A Blockchain Solution for Enhancing Risk Management and Transparency in Loan Disbursements
Ninad Sonawane, Pranshu Gupta, C. Laksh, H S Gururaja · 2023
The Loan Market holds substantial importance within the field of global finance. The issue of financial fraud in loan disbursements has become a major concern. The potential for fraudulent activities can be worsened by specific practices employed by borrowers, such as the submission of identical collateral to multiple financial institutions. Additionally, inadequate assessment of collateral by banks and the granting of loans solely based on the borrower’s reputation can further contribute to the elevated risk of fraud. The banking sector lacks transparency and internal control mechanisms, within themselves. The present study presents a novel Blockchain framework that utilizes Multi-Signature smart contracts which aims to improve transparency, mitigate the risk of fraud during loan disbursement, and establish a synchronized record-keeping process for loans. Financial institutions must create multi-signature contracts for individual borrowers if the loan amount exceeds a certain threshold. Borrowers must wait for bank confirmation before disbursing loans. Confirmation is determined by the bank representative through evaluation of RMS (Risk Management Score) which is calculated by various methods as further discussed in this study. Proposed work enables synchronized and efficient record-keeping of loans across multiple banks and creates a consolidated loan registry that helps government regulatory bodies monitor and supervise loans, increasing compliance with regulations.