India state-owned SIDBI completes pilots for asset tokenization

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Small Industries Development Bank of India (SIDBI) has announced the completion of a pilot exploring tokenization using blockchain technology to improve processes in the financial sector.

SIDBI teamed up with technology firm Infosys (NASDAQ: INFY) to create a tokenized collateral network (TCN) which pundits say will foster trust among participants in lending. SIDBI Chief Technology Officer Paramendra Tiwary said the study aims to expand the range of Indian micro, small, and medium enterprises (MSMEs) through venture capital (VC) funding and loans.

Tiwary disclosed that there had been a spike in the number of incidents revolving around duplicate pledging of collateral among borrowers in recent years. The negative trend results in diminishing trust levels and financial losses among lenders—metrics that adversely affect MSME funding sources.

Tiwary pointed out that relying on blockchain technology is a veritable way to reduce the risks and vulnerabilities of lending to Indian MSMEs. He said SIDBI would utilize blockchain to pool information relating to collateral for lenders across a diversity of platforms, including non-banking financial companies.

“The implementation has immense potential for the financial ecosystem,” said Tiwary. “This solution will be a step forward in enabling real-time security information sharing.”

As an added layer of security, the credit bureau will conduct further checks on loan applications while relying on the immutability of blockchains. The project will see SIDBI and Infosys create digital versions of real-world assets (collaterals) that will exist as non-fungible tokens (NFTs).

The project will rely on smart contracts to automatically signal regulators on any issue regarding regulatory compliance. The pilot recorded significantly reduced operational costs from using smart contracts.

“Asset tokenization may also bring increased transparency for transactional data, issuer information, and asset characteristics thanks to enhanced information recording and sharing,” said Patrick Moorhead, a senior contributor at Forbes.

India’s faith in blockchain

Across India, blockchain adoption is slowly picking up steam on the foundation of government and private sector support in the country. While Finance Minister Nirmala Sitharaman has predicted a near 50% adoption of the technology, private entities and civil society organizations are developing learning modules to trigger interest in the technology.

The push by both ends of the spectrum has been described as geared to “deepen the talent pool” following the government’s hard stance towards virtual currencies. Blockchain has seen action in several facets of the Indian economy, including telecommunications, real estate, security, and finance.

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