In possibly a first for Africa, the South African Reserve Bank (SARB) along with the Payments Association of South Africa, Financial Services Board, Strate and some of the country's major banks, namely Investec Bank, ABSA, Rand Merchant Bank and Standard Bank successfully managed to circulate a smart contract on an Ethereum based blockchain private network set up among themselves.
In essence, SARB successfully issued and distributed a smart contract via the blockchain network to the rest of the institutions who are part of the network.
This comes after talks by the banks earlier in July 2016 to connect some parts of the South African banking system to a private version of the Ethereum blockchain. These discussions came soon after ABSA, a subsidiary of Barclays Africa, announced that it had joined the international R3 Blockchain Consortium.
Reports indicate that the financial services organisations involved in the project had developed and tested the solution for issuing syndicated loans via blockchain.
The proposed blockchain solution for syndicated loans will be based on cryptocurrency, but linked to legal tender. Banks will be able to form syndicates and trade on an electronic exchange with smart contracts.
It is further expected that this new blockchain solution will bring transparency to the financial markets on top of shortening the settlement times and hopefully lower transaction costs. Currently, the process is mostly manual and involves extensive due diligence and administration leading to transactions taking up to weeks to settle.
Although Ethereum is a private network, it definitely signals a step in the right direction for traditional financial institutions as they embrace the possibilities that the blockchain network and bitcoin present. Hopefully, as these developments translate to ease of doing business between financial institutions, the benefits can be extended to both business and personal banking clients.