The production system, based on the Hyperledger Fabric, provides a common platform which is not controlled by any one financial institution. This enables participants securely and confidentially to share information in order to reduce fraud around receivables financing.
After several months of working together and testing, the solution has gone into production. “This is a significant milestone for blockchain technology and this is only the beginning,” said MonetaGo CEO Jesse Chenard.
Freeing up cash flows
Receivables financing is one of the fastest growing trade finance mechanisms for small businesses to obtain credit. The Reserve Bank of India (RBI) has licensed three entities to provide a more efficient venue to do this: RXIL, A.TReDS, and M1xhange.
These exchanges provide competitive marketplaces for those small businesses to find financing. The platforms count some of the biggest Indian banks and a number of foreign banks as funding sources. This enables the discounting of invoices from corporate organizations, government departments and public sector undertakings (PSUs) – thus freeing up cash flows.
This application of blockchain technology, which avoids tokens or cryptocurrencies for both regulatory and cost forecasting reasons, has the potential to reduce fraud related to invoice financing across India – and in other regions where it finds adoption. It also provides the opportunity for participants to add functionality.
Mr. Kalyan Basu, M.D. & C.E.O, A.TReDS: “Our clients are particularly sensitive about their sourcing inputs, and we absolutely could not broadcast any of their private information to a shared network. This technology however enables us to work together with the other exchanges to achieve shared goals without sharing specific data. I look forward to the day when other players in the financial services industry also appreciate the value add in terms of preventing frauds related to Bill Discounting and become a part of this system.”
Speaking on the commencement of the services, Mr. Kashinath Katakdhond, MD & CEO, RXIL, said, “So far we had only heard of blockchain being used for cryptocurrencies. With the implementation of the MonetaGo blockchain solution we have a tool for mitigating systemic risk especially in trade receivable discounting. This is a simple and low cost technology innovation which helps us mitigate risks arising from multiple financing of the same bills across the platforms in addition to our existing risk management processes which provides a clear benefit. The real benefit will actually come when other financiers such as banks, NBFCs, and others join MonetaGo’s platform.”
“We are constantly evaluating new methodologies and technologies which we believe will fit into our long term product road map” said Sundeep Mohindru Director and Founder of M1xhange. “There has been a lot of press about blockchain in the last few years however this was the first time we could apply it in day to day operations and enhance the control over duplicity of transactions.”
About RXIL, M1xhange, A.TREDS and Monetago
Receivables Exchange of India Ltd (RXIL), is a joint venture promoted by National Stock Exchange of India Limited (NSE), leading stock exchange of India and the Small Industries Development Bank of India (SIDBI). It focuses on the promotion and financing of MSMEs in India. RXIL operates the Trade Receivables Discounting System (TReDS) Platform and launched India’s 1st TReDS Exchange on January 9, 2017.
A.TREDS is a joint venture of Axis Bank and mjunction services. Axis Bank is India’s third largest private bank. It offers a wide range of services to retail, corporate, and SME customers, including:
- mjunction, the largest e-marketplace for steel in the world, and also India’s largest e-commerce company which is itself a venture promoted by Tata Steel and SAIL
- Invoicemart, a digital invoice discounting marketplace.
M1’s Trade Receivables Discounting System ‘TReDS’ is an online exchange being set up under the approval of Reserve Bank of India (RBI) to facilitate discounting of invoices and Bills of exchange on a PAN India basis. Key participants in TReDS includes:
- Micro, Small & Medium Enterprises “MSME” (the suppliers or customers)
- large corporates, including PSUs and Government departments (the buyers)
- banks/NBFCs (the financiers).
M1 aims to provide MSMEs with supply chain-related cash flow finance at competitive rates. The latter come through an open bid process via multiple financiers. Financing on M1 is “Without Recourse” to MSME supplier, per RBI guidelines.
MonetaGo provides enterprise distributed ledger solutions and applications for financial operations. The MonetaGo designed its product suite, which is compliant with existing regulations, to:
- improve the efficiency and security of financial products
- support multiple private distributed ledger technologies
- interoperate seamlessly with legacy financial infrastructure
- enable institutions can integrate MonetaGo’s products with minimal disruption and cost.
What does this mean
The significance is that this is now an in-production blockchain solution for financial services. It has gone live. To Enterprise Times the lack of cryptocurrency involvement, as well as the RBI’s blessing, are as important. By implementing a common blockchain platform with Monetago, these exchanges aim to eliminate the possibility of double financing. This should lead to better rates, without sharing specific elements of any invoice or client.
This marks a further step towards delivering India’s ‘dream’ of a digital infrastructure, one that has the support of both policy makers and technological innovators. India’s move to a digital economy – with initiatives like Aadhaar, demonetization and the implementation of GST – continues.