HSBC Bangladesh issues first letter of credit on blockchain
The banking giant used blockchain technology to execute a letter of credit (LC) transaction
The Hong Kong and Shanghai Banking Corporation (HSBC) in Bangladesh has issued its first letter of credit transaction on the blockchain. This commercial document, which is issued by the bank and prepared by the buyer to guarantee that the seller receives the exact amount of funds within a specific period subjected to the delivery of goods, usually has a wait time of around five to ten days.
The blockchain technology used in the transaction made it possible to execute an LC transaction in less than 24 hours. If the buyer defaults, then the bank should cover the balance or the full amount.
The LC document issued by HSBC Bangladesh was prepared on the Contour platform, which is a solution built on R3’s Corda blockchain. The bank is now the entity responsible for payment if the United Mymensingh Power Limited company fails to pay in full for the 20,000 tonnes of fuel oil purchased from Singapore.
The Chief Executive Officer of HSBC Bangladesh, Mahbub ur Rahman, expressed his optimism for the future of blockchain in the company.
“This showcases our strong commitment and ability to support cross-border trade by Bangladeshi businesses using cutting-edge technology platforms. I believe this will usher in a new era of routing international trade transactions as businesses and governments recognise transparency, security and swiftness in performing tasks using blockchain technology”, he stated.
“I am very pleased that HSBC has pioneered Bangladesh’s first-ever cross-border blockchain LC transaction.”
The group chairman and managing director of United Group, Moinuddin Hasan Rashid, also stated that he is looking forward to the application of blockchain technology in their industry.
“We are very enthusiastic about the use of blockchain technology for our imports. We understand that we are headed towards a digital era and we are ready to evolve in our effort to adapt to the changes”, he said.
LCs are a core part of commercial activities in Bangladesh. According to SWIFT, the country processed just under $34 billion of trade under LCs. Fuel and oil LCs, in particular, are very time-sensitive and blockchain could help companies manage their time efficiently, increase efficiency and secure better cost management.
Digitisation has spread quickly across Asia. Last year, HSBC China issued the first yuan-denominated LC based on the blockchain from the Voltron trade finance platform for Shenzhen MTC. This was a part of their efforts to integrate the technology while they streamline traditional paper-based processes and bureaucratic businesses of financing trade.