ADB Conducts its First Credit Guarantee Using Distributed Ledger Technology for Trade Finance
New Delhi: The Asian Development Bank’s (ADB) Trade and Supply Chain Finance Program has successfully completed its first credit guarantee transaction using distributed ledger technology (DLT), in partnership with Standard Chartered Bank Thailand and the Bank for Investment and Development of Vietnam (BIDV).
The transaction financed a $50,000 shipment of plastics from Thailand to Viet Nam in August and was supported by Contour Pte. Ltd., a Singapore-based company which facilitates trade finance digitization. Contour represents a three-year-old network of banks using DLT to replace the conventional, paper-intensive process used for trade deals.
DLT can cut the time, risk, and effort involved in letters of credit for trade transactions. Through DLT, a transaction can happen in real time and is confirmed simultaneously to each participant, replacing face-to-face exchanges of multiple documents over a number of days.
“The coronavirus pandemic underscores the need for the trade finance industry to digitize operations,” said ADB’s Head of Trade and Supply Chain Finance Steven Beck. “This innovation makes trade more efficient, reduces risk, and lowers barriers to entry for small and medium-sized businesses in developing Asia.”
“The trade finance industry is one of the early adopters of DLT,” said Director of Digital Innovation Sandbox and Architecture at ADB’s Information Technology Department Ozzeir Khan. “We are seeing trade networks using this technology to increase trade volumes and reduce complexity.”
ADB’s Trade and Supply Chain Finance Program offers guarantees and loans to boost trade in Asia and the Pacific. It has been a flexible and innovative vehicle for ADB assistance during the coronavirus disease (COVID-19) pandemic, supporting 3,960 transactions worth $2.8 billion in the first half of 2020, up from 2,363 transactions in the same period of 2019. This year’s transactions included 145 related to medical supplies and more than 450 for food and agriculture-related products.
ADB worked closely with Standard Chartered Bank on this pilot, building off a long-standing partnership on trade in developing Asia.
“We are committed to enabling trade finance through innovation,” said Global Head of Trade Distribution at Standard Chartered Nicolas Langlois. “In this transaction, we co-created and delivered blockchain solutions that will lead the industry’s vision in digitizing trade and support the growth of sustainable supply chains.”
“We are pleased to help facilitate this transaction,” said CEO of Contour Carl Wegner. “We will continue to support the trade ecosystem to create a decentralized network for global trade which is accessible, digital, and secure.”
“BIDV’s successful execution of the first cross-bank letter of credit using blockchain technology between Viet Nam and Thailand is one of our many attempts in digitizing banking practices, which is also our key strategy in this age of Industry 4.0,” said Vice Executive President of BIDV Le Trung Thanh.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.