India's central bank has approved a second cohort of neo-banking companies in its regulatory sandbox programme that have proposed blockchain-based cross-border payment systems that could be used as an alternative to letters of credit (L/Cs) by some Indian exporters.

The Reserve Bank of India's (RBI's) approvals come amidst a dollar crisis in global financial markets, which has prompted some exporters to switch from open account to L/C terms to minimise payment risks.

But while larger companies may be able to do this, smaller companies face more difficulties obtaining the L/Cs they need to participate in international trade.

Banking Stack solution

One of the companies that has recently been approved by the RBI is Open Financial Technologies.

It will launch its BankingStack solution, initially in the US-India banking corridor. The solution leverages current open source blockchain technology and infrastructure with the aim of ensuring frictionless and tamperproof monitoring capabilities.

Co-founder and CEO of Open Financial Technologies, Anish Achuthan, says the company is working with banks to offer cross-border payments and trade finance solutions that will benefit millions of Indian companies.

More approvals

Other companies approved by the RBI in the second cohort of its regulatory sandbox programme for cross-border payments include Cashfree Payments India, Fairex Solutions Private and Nearby Technologies.

All four companies were amongst eight companies selected last year by the RBI for the test phase in the programme.

Regulatory sandbox

Another project under the regulatory sandbox that allows fintechs and other innovators to conduct live experiments in a controlled environment under the regulator's supervision specifically focuses on conventional trade finance instruments.

Infosys Finacle and six banks will initially pilot a blockchain-based buyers credit solution utilising the blockchain-based Finacle Trade Connect solution, which incorporates digital L/C processing (DC World News, 5 August 2022).

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.