Two companies in Hong Kong are to launch a blockchain-based solution for trade finance lending over the coming weeks.
Novamondo, a factoring company, has teamed up with CrptoBLK, a blockchain development company, to develop a solution that will help digitalise their lending process in Hong Kong and China.
Both companies are startups. Novamondo was launched in 2016 is targeting the small business market in Guangdong, with a view to moving into other regions of China. It is backed by “one of the three biggest family companies in Hong Kong”, which is providing most of their funding, according to the company’s president Cobe Tsang, who has previously held senior roles at Standard Chartered and Coface.
Tsang tells GTR: “We are targeting exporters and manufacturers in China and Hong Kong. Our deal size is around Rmb10mn (around US$1.5mn). The Chinese market is much bigger than Hong Kong, banks don’t want to lend to small private enterprises, only state-owned enterprises and listed companies.”
He explains that Novamondo’s financial backer is keen to exploit the size of the market in China, which yields about 10% return on average. Using a blockchain-powered solution, he says, will help reduce the risk of fraud and improve transparency. This will enable them to target smaller companies with different risk profiles. Returns in this case could be up to 15%.
The technology, meanwhile, is being developed by CryptoBLK, a tech startup headed by Duncan Wong, who helped author the Hong Kong Monetary Authority’s white paper on blockchain. It is being developed using R3’s Corda open source platform and will use distributed ledger technology to process the entire trade finance cycle, from purchase order to invoice.
Wong tells GTR the company selected Corda due to its access control and segregation of data features, which make it more appealing to financial institutions that wish to maintain confidentiality and keep proprietary information separate.
If the first three quarters of the year were dominated by banks’ proof of concepts in this space, then the last quarter may be when we see some actual commercial activity on the blockchain. However, it is appearing more likely that these developments will come from small companies and startups, rather than big banks.