Trade finance in Qatar: blockchain and economic diversification

Abstract

Trade finance helps businesses deal with abnormal cash flows whilst managing counterparty risk and enhancing confidence in commercial transactions. It also allows parties to overcome trust barriers that may inhibit commercial activity in both a domestic and international commercial context. Globally, particularly among micro, small and medium enterprises (MSMEs), there exists a significant and widening unmet demand for documentary finance. Securing trade finance is laborious and time-consuming. For MSMEs, the trade finance application process alone, can be an insurmountable barrier that usually ends in rejection. By its nature, trade finance arrangements engage with decentralized stakeholders and diffused information sources across supply chains. Issuers and underwriters of trade finance instruments are required to draw on disparate elements of information, not merely during the application phase, but indeed throughout the life of a transaction. Blockchain technology is similarly decentralized and can capture information in a secure, transparent and immutable manner potentially improving and reinvigorating the trade finance space. As Qatar embarks on a strategy of widening its economic base away from a singular reliance on the hydrocarbon fuel sector, the introduction of blockchain technology holds the potential to overcome the transactional friction associated with trade finance. A more efficient and accessible trade finance sector will ultimately enhance the competitiveness of MSMEs whilst simultaneously fostering the growing FinTech sector in Qatar.

Governance in the era of Blockchain technology in Qatar: a roadmap and a manual for Trade Finance

“…For instance, Schuster argues that Blockchain-based systems are "unsuitable for transactions in traditional assets, unless design choices are made which render the use of the technology pointless" [143]. Nonetheless, Blockchain in Trade Finance is extremely useful since it (1) removes the need for laborious paperwork and verifications processes, since this is immediately available to all parties; (2) "radically improve operational efficiency both in the application process and execution phases for all stake; (3) alleviate risk associated with Trade Finance by creating a transparent data sharing infrastructure; and (4) make the offering of Trade Finance easier, cheaper and more widespread, driving competition in the Trade Finance sector and increasing business for smaller banks, while improving access to Trade Finance for businesses" [28].…”

“…From a legal perspective, Qatar lacks a "set framework for the provision of Trade Finance facilities"… as specific requirements are imposed on each business by individual providers where these requirements may slightly differ "for each type of Trade Finance facility on offer". Individual Trade Finance providers determine the nature and extent of documentation and "is a function of each banks' respective risk profile, internal discipline and commercial strategy and loan posture" [28].…”

“…The principal Trade Finance instruments used in the country are "letters of credit, letters of guarantee, bills of exchange, promissory notes, cheques, documentary bills (documents against payment (DP)/documents against acceptance (DA)) and export bills for collection (EBC)" [28]. The main rules regulating Trade Finance are in Part 4 Chapter 6 of Qatar's Commercial Code [2].…”

“…The commercial application processes, across providers, remain tedious and costly. The organization of various documents and attestations as to their validity and currency present, and have historically presented, obstacles to the smooth flow of Trade Finance supported trade in Qatar and globally [28].…”

“…Qatar is one of the countries seeking to pave the road globally in FinTech. Qatar's policy-makers adopted a cautious approach addressing DLT's risks by banning specific activities depending on DLT, while acknowledging its potential benefits by including it in its FinTech strategy [3,28,73,133]. This article evaluates how Qatar can regulate the use of DLT in Trade Finance to capitalize on its benefits while avoiding its risks.…”