LendLedger Opportunities: Supply Chain Finance
LendLedger is an open network using blockchain to power data-driven loans to millions of underserved small business borrowers worldwide. With a goal of powering $1 trillion worth of capital in the next 10 years LendLedger is now developing pilots for lending markets including small-ticket working capital finance, supply chain finance (such as inventory financing and invoice factoring), and merchant cash advance (MCA).
Size estimates for the global supply chain finance market range from tens of billions to over a trillion dollars, with a safe estimate probably being approximately $275 billion. Supply chain finance involves businesses or merchants leveraging their purchase orders, invoices, or receivables for fast access to working capital from lenders. This unlocks the capital suppliers need to produce or purchase goods and inventory.
Inefficiencies in Supply Chain Finance
Conceptually, supply chain finance can optimize working capital for both the supplying merchant (the small business owner) and the buyer. However inefficiencies often arise stemming from the difficulties of ensuring trust within a complex supply chain. For a successful financing, three or more parties may be required: the lender, the supplier, and the buyer. This tripartite trust can be difficult to facilitate, which is why blockchain-based supply-chain solutions are emerging. A blockchain-based solution can help each party participate in a neutral system that tracks key documents (purchase orders, invoices, etc) and their approvals among partners. This helps lenders provide financing with confidence at the right time.
LendLedger X Supply Chain Finance
Where LendLedger can help is to expand these supply-chain solutions to involve a marketplace of lenders. Borrowers get competing financing offers (more offers, less cost), and lenders get access to more dealflow than previously. Finally, for “anchors” — the large buyers or manufacturers who depend on smaller supply chain partners, a marketplace can unlock more capital than simply inviting a single bank or lender to offer financing.
India Petrochem Dealer Finance Pilot
Among other supply chain finance pilots, LendLedger is helping to design a financing marketplace in collaboration with a large petrochemical supplier in India and the smaller petrol dealers who depend on it for their supply. Today only a small percentage of these dealers have the on-tap access to credit they require to finance their petrol purchases; particularly in harder-to-reach areas. This constrains their ability to buy supply and run their business, and also introduces inefficiency in the petrol major’s operations.
Here’s how the marketplace would work. The oil/gas firm will submit historical data on its dealers’ purchases and sales via API in a standardized format, plus access to the dealer’s real-time purchase orders from its supply-chain software. Local banks will use this data to analyze dealers’ creditworthiness, and will also get help on loan recovery from the oil/gas major. Their loan will go directly to the oil and gas supplier to release petrol, and when the dealer sells the petrol it will repay the bank.
(Indicative banks shown below)
Benefits
By adding a data-driven lending marketplace to the dealers’ supply-chain (and the oil/gas major’s distribution network), LendLedger makes it possible for small petrol dealers to source real-time credit. These dealers will get simple, quick funding, a chance to create a reputation for creditworthiness on the blockchain-based market, and the opportunity to reduce their cost of capital over time as lenders compete for strong borrowers.
Lenders will see access to a higher volume of borrowers as LendLedger originates dealflow via connection to the oil/gas major’s dealer network. They also get verified and real-time documentation to improve decision-making (purchase orders, sales histories etc), and access to ongoing reputations of all parties in the marketplace as LendLedger records loan transactions on the blockchain.
Finally for the oil/gas major, LendLedger offers the opportunity to improve operational efficiency and increase dealer buying power. The pilot should result in fewer delays in purchasing (caused by dealers chasing credit) and greater volumes of petrol sold.
