For Bengaluru-based jeweller Ramesh Davanam, the one constant in his 35-year career has been the need to secure working capital from banks. And while Davanam’s banking partners have changed over the decades, the process of accessing this capital has remained as arduous as ever.
The physical documentation required runs into over 100 pages, Davanam told The Ken. This includes three years worth of balance sheets, external credit ratings, proof of inventory for collateral, the personal balance sheets of the business owner, and detailed business projections for the next five years.
And this is just to get the ball rolling.
Davanam isn’t alone in this. The jewellery sector at large is dependent on this sort of financing, with businesses in the space constantly having to jump through these hoops to secure critical working capital. For smaller businesses in the space, said Ashish Pethe, this can take up to two months. Pethe is chairman of the All India Gems and Jewellery Domestic Council, which represents about 300,000 gems and jewellery businesses in India.
This drawn-out process is the result of how, even as retail banking in India has embraced digitisation, slow, heavy processes are hardcoded into trade finance. It remains heavily reliant on couriering documents around and acquiring wet signatures. The inefficiency of the whole process puts businesses, especially smaller enterprises, in jeopardy.
Now, after decades of plodding inefficiency, change is on the horizon. With an eye towards removing some of these hurdles, 18 banks have decided to back a new consortium—the Indian Banks’ Blockchain Infrastructure Company (IBBIC). The group aims to develop a distributed ledger system distributed ledger system Distributed ledger system A digitial system built to record asset transactions in multiple location simultaneously. Prominent examples of distributed ledgers include the Bitcoin and Ethereum blockchains. to issue and track domestic letters of credit (LCs), a form of trade finance where banks guarantee payment.
IBBIC has multiple marquee stakeholders—State Bank of India (SBI), ICICI Bank, Axis Bank, HDFC Bank, and Kotak Mahindra. As per its current plans, IBBIC will start with setting up a messaging system between members that can be used to transmit certified documents and automate payments between buyers, suppliers, and associated banking partners. Each member of the consortium has ponied up ~Rs 5 lakh (US$ 6,700), and will invest a further Rs 5 crore (US$ 670,000) into IBBIC, which is billed as a “financial technology company,” in regulatory filings.
Put simply, a distributed ledger [DL] enables simultaneous record keeping at different financial institutions. This establishes a shared source of information instead of transaction details floating around on siloed back-end systems across banks.