Digitization of Trade Finance: MLETR Adoption

The trade finance process has long relied on physical documentation and manual checks, making it costly and error-prone. A 2018 global survey by the International Chamber of Commerce (ICC) estimated that four billion pages of documents circulate annually in documentary trade between the physical and financial supply chains of cross-border commerce. The survey further suggested that digitization could reduce trade finance costs by up to US$6 billion and increase revenues of banks by 10% within five years. The reliance on paper also heightens the risk of fraud and duplication.

Digitization of trade finance offers faster processing, greater efficiency, and lower transaction costs, which can help close the global trade finance gap. Historically, complexities in regulatory compliance across multiple jurisdictions and the lack of standardized protocols have slowed progress. However, the UK's recent Electronic Trade Documents Act is a major step forward. It implements the principles of the Model Law on Electronic Transferable Records (MLETR), giving electronic documents legal standing and clearing a key hurdle for adoption.

Developed by the UN Commission on International Trade Law (UNCITRAL), MLETR enables the legal use of electronic transferable records (ETRs). These ETRs are digital equivalents of critical paper instruments like Bills of Lading and Bills of Exchange. Countries such as the UK, France, the UAE, and Singapore have already aligned with MLETR, while others, including China, Japan, and Thailand, have begun the process. Together, these jurisdictions represent nearly 37% of global GDP.

Key Steps Driving Adoption

The transition to digital trade finance is driven by several key actions, including setting standards, conducting pilot programs, aligning legal frameworks, and integrating technology. Among these, standardizing trade documents and implementing real-world pilot initiatives make the most impact:

• Standardization of Trade Documents: The Digital Standards Initiative (DSI) by ICC has created a framework for end-to-end supply chain digitization where businesses, customs, shipping companies, financial institutions, countries, and regulators are unified under a common set of standards. The Key Trade Documents and Data Elements (KTDDE) initiative simplifies and standardizes trade information with industry practices. After 18 months of research, this effort identified 200 key data elements and digitized 36 essential trade documents.

• Pilot Implementations: Early pilot projects are already proving the business case for digital trade finance. For instance, a leading UK-based bank recently transformed its documentary collection process for an Indian SME. Using a blockchain platform to issue electronic Bills of Lading (eBL) and digital Promissory Notes (dPN), the bank achieved:

  • Reduction of transaction times from 15 days to under 24 hours
  • Substantial operational improvements, cost savings, and enhanced customer satisfaction

The Societal Impact of Digital Trade

The benefits of digitization extend far beyond faster transactions and lower costs. It builds a foundation of trust and transparency, creating a data ecosystem where digital trade can solve two of the world's most pressing economic challenges:

• Closing the Financial Inclusion Gap: The global trade finance gap has widened to a staggering $2.5 trillion, with SMEs in developing markets hit hardest (Asian Development Bank, 2023). These businesses often struggle to secure financing due to low credit ratings and a lack of collateral. Digitization tackles this problem with a verifiable, digital record of performance that banks can use to assess borrowers’ creditworthiness, revenues, and business performance. It opens the door for more SMEs to access the financing they need to grow.  
• Powering a Sustainable Supply Chain: While reducing paper use lowers carbon footprints, sustainable trade finance faces its own set of risks. A key challenge is defining what constitutes sustainable trade and a lack of reliable data to verify ESG claims. The ICC’s Principles of Sustainable Trade (PST) provides a structured framework to assess such transactions. Digitization supports transparency and traceability in supply chains, making data accessible for sustainability assessments. It also enables better access to green finance, encouraging the production of ESG-compliant goods.
   

Making Digital Trade a Reality

While the long-term benefits are clear, the path to digitization presents a set of hurdles. To successfully navigate this transition, every organization must address three core implementation challenges.

• Choosing the Right Technology: Blockchain is emerging as a strong technology candidate for trade finance digitization due to its inherent security, transparency, and immutability. Smart contracts on distributed ledgers can cut manual effort and shorten processing times. Several global banks have already launched proof-of-concept blockchain projects focused on trade finance. However, the ICC’s framework is technology-agnostic and emphasizes interoperability, allowing banks and businesses to adopt the tech that best fits their operational models.
• Transforming Data from Legacy Systems: Data held in legacy systems must be transformed to comply with KTDDE standards. That usually involves building a data extraction and transformation layer to populate the new platform, either in real time or via scheduled batches. Integration complexity will vary based on the number and types of systems currently managing your trade data.
• Bridging the Gap Between Digital and Paper: Although the ICC has successfully digitized 36 key trade documents, others remain paper-based and must be processed within the digitized framework to achieve end-to-end automation. Many of these documents may include handwritten elements, which complicate processing. AI/ML technologies can extract and digitize such content, enabling seamless integration into digital trade workflows.

Conclusion

Significant progress has reduced barriers to large-scale adoption of ETRs. As more countries align with MLETR and related regulations, organizations that have modernized systems and validated readiness will be positioned to move quickly once legal frameworks settle. As adoption widens over time, businesses will benefit from streamlined processes, more transparency, and lower costs, helping to close the global trade finance gap.

What Do We Bring In?

Tech Mahindra delivers industry-focused technology and consulting to help banks and financial institutions modernize processes with tailored digital solutions. Our domain-led, tech-driven approach prioritizes innovation to improve operational efficiency and customer experience. We build trade and supply-chain finance applications and integrate partner solutions across multiple markets.

How Can We Help?

To translate these capabilities into measurable results, we work with clients through a practical, outcome-driven engagement model. Enterprises adopting MLETR can tap into our domain expertise and tech consulting services to assess system readiness, map integration dependencies, and create a future-ready roadmap. We refactor legacy platforms and design cloud-native, standards-aligned architectures to accelerate the shift to fully digitized trade finance.

Connect with our BFSI Team at BFSIcomms@TechMahindra.com to explore how we can support your trade finance digitization journey.