The SIDBI Asset Tokenization project is a significant development in India’s financial sector.
The Small Industries Development Bank of India (SIDBI), in partnership with Infosys, a digital services and consulting company, has developed a tokenized collateral network (TCN). Experts believe that this will help foster trust among lenders.
The Chief Technology Officer of SIDBI, Paramendra Tiwary, explained that the objective of the study is to expand the scope of venture capital (VC) funding. Additionally expand loans for Indian micro, small, and medium enterprises (MSMEs).
This innovative initiative, conducted in collaboration with technology firm Infosys, aims to enhance trust among lending participants and improve processes in the industry.
Addressing the Issue of Duplicate Pledging of Collateral
Tiwary highlighted the concerning rise in incidents involving duplicate pledging of collateral by borrowers in recent years.
This trend has led to a decrease in trust levels among lenders and caused financial losses. As a result, MSME funding sources have been impacted negatively. To mitigate these risks and vulnerabilities, SIDBI has turned to blockchain technology as a reliable solution.
Leveraging Blockchain Technology for SIDBI Asset Tokenization Project
SIDBI intends to leverage blockchain technology to create a centralized information repository for collateral. As a result, providing accessibility to lenders across diverse platforms, including non-banking financial companies.
Tiwary emphasized that this implementation has enormous potential for the financial ecosystem, enabling real-time sharing of security information and enhancing trust among participants.
To further enhance security, the credit bureau will conduct thorough checks on loan applications, leveraging the immutability of blockchain technology.
Additionally, SIDBI and Infosys will create digital representations of real-world assets, known as non-fungible tokens (NFTs). This will serve as collateral. Further, this innovative approach will add an extra layer of security and transparency to the lending process.
The project will rely on smart contracts, which will automatically alert regulators in the event of any issues related to regulatory compliance. The pilot projects have already demonstrated a significant reduction in operational costs through the utilization of smart contracts.
Consequently, this streamlined approach is expected to bring increased transparency to transactional data, issuer information, and asset characteristics.
Blockchain Adoption in India
India is witnessing a gradual but steady adoption of blockchain technology, supported by both the government and the private sector. The SIDBI Asset Tokenization project is proof of that.
Finance Minister Nirmala Sitharaman has predicted that the technology will achieve nearly 50% adoption. In line with this vision, private entities and civil society organizations are developing learning modules to generate interest in blockchain technology.
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