According to a report, HSBC Bangladesh has executed the first LC letter of credit transaction, using Blockchain technology.
HSBC Banking Corporation in Bangladesh has issued its first LC letter of credit transaction. Of course, using Blockchain technology.
Indeed, a report released this news on 1st November. It noted that the transaction involved United Mymensingh Power LTD, a Singapore based energy company. The deal resulted in the company importing 20,000 tonnes of fuel for its power plant.
This document is issued by HSBC and prepared by the buyer. Primarily, to ensure that the seller receives the exact amount of funds.
Previously, it used to take between five and ten days. But, using the Bitcoin Method technology, it will be possible to execute the transaction in less than 24 hours. Then, if the buyer defaults, the bank must cover the balance or the full amount.
Moinuddin Hasan Rashid, Managing Director of United Group said: “Fuel oil LCs are very time sensitive, where every second counts. We believe that the Blockchain technology will help to manage time efficiently. And it will also ensure greater efficiency and better cost management“.
He added: “We are very excited about using the Blockchain technology for our imports. We understand that we are heading into a digital era and are ready to evolve in our effort to adapt to the changes.”
Mahbubur Rahman, Executive Director of HSBC Bangladesh also said:
“I am very happy that HSBC has pioneered the first Blockchain letter of credit transaction in Bangladesh.
HSBC Bangladesh’s first LC
In particular, the document issued by HSBC Bangladesh was produced on the Contour DLT platform. This is a solution built on the R3 Blockchain Corda. It connects financial institutions and corporate entities in a decentralised network of trade finance.
As indicated above, the transaction was used to settle the import of 20,000 tonnes of fuel oil from the United Group’s subsidiary in Singapore, United Mymensingh Power.
It should be noted that the bank is now responsible for payment if United Mymensingh Power Limited does not pay for the full 20,000 tonnes of fuel oil purchased from Singapore.
In fact, the SWIFT global payments service estimated that Bangladesh operations using LCs were worth more than $34 billion during the first half of 2020. HSBC Bangladesh therefore believes that the potential efficiencies for businesses are very considerable.
The Contour DLT platform
So far, different tests of the Contour network have been carried out and most of them have been broadcast during this year.
In short, the Blockchain technology can be used to execute cross-border transactions, for example with Singapore and Bangladesh. Also, in Vietnam and Thailand.
Interestingly, Contour’s first successful LC transaction took place between two major petrochemical companies, also in the Asian region, in August 2019. When the platform was known as Voltron
Concluding, Mahbubur Rahman said: “This shows our strong commitment and ability to support cross-border trade by Bangladeshi companies using state-of-the-art technology platforms“.
At the same time, he added: “I believe this will usher in a new era of international trade routing. As companies and governments recognise the transparency, security and speed of completion of tasks using Blockchain technology“.
I bid farewell with this statement from J.P. Sergent: “Success is not achieved by special qualities alone. It is above all a work of constancy, method and organisation“.