Banking institution Mercantile Bank makes history by conducting the initial Green Letters of Credit (LC) transaction using blockchain technology.

Banking institution Mercantile Bank makes history by conducting the initial Green Letters of Credit (LC) transaction using blockchain technology.

Bangladesh's banking sector is taking significant strides in the digital transformation of trade finance, with Mercantile Bank PLC spearheading the charge. The bank has recently completed a successful Proof of Concept (PoC) for a blockchain-based inland Letter of Credit (LC), known as a "Green LC."

The Green LC PoC, executed in collaboration with Spectrum Software and Consulting Limited (SSCL), has demonstrated the operational feasibility of blockchain-based LCs in Bangladesh. This groundbreaking initiative paves the way for a more agile and technologically empowered future for trade finance in the region.

Mercantile Bank's Green LC PoC showcases several advantages over traditional LC processes. The use of distributed ledger technology in the Green LC is expected to bring enhanced transparency, traceability, and efficiency to the LC lifecycle. This shift towards digitized, blockchain-enabled trade finance solutions is anticipated to drive wider adoption of digital platforms across the banking industry.

Senior executives from Mercantile Bank, including Shamim Ahmed, Ashim Kumar Saha, and Dr. Md Zahid Hossain, were present at the event. Mati Ul Hasan, the Managing Director of Mercantile Bank, officially inaugurated the ceremony. Farhanur Rahman, Director of Enterprise Sales at SSCL, also attended the launch, representing the technological collaboration behind the initiative.

The success of the Green LC PoC is not limited to Mercantile Bank. Prime Bank Bangladesh has recently executed an interbank blockchain LC transaction using Contour’s network, significantly reducing transaction processing time from the conventional 10 days to about 24 hours. This transaction involved partnerships with global banks such as HSBC Bangladesh, and corporates like Tamishna Group, reflecting growing confidence and ecosystem readiness for blockchain LCs.

The move towards digital and hybrid LC models, including distributed ledger technology, is in line with global trends emphasizing efficiency and risk mitigation through digitization. While traditional LCs remain dominant due to regulatory and legacy infrastructure factors, blockchain LCs, or "Green LCs," are poised to gain more traction as regulatory frameworks evolve and more banks gain blockchain experience.

Regarding regulatory stance, Bangladesh Bank has not publicly imposed restrictions specific to blockchain LCs and seems cautiously supportive of innovation in trade finance automation, aligning with broader financial digitization policies. However, digital currency or cryptocurrency regulations remain strict in Bangladesh, but that does not directly impact blockchain-based LC platforms, which focus on permissioned ledgers for trade finance rather than open cryptocurrencies.

In summary, the successful Green LC PoC by Mercantile Bank PLC marks a promising shift towards a more efficient and eco-friendly future for trade finance in Bangladesh. The initiative underscores the bank's strategic vision to modernize operations in line with regulatory guidance and evolving customer expectations. Furthermore, the locally developed blockchain-based trade platform and the collaboration with One Bank PLC highlight the strength and potential of homegrown financial technology in Bangladesh.

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