#5 in the Financial Inclusion Interview Series – Concluding Remarks from GLEIF CEO, Stephan Wolf
Why Financial Inclusion in Emerging Markets is the Backbone of a Strong Global Supply Chain
Author: Stephan Wolf
Throughout the financial inclusion interview series, we caught up with key partners to discuss the launch of GLEIF’s digital business identity initiative in Africa and how it is bringing about greater financial inclusion for African SMEs. Stephan Wolf, CEO of GLEIF, concludes the series by accentuating the immeasurable opportunities and transparency this initiative will bring to the global supply chain, when the early success seen in Africa is replicated across SMEs and banks in further emerging markets.
As we’ve heard from our partners throughout this interview series, the launch of GLEIF’s digital business identity initiative in Africa has been a success for all involved. It is, however just the start. It has been a model showcase for how small and medium-sized enterprises (SMEs) across the world can gain ‘financial inclusion’ through Legal Entity Identifiers (LEIs). The World Bank’s definition of financial inclusion for businesses is that they ‘have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way’.
While financial inclusion for SMEs across the world is a desirable end goal in its own right, it is also important to recognize that the impact of this initiative – when it is rolled out more broadly across multiple emerging markets – will go far beyond the SMEs and financial institutions involved. It has the potential to positively impact the broader economy by significantly strengthening the global supply chain. Let me explain how these two concepts are linked.
The lack of a universal identity prevents SME growth and overseas trade
SMEs make up 90% of businesses globally. However, without legal credibility or a way to officially prove their identity across borders, many of these businesses struggle to access finance, form partnerships or trade overseas – particularly for those in developing markets where a higher risk factor may be perceived. Banks are prohibited from offering them trade finance without undergoing painstaking and costly Know Your Customer and Anti-Money Laundering checks – processes which are hampered without a verified identifier. As a result, the gap between the demand and supply of global trade finance is growing and has now reached $1.7 trillion following a 15% rise since 2018.
The launch of the business identity initiative has illustrated this problem with a focus on Africa. However, it’s important to remember that this is a global challenge faced by SMEs and banks all over the world. And as a result, countless SMEs are prevented from engaging within the global supply chain – whether that is because they can’t invest, scale, or form the necessary partnerships – due to one simple factor. An inability to prove who they are.
The LEI supports expansion of global supply chains and traceability of suppliers
As we’ve seen in Africa, a profusion of benefits arise when financial institutions facilitate the issuance of LEIs to SMEs by becoming Validation Agents. Which is why financial institutions should now be motivated and encouraged to use this model to deliver a globally recognized identity to their SME customers. Not only will it give SMEs broader access to financial services – a clear benefit to banks – but it has the wider impact of enabling SMEs to apply for trade finance and establish contractual, regulated agreements with banks, payments networks and trading partners. The result will be greater participation in domestic and international markets and a bolstered flow of inbound capital, which can then be used to further fuel the market’s economic development.
Imagine a world where millions more SMEs were able to scale and trade, with trust, internationally. How many more – both in terms of volume and diversity – products and services would be available to us all through the global supply chain, and what would the impact of increased competition be on service and price? It’s an aspirational thought and one which lies within reach. By opening up cross-border trading opportunities to more SMEs, the LEI can be seen as a critical – and immediately available – tool in the drive to create a much broader and more competitive supply chain for businesses worldwide. Additionally, using a global open identifier would help bring transparency to supply chain relationships – a critical component of sustainable supply chain monitoring and reporting.
What’s needs to happen next?
All change has to start somewhere – and the success of the first iteration of GLEIF’s digital business identity initiative in Africa shows what great potential lies ahead for the global supply chain and subsequently the world’s economy if financial institutions across more countries take up the reins and drive it forward.
The result of greater financial inclusion among SMEs will be a strong, more diverse, transparent and competitive global supply chain ecosystem. Consequently, we could expect to see the positive impact – financial growth and prosperity – across all types of companies across all regions of the world.
Now that the initaitive has been set in motion, GLEIF invites more financial institutions to explore the benefits of becoming a Validation Agent to support – and derive the benefits from – broader financial inclusion among SMEs. GLEIF continues to seek dialogue with governments, NGOs, banks and other stakeholders interested in either expanding the LEI initiative across Africa or in replicating the model in other developing countries. We’re here to help.
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Stephan Wolf is the CEO of the Global Legal Entity Identifier Foundation (GLEIF). In 2023, he was elected as a member of the Board of the International Chamber of Commerce (ICC) Germany. In 2021, he was appointed to an all-new Industry Advisory Board (IAB) as part of the global ICC Digital Standards Initiative (DSI). In that capacity, he serves as co-chair of the workstream on ‚Trusted Technology Environment‘. Between January 2017 and June 2020, Mr. Wolf was Co-convener of the International Organization for Standardization Technical Committee 68 FinTech Technical Advisory Group (ISO TC 68 FinTech TAG). In January 2017, Mr. Wolf was named one of the Top 100 Leaders in Identity by One World Identity. He has extensive experience in establishing data operations and global implementation strategy. He has led the advancement of key business and product development strategies throughout his career. Mr. Wolf co-founded IS Innovative Software GmbH in 1989 and served first as its managing director. He was later named spokesman of the executive board of its successor, IS.Teledata AG. This company ultimately became part of Interactive Data Corporation, where Mr. Wolf held the role of CTO. Mr. Wolf holds a university degree in business administration from J. W. Goethe University, Frankfurt am Main.