City Bank has executed a cross-border Letter of Credit (LC) transaction under a Shariah-based financing arrangement executed using blockchain technology.
The Bank has partnered with the International Islamic Trade Finance Corporation (ITFC), the trade solutions arm of the Islamic Development Bank (IsDB) Group, which was both the advising as well as financing bank, read a press release.
The ITFC financed the LC under the Murabaha Trade Finance line with City Bank.
The LC was issued on behalf of Debonair Group, a leading Bangladeshi RMG exporter, for import of accessories for garments industries from a Hong Kong-based exporter, Apparel Link (HK) Ltd.
The transaction was conducted on Contour's network, which was built using R3's Corda blockchain technology.
Processing time for this transaction was extremely short – LC draft initiation to issuance and advising took only 38 minutes compared to the typical 24 to 72 hours required for regular cross-border LCs.
Blockchain technology allows parties to manage their own data while transacting and viewing shared information seamlessly and securely with their trading partners and service providers. This results in transparency in transactions, reducing the scope for forgery and fraud significantly.
"City Bank is the leading digital bank in Bangladesh and is committed to using technology to provide an efficient and satisfying experience to our clients. This transaction will pave the way for improved digital trade through blockchain technology," said Sheikh Mohammad Maroof, City Bank's additional managing director.
CEO of Contour, Carl Wegner said, "We're finally seeing the trade finance industry embrace digitization and reap the benefits of improved connectivity and efficiency in LC presentation. As we continue building the world's trusted network for global trade, we're keen to ensure this growing ecosystem of banks, corporates and technology providers remain inclusive and accessible for all.
This being the first sharia compatible transaction completed on our network marks an important milestone toward our ongoing goal."
Abou Jallow, operations general manager at ITFC commented on the transaction: "The Contour platform has the potential to make LC issuance, confirming and negotiating a seamless process.
With this system, all parties involved will be using one platform where all can track progress and get notified when required, to take the next actions in the process, hence more transparency and trust. Amendments, notifications and acceptances are a lot faster when you go digital"
Debonair Group's Managing Director, Mohammed Ayub Khan, has said, "Debonair Group is excited to be the part of this digital transformation. The process as observed has been smooth and extremely fast compared to traditional paper-based transactions."