Blockchain booster: Singapore eyes commodity fintech firms

SINGAPORE: Singapore is aiming to position itself as a hub for blockchain development in commodity trading, with start-ups looking to boost access to trade finance and eliminate the opportunity for fraud.
Several firms launching in coming months will offer digital “smart contracts”, which use blockchain rather than traditional paper agreements. The technology offers potential cost savings, and could open up new sources of funding, such as private wealth or from investors outside the major currencies.
At the same time, proponents say the public ledgers used by blockchain will boost supply chain transparency, reducing the opportunity for the sort of warehouse fraud seen in the metals industry where parcels of metal have been sold to multiple buyers.
The moves come as global demand for trade finance faced a US$1.5 trillion (RM6.3 trillion) hole last year as banks pull back from the capital intensive sector due to stricter regulatory requirements, the Asian Development Bank said in a report this month.
About 40% of the shortfall was in Asia Pacific and the biggest gaps were faced by companies in emerging economies and small and medium-sized firms, it said.
“A lot of the shortfall in trade finance is from the Asia Pacific. There’s no shortage of money here but a lot of it is trapped within local currencies in the region,” said Yvonne Zhang, co-founder of Aquifer Institute, which is launching a digital trade platform.
Banks also tend to favour larger players with bigger balance sheets who are chasing larger deals, she told Reuters.
“The smaller guys tend to get put into a corner ... yet they are overcharged for what financing they can get.”
While the possibility of saving billions of dollars a year by scrapping millions of paper documents is enticing, the secretive commodities industry may take some persuading to move to a common platform.
Blockchain, which is best known as the system underpinning bitcoin, is a public online ledger of transactions maintained by a network of computers on the internet. Financial firms hope that the nascent technology can reduce the cost and complexity of burdensome processes such as international payments and securities settlement.