Both subjects, Supply Chain Finance and Blockchain, get a lot of attention on Daily Fintech. So when we saw a solution combining them (called Chained Finance) we were intrigued. When we saw that the venture behind this initiative (Dianrong) is in China and that the Founder & CEO (Soul Htite) was a co-founder of Lending Club, we reached out to him to understand more.
I asked the questions that occurred to me. What questions should we have asked Soul? (tell us in comments).
Soul please tell us about your professional journey and what Dianrong does?
As a technologist and entrepreneur, I’m constantly looking out for new opportunities to harness the potential of fintech to solve every day financial challenges. This is what led me to co-found, firstly, Lending Club in the US and, more recently, Dianrong in China.
Dianrong has quickly grown into a leader in online marketplace lending in China, originating more than $300 million in monthly assets for 3.7 million retail lenders. We offer individuals and small and medium sized enterprises a comprehensive, one-stop financial platform supported by industry-leading technology, compliance and transparency.
We developed a sophisticated and flexible infrastructure that enables us to design and customize lending and borrowing products and services, based on industry-specific data and insights, all supported by online risk-management and operation tools. Dianrong’s specific offerings include loan originations, investment products and marketplace lending solutions.
As I understand it, Chained Finance is designed to provide financing to the vendors who are further down the supply chain. Supply Chain Finance works well today for the vendors who supply to the corporates who are investment grade. As I understand it, Chained Finance will get financing to the vendors who sell to that vendor. Can you give us an illustration about how this will work?
The complexity and scale of supply chain finance has posed major challenges in ensuring adequate funding and efficient operations. Chained Finance creates a unique ecosystem that will provide supply chains with easier access to funding at competitive rates. In return, supply chain operators will gain greater visibility of their suppliers and the many layers of finance embedded in the process.
Is it only one link in the chain (i.e. vendor to vendor of investment grade corporate borrower) or multiple links in the chain?
Chained Finance’s ecosystem provides a better link between supply chain operators and their vast network of suppliers. Additionally, new loan assets generated by Chained Finance will be available to Dianrong’s 3.7 million investors, expanding the company’s portfolio of diversified investment options.
How is the credit priced? Is it based on the buyer’s credit rating (as in traditional Supply Chain Finance)? Or is it based on the seller’s credit rating as in Factoring, Receivables Financing and other SME lending?
The Chained Finance pricing model is proprietary.
What stage is Chained Finance? Have transactions already been completed. Can you share what sort of APR % the SME companies are getting and how this compares with other SME lending?
Chained Finance successfully completed a successful six-month pilot with FnConn, which originated US$6.5 million (RMB45 million) in high-quality loans for supply chain operators, many of whom were unable to secure needed financing in the past.
The pilot was only recently completed, so it is premature to disclose representative APR data.
Please tell us why you use blockchain technology as opposed to some other distributed database technology and a bit about the technology?
Blockchain technology allows both lenders and borrowers to gain unprecedented control and transparency of their records.
Lenders gain greater transparency of the financial history of borrowers, enabling them to make better lending decisions. This capability enables financial institutions to lower the risk of potential bad debts and problematic financial sources.
For borrowers, the technology provides a comprehensive track record of their financial history, which increases their creditability when applying for a loan. Borrowers also have greater control over who has access to their records, because borrower data can only be obtained with their approval. That efficiently avoids borrowers’ personal information being abused by third parties, e.g. lead generation companies.
The primary benefit of blockchain is the transparency, and thus security, of the data transacted within the system. At Dianrong, compliance and transparency are part of our DNA. This is why we are integrating blockchain technology across our entire platform.
Is this a permissioned or permissionless system?
What blockchain technology do you use (e.g. Ethereum, Hyperledger). Please tell us why you chose this technology
Chained Finance was designed to be technologically (and geographically) agnostic. That said, Dianrong is an active participant in the Hyperledger project.
Soul, please give us your vision of where Chained Finance could go in the future.
By harnessing the power of blockchain, the Chained Finance platform is geographically agnostic. So, while Dianrong’s initial focus is on China, where 85% of SMEs have no effective access to funding, the potential for the platform goes far beyond China’s borders.
Blockchain for supply chain finance extends to any large company that has a complex supply chain and, as such, is enormous. The electronics, garment and auto industries are a natural fit.
Chained Finance offers large multinational manufacturers unprecedented transparency and risk control capabilities for their supply chain finance ecosystems.
Thank you, Soul
What questions should we have asked Soul? (please tell us in comments).
Bernard Lunn is a Fintech thought-leader and deal-maker.
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