Leveraging Blockchain Technology …

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Hence the implementation of IoT enabled Blockchain will enhance the effective-

ness of KYC processes. Distributed Ledger Technology (DLT) will help augment the

real-time approval of financial documents along with faster processes. While appre-

ciating the advantages that are brought in by Blockchain enabled IoT one cannot

forget the infrastructure challenges, Scalability challenges, and Security issues.

4.2

Trade Finance

Finance arrangements made by the parties involved in a trade are called trade finance.

Trade can be domestic or cross-border, involving exporters, importers, banks, ship-

pers, insurers, and government agencies. Generally international trade is paid in

advance, so the majority of the trade amount is financed through banks. Buyers’

expectation of on time delivery of quality merchandise and sellers’ expectation of

prompt payment has given rise to various intermediaries to strike a balance. Even

though payment mechanisms such as telegraphic transfer, open account, payment by

delivery, and letter of credit are in place, letter of credit is considered as a secure and

effective trade financing mode. Letter of Credit as a payment method involves the

following steps.

1. Buyer prepares a purchase order in consultation with bank buyer.

2. Bank Seller issues the invoice

3. Buyer applies for Letter of Credit (L/C )

4. Approval and sharing of L/C by buyer to bank buyer and bank buyer to bank

seller

5. Seller prepares the goods on the receipt of approval and L/c

6. Seller handovers the goods to shipper along with the trade document Bill of

lading (B/L)

7. Seller sends the B/L to Bank seller

8. Bank seller sends the B/L to Bank buyer

9. Bank buyer confirms the receipt of B/L to buyer

10. Buyer initiates the payment

11. Bank buyer transfers the payment to bank seller

12. Bank seller credits the account of the Seller

13. Buyer presents the B/L to the claim the goods

14. Shipper delivers the goods and transfer of ownership leading to the end of the

transaction.

These cumbersome processes have pain points like creation of manual contract, fac-

toring of invoice, delay in timeline, reviewing the Anti-Money Laundering (AML)

requirements, miscommunication, multiple entries of bills of lading, and delay in

payment. This necessitates a smart contract to be executed by the parties involved in

trade finance. Blockchain based Distributed Ledger System through Smart contract

makes the trade finance processes more efficient and effective. The benefits reaped