DIGITIZING TRADE FINANCE USING BLOCKCHAIN TECHNOLOGY ILLUSTRATION OF LETTER OF CREDIT PROCESS

Abstract

Today’s financial and banking services have evolved beyond recognition of what such services used to be a few decades back. The introduction of e-banking, online ledgers, blockchain, smart contracts, and many digital innovations has transformed the industry and affected all stakeholders; banks, corporates, government entities, and many other players involved in the trade ecosystem. This research studies the issues derived from the current trade finance processes, followed by an evaluation of the available technological solutions proposed by researchers and FinTechs, for the possible replacement of the current obsolete processes of traditional trade finance, which rely heavily on manual Labor and Paperwork. The study explores and compares Trade Finance processes in three dimensions, current Paper-Based process, Blockchain-Based process, and Bank Payment Obligation (BPO) process. Followed by examining the impact of Blockchain technology on the Letter of Credit (L/C) process using three simulation models, Paper, BPO as an alternative digital solution, and Blockchain. Thesis findings observed a significant increase in process efficiency up to 94% while conducting processes under blockchain and 74% using BPO. Moreover, the study also demonstrates how the efficiency gained from the application of Blockchain Technology to the trade finance processes could increase productivity and significantly reduce Labor, Courier, and Archive costs. It also explains how Blockchain platforms can create end-to-end traceability capability. The findings of the study bring an essential contribution to banks, corporates, and governmental authorities about the importance of blockchain digital technology in trade finance and the need for an urgent digital shift.

Date of Award	2021
Original language	American English
Awarding Institution	HBKU College of Science and Engineering