Supply Chain Finance (SCF) refers to the financial service in which banks rely on core enterprises to manage the capital flow and logistics of upstream and downstream enterprises. SCF adopts a self-testing and closed-loop credit model to control funds and risks. The key factor in a successful SCF service is the deployment of SCF business-oriented information systems that allow businesses to form partnerships efficiently and expedite cash flows throughout the supply chain. Blockchain Technology (BCT), featuring decentralization, tamper-proofing, traceability, which is usually paired with the Internet of Things (IoT) in real-world contexts, has been widely adopted in the field of finance and is perfectly positioned to facilitate innovative collaborations among participants in supply chain networks. In this paper, we propose a BCT and IoT-based information management framework (named BC4Regu), which works as the regulatory to improve the information transparency in the business process of SCF. With BC4Regu, the operation cost of the whole supply chain can be significantly reduced through the coordination and integration of capital flow, information flow, logistics and trade flow in the supply chain. The contributions in this paper include: (1) proposing a novel information management framework which leverages Blockchain and IoT to solve the problem of information asymmetry in the trade of SCF; (2) proposing the technical design of BC4Regu, including the Blockchain infrastructure, distributed ledger-based integrated data flow service, and reshaped SCF process; and (3) applying BC4Regu to a group of scenarios and conducting theoretical analysis by introducing the principal-agent model to validate the BC4Regu.
With the sharply increasing demand for corporate finance, Supply Chain Finance (SCF) has become a popular approach for corporate financing [1,2]. The core enterprises in the supply chain are bundled with upstream and downstream suppliers/distributors to provide financial services. The main financing routes for Small-Medium Enterprises (SMEs) include: commercial financing from enterprises in the supply chain, financing from commercial banks, and financing through the securities market. However, due to the small scale and poor operational management, SMEs usually can only seek for financial support through commercial financing .
In the context of traditional SCF, with the credit endorsement by core enterprises, financial institutions (e.g., banks) are willing to provide financing services (e.g., receivable financing, factoring services, inventory financing, etc.) to tier-one suppliers/distributors. There are many tier-two and above suppliers/distributors who are difficult to meet financing requirements due to the lack of direct connection with the core enterprises . In practice, the risk management in SCF mainly focuses on the enterprises that apply for financing and their respective transactions. However, the authenticity of the parties involved, transaction data, and the underlying assets is often difficult to verify . Moreover, such a business environment with diversified participants and complex business processes makes it more challenging to control risks than general financial businesses [4,5].
Technology plays a critically important role when encouraging SCF adoption for SMEs in China. In this paper, we propose a technical framework for the information management of SCF - BC4Regu, in which, BCT is facilitated for strengthening the information transparency and reshaping the business process in the SCF. Underlying technologies enabling several such features are introduced in detail. Moreover, the effectiveness and feasibility of BC4Regu are illustrated by use cases and supported by theoretical analysis. However, in this paper, the legal issues (e.g., the legal validity of the proof of ownership of asset tokens, smart contracts itself) that hinder the wide adoption of BCT in the SCF have not been explored. In the future, we will continue to consider the requirements of the financial and jurisdictional fields, with which SCF business driven by BCT could be further verified and highlight the opportunities by BCT.