Reinventing Syndicated Lending with Corda

By Ashutosh Meher, Developer Evangelist at R3

The world is rapidly changing as we continue to come out with new and innovative ways to do things faster, more efficiently, and more cost-effectively. However, banking is still lagging behind—hardly much has changed, and we still take days and weeks to process financial transactions. Modern banking is still inefficient and costly. Why is this and what can be done about it?

We need a method for stakeholders to communicate and exchange information in a streamlined way, improving operational efficiency and thus reducing the overall turnaround time from weeks to days.

In this article, we will explore one such use case in the banking and financial services industry—the syndicated loan facility—and explore how Corda could help to overcome the age-old issues that are costing billions of dollars every year.

In the last few years, DLT (Distributed Ledger Technology) and blockchain technology have disrupted multiple industries. DLT can provide a way to remove inefficiencies and suboptimal timeframes from the world of syndicated lending. By first forming a trusted network, like Corda, the syndicates can be formed faster than ever before. The result is money moving quicker, and projects getting off the ground at speed.

What is a syndicated loan?

A syndicated loan is a facility in which financing is offered by a group of banks (referred to as the “syndicate“) to a borrower. The borrower could be a corporate, a large project, or a government. It generally involves a large sum of funds and helps lenders to spread the risk among themselves allowing them to participate in the lending opportunity which may be too large for an individual institution. One of the banks is referred to as the “lead bank” and takes the responsibility of coordinating the process of forming the syndicate and performing other administrative tasks. The other banks are generally referred to as “participant banks.”

Challenges in syndicated loans

While loan syndication is a very lucrative business proposition amounting to trillions of dollars in global volumes every year, it is plagued by various challenges and complexities. Some of the prominent challenges are mentioned below:

• Slow turnaround time
• Poor document management
• Lack of transparency among stakeholders
• Long settlement cycle
• Reconciliation issues

The loan syndication process requires a significant amount of information sharing between various stakeholders. Stakeholders are different financial institutions that don’t have a common standard operating procedure and work on siloed systems that lead to a lack of transparency and operational efficiencies. The operational inefficiencies cause various reconciliation issues and result in longer settlement cycles. In addition, most of the process is still paper-based, leading to poor document management and data inefficiency.

How Corda can help

Distributed ledgers like Corda could be a great solution to the problem faced in the syndicated loan market.

• Corda helps to connect the siloed systems of the different stakeholders and allows them to work on a common platform, thus enabling them to establish a standardized process.
• Assets could be registered on the Corda ledger, providing proof of ownership and asset tracking throughout the lifecycle of the asset.
• Every stakeholder sees the exact same copy of the data which improves transparency and trust, as well as gets rid of reconciliation issues.
• Important documents can be uploaded as part of the transaction in a tamper-proof way, allowing stakeholders to validate and perform due diligence efficiently.
• Corda guarantees data immutability—what goes into the ledger is stored in an immutable way, thus allowing easy auditability and fraud detection.

This is how Corda could help build a system that could benefit the stakeholders and solve the decades-long challenges faced by the syndicated lending players.

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You might be interested to take a look at a sample code on syndicated lending. It could help you get started and take advantage of the technology Corda offers.