HSBC Bangladesh has executed a blockchain-based Letter of Credit (LoC) transaction helping reduce wait time from 5-10 days to less than 24 hours, a Nov 1 report by the Daily Star reveals.
HSBC Bangladesh Issues the First Letter of Credit (LoC) on the Blockchain
A Letter of Credit is a commercial document issued by the bank and prepared by the buyer guaranteeing the seller reception of the exact amount of funds within a specific period subjected to the delivery of goods. If the buyer defaults, the bank should cover the balance or the full amount.
HSBC Bangladesh issued the document on the Contour platform. The solution is built on R3’s Corda blockchain. The bank now guarantees payment should United Mymensingh Power Ltd fail to pay in full for the 20,000 tonnes of fuel oil purchased from Singapore.
Mahbub ur Rahman, the CEO of HSBC Bangladesh, said:
“This showcases our strong commitment and ability to support cross-border trade by Bangladeshi businesses using cutting-edge technology platforms. I believe this will usher in a new era of routing international trade transactions as businesses and governments recognize transparency, security, and swiftness in performing tasks using blockchain technology.”
Speed, Transparency, and Cost Reduction
The Bangladeshi government now acknowledges the benefits of the blockchain. By introducing swiftness, transparency, and speed, the digitization of commercial processes helps accelerates business activity in the country.
Notably, the integration of blockchain in commerce will come in handy now as businesses across the globe try to adapt to the disruptive realities of the Coronavirus pandemic.
Core to commercial activities, Bangladesh processed just under $34 billion of trade under LoCs according to SWIFT.
Digitization in Asia
Last year, HSBC China issued the first blockchain-based yuan-denominated LoC from the Voltron trade finance platform for Shenzhen MTC.
It was part of their drive to integrate technology as they streamline traditional paper-based processes and bureaucratic businesses of financing trade.
Specifically, according to Ajay Sharma, the regional head of global trade and receivables finance for Asia-Pacific (APAC), incorporation of technology would help bring down processing costs.
In August, BTCManager also reported of Standard Chartered Bank issuing a LoC on behalf of Viyellatex Ltd over the Contour platform.