The Eastern and Southern African Trade and Development Bank (TDB) has closed what it says is the first live end-to-end trade finance transaction using blockchain technology for an African development finance institution (DFI).
The deal, a US$22mn sugar transaction, saw 50,000 metric tonnes of white cane sugar shipped to a buyer in one of TDB’s member states, with Agrocorp International – a Singapore-based global agri-commodity trading and processing company – as the seller and trading company, and TDB as the negotiating bank.
A letter of credit (LC) confirmation and a discounting transaction were performed digitally in one single private blockchain, slashing the total time to complete the deal by four days versus a traditional paper-based operation. The digital process also reduced all parties’ risks by eliminating potential errors and ambiguities in the exchange and amendment of documents.
“We are thrilled to have launched our blockchain operations with our partners Agrocorp and dltledgers,” says Michael Awori, chief operating officer at TDB. “With this transaction, we have the potential to revolutionise how we finance cross-border trade at the bank. Not only will it impact our bottom line, but it will enable us to reduce processing time, be more responsive to our clients, and de-risk transactions.”
dltledgers is a Hyperledger Fabric-based platform that enables trading companies to connect to their supply chain network and digitalise trade processes and financing documentation. Smart contracts allow traders to automate the creation of trade flows and build a digitally signed consensus framework among multiple parties.
Banks and other trade finance providers, meanwhile, can offer instant trade financing support through the platform, which facilitates LC transactions and supply chain financing. All parties have full visibility over a transaction they are involved in. The blockchain also records information on the origin of the commodities purchased as well as farming practices used, enabling buyers to better achieve sustainability objectives.
“The digitisation of trade flows via blockchain is something that has the potential to really revolutionise the way our industry operates,” says Krishna Prasad, general manager, finance at Agrocorp. “This transaction has proven that sizeable flows can be digitised to avail significant savings in time when generating and sharing trade documents. This time saved can generate meaningful savings with regards to vessel discharge rates and port detention costs.”
This latest deal is the largest single-trade transaction to date to have been completed by dltledgers. Earlier this month, Standard Chartered and global food manufacturer IFFCO Singapore (ISPL) carried out a cross-border trade finance transaction for palm oil using the platform, which followed a successful trade finance transaction in January for Agrocorp International.
“We are delighted to see the successful execution of this Afro-Asian trade on our platform,” says Samir Neji, dltledgers CEO, who adds that the company now plans to carry out US$10bn-worth of African trade transactions with the Asia Pacific region, including Japan, by June 2020.