The crowded UK challenger bank scene is adding one more to its number, as Diaspora Finance plans the launch of a digital trade finance bank.

The firm, which has been in operation since 2017, currently offers invoice factoring, contract finance and commodity finance to SMEs in emerging markets, with an average deal size of US$100,000, managing director Ibrahim Farag tells GTR. With 85% of its portfolio currently made up of commodity finance, Diaspora now intends to invest into technology to allow it to further capitalise on the lucrative underbanked SME trade finance space.

“As an economist, I am not convinced by so many of the fintech startups currently operating in this area. Many have raised millions without having any idea of risk management, asset management, functionality, or how to manage the financial system. Finance is an industry. It is not like Uber or Deliveroo,” he says. “We have a business model already. We have operations. We have funders, we have clients. We have taken the risk, and we have started by doing business before talking about technology, and despite our current limited size, we are already making good profits.”

Diaspora is headquartered at fintech hub Level39 in Canary Wharf, and has offices in Tanzania, Kenya, the Netherlands, Egypt and Vietnam. Its new digital trade finance bank will operate as a platform connecting investors to borrowers. It will not accept deposits and therefore does not have a banking licence, although Farag says it plans to apply for one between 2022 and 2025.

Like other neo-banks, Diaspora will use an open ecosystem, which is being implemented in several stages. The first stage, which is already operational, is a backend which connects transaction investors to borrowers. “We offer our transaction investors very high returns compared to what they can achieve elsewhere,” says Farag, who claims that annualised returns are on average 15%. “Our ultimate vision is that we will be able to transact this business through blockchain using a virtual currency by tokenising these flows,” he adds.

While some digital banks, such as Anglo-Gulf Trade Bank (AGTB), have chosen to join existing tech initiatives such as the Marco Polo blockchain project, Diaspora will use proprietary technology, although it has not ruled out joining other platforms.

The final aim for the bank is to fully digitise the trade journey, using RFID tags of shipments to trigger smart contracts and release funding to its SME clients.

Diaspora will launch the digital bank at the end of this year, at which time it will also carry out a fundraising round among equity investors.