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Blockchain-based certificates of origin come to Kenya
From Global Trade Review (GTR) | By Finbarr Bermingham
Electronic certificates of origin (eCOs) will be issued on the blockchain in Kenya, in a move that will modernise a key part of the country’s trade facilitation processes.
Fintech company vCargo Cloud (VCC) is to work with the Kenya National Chamber of Commerce and Industry (KNCCI) to implement a blockchain-based solution that it launched in May in Singapore.
eCOs are export documents that certify the country of manufacture of a shipment. They are required by customs, banks and traders to verify goods and are commonly among the documents used in a trade finance transaction.
The solution allows for the instant, digital capture and processing of eCOs. They will be embedded on the blockchain and stored in a private ledger, where customs, banks or any other parties to the trade cycle can access them.
VCC CEO Desmond Tay tells GTR that the solution will be tweaked slightly to the specifications of the KNCCI, but that it is essentially the same as the one being used in Singapore.
“After the success in Singapore, we have been trying to bring the blockchain eCO solution to other places around the world. We are in discussions with a few chambers in Africa and Southeast Asia and expect to see further expansion soon,” he says.
VCC has an office in Nairobi, and so launching in Kenya was a logical next step, Tay says. The company is also in talks with chambers in Sri Lanka, Japan, Myanmar, as well as numerous countries in East Africa about rolling out the platform there.
Numerous other companies have begun launching blockchain-based solutions for trade in Africa. IBM is rolling out a supply chain finance platform that uses machine learning and blockchain to extend micro-loans to small businesses there.
Meanwhile, Block Commodities and Wala, a trader and a fintech platform respectively, have combined to launch a cryptocurrency commodity financing solution, providing US$10mn-worth of loans to 50,000 smallholder farmers in Africa.
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HSBC and ING complete live trade finance transaction on blockchain
From Global Trade Review (GTR) | By Finbarr Bermingham
HSBC and ING have conducted their first live, commercial trade finance transaction on blockchain, for agrifood trading giant Cargill.
The deal was completed using the R3 Corda platform, with a cargo of soybeans exported from Argentina to Malaysia.
Cargill was the exporter and importer on a deal that saw Cargill Geneva selling soybeans on behalf of Cargill Argentina, and Cargill Singapore buying the goods on behalf of Cargill Malaysia.
It was done using the letter of credit (LC) module of Corda, which has been developed by 12 banks. This enabled the transaction time to be reduced from a standard five to 10 days, to 24 hours. The LC was issued by HSBC, with ING acting as the advising bank. The value of the transaction has not been disclosed.
While the LC was executed on blockchain, other elements of the transaction cycle – such as the bill of lading – were not.
Vivek Ramachandran, HSBC’s global head of innovation and growth for commercial banking, tells GTR that we can expect to see another few live transactions on this platform, as the bank learns how it interacts with the systems of other banks and corporations. However, the primary focus now will be on driving industry-wide adoption.
“We’ve still got a few more steps to do before we get to widespread adoption,” Ramachandran says. “A lot of people have been wanting to make sure that it works with a live transaction. That’s part of the reason this is exciting, to be able to demonstrate that a live commercial transaction with a flagship global trader and two global banks on each side of the transaction, actually works.”
While this is arguably the most advanced trade finance development on blockchain to date, the industry has a couple of years-long history of trialling the technology, with the hype at times reaching deafening levels.
In late-2016, Commonwealth Bank of Australia and Wells Fargo closed a US$35,000 transaction for two subsidiaries of Brighann Cotton, taking 88 bales of cotton from Texas in the US to Qingdao in China, using Skuchain’s Brackets blockchain-based solution.
Since then there have been a plethora of pilots, trials and proofs of concepts, but general frustration in the industry that nobody is bringing blockchain technology to operational trade finance. There have been signs over recent months, however, that this is getting closer.
Batavia, a blockchain-based trade finance platform developed by IBM and a consortium of five banks, completed its first live transactions with corporate clients in April and is thought to be close to commercial use.
we.trade, a European platform for managing, tracking and protecting trade transactions between SMEs, backed by nine banks, is aiming to launch to business clients in the third quarter of 2018.
In India last month, meanwhile, a government-backed invoice financing platform went live with a blockchain-based solution that allowed the various companies involved to share information to prevent double financing via blockchain. However, there is no financing element to this product.
The news comes two months after HSBC’s senior innovation manager, Joshua Kroeker, told GTR that the bank was ready to do live trade finance transactions on blockchain.
