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How Blockchain Can Simplify Trade Finance in India

How Blockchain Can Simplify Trade Finance in India

All documents relating to factoring, shipment and receivables can be assessed transparently\

Makes the trade cycle real-time for all stakeholders

Decentralized model of record-keeping gives efficiency to the entire trade cycle

The scope of Indian business’s acceptance of digital transactions is far and wide. With a nearly 1.4 billion-strong population and 1.9 million registered companies, there is a constant dialogue in favor of an increased need to make the digital business space secure.

Progressive businesses are fast adapting to digital means of buying, selling and most importantly, financing. In this ongoing effort to enable all sizes of business entities to transact using the internet, a strong support base lies in the adoption of blockchain.

A widely used term online, ‘blockchain’ is already the buzzword for digital businesses who understand the extent of efficiency and transparency that it brings to the business transaction cycle. In fact, blockchain is now being touted as a must-have technology to enable digital transformation among businesses across sectors.

Some of the biggest benefactors of this shift in technology are digital trade finance companies in India that are attempting wider outreach to small and mid-sized businesses as trust and security take center-stage.

Benefits Of Blockchain

With the promise of streamlining the processes of trade financing, blockchain presents an opportunity for the creation of a digital ledger of transactions that can be distributed amongst a digital network.

Blocks store information about transactions like the date, time, and amount of capital, and information about who is participating in the transactions, and each block is separated with a unique code.

For stakeholders in a trade finance network, this enables two entities to conduct a transaction without the intervention of any third party, in a most secure digital manner. It is nearly impossible to hack, replicate, or misuse a digital record on a blockchain network.

Transparency

All documents relating to factoring, shipment and receivables can be assessed transparently without the threat of passwords being compromised or online data being tampered with. This grants a high degree of trust to the cycle given the digital information on a blockchain network can only be distributed and not copied.

Traceability

Any importer or exporter on a trade finance network deals with multiple retailers or suppliers. The blockchain network makes it simple for all these multiple businesses to be able to track information of contracts with the various stakeholders and eases access to the relevant trade chain, instead of requiring evaluation of the entire cycle to track a certain transaction.

Real-time Tracking

From financing documents to credit approvals, procuring goods to delivery and exchange of monetary spends, blockchain makes the trade cycle real-time for all stakeholders — creditors, exporters, and importers.

Efficiency & Speed

The decentralized model of record-keeping gives efficiency to the entire trade cycle. Monitoring time is minimal, transparent bills are automatically generated, and settlements are done without any middleman intervention, thus giving momentum to the transaction.

Reduced Cost

By using blockchain, costs automatically come down. Smart Contracts via blockchain ensure correspondent banks are eliminated, hence averting additional transaction fees. Bills can also be conveniently tracked so that there is no worry about duplication whatsoever.

Improved Regulatory Compliance

Regulators are given access to the real-time tracked trade transaction, hence ensuring complete transparency to ensure speedier approvals. At any point, any transaction can be reopened digitally in the easiest manner possible, making blockchain desirable for trade finance companies.

The simplicity of processes offered by trade finance via a digital network and the precision that the blockchain system brings to the table are a winning combination. By leveraging this win-win solution, Indian businesses stand to gain the much-needed technological edge that can help the country reach its goal of a $5 trillion economy.

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.