Blockchain & Trade Finance

Here we'll cover how Blockchain can help existing Trade Finance and it's underlying problems.

Trade Finance

• Problem:
• Trade finance today is a core business for all global, tier-one banks. Yet its 10 years behind modern technology.
• However there are multiple issues:
• Highly-Decentralized, Paper-Contract, Payment-Based Market
• Manual and Document Intensive - Breaks in business cycles inhibit visibility and amplify challenges such as financial crime. 
• DOUBLE SPEND Fraud - Trade finance FRAUD COSTS businesses an estimated $14 billion a year.
• Solution:
• Blockchain is uniquely positioned to rethink this "Highly-Decentralized, Paper-Contract, Payment-Based Market".
• Blockchain will ensure address such challenges and operations using "Distributed Ledgers, Smart Contracts and Digital Payments" in Trade-Life Cycle.
• BlockChain can Digitize Entire Workflow as well as providing a common workflow for all participants – Banks, Suppliers and Buyers.
• I.e. Provide a common platform for businesses to Consolidate Workflows and Generate Smart Contracts and Digital Payments.
• BlockChain will eliminate possibility of 'SUPPLIER FRAUD' in Trade Finance while participating in a private credit, transaction and payment network. 
• BlockChain brings power of 
• Blockchain-based Network Validation
• Creating Digital Versions Of Transactions, 
• Generating Smart Contracts, 
• Centralizing underlying collateral information on a DISTRIBUTED LEDGER across a private network to increase efficiency, 
• Eliminate “DOUBLE SPEND” Fraud
• Blockchain enables participating banks to audit & access underlying collateral in a secure,distributed database, which reduces supplier fraud.
• Enhance Data Quality and Reduce Settlement Time. 
• Note: Double Spend: In trade finance, suppliers find a way to obtain financing from multiple institutions on the same transaction.
• Reduced Costs and Fees - Payments transfers using digital currencies dramatically reduce third-party fees, saving billions dollars.
• Digital currency to make the TRADE-FINANCE CYCLE more efficient
• Implementation: Ethereum
• Privately hosted Ethereum network will be best in building a custom trade finance blockchain.
• Private Permissioned Ethereum - Enable CONTRACT VERIFICATION from other participants without compromising sensitive client identities. 
• I.e Restricted to parties concerned, permissioned so that only authorized participating banks, rating agency, and suppliers have access).
• Smart Contracts - 
• Automatically check Contract Terms-and-Conditions, which include triggering of payments through a low-cost private digital payment system.
• Manages TRADE-FINANCE WORKFLOW of Approvals & Automatically Transfers Payment once all terms-conditions have been met and digital signatures are collected.

What is Smart Contract on BlockChain:

• Smart Contract lives on the Distributed Ledger accessible to all parties to read, update and verify information.
• Smart Contract is data and code
• Data stores the current state of various counterparties and components of the workflow
• Code is triggered when key events occur such as documentation completion, validation of shipping, shipment arrival etc.
• Such elimination of manual steps greatly accelerates the time window from Order-to-Ship and Receipt-to-pay
• Common ledger on the block-chain is a highly reliable source of truth making reconciliations easy and verifications quick.

Hope this helps!!

Arun Mannglick