Introduction

A simple PoC for loan syndication. The scope of this PoC is defined as:

Loan syndication between a consortium of banks to put the underlying collateral on block-chain to share that information between the consortium to avoid frauds. Leverage the smart contracts to build this prototype.

• Introduction
  • Background
  • Decentralized consensus
  • Solution

Background

Loan syndication is defined at Investopedia as follows:

Loan syndication is the process of involving a group of lenders to fund various portions of a loan for a single borrower. Loan syndication most often occurs when a borrower requires an amount too large for a single lender to provide or when the loan is outside the scope of a lender's risk exposure levels. Thus, multiple lenders form a syndicate to provide the borrower with the requested capital.

In this PoC, we show how, a given collateral is not pledged multiple times within a consortium of lenders or even across consortia. To jump into the demo, go to Solution.

Decentralized consensus

The problem of consensus has the following characteristics:

• Two or more parties.
• Parameter of interest.
• Central custodian of the value of the parameter of interest.
• Consensus enforced by the custodian.

With decentralized consensus, the characteristics can be redefined as:

• Two or more parties.
• Parameter of interest.
• Network of peers store the value of parameter of interest.
• Consensus arrived via algorithms executed on nodes of a network.

Therefore, we re-write the scope of PoC in terms of decentralized consensus as follows:

• Parties: banks of a consortium and loan applicant.
• Parameter of interest: collateral identifier.
• Value of parameter of interest: status of collateral - pledged or not - for a loan in the past.
• Consensus: Proof of Authority consensus.

Solution

This demo saves only the identifiers on the blockchain. It is a good practice to save only identifiers or references to actual data on the blockchain. On one hand, this makes the blockchain light weight and on the other, a certain level of privacy is maintained.

The mechanism to generate and derefernce the identifiers is considered out of scope. Similarly, it is assumed that, all participants have agreed to common identifiers of loans, collaterals, consortia or others.

To see this PoC in action, refer - a simple demonstration of the Smart Contract. The following are covered:

1. Deployment of contract.
2. Create a new consortium.
3. (Optional) Read the members of the consortium created in 2.
4. (Optional) Read the leader of the consortium created in 2.
5. Create a new loan with the consortium (created in 2) with a collateral.
6. Create a new loan with the consortium (created in 2) with same collateral as used in 5.

For a detailed demonsration on AWS infra-structure, refer .