Standard Chartered has invested in Linklogis, a blockchain-enabled supply chain platform in China, to allow upstream suppliers to access financing conveniently and at a competitive rate, telling GTR that it has around a “dozen” opportunities in China to offer deep-tier supply chain finance to organisations through the partnership.
The deal provides Standard Chartered with an equity stake in Linklogis, marking the bank’s first investment in a blockchain-enabled supply chain platform in China, as well as the first global bank investor in Linklogis.
“As of now, we are in active dialogue with close to a dozen opportunities,” Jiten Arora, global head of commercial banking at Standard Chartered, tells GTR. “Each one is at a different stage and some are already in the testing stage with suppliers. You have to realise that this is not something where you can just take it and implement it, you have to work closely with the entire supply chain to put this into place.”
Arora says that the bank’s next step is to expand the solution from being a China-based deep-tier SCF initiative to having cross-border capabilities to cater for suppliers feeding into China’s complex manufacturing hub, which then exports all over the globe. Nevertheless, he explains the benefits of initially establishing the solution in the Asian trade giant: “China is the manufacturing hub for the entire world, it is the largest manufacturing base that exists today. Unlike other markets where you generally have people who are component builders and then who export that component, China starts from the lower end of the supply chain and often finishes off the product. It is a very domestic supply chain that exists in China’s manufacturing space.”
The deal builds on Standard Chartered’s ongoing partnership with Linklogis, which started in February 2019 with the signing of a memorandum of understanding (MOU) to jointly develop and deliver a supply chain financing proposition for complex supply chains in China. Shortly after, in August, Standard Chartered completed a joint deep-tier supply chain financing transaction for Digital Guangdong using Linklogis’ ‘WeQChain’, a platform based on Chinese tech company Tencent’s blockchain technology.
The deal with deep-tier SCF
Smaller corporates that sit within the upstream tiers are an integral part of any complex supply chain, but these SMEs can often find it difficult to access finance as they are deemed by lenders as higher risk, resulting in trade finance only available at higher rates or sometimes not at all. Deep-tier financing allows large corporates to secure their supply chains by making access to working capital available to the first manufacturer in the supply chain.
“What you generally find is in the conventional supply chain finance model, what happens is that the big benefit is accrued between a manufacturer, let us assume a very large manufacturer, and the first-tier suppliers. But what you generally find is that the first-tier suppliers are often relying on the second-tier suppliers and the second, third and fourth-tier suppliers are SMEs,” says Standard Chartered’s Arora. He says that as a bank, deep-tier supply chain finance “gives us confidence that the first level manufacturer can access finance and because we also know the final anchor, we can actually provide quite an attractive and competitive working capital solution at better pricing to the small corporates”.
Fad or reality?
Using blockchain technology to fulfil this process can also mean lenders are able to finance upstream suppliers with transparency through the entire supply chain – thus also making it easier to offer financing to SMEs in the first place. Transparency can serve as an added safeguard against other potential issues such as data manipulation.
“We hear blockchain being discussed extensively in various scenarios and there is a question of whether it is a fad or a reality,” says Arora. “I think for us clearly the partnership with Linklogis and the deep-tier financing use case, blockchain is a reality, because the only way this could work is by tokenisation of the supply chain.”
Standard Chartered is not the only bank snapping up tech-based deep-tier supply chain finance opportunities in China. In September, DBS Bank launched its first multi-tier financing facility on blockchain platform Rong-E Lian to help Chinese SMEs get faster access to trade finance. The blockchain platform is integrated with DBS’ digital onboarding service, which requires facial biometric authentication when a supplier logs onto Rong-E Lian, according to the bank.