Indian factoring exchanges announce blockchain network to prevent trade-finance fraud
03 April 2018
So far we had only heard of blockchain being used for cryptocurrencies, and, while several blockchain proofs of concept and pilots have been announced, a first successful enterprise grade deployment that includes multiple financial services organisations has been launched in India to help reduce fraud related to invoice financing.
The system provides a common platform for medium and small business enterprises, and is not controlled by any one financial institution. It securely and confidentially shares information, which reduces fraud around receivables financing. The platform is built on Hyperledger Fabric and does not rely on cryptocurrencies to operate.
Since receivables financing is one of the fastest growing trade finance mechanisms for credit to small businesses, the Reserve Bank of India licensed three entities to provide trade finance revices. They are RXIL, A.TReDS, and M1xhange. These exchanges provide a competitive marketplaces for small businesses to obtain the best financing possible, and is backed by several of the biggest Indian banks and a number of foreign banks as funding sources to enable the discounting of invoices from large companies, government departments, and public-sector undertakings.
By implementing a common blockchain platform the exchanges eliminate instances of double financing — leading to better rates across the board — without sharing specific elements of any invoice or client.
Kalyan Basu, MD & CEO, A.TReDS, a joint venture of Axis Bank and India's largest e-commerce company and the pioneers in e-auction services, mjunction services, said, “Our clients are particularly sensitive about their sourcing inputs, and we absolutely could not broadcast any of their private information to a shared network. This technology however enables us to work together with the other exchanges to achieve shared goals without sharing specific data. I look forward to the day when other players in the financial services industry also appreciate the value add in terms of preventing frauds related to bill discounting and become a part of this system.”
The company which designed and implemented the production blockchain is MonetaGo. This application of blockchain technology, which avoids tokens or cryptocurrencies for both regulatory and cost forecasting reasons, has the potential to drastically reduce fraud related to invoice financing across India and in other regions where it is adopted. Importantly, it also provides the opportunity for the participants to build additional functionality on the new network.
Speaking on the commencement of the services, Kashinath Katakdhond, MD & CEO, Recievables Exchange of India Limited (RXIL), an initiative between SEDBI and NSE, said, “With the implementation of the MonetaGo blockchain solution we have a tool for mitigating systemic risk especially in trade receivable discounting. This is a simple and low-cost technology innovation which helps us mitigate risks arising from multiple financing of the same bills across the platforms in addition to our existing risk management processes which provides a clear benefit."
He added the real benefit will actually come when other financiers such as banks, NBFCs, and others join this platform.
“We are constantly evaluating new methodologies and technologies, which we believe will fit into our long-term product road map,” said Sundeep Mohindru director and founder of M1xhange, whose trade receivables discounting system TReDS is an online exchange being set up under the approval of the RBI to facilitate discounting of invoices and Bills of exchange on a PAN India basis. “There has been a lot of press about blockchain in the last few years. However this was the first time we could apply it in day to day operations and enhance the control over duplication of transactions.”
After several months of working together and testing, the solution was taken into production. “This is a significant milestone for blockchain technology and this is only the beginning,” said MonetaGo CEO Jesse Chenard.