Reliance's Experiment With First of Its Kind Blockchain Trade Finance Transaction

India's biggest private company, Reliance Industries, has recently conducted its first-ever trade transaction using the blockchain technology. The transaction took place between Reliance and a US-based chemical distributor, Tricon Energy.

The transaction was successfully executed using R3 Corda Blockchain technology. The Corda blockchain technology is being described by the press release as  "single shared application, rather than requiring multiple isolated digital systems across various counterparties located around the globe"

HSBC Bank and the ING Bank Brussels aided in giving the Letter of Credit, the guarantee given by a bank for the payment of the buyer. In comparison to the usual time of 7 to 10 days taken for the processing of the export documents, the Blockchain technology can aid in completing the transaction within a day,

The press release further stated that "this transaction validates the commercial and operational viability of Blockchain as an alternative to conventional exchanges for paper-based documentation"

Signifying the "transformative importance" of the technology used in blockchain technology in trade finance, the head of HSBC India of global banking and markets said "The use of blockchain is a significant step toward digitizing trade. The overall efficiency it brings to trade finance ensures cost effectiveness, quicker turnaround and potentially unlocks liquidity for business"

Reliance explained, that in the current system, buyers and sellers use a paper-based letter for facilitating transactions and physical documents need to be sent to each party involved in the transaction through the post, courier or fax. The whole transaction in blockchain takes place digitally and reduces the amount of time and money involved.

Blockchain allows for a greater level of transparency since it is a decentralized database and all the stakeholders can view the progress in real time Various other banks such as ICICI Bank, SBI and Yes Bank are working on other similar solutions based on Blockchain since trade finance is one of the best use cases due to ability to reduce the time taken for processing the transaction.

The Corda application is being globally supported by HSBC and five other banks (Bangkok Bank, BNP Paribas, CTBC Holding, NatWest, SEB and Standard Chartered) seek to expand the network on an open source basis to increase the adoption rate of the technology through the industry.

Executive Opinion

Joint Chief Financial Officer, Reliance Industries, Srikanth Venkatachari, said, “We are
excited to partner with HSBC on digitalisation of trade finance. This reflects our continued
commitment to embrace emerging technologies and industry first initiatives. The use of
blockchain offers significant potential to reduce the timelines involved in exchange of export
documentation from the extant 7 to 10 days to less than a day. When adopted at scale, it
helps in significant optimisation of working capital. Further, use of blockchain in trade
finance enhances transparency, security and synergy across all the parties and stakeholders
involved.”

Head-Global Banking & Markets, HSBC India, Hitendra Dave, said, “The use of blockchain is a significant step towards digitising trade. It has a transformative impact on trade finance transactions and enables greater transparency and enhanced security in addition to making it simpler and faster. The overall efficiency it brings to trade finance ensures cost effectiveness, quicker turnaround and potentially unlocks liquidity for businesses. We’re delighted to partner with Reliance Industries and support enhanced digitisation in trade finance. We believe that the collaborative approach adopted to develop this technology has the potential to transform conventional trade finance.”

Apart from HSBC, many other Indian banks including ICICI, SBI and Yes bank are working on their own blockchain solutions and believe that trade finance is one of the key areas where the technology can make a significant impact.

Update:corrected typo