Dive Brief:
- Foxconn subsidiary FnConn and Chinese online lending marketplace Dianrong launched a new supply chain finance platform, Chained Finance, to issue loans to small manufacturers through blockchain technology, Coin Desk reported.
- Since its debut, Chained Finance has further expanded plans for a global network able to support loans from non-bank lenders to their supply chains without direct interaction with financiers. Initially, the company is targeting the electronics and auto industries, though the garment supply chain is also being considered.
- Such loans are typically aimed at the supply chain in order to allow multiple levels of suppliers to receive enough funding to pay workers while waiting for invoices to be settled. In many instances, waiting periods are long enough to cause a shutdown or even complete closure of a factory.
Dive Insight:
"This is exciting for many reasons," Sergio Rodriguera Jr., Chief Strategy Officer of The Credit Junction told Supply Chain Dive. "The first is large multinationals are increasingly seeing the importance of ensuring their suppliers, especially SME suppliers, have access to capital to fulfill orders and avoid supply chain disruptions. Second, non-bank lenders have stepped in to offer supply chain financing solutions where traditional sources have been unable to help, again, SMEs due to the cost of onboarding or serving larger customers."
A supply chain is only as good as its own supply support. Tier One or Two suppliers may prove entirely sound at first glance, but what about who they rely on? A disruption or missed payment upstream could disrupt a supplier's usual cash flow, even if they are otherwise healthy, and threaten production.
A company has to be able to weather a potentially disastrous event, such as a fire or the loss of a major client or two. Investigating a suppliers' insurance coverage can indicate whether its ducks are in a row — is it prepared to keep going in the wake of disruption? Has it ever experienced a natural disaster and survived to tell the tale? The more transparent the chain, the less chance of financial failure.
Foxconn's experiment with blockchain seeks to do just that: Increase financial transparency by removing the middleman responsible for lending to suppliers, in the hope of improving reliability. The technology is more than a rating or a benchmark, but an active step to know when suppliers are struggling and help provide the funds to continue operations. This way, "Chained Finance will provide timely, efficient support to far more suppliers of all sizes," according to a statement by the new company's CEO.
"We are probably at least 5 years away from blockchain proving itself in trade finance," Rodriguera added. "However, there are many who feel it could be beneficial in trade finance and supply chain. You are seeing this with the IBM and Maersk deal, as well as Project Manifest powered by Microsoft."