The bank had been involved in one of the earlier blockchain projects for trade finance when it worked with Bank of America Merrill Lynch and the Infocomm Development Authority of Singapore (IDA) on a proof of concept to mirror letters of credit using distributed ledger technology.
However, its work on the Corda platform has apparently accelerated beyond its other blockchain developments.
Corda is a platform owned by R3, a US company founded by David Rutter, with members including more than 200 banks, financial institutions, regulators, trade associations, professional services firms and technology companies.
In April, an application for syndicated loans called Fusion LenderComm became the first to go live on the Corda platform. The app had been piloted by banks including BNP Paribas, BNY Mellon, HSBC, ING, Natixis and State Street. It had been developed since early-2017 by fintech company Finastra and R3.
ING has also been heavily involved in the trade-based developments on blockchain technology. As well as being among the banks working with Fusion LenderComm, it was reported to be working with trading house Mercuria and French bank Société Générale to build a blockchain solution for oil trading, early in 2017.
The bank’s managing director for innovation in wholesale banking, Ivar Wiersman, says: “It’s exciting to see this transaction has been completed successfully with clear client benefits in speed and ease in execution.”
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IBM’s latest blockchain venture brings microfinancing to Africa’s SMEs
From Global Trade Review (GTR) | By Sanne Wass
IBM is rolling out a new supply chain finance platform across Africa, using machine learning algorithms and blockchain technology to extend microloans to small businesses.
The tech giant’s research lab in Kenya announced today that it is working with Twiga Foods, a business-to-business logistics platform for kiosks and food stalls in Africa, on a new concept for disbursing microfinancing to businesses using a blockchain-enabled platform.
The partnership has allowed Twiga Foods, which helps farmers distribute bananas, tomatoes, onions and potatoes to 2,600 kiosks across Kenya, to add financial services to its offering and thus scale its reach. Having piloted the platform with 220 small food retailers across Kenya over an eight-week period, the trial saw its customers increase their order size by 30%.
The platform is now ready to be rolled out across Africa – to new sectors and suppliers – by the end of the year.
The idea is to utilise something that most people in Africa have – mobile phones – to bring them something they haven’t – access to working capital.
During the pilot, all loans were executed via mobile and went directly towards working capital for the businesses. When a retailer had an order delivered from Twiga, they would receive an SMS with options for financing that order. The retailer would then respond, confirming which loan option they preferred. The average loan was around US$30, offered for four and eight days with an interest rate of one and two percent, respectively.
Speaking to GTR, Andrew Kinai, the lead research engineer on the project at IBM Research, says the platform is about “linking SMEs, their suppliers and the banks” and using alternative data to give lenders the confidence they need to provide financial services.
Small businesses are hugely important for most African economies, yet they often have difficulty accessing sufficient credit due to the complexities of financing processes, high loan costs, collateral requirements and lack of a credit score.
“These vendors are quite small, so if they were to go to a bank, the bank would probably want an audited account or collateral and things like that. These small businesses don’t have that,” says Kinai. “So what we’re trying to do with our solution is to use alternate data, which can give a good idea of how well a business is doing and leverage that to provide credit to these small-scale vendors.”
This data, which includes information on purchase history as well as repayment, is crunched by the platform’s machine learning algorithm to predict the creditworthiness of a vendor. Once the credit score is determined, the blockchain platform, powered by Hyperledger Fabric and executed through smart contracts, will manage the entire lending process, from application to receiving offers, to then accepting the terms and eventually repayment.
Connecting multiple parties, blockchain is an optimal technology to manage the loan process, as it becomes transparent to all permissioned parties involved, from the lending bank to the borrower’s bank and the loan applicant themselves.
While the pilot didn’t involve any banks, the next stage of the project will be to bring in lending partners, Kinai says.
The companies are also set to expand the project to more of Twiga Foods’ vendors, as well as to other suppliers, including outside of Kenya, by the end of the year.
“For this pilot, we were doing it with one supplier, but the vendors often have other suppliers. Each of these suppliers has a snapshot of how that business is doing. So in the next step, we’re envisioning we’ll have mutable suppliers, to give an SME or vendor a ‘financial identity’, which is composed of all of these snapshots from various suppliers. A blockchain network would be very important in managing this,” Kinai explains.
It is hoped that such a financial identity stored on the blockchain could help SMEs across Africa access a wider range of financial services in the future.
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