Supply chain finance on blockchain debuts in India

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Just a year ago, the concept of blockchain was still in its infancy; at about seven years old, the open source platform serving the bitcoin network was still an “underground” technology, understood by few from both a consumer and developer perspective.

Around that time, IBM joined 90 other tech and finance companies on the Open Linux Foundation Hyperledger Project to advance blockchain technology and develop efficient new methods of secure digital interaction across borders and industries.

The Mahindra Group is the first corporation in the country of India to sign a deal, aiming to use solutions developed at IBM Research to reinvent supply chain finance across the country by enhancing security, transparency and operational processes.

Composed of several subsidiaries including tech, automotive, land & development and aerospace, Mahindra Group’s financial services branch, Mahindra & Mahindra Finances, will first use IBM’s hyperledger blockchain to improve their invoice and discounting processes.

Blockchain can help infuse trust and transparency into the supply chain financing process. (courtesy: IBM)

Blockchain can help infuse trust and transparency into the supply chain financing process.

Most small and medium businesses in India struggle to grow because they cannot recover their cash cycle between production and distribution in a timely manner. To overcome this today, companies must apply for bank loans, a manual process which can take months especially when dealing with unknown banks in different corners of the world.

M&M hopes to improve this process by creating a secure blockchain network for all participants to execute these transactions efficiently. Take for example a large manufacturer sourcing raw materials from 50 different small suppliers. In an ideal scenario, the suppliers produce the materials and ship to the manufacturer, expecting payment in three months. Meanwhile, the supplier needs financing to fill that three-month gap, so the bank loans money, and the manufacturer repays the bank by the imposed deadline.

This cycle benefits all parties:

  • The supplier gets financing at lower rates
  • The manufacturer gets time before they need to pay the supplier
  • The bank gets interest on the loan

When we map this process on the blockchain, all facets of the transaction are visible:

  • The invoice for the goods
  • The shipment of the goods by the supplier
  • The receipt of the goods by the manufacturer

The particular workflow that IBM researchers  designed for Mahindra Group is essentially a trade instrument, which provides a peer-to-peer mechanism for executing a transaction, visible to all authorized parties. The underlying cryptography promises a secure and precise record of transactions in addition to the shared visibility and the transparency enables rapid resolution of disputes.

By having real-time access to transactions recorded on a shared ledger, companies like Mahindra can also develop and offer new products to small and mid-sized enterprises, opening new lines of business. Long-term, this secure method of financial transactions allows Mahindra and other large companies to scale the solution to other business units, across industries and geographies.

As blockchains accelerate the flow of capital and the creation of wealth around the world, more business and individuals will be able to participate, creating an “all-in” economy. Blockchains will enable economic progress enjoyed and driven by a greater number of individuals and organizations.

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