Inventory pledge financing decisions based on a permissioned blockchain by controlling fraudulent risk

Abstract

Inventory pledge financing (IPF) is a crucial financing way for small and medium-sized enterprise (SMEs). But banks are reluctant to finance SMEs due to fraudulent risk in practice. This paper discusses the application of blockchain in IPF, particularly its impact on mitigating fraud risks. Utilizing game theory models, we illustrate how the finance and operation decisions of participants, along with supply chain efficiency, are influenced by the introduction of blockchain. Meanwhile, equilibrium outcomes are analysed and numerical study is given. Our analysis reveals that under certain conditions, blockchain integration can lead to reduced loan interest rates, lower wholesale prices, increased order quantities by buyers, and enhanced supply chain efficiency. Lastly, we develop a protocol to demonstrate the transfer of digital warehouse receipt on a permissioned blockchain to avoid fraudulent risk. This study provides a theoretical foundation, and a guidance for decisions-making in blockchain-enabled IPF schme.