The Daily Star reported that HSBC Bangladesh is venturing into issuing blockchain-based LoC business which will ensure fast transactions taking up to a maximum of 24 hours which previously took 5 to 10 days.
What is LoC?
A financial institution produces a Letter of Credit (LoC) which is filled out by a client assuring a seller that they would be paid in full in a specified deadline given the customer’s order has been received. Failure by the client to commit to paying, the responsibility falls to the bank, which acted as a guarantor, to pay the balance due.
HSBC Bangladesh is already acting as a guarantor after issuing a LoC on the Contour platform. The bank is assuring that Mymensingh Power Limited would pay Singapore, but if they fail, HSBC Bangladesh will take on the responsibility of paying for the fuel oil purchase weighing 20,000 tons.
Blockchain-based LoC to improve trade credibility
chief executive officer HSBC, Mahbub ur Rahman, said that this move would outline their unmoved focus and capabilities of boosting international trade with the aid of new technology. He further went ahead to say the move will pave way for a new era where cross-border businesses will blossom due to high levels of accountability, safety, and efficiency when carrying out a transaction using cryptocurrency.
After the transaction, the government of Bangladesh is growing to appreciate blockchain technology for it is making commercial activities fast and reliable. They are considering it as a plus move and would aid in the country’s development. The use of blockchain in transactions would be very useful especially now following the disruptions brought about by the Covid-19 pandemic which has been costly to many organizations.
As reported by SWIFT, Bangladesh recorded almost $34 billion worth of transactions in businesses under blockchain-based Letter of Credit. This is a significant figure.
Asia venturing into digitization
A year ago, the first LoC in Yuan currency based on cryptocurrency was handed to Shenzhen MTC from Voltron financial institution by HSBC China. This was one of the ways China used in integrating blockchain-based tech to reduce the outdated paper-based activities when carrying out transactions.
In the opinion of the regional director of global trade and receivables finance for Asia-Pacific, Ajay Sharma, integrating such technology into digital asset businesses would reduce charges incurred when processing cryptocurrency.
Besides, the move by HSBC Bangladesh Standard Chartered Bank has also promised to do the same and issue a LoC over the contour platform representing Viyellatex Ltd.