Taiju Hashimoto, Vice President Japanese Corporate Regional Sales Transaction Banking Office for Asia, discusses the current challenges of Asian supply chain finance (SCF) players and why blockchain can facilitate the expansion of SCF in Asia.
Currently, there are many challenges related to real currency throughout the Asia Pacific, especially Indonesia, Thailand, Malaysia, Vietnam: there are FX regulations as well as cross-border regulations, which make settlements complex and prevents smooth trade flow settlements. Therefore, the value chain for manufacturing and supply chain finance are impacted, making it a challenge to settle cross-border transactions among the supply chain ecosystem.
However, the game-changer in Asia will be blockchain technology.
On one hand, the progress of the Internet of Things (IoT) facilitated the connection of various physical objects and services through information which brought greater ease and efficiency. On the other hand, the importance of responding to security concerns such as information leakage, tampering, and unauthorized use, has increased significantly.
Through blockchain technology, we will be able to acknowledge ‘traceability’ and ‘visibility’ for the supply chain. For example, we will be able to know what kind of the materials are used, where the materials are coming from, how they are processed and manufactured, etc. By linking them to GPS, using integrated circuit embedded tags, we can verify and identify whether these materials are eco-friendly or not. With this in mind, investors will be able to see if they comply with ESG policy and can decide their future investments.
Also, through digital currency, digital platform guaranteed by international institution like IFC, ADB, will be more secure.
Blockchain has the potential to improve supply chain transparency and provide a wide range of potential benefits, including:
A blockchain supply chain finance case is tested in China for the automotive industry. In this equation, all participants have been connected in the supply chain: such as the logistics servicer, warehouse servicer, dealers, financier, insurance company etc.
Moreover, in Japan, by pursuing the possibilities of the blockchain technology and gathering momentum for the initiatives, in 2019 a major Japanese car manufacturer established a virtual organization comprised of six group of companies.
Another example is visible in Thailand: through the Thailand Blockchain Community Initiative, now known as BCI (Thailand) Co. Ltd., 22 banks and 15 companies have joined the blockchain-based platform to support payment obligations for enterprise auctions and other domestic trading procedures. The platform went live in late 2019 and currently handles an approximate value of US$300,000,000 in letters of guarantees. This trend will move forward to open account for trade, like supply chain finance.
Through blockchain, we can improve business processes efficiency and traceability by recording and sharing information on manufacturing, shipping, etcetera, during the whole supply chain.
Additionally, we can utilise the diversification of financing methods through digitalisation of various assets such as vehicles and various rights, resulting in stronger relationships with customers and investors, medium to long term.
All financial players participating in the blockchain like banks, investors, insurance companies will be able to take quicker and better decisions and due to transparency and visibility, and all stakeholders will be able to save costs and therefore diminish the operational burden.