Nigerian commodities exchange Afex has announced plans to introduce a blockchain-based application for warehouse receipt checks as part of efforts to reduce fraud for funders and increase liquidity for African farmers.

The Warehouse Receipt Check solution will be available with Afex’s existing electronic warehouse receipts system (e-WRS), which farmers and other agricultural producers can use to access credit facilities from banks and other lenders on the back of the value of their produce.

Afex operates 45 warehouses in Nigeria, where agricultural producers are able to deposit commodities – such as maize, cocoa and soybeans.

When doing so, producers receive an electronic warehouse receipt, which can be used as collateral to obtain financing from a lender. Afex then stores the commodities in its warehouse until such time as the goods are sold and released.

The new blockchain solution, which has been developed by trade finance fintech Trade Finance Market (TFM), is aiming to support this process and reduce the risk of warehouse receipt fraud, by encrypting the receipts and storing them on the blockchain.

Executive director at TFM, Raj Uttamchandani, tells GTR that double or triple financing of warehouse receipts is a significant problem globally.

Speaking about the reasons for this, he says: “Chain of title is difficult to establish as funders cannot share data with each other due to compliance issues. Centralised databases do not exist, are untrusted and can be hacked. A funder therefore has no way of knowing if a warehouse receipt has already been pledged as collateral for a loan.”

By using the blockchain solution, banks and other lenders can check to see if a warehouse receipt has been previously financed, he says.

“No single entity owns the database and the blockchain is beyond the influence of the contract’s participants. Data is protected from competitors and is tamper resistant once on a decentralised blockchain,” Uttamchandani adds.

By reducing this risk of fraud, farmers should find it easier to get access to loans, says Afex’s CEO, Ayodeji Balogun.

He notes in a statement that the partnership with TFM will “streamline the process of financing… to smallholder farmers and other players in the commodities markets”.

Beyond a technology partnership, TFM also aims to provide selected transaction funding on the Afex platform.

In late 2018, in another initiative seeking to streamline the process of financing smallholder farmers, Afex partnered with Sterling Bank and blockchain-firm Binkabi to launch a blockchain-based commodity finance programme.

As part of that programme, warehouse receipts are converted into tokens, which can be traded on Binkabi’s blockchain platform and used as collateral for financiers to fund it.

Just months before, Binkabi announced that it would pilot what it said was the world’s first commodity exchange on blockchain.