Blockchain in bank and finance: what’s the impact ?.
International Journal of Current Research.

Kimani, D., Adams, K., Attah-Boakye, R., Ullah, S., Frecknall-Hughes, J., & Kim,
J. (2020). Blockchain, business and the fourth industrial revolution: Whence,
whither, wherefore and how? Technological Forecasting and Social Change, 161,
120254. DOI: https://doi.org/10.1016/j.techfore.2020.120254

Kshetri, N. (2018). Blockchain’s roles in meeting key supply chain management
objectives. International Journal of Information Management, 39, 80–89. DOI:
https://doi.org/10.1016/j.ijinfomgt.2017.12.005

Kuhn, T.S. (1962). The structure of scientific revolutions. University of
Chicago Press.

Lacity, M.C. (2018). Addressing key challenges to making enterprise blockchain
applications a reality. MIS Quarterly Executive, 17(3).

Lahkani, M.J., Wang, S., Urbański, M., & Egorova, M. (2020). Sustainable B2B
e-commerce and blockchain-based supply chain finance. Sustainability, 12(10),
3968. DOI: https://doi.org/10.3390/su12103968

Lehmann, M. (2021). National blockchain laws as a threat to capital markets
integration.Uniform Law Review, 26(1), 148–179. DOI:
https://doi.org/10.1093/ulr/unab004

Lekkakos, S.D., & Serrano . (2016). A supply chain finance for small and medium
sized enterprises: The case of reverse factoring.International Journal of
Physical Distribution & Logistics Management, 46(2).Les Ecos.ma. (2021). Groupe
OCP : 400 millions $ d’engrais exportés en Éthiopie grâce à la
blockchain.Retrieved from
https://leseco.ma/business/groupe-ocp-400-millions-dengrais-exportes-en-ethiopie-grace-a-la-blockchain.html
DOI: https://doi.org/10.1108/IJPDLM-07-2014-0165

Lu Y. (2018). Blockchain: A survey on functions, applications and open issues.
Journal of Industrial Integration and Management, 3(4), 1850015. DOI:
https://doi.org/10.1142/S242486221850015X

Lupton,R. (2016). Food risk and governance: The politics of food safety.
Springer.

Mao, D., Wang, F., Hao, Z., & Li, H. (2018). Credit evaluation system based on
blockchain for multiple stakeholders in the food supply chain. International
Journal of Environmental Research and Public Health,15(8), 1627. DOI:
https://doi.org/10.3390/ijerph15081627

Marine Insight News Network. (2018). The first ever blockchain-based CargoX
Smart B/l completed its historic mission. Retrieved from
https://www.marineinsight.com/shipping-news/first

Martinez-Rendón, C., Camañas-Alonso, D., Carretero, J., & González-Compeán, J.L.
(2022). On the continuous contract verification using blockchain and real-time
data. Cluster Computing, 25(3), 2179–2201. DOI:
https://doi.org/10.1007/s10586-021-03252-0

McDaniel, C., & Norberg, H. C. (2019). Can blockchain technology facilitate
international trade? Mercatus Research, Mercatus Center at George Mason
University. DOI: https://doi.org/10.2139/ssrn.3377708

McKinsey. (2022). The multi-billion-dollar paper jam: Unlocking trade by
digitalizing documentation. Retrieved from
https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/the-multi-billion-dollar-paper-jam-unlocking-trade-by-digitalizing-documentation#/

Morris, et al. (2014). Bitcoin is not just digital currency. It’s Napster for
finance. Retrieved from
https://fortune.com/2014/01/21/bitcoin-is-not-just-digital-currency-its-napster-for-finance

Möser, M., Böhme, R., & Breuker, D. (2014). Towards risk scoring of Bitcoin
transactions. International Conference on Financial Cryptography and Data
Security. DOI: https://doi.org/10.1007/978-3-662-44774-1_2

Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system. Retrieved
from https://bitcoin.org/bitcoin.pdf

Narayanam, K., Dayama, P., & Nishad, S. (2022). Accelerated carrier invoice
factoring using predictive freight transport events. DOI:
https://doi.org/10.1109/ICBC54727.2022.9805495

Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016).
Bitcoin and cryptocurrency technologies: A comprehensive introduction. Princeton
University Press.

