TDB’s Awori on how blockchain can help narrow the trade finance gap in Africa

The Eastern and Southern African Trade and Development Bank (TDB) and the OCP Group have recently made headlines by executing fertilizer trade finance transactions worth a staggering $400 million using blockchain technology. This groundbreaking initiative aims to reduce the trade finance gap in Africa and ultimately boost trade between African countries. CNBC Africa's Zinathi Gquma sat down with Michael Awori, Deputy CEO at the Trade and Development Bank, to delve deeper into the transformative potential of blockchain in the trade finance sector. Awori shed light on the challenges associated with traditional trade finance processes, noting that they are often cumbersome and time-consuming due to the multitude of paper documents that need to change hands to facilitate transactions. With the onset of the COVID-19 pandemic, these challenges were further exacerbated, resulting in significant delays in the processing of trade transactions. However, through the adoption of blockchain technology, TDB has successfully streamlined the trade finance process, significantly reducing the time required to execute transactions. Awori pointed to a landmark transaction with the OCP Group of Morocco, where blockchain technology enabled the importation of fertilizer from Morocco to Ethiopia in a fraction of the time it would have taken using traditional methods. One key advantage of blockchain technology highlighted by Awori is its ability to offer speed and efficiency in executing transactions. By digitizing crucial documents and creating a permission blockchain that includes specific parties involved in the transaction, TDB was able to ensure swift verification and consensus on the documents, leading to faster transaction processing times. This innovative approach not only addresses the challenges posed by the physical movement of paper documents but also enhances security and visibility throughout the transaction process. The slow adoption of blockchain technology in trade finance can be attributed to legal uncertainties surrounding the transition from paper to electronic documents. Questions regarding the legal equivalence of electronic documents, governing laws, and compliance with existing trade finance regulations have hindered the widespread implementation of blockchain in the sector. However, TDB's pragmatic approach to digital transformation, leveraging existing frameworks such as the EWM Commission's model law on electronic transferable records and the ICC's Electronic Uniform Customs and Practice for Documentary Credits (eUCP), has paved the way for successful integration of blockchain technology in trade finance transactions. In highlighting TDB's success in using blockchain for trade finance transactions, Awori emphasized the importance of incremental progress and value delivery for clients. Rather than aiming for a 100% solution, TDB focused on solving immediate pain points in the trade finance process, gradually building awareness and advocacy for blockchain adoption across the industry. By demonstrating the practical applications and benefits of blockchain, TDB seeks to encourage wider adoption of this transformative technology in trade finance. As TDB continues to lead the way in leveraging blockchain for trade finance transactions, the success stories of landmark deals with partners like the OCP Group underscore the immense potential of technology to bridge the trade finance gap in Africa. With a strategic focus on delivering value for clients and driving digital transformation in the sector, TDB's innovative approach sets a new standard for trade finance in the region.