Original Article from Global Trade Review published on 11th Sep 2019 by Sanne Wass
The dltledgers platform for commodity trade finance has expanded its reach to the Middle East, with Abu Dhabi Commercial Bank (ADCB) having financed its first transaction using the blockchain-based solution.
Based on Hyperledger Fabric, dltledgers enables trading companies to connect to their supply chain network and digitalise trade processes and financing documentation. Smart contracts allow traders to automate the creation of trade flows and build a digitally signed consensus framework among multiple parties.
Banks and other trade finance providers, meanwhile, can offer instant trade financing support through the platform, which facilitates letter of credit (LC) transactions and supply chain financing. All parties have full visibility over a transaction they are involved in.
ADCB’s first live trade finance transaction on dltledgers involved the trade of Canadian western red spring wheat worth US$6.5mn from Canada to Bangladesh.
The transaction saw ADCB provide financing against an LC to Singapore-based Agrocorp International, the seller. The LC was issued by Bangladesh’s Islamic Bank on behalf of the buyer, Nabil Auto Flour Mill.
The parties say in a statement that the platform provided visibility across the entire life cycle of the transaction with authenticated and consented digital documents. The transaction mirrored the traditional letter of credit process, which involves agreeing terms, application, issuance, advising, amendment request and approval, document presentation, discrepancy resolution and bill settlement instructions. All parties could use one platform for this, rather than relying on multiple systems.
Other participants in the transaction were Richardson International Shipping Canada and inspection company SGS Surveyor.
The parties have not commented on the pricing of the financing. However, Nitin Jain, head of treasury and capital markets at Agrocorp, says the dltledgers platform could reduce the company’s financing cost by at least 15-20%.
“Moving onto the electronic system, we are also able to access earlier financing from banks as the documentation flow is much closer to real time,” he says.
Agrocorp is already actively using dltledgers with other banks. In November, Singapore’s DBS Bank announced it had financed its first transaction for the company. Standard Chartered, meanwhile, completed its first deal in January, also for Agrocorp, facilitating the early payment for agricultural products purchased from Australia and resold to a customer in Bangladesh.
According to Samir Neji, founder and CEO of dltledgers, more than 30 banks and 400 global traders are now onboarded to the platform, which has facilitated 3,600 live trades and more than US$1bn-worth of trade finance since its launch last year.
Other bank clients include National Australia Bank, Maybank, Rabobank, SBI, ICICI and the Eastern and Southern African Trade and Development Bank (TDB).
Focusing on commodities trade, dltledgers has entered a space that is ripe for innovation. Tedious paper documents and trails have plagued the commodity trader and financier for centuries, with a trade finance deal for a single commodities cargo by sea said to require up to 36 original documents and 240 copies from as many as 27 parties. It can often take weeks, if not months, to complete.
That’s why commodity trading is pinpointed as one of the most promising sectors for blockchain. What’s unique about this technology is that it allows for real-time monitoring by multiple parties, and the exchange of documents in a digital, secure and decentralised manner.
Other players are also seeking to bring blockchain to the commodity trading industry. The komgo platform, for one, went live in December. Founded as an independent venture in August 2018, its 15 shareholders include a mix of corporate and financial players: ABN Amro, BNP Paribas, Citi, Crédit Agricole, Gunvor, ING, Koch Supply & Trading, Macquarie, Mercuria, MUFG Bank, Natixis, Rabobank, Shell, SGS and Société Générale. The platform now facilitates LCs, standby LCs, receivables discounting, and offers a know your customer module that allows commodity houses to securely submit digital trade data and documents to their banks.