In China in August 2017, Zheshang Bank created Zheshang Chain which is an accounts receivable blockchain. Last week it issued a loan note for $68 million using some of these receivables as asset backing for the note. The loan note has a term of 354 days.
Recently the Chinese authorities have been encouraging securitization as a way to use capital more efficiently. The significant advantage of blockchain is the transparency it brings to the underlying assets. Some even believe that the 2008 financial crisis might have been avoided because the poor quality of the asset backing would have been apparent.
For the Zheshang note, the enterprises entrust their accounts receivables to a trustee, China Railway Trust, via Zheshang Bank, to establish an asset-backed note. The receivables backing the note are from a wide range of companies.
By the end of June, the Zheshang Chain had processed 1,800 enterprises, and more than 2,600 receivables worth over $3.9 billion.
For trade finance, blockchain allows the paperwork to be logged on the chain. Once on the chain, the invoices can be accepted for finance. In the Zheshang case, they enable the receivable to be paid, transferred, pledged or redeemed.
Next month the Hong Kong Trade Finance Platform will launch. Two months ago the we.trade platform launched in Europe. And there are several other global initiatives in progress.
