Trade finance plays a vital role in supporting international trade by enabling exporters and importers to manage payment, risk, and documentation. In Bangladesh, trade finance remains heavily dependent on bank-intermediated instruments such as letters of credit and documentary collections. Despite advances in other areas of banking, trade finance still relies largely on paper documents, manual verification, and physical movement of files. This traditional structure is becoming increasingly costly, slow, and risky as global trade standards evolve. Trade digitalization is therefore no longer an option. It is now a necessary step to maintain competitiveness, credibility, and efficiency.
Many banks believe they are already digital because documents are scanned or exchanged by email. However, this is only digitizing, not true digitalization. Digitizing converts paper into electronic images. Digitalization goes much further by redesigning the entire workflow so that data flows automatically, decisions are supported by systems, errors are minimized, and compliance checks are built into the process. In trade finance, this difference is critical. Without digitalization, banks continue to rely on human intervention at almost every step, limiting speed and increasing operational risk.
A recent survey by BIBM (2025) on commercial banks clearly shows that Bangladesh’s trade finance sector is in a transitional phase. Almost all banks describe their operations as partially digital, while a small number remain fully manual. Importantly, no bank reports full digitalization. This means that digital tools exist, but they are layered over traditional processes rather than replacing them. In practice, customers may submit applications online, but document checking, discrepancy handling, and approvals often revert to manual processes. The result is limited improvement rather than transformation.
The pace of change also reflects caution. Most banks report only moderate reductions in manual paperwork over the past few years. Very few have achieved major reductions. This indicates that banks are improving step by step, but are not yet ready to redesign trade finance as a fully digital workflow. Incremental progress reduces discomfort, but it does not unlock the full benefits of digitalization.
One reason for this slow progress is weak strategic alignment. Only a minority of banks strongly align trade finance digitalization with their overall digital transformation strategy. In many institutions, trade finance is treated as a specialized or secondary area, rather than a core digital priority. As a result, budgets are limited, system upgrades are delayed, and trade digitalization projects remain fragmented. Without strong alignment at the institutional level, trade finance struggles to keep pace with digital advances in retail banking, payments, or treasury operations.
Banks in the country have focused their digital efforts on areas that are mandatory or standardized. Systems such as SWIFT messaging and regulatory reporting are widely adopted and relatively mature. These tools are essential, but they represent only a small part of the trade finance workflow. Deeper digitalization, such as fully digital document processing, domestic trade documentation, and straight-through processing, remains limited. Many banks still cannot process a trade transaction end-to-end without manual intervention.
The BIBM survey results also highlight where the real challenges lie. Banks do not primarily blame customers for slow adoption. Instead, they point to internal and ecosystem constraints. High technology costs are the most frequently cited barrier. Cybersecurity concerns, system integration gaps, limited staff expertise, and legal uncertainty around electronic documents also feature prominently. Customer readiness is generally seen as a moderate issue rather than a major obstacle. Survey responses show strong agreement that digital tools reduce processing time and improve compliance. Many banks also report better customer experience. However, banks are less convinced that digitalization significantly reduces costs or attracts new SME clients. This suggests that digitalization is still viewed mainly as an operational efficiency tool, rather than a strategic business opportunity.
Legal and regulatory uncertainty plays a central role in shaping bank behavior. The absence of full legal recognition for electronically transferable records, such as electronic bills of lading and electronic promissory notes, creates hesitation. Banks are understandably reluctant to rely entirely on electronic documents when enforceability is unclear, especially for cross-border transactions. Occasional regulatory guidance, rather than continuous and detailed direction, adds to this uncertainty.
Trade finance differs from most banking services because it involves many independent actors. A single transaction may involve exporters, importers, issuing banks, advising banks, shipping lines, insurers, customs authorities, port operators, and regulators. Digitalization can only succeed if most of these actors are ready to operate digitally. If even one party insists on paper, the entire transaction can revert to manual processing. This makes trade digitalization far more complex than digitalizing a retail loan or payment service.
For this reason, adopting the right approach is crucial. A narrow, bank-only digital strategy cannot deliver full results. Successful trade digitalization requires a broad, coordinated approach that brings together legal reform, technology investment, standardization, and stakeholder collaboration. These elements must move together. If one lags behind, the entire system slows down.
This mindset needs to change. Digital trade finance can reduce costs significantly over time by eliminating paper handling, reducing errors, and lowering rework. It can also support SME inclusion by simplifying documentation, improving transparency, and enabling faster access to finance. When digitalization is designed only to improve internal efficiency, these broader benefits remain unrealized.
Moving forward, banks need to focus on integration rather than automation alone. Automating a single step without connecting systems only shifts work from one place to another. Integration allows data to move seamlessly between trade platforms, core banking systems, compliance engines, document management systems, and national trade portals. Without integration, straight-through processing remains impossible.
Cybersecurity must also be treated as a core design requirement. As trade processes become digital, data volumes increase, and more parties gain access. Strong authentication, encryption, monitoring, and incident response are essential to maintain trust. Banks must also communicate clearly with customers about these safeguards to reduce fear and resistance.
Human capacity is another critical factor. Trade finance staff need training not only to use new systems, but to understand digital workflows and risk controls. Banks that have introduced automation report fewer errors and faster processing, but scaling these benefits requires structured change management and continuous learning.
Trade digitalization is not about removing paper for its own sake. It is about creating a faster, safer, and more transparent trade finance system that meets global standards. As Bangladesh prepares for a more competitive post-LDC environment, adopting the right, broad approach to trade digitalization is essential. The question is not whether this transition will happen, but whether it will happen in a planned and coordinated way or through pressure and crisis. At this stage, coordinated leadership at the national level can align stakeholders and scale successful initiatives.
