The work that GTR Ventures is doing with its portfolio companies can generate impact and financial inclusion for SMEs and achieve sustainable development goals, writes Kelvin Tan, co-founder and chief investment officer.
Many studies have emphasised the crucial role financial technology (fintech) is playing in achieving wider financial inclusion in developing markets. Features like mobile money and e-wallets, for example, are opening access to credit and other financial tools for previously “unbanked” people. In trade finance, artificial intelligence and distributed ledger technologies are simplifying cumbersome transactions, improving credit scoring and KYC, and facilitating supply chain tracking. All these initiatives have the same objective: bridging the global trade finance gap, estimated by the Asian Development Bank (ADB) to be around US$1.5tn annually.
As a specialist investment firm focused on digital trade and supply chain finance, it is our core belief that fintechs specialising in trade can play an instrumental role in reaching the UN’s Sustainable Development Goals, since these are so intrinsically linked to trade development in emerging countries.Many studies have emphasised the crucial role financial technology (fintech) is playing in achieving wider financial inclusion in developing markets. Features like mobile money and e-wallets, for example, are opening access to credit and other financial tools for previously “unbanked” people. In trade finance, artificial intelligence and distributed ledger technologies are simplifying cumbersome transactions, improving credit scoring and KYC, and facilitating supply chain tracking. All these initiatives have the same objective: bridging the global trade finance gap, estimated by the Asian Development Bank (ADB) to be around US$1.5tn annually.
The power of digital platforms for trade
The trade finance gap is by far and wide only affecting SMEs, mostly in emerging markets. This is why GTR Ventures’ growing portfolio of 10 companies constitutes an important global impact footprint – enabling SMEs to access trade finance in their own way, each fulfilling a different part in the digital trade transactional value chain.
Firstly, we are able to create direct impact to an SME’s bottom line, by connecting SMEs with financial institutions and private funders via innovative platforms. For example, our digital trade lending platforms such as Culum Capital, eFundSME, and Incomlend provide companies with an alternative source of non-bank, working capital funding by connecting them with investors on its supply chain finance platform. Because SMEs require local currency financing, our firms are able to cater for the discounting of export receivables in multiple currencies.
While fintech can connect private funders to trade loans, the importance of banks is not diminishing. Through digital aggregation and credit insurtech, we are able to mobilise greater banking liquidity into SME lending. iLoan, from Sri Lanka, has a proprietary loan aggregation platform that enhances transparency on loan assets, allowing SMEs in South Asian markets to access funding from financial institutions. Its pilot scheme with the largest FMCG manufacturer in Sri Lanka has 20,000 users and processes US$3mn of transactions monthly. China-based QNX Credit’s digital insurtech platform, by allowing insurers to better monitor their risks across all SME suppliers of large anchor manufacturers such as Lenovo, is able to mobilise larger amounts of liquidity into the distributor supply chain.
Helping SMEs become more productive through technology
Secondly, our companies make life easier for an SME’s operations, by equipping them with the digital tools to better handle pre and-post trade processes. Lucidity, in which we have co-invested alongside PSA (a global port operator in over 40 countries) employs AI and machine learning to reduce the time it takes to prepare letter of credit (LC) documentation from 90 minutes to five minutes and three clicks. RMTech, based out of Guangzhou, the world’s manufacturing hub, handles over RMB300mn of transactions a month, and enables 30,000 Chinese B2B marketplace suppliers to handle their payment, accounts and trade settlement by connecting them, through one virtual banking account, to all other banks and non-banks. Its next step is to take its solutions outside of China and cross-border, targeting China’s trade flows with Southeast Asia, the Middle East and Africa.
Blockchain tools that derisk trade and uplift credit
Another way trade-focused fintechs can help is by developing the tools needed to make very small companies less risky for financial counterparts: Trade Finance Market tackles the perennial issue of invoice and collateral fraud through specific API-based blockchain-based tools. In doing so, it derisks and lowers the cost of trade finance transactions for all stakeholders. The firm is also in discussions with some government entities in Africa to create a decentralised invoice registry to mitigate invoice finance fraud and increase funding to SMEs. It also recently developed a proprietary machine analysis algorithm to credit score any company in any country – especially in emerging markets which are ignored by the majority of funding institutions. This could drastically increase the amount of funding that flows to SMEs in developing markets.
Asia-Africa as a high-impact trade corridor
Of the US$1.5tn trade finance gap, US$692bn is in Asia, and US$120bn in Africa. Yet, these two continents have seen trade relations grow exponentially over the past decade. Today, Asia provides the largest percentage of African imports and receives the second-largest percentage of African exports at almost 40%. The two regions are also home to the largest number of small and micro-businesses not usually reached by the financial services sector – particularly in agriculture.
In this sense, investing in digital platforms that serve Asia and Africa is arguably the most efficient way to bridge the trade finance gap. We are happy to have invested in Africa-focused Orbitt, which has over US$1.2bn of active trade and investment opportunities on its digital deals platform, spread across 15 countries. Allow us to illustrate our high-impact outcome through a deal recently conducted on the Orbitt platform: an Ethiopia bamboo exporting business came to the platform seeking credit of less than US$20mn to build a processing plant where it could add value to its product before exporting. There, it was matched to a private equity investor who issued a firm term sheet in less than three months. This kind of small and quick deals simply does not happen in the traditional financial sector.
Mobilising public and private capital into sustainable trade
GTR Ventures’ vision is not only to invest for a financial return. Our intent is to equally contribute to measurable positive social, economic or environmental impacts in the markets in which our portfolio companies operate. As an early stage investor screening over 100 deals a year, we are able to better steer the direction of our investee firm towards environmental and social governance (ESG)-oriented outcomes; as well as put in place monitoring mechanisms and reporting metrics that provide comfort to later stage impact investors.
Digital trade finance and “tradetechs” can bring about financial inclusion, economic growth and equality for underserved communities. As we build out a global alliance of innovative firms for trade, we invite interested impact funds and other stakeholders to reach out to us and to explore investment, partnership, best practices sharing, and joint venture opportunities.
About GTR Ventures
Founded in 2017, GTR Ventures is the world’s first investment platform dedicated to early stage start-ups in trade and supply chain, headquartered in Singapore with a presence in London. Backed by a strong management team with over 100 years of experience, a high-level advisory board, the firm screens over 80 companies per year and has currently 10 companies in its portfolio. Its investment areas include (1) transaction banking: trade, treasury & cash (2) insurance and risk management; (3) SME finance and supply chain; and (4) physical trade & logistics.