Nowinski, W., & Kozma, M. (2017). How can blockchain technology disrupt the
existing business models? Entrepreneurial Business and Economics Review, 5(3),
173–188. DOI: https://doi.org/10.15678/EBER.2017.050309

OCP Group. (2021). Trade and development bank: OCP Group and dltledgers drive
intra-African trade via blockchain amidst the COVID-19 pandemic. Retrieved from
https://www.ocpgroup.ma/press-release-article/trade-and-development-bank-ocp-group-and-dltledgers-drive-intra-african-trade

Omarova, S.T. (2020). Dealing with disruption: Emerging approaches to fintech
regulation. Washington University Journal of Law and Policy, 61(1), 25-53.

Pawczuk, L., Massey, R., & Schatsky, D. (2018). Deloitte's 2018 global
blockchain survey: Findings and insights. Retrieved from
https://www2.deloitte.com/content/dam/Deloitte/cz/Documents/financial-services/cz-2018-deloitte-global-blockchain-survey.pdf

Pinna, W., & Ruttenberg, A. (2016). Distributed ledger technologies in
securities post-trading: Revolution or evolution? ECB Occasional Paper. DOI:
https://doi.org/10.2139/ssrn.2770340

Prewett, K.W., Prescott, G.L., & Phillips, K. (2020). Blockchain adoption is
inevitable—Barriers and risks remain. Journal of Corporate Accounting and
Finance, 31(3), 21–28. DOI: https://doi.org/10.1002/jcaf.22415

Rice, T., von Peter, G., & Boar, C. (2020). On the global retreat of
correspondent banks. BIS Quarterly Review March.

Rijanto, A. (2021). Blockchain technology adoption in supply chain finance.
Journal of Theoretical and Applied Electronic Commerce Research, 16(7),
3078–3098. DOI: https://doi.org/10.3390/jtaer16070168

Roturier et al. (2017). Smart contracts for finance parties. Retrieved from
www.allenovery.com/publications/en-gb/lrrfs/cross-border/Pages/Smart-contracts-for-finance-parties.aspx

Sappington, D.E.M. (1991). Incentives in principal-agent relationships. Journal
of Economic Perspectives, 5(2), 45–66. DOI: https://doi.org/10.1257/jep.5.2.45

Schatsky, D.A., Arora, A., & Dongre, A. (2018). Blockchain and the five vectors
of progress. Deloitte Insights. Retrieved from
https://www2.deloitte.com/content/dam/insights/us/articles/4600_Blockchain-five-vectors/DI_Blockchain-five-vectors.pdf

Schellekens, E. (2017). Blockchain technology and its possibilities: A
qualitative study of the connections between blockchain technology, the banking
sector, and (self-)regulation. (Master’s thesis). University of Amsterdam.

Shelley, L. I. (2020). Illicit trade and terrorism. Perspectives on Terrorism.

Singh, H., Jain, G., Munjal, A., & Rakesh S. (2019). Blockchain technology in
corporate governance: Disrupting chain reaction or not? Corporate Governance,
20(1), 67–86. DOI: https://doi.org/10.1108/CG-07-2018-0261

Sirimanne, S., & Freire C. (2021). How blockchain can power sustainable
development. UNCTAD. Retrieved from
https://unctad.org/news/how-blockchain-can-power-sustainable-development.

Slatvinska, V., Demchenko, V., Tretiak, K., Hnatyuk, R., & Yarema, O. (2022).
The impact of blockchain technology on international trade and financial
business. Universal Journal of Accounting and Finance.

