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Smart Collateral Management

Smart collateral management is the automation and improvement of managing collaterals underlying derivative products. It aims to improve the accuracy of collateral assessment, reduce buy side risk, and make the process of drawing and managing these contracts more efficient. IoT technology can enable banks to have better control over a customer’s mortgaged assets, such as cars, and also monitor their health. In such a scenario, a retail or SME customer could possibly raise small short-term finance by offering manufacturing machinery, cars, or expensive home appliances as collateral. The request for financing, as well as the transfer of ownership, could be automatic and completely digital. Enabled by a digital identity for people as well as things, the transfer of ownership of an asset can be achieved in a matter of seconds. The bank can then issue the loan immediately and monitor the collateral status in real-time without the need to take physical custody of the asset. The bank can remotely disable or enable the machine/motor anytime based on defined business rules. For instance, in the case of loan EMIs are not paid, the engine could be disabled. The quality of the collateral can also be monitored in near real-time.

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