by Angela Baker
Trade finance. Unless you are an importer or exporter, you probably wouldn’t use this term.
When a company in one place sells its goods to a company in another place, there is a complex process that takes place. And it often involves the importer of those goods borrowing money from a lending institution to purchase those goods – money that is to be paid back later, with interest. The exporter may need up-front cash as well, in order to pay shipping costs until he is paid by the importer.
A lot can go wrong in this process. There are a number of intermediaries and shipping points. At any of these points, loss or theft can occur. Shipments of goods, especially by sea, for example, can require as many as 36 documents and as many as 27 parties involved along the way. It’s all inefficient and risky.
Can Blockchain Provide a Solution? Other Industries Have Found it to Be So.
While blockchain technology became popular when related to cryptocurrency trading, it has expanded exponentially to become a solution for a wide variety of industries, as in legal contracts and other agreements, healthcare and education records, data government, travel and insurance, retail and finance.
In short, any transaction or documentation can be entered into a “block”, time and date stamped and becomes a part of a chain of records that may not be changed and that provide accountability.
This technology has proven to be especially useful, in addition to the industries above, in logistics, especially inventories and shipping of goods from one point to another. At each step of the way, receivers must document receipt of goods and date and time of shipping on to the next point, where the receipt is recorded, and so on, until the final destination is reached.
With this use in logistics and the ability of financial institutions to record transactions, it only stands to reason that blockchain can provide a huge benefit to trade finance.
An importer desires to purchase a large number of goods from an overseas supplier. He goes to a lending institution to borrow the funds to pay for this purchase and its shipment.
The lending institution crafts a contract, which is signed by both parties and then recorded in a blockchain.
The purchase is made, and then, the contract too is entered in a blockchain.
The supplier puts together the order and contracts for shipment. This contract is also entered in a blockchain, including all of the stopping points and intermediaries along the way.
At each point in its journey, the shipment is tracked, with each receiver entering the date and time of receipt, contents of the shipment, and date and time of movement to the next point.
Finally, the shipment reaches its destination.
This type of tracking reduces most risk of loss, fraud, or theft. If this should occur, it can be traced to the exact point at which the incident occurred.
Obviously, the entire transaction is more secure, more transparent to all parties, and much more risk-averse. The trade finance institution knows that the importer has received the goods and can then begin the collection process for the loan, as agreed upon – details of which are securely stored in a block.
Global trade is only increasing, as purchasers and suppliers all over the planet are connecting and doing business. And as this increases, so does fraud and risk. In its annual risk and fraud report for 2017-2018, for example, Kroll reported that 84% of surveyed executives stated they had been victims of fraud in international business transactions. Blockchain can certainly provide a viable means to mitigate this risk.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Horyou.
Angela Baker is a self-driven specialist who is currently working as a freelance writer at GrabMyEssay writing services and is trying to improve herself and her blogging career. She is always seeking to discover new ways for personal and professional growth and is convinced that it’s always important to broaden horizons. That’s why Angela develops and improves her skills throughout the writing process to help to inspire people. Also, she writes for LiveInspiredMagazine, rounding out her professional writing career.