Mahindra and IBM begin work on SCF blockchain solution as Hong Kong issues a warning on the technology

Technology Update | 30 November 2016

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Mahindra Group and IBM have started work on a blockchain-based supply chain finance (SCF) platform to help suppliers gain better access to credit.

The duo will attempt to bring the promise of speed and efficiency that has become synonymous with what blockchain can offer, to reform the way suppliers generate working capital through invoice discounting.

Invoice discounting involves selling a bundle of invoices at a discount to generate credit (predominantly used for working capital), but it can be a time consuming process.

IBM and Mahindra Group hope that with a shared distributed ledger, the transparency created between the sellers of the discounted invoices and their buyers, as well as the near real time responsiveness the platform is expected to deliver, will greatly improve access to capital.

“This proof of concept represents a significant step forward in making blockchain, still a new technology, a more compelling and efficient supply chain solution for Mahindra Finance’s small and mid-sized enterprises loans business. Working with IBM, we will work to build, test, scale and refine this solution over time,” said Anish Shah, group president (strategy) of Mahindra Group. 

The Indian holding company has a presence in sectors from agribusiness and energy, to aerospace and insurance, and hopes to be able to expand the reach of its blockchain solutions to cater for the breadth of its sectors.

“Blockchain is poised to revolutionise business like the internet did, and IBM is at the forefront of the revolution,” said Lula Mohanty, managing partner of IBM Global Business Services.

“The work with Mahindra has the potential to fundamentally transform the way businesses interact with one another and their customers and suppliers, and we’re confident that this engagement can be replicated not just in the finance industry, but across other sectors as well.”

Meanwhile, a report commissioned by the Hong Kong Monetary Authority, while extolling the many benefits of blockchain, has warned against the money laundering, risk management and regulatory issues the technology also comes with.

“Any introduction of new technology inevitably introduces new types of risk, and DLT [Distributed Ledger Technology] is no different. Even when an asset owned by a participant is protected by the participant’s digital certificate, and no changes can be made to the information without the correct digital signature, certain traditional cybersecurity issues still apply to DLT,” the report states.

“Due to the anonymous nature of participants in some DLT applications (in particular Bitcoin), DLT is sometimes seen as being associated with issues of money laundering and the sale of illegal goods, and as supporting the ransomware payment model. Although these issues may largely be addressed when DLT is implemented in a ‘permissioned’ network (which only authorised and authenticated participants may join), this kind of solution still needs to be examined in detail.”

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