Streamlining loan syndication with STRATO Mercata.
Context & Challenges
Syndicated loan transactions are challenged with data silos, manual processes, and many intermediaries, which slow down the process and add unnecessary costs.
Syndicated loan opportunities can be incredibly beneficial to those involved. For financial institutions, they disperse the risk of a single customer borrowing a large amount. For customers, they enable the borrowing of large amounts that often would be too much for one lender to put up. Syndicated loans bring together a group of lenders led by one lender in charge who underwrites the loan and coordinates with the other lending institutions. The borrower receives one note or credit line, dissimilarly to other loans.
However, the growth of the market is limited by over-complicated and inefficient back-office operations. For example, the selection of syndicate members necessitates a labor-intensive review of information taken from multiple sources, which can take a while to collate and verify. A similar process is required for the qualification of borrowers.
Syndicated loans are highly reliant on data access and manual processes, moreover they are littered with delays. Intermediaries such as book-runners are required to step in and disburse principal & interest, adding costs and delays — as do third-party firms who often manage ongoing loan servicing on behalf of the syndicate. Towards the end of the process, verifying funds for settlement can translate into a wait of up to three days for investors to access their money.
Not only do the many components and parties involved in this process create complication, much of the work is also done in silos which can create duplication and redundant work.
— Financial Institutions (FIs)
Financial Institutions have a lot to gain from syndicated loans, as such, if they were more efficient, less labor-intensive, and could be extended to more parties, this could result in huge profits for FIs.
The waiting times inherent to loan syndication can disincentivize investors and prevent them from accessing their money quickly and easily.
Syndicated loans can be imperative to customers’ financial health, and as such access to them is very important. An efficient syndicate loan process can improve the experience for customers and extend access to many who traditionally could not participate.
Improving loan syndication requires a programmatic approach to business logic, which will standardize and sync data across multiple parties.
Loan syndication on STRATO Mercata resolves several of the delays and challenges inherent to the loan syndication market, ultimately increasing speed and reducing cost of business. By creating a single, distributed ledger, this solution helps drive industry standardization and allows for seamless communication between parties across borders. This allows more companies to be included in this market and increase revenue for all parties involved.
This solutions drives a number of tangible benefits:
— Reduce waiting time from the current 16 day average to a matter of seconds.
— Automate certain actions through smart contract logic, introducing rules, models, data, and transactions to be automatically enforced or updated; reducing the potential of error through automation.
— Prevent and seamlessly identify payments fraud by inherently verifying all data and tracking all involved parties
— Impose transparency on syndicated loan processes through immutability, time-stamping, and traceability,
— Lessen or eliminate the need for costly intermediaries
— Drive effective risk underwriting at far less labor and time costs
— Enable constant and accurate regulation
— Ensure all data is updated in real-time across systems
Additional features include:
— RESTful APIs for direct connection of IoT devices such as bankers’ devices to the blockchain network
— Identity Management, OAuth, and SSO capabilities for simplified IoT authorization and user login
— Privacy via private shards to keep sensitive data private and control who sees what data
— Enterprise Data Modeling for integration into existing data systems and to ensure interoperability
— Record keeping functionality allows bookkeeper to use digital identities to select both borrowers and investors
— Smart contracts execute due diligence and automate crucial parts of the underwriting and credit adjudication processes
— Automation funds the loan, disburses principal and interest payments to the lenders, and enables loan servicing
— Regulator feature provides a holistic view of all actions for a regulator, minimizing risk
— Scalability to include infinite groups and institutions on shared private chains, creating standardization.