How Blockchain Can Prevent Warehouse Receipt Financing Fraud

In China, inventory as collateral is a way to financing. It is widely used by small companies who have limited funds and lack access to credit to meet their financing needs.

In a typical warehouse receipt financing system, three main parties will be involved: bank, borrower and warehouse supervisor. All of them will first reach warehouse contracts meanwhile warehouse company and bank will enter into warehouse supervisor agreement independently. Second, the borrowing firm will deliver the goods to the specified warehouse and gain a warehouse receipt. Then the warehouse receipt will be submitted with the request for loan to the bank. Next, borrower will receive the loan in the account under the supervision of bank and have to pay a certain amount of loan back to this account until the agreement matures and loan is fully paid off. Meanwhile, after receiving the payment periodically, bank will issue a bill of lading to the borrower to pick up the goods from the warehouse company. Although it is a financing creation mechanism, there are problems such as long process flow, low efficiency, and high error rate.

The most serious one of the issues is the document duplication. Warehouse receipt pledge information is not shared by banks, thus, it is rife with cases that borrowing companies use the same goods as collateral in several banks. In 2014, Chinese Port of Qingdao experienced $648 million storage scam due to the illegal multiple financing, which is still counted.

Lack of supervision for the warehouse company increases the risk of fraud. At present, the responsibility and restraint mechanism for warehouse company have not been established. In the specific operation, there are many factors contributing to scam such as arbitrary operation,human intervention, warehouse receipt investigation, audit, contract signing, execution, and internal personnel. The risk of pledge replacement cannot be avoided.

Financial warehousing companies have few external information disclosures, which hinders banks and enterprises approaching to the financial warehousing companies. Therefore, banks have low confidence in these particular businesses.


The non-transparency and poor standards mechanism increase the scam risk in this financing approach. Blockchain, which is characterized by decentralization, transparency, temper-resistance, is the solution to warehouse fraud. Blockchain is a distributed ledger held by all nodes. Once recorded in the blockchain, the digital data or events cannot be amended unless over 50% of nodes are attacked by hackers, the probability of which is extremely lowa. While many users may access, inspect or add to the data, they can’t change or delete it,which ensure the provenance of information.

Fuzamei’s blockchain solution to warehouse fraud:

Fuzamei is a blockchain technology service provider with over 5-year experience in high edge technology research and development. FUZAMEI is dedicated to make integration with business applications. Recently Fuzamei and Jinchu Warehouse Financial company develop strategic cooperation to launch Jinchu Warehouse Receipt Financing System. It is a revolution of the warehouse financing mechanism, by which banks have access to view the receipt and get the knowledge of the warehouse supervision.

The process and business logic behind as following: for the registration process, all user information will be recorded on the blockchain, which can simplify the certification process. All users including borrower, warehouse financing company and bank can view the others’ identity information through blockchain browser. For the transaction process, the system provides users with a transparent free-trading market. The Borrower only needs to list the warehouse receipt to the trading platform and the digital receipt which contains all the related information such as time to storage, the quality, quantity, sizes and the photos of goods. The posted receipts are open to all banks, thus, bank could confirm whether this receipt has been financed in advance through blockchain browser, to a large extend, mitigating the risk of document duplication. Also, banks could have a more detailed investigation on the borrower and wharehouse company, about their background, credit, payment ability and so on. Once deciding to lend money to a specific borrower, banks only need to pick up its warehouse receipt in the platform. Thus, the “borrowing” and “lending” action could be easily done.

Blockchain technology enables participants who do not necessarily trust each other to engage in completely transparent transactions. It also digitalizes the assets and makes the digitalized asset transfer possible. For those firms whose goods in the storage, they could sell the products in the Jinchu warehouse system directly. The warehouse could arrange and deliver the goods to customers without the dealer. Furthermore, the receipt could be transferred among different parties. When receiving a receipt, there are three options, i.e. confirm delivery, list it for sell or transfer the receipt to others. Jinchu platform digitalizes the fixed assets and enhances the flow of assets.

The blockchain technology establishes a reliable platform in which all data is tamper-resistance and traceable. This powerful disintermediation could find many applications in the supply chain management field, especially in warehouse receipts, which are suffering from massive-scale forgeries. Also, the asset digitalization reduces the transfer, delivery and supervision cost, contributing to the efficiency of resource allocation.

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