Spence, R. (2020). How the blockchain technology revolutionises the trade
finance industry. Austrade. Retrieved from
https://www.austrade.gov.au/news/insights/how-the-blockchain-technology-revolutionises-the-trade-finance-industry

Subramaniam, R., Razalli, S., & Wah, T. (2020). Enhanced security approach
powered by blockchain technology with NFC to prevent fraudulence in bank letters
of credit. Proceedings of the 2020 International Conference on Information
Technology and Digital Applications, 90-95. DOI:
https://doi.org/10.1145/3409934.3409945

Sun, W., & Zhao, F. (2021). Application of blockchain technology in cross-border
e-commerce trade finance innovation.In Proceedings of the IEEC 2021.

Takahashi, K. (2018). Blockchain technology for letters of credit and escrow
arrangements (November 30, 2017). Banking Law Journal, 135(2), 89-103. Available
at SSRN: https://ssrn.com/abstract=3566840

Tapscott, D., & Tapscott, A. (2016). Blockchain revolution: How the technology
behind Bitcoin is changing money, business, and the world. Penguin.

Toorajipour, R., Oghazi, P., Sohrabpour, V., Patel, P.C., & Mostaghel, R.
(2022). Block by block: A BT-based peer-to-peer business transaction for global
trading. Technological Forecasting and Social Change, 180, 121714. DOI:
https://doi.org/10.1016/j.techfore.2022.121714

Toufaily, E., Zalan, T., & Ben Dhaou, S. (2021). A framework of blockchain
technology adoption: An investigation of challenges and expected value.
Information and Management, 58(3), 103444. DOI:
https://doi.org/10.1016/j.im.2021.103444

Tribis, Y., Bouchti, A., & Bouayad, H. (2018). Supply chain management based on
blockchain: A systematic mapping study. MATEC Web of Conferences. DOI:
https://doi.org/10.1051/matecconf/201820000020

UNCITRAL. (2017). Retrieved from
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/mletr_ebook_e.pdf.

UNIDROIT. (2021). Working Group 8: Digital assets and private law. Retrieved
from https://www.unidroit.org/work-programme/digital-assets-and-private-law/.

United Nations Economic Commission for Europe. Letters of credit: Trade
facilitation implementation guide. Retrieved April 2, 2019 from
http://tfig.unece.org/contents/letters-of-credit.htm.

Vigna, P., & Casey, M.J. (2015). The age of cryptocurrency: How Bitcoin and
digital money are challenging the global economic order. St Martin's Press.

Viryasitavat, W., Xu, L., Bi, Z., & Sapsomboon, A. (2018). Blockchain-based
business process management (BPM) framework for service composition in Industry
4.0. Journal of Intelligent Manufacturing, 31, 1737-1748. DOI:
https://doi.org/10.1007/s10845-018-1422-y

Wang, L., Lee F., & Benitez J. (2022). Value creation in blockchain-driven
supply chain finance.Information and Management, 59(7), DOI:
https://doi.org/10.1016/j.im.2021.103510

Wegner, P. (1996). Interoperability. ACM Computing Surveys, 28(1), 1–43. DOI:
https://doi.org/10.1145/234313.234334

Weiyangx. (2016). Barclays Bank completes its first blockchain-based
trade-finance transaction. Retrieved from http://www.weiyangx.com/205645.html.

Werbach, K. (2018). The blockchain and the new architecture of trust. DOI:
https://doi.org/10.7551/mitpress/11449.001.0001

Winn, J. (2020). Reports of a blockchain revolution in trade finance are greatly
exaggerated. SSRN. https://ssrn.com/abstract=3526521 DOI:
https://doi.org/10.2139/ssrn.3526521

Wright, A., & De Filippi, P. (2015). Decentralized blockchain technology and the
rise of lex cryptographia. Retrieved from SSRN:
https://ssrn.com/abstract=2580664. DOI: https://doi.org/10.2139/ssrn.2580664

Yaga, D., Mell, P., Roby, N., & Scarfone, K. (2019). Blockchain technology
overview. NISTIR 8202 National Institute of Standards and Technology. DOI:
https://doi.org/10.6028/NIST.IR.8202

Zetzsche, D.A., Buckley, R.P., Arner, D.W., & Barberis, J.N. (2018). From
FinTech to RegTech: The regulatory and financial stability implications of
financial technology. European Central Bank Legal Conference. Retrieved from:
https://www.ecb.europa.eu/paym/conf/conferences/shared/pdf/ecb_20180928_zetzsche_buclley_arner_barberis.pdf

Zetzsche,D., Arner,D.W., & Buckley,R.P. (2020) Decentralized finance.Journal of
Financial Regulation, 6(2), 172-203. DOI: https://doi.org/10.1093/jfr/fjaa010

Zhang, J. (2020). Deploying blockchain technology in the supply chain.
IntechOpen. DOI: https://doi.org/10.5772/intechopen.86530

Zhang, T., Li, J., & Jiang, X. (2021). Supply chain finance based on smart
contract. Procedia Computer Science, 187, 12-17. DOI:
https://doi.org/10.1016/j.procs.2021.04.027

Zharikov, M.V. (2023). Digital money options for the BRICS. International
Journal of Financial Studies, 11(1), 42. DOI:
https://doi.org/10.3390/ijfs11010042

Read More


AUTHORS

Tarik Kellaf
Laboratory QUALIMAT-GRTE, Faculty of Economics, Law and Social Sciences,
University of Cadi Ayyad, Marrakech
https://orcid.org/0009-0004-6375-0033
kellaftarik@gmail.com (Primary Contact)
Author Biography


TARIK KELLAF, LABORATORY QUALIMAT-GRTE, FACULTY OF ECONOMICS, LAW AND SOCIAL
SCIENCES, UNIVERSITY OF CADI AYYAD, MARRAKECH

Email: kellaftarik@gmail.com

Kellaf, T. (2024). Blockchain in trade finance: The Good, the Bad and the
Verdict. Modern Finance, 2(2), 136–160. https://doi.org/10.61351/mf.v2i2.206
More Citation Formats
 * ACM
 * ACS
 * APA
 * ABNT
 * Chicago
 * Harvard
 * IEEE
 * MLA
 * Turabian
 * Vancouver

Download Citation
Endnote/Zotero/Mendeley (RIS) BibTeX

Copyright (c) 2024 Tarik Kellaf

This work is licensed under a Creative Commons Attribution 4.0 International
License.


ARTICLE DETAILS


https://mf-journal.com/search?query= https://mf-journal.com/search?authors=




RELATED ARTICLE BASED ON THE ARTICLE KEYWORDS

Article


HYPER-PERSONALIZED BANKING IN THE GCC: A KUWAITI CONTEXT WITH UAE PERSPECTIVES

Mohammad Rashed Albous
Abstract View : 1060
Download :168
10.61351/mf.v2i2.146
PDF XML


DOWNLOADS


Read Counter : 141 Download : 33
PlumX Metrics
Plum Print visual indicator of research metrics
No metrics available.

see details
  Share Now

SHARE ×



IMPORT TO :

Mendeley


TABLE OF CONTENTS

1. Introduction2. Research method
2.1. Research strategy2.2. Selection criteria2.3. Analysis of figures2.4. An
example case2.5. Limitations2.6. Addressing the look-ahead bias
3. Findings
3.1. Current trade finance figures: 3.2. Benefits of using blockchain in trade
finance: 3.3. Blockchain is used in two main instruments of trade finance3.4.
OCP group case in Morocco3.5. Challenges and limitations of implementing
blockchain for trade finance
4. Discussion 5. ConclusionAppendix A. Abbreviations from the study

PUBLISHER

Modern Finance Institute



CONTACT 

Email: contact@mf-journal.com
 
Modern Finance (MF). This journal is published under the terms of the Creative
Commons Attribution 4.0 International License (CC BY 4.0).
Licensed under mf-journal.com | About this Publishing System.© 2023