Can Blockchain Be the Answer to Limited Small and Medium Enterprise (SMEs) Funding Options


It’s not a secret that Small and Medium Enterprises (SMEs) face lots of hurdles in their quest for funding, especially when it comes to accessing traditional trade finance products. Up to 70% of all proposals from these SMEs across the world don’t get funded, with a more significant majority of them being Asian SMEs.

A World Bank report showed that there’s a $2.6 trillion credit gap due to their inability to get funded. This, of course, speaks a lot about how many of these ambitious businesses bow out, never to operate again.

Global Blockchain-Powered Platforms Can Help

However, there could be a remedy in the offing, at least in making it easier for SME funding. A consortium comprising some of the leading Indian banks are looking to launch a Blockchain-backed funding system that would allow seamless SME financing.

Led by ICICI Bank, Kotak Mahindra Bank, Axis Bank, HDFC Bank, the Standard Chartered Bank, Yes Bank, RBL Bank, and South Indian Bank, the list is growing. Other financial institutions that are eager to chip in and assist the consortium include the State Bank of India, IndusInd Bank and the Bank of Baroda.

The essence of adopting a Blockchain-based system, according to the banks, is to help bring forth the virtue of transparency. The tailored infrastructure will bring on-board all stakeholders, ensuring they interact on one platform. However, details on when it’s going to be rolled out as well as other technicalities are yet to be revealed.

This isn’t the first effort though. In 2018, the Hong Kong Monetary Authority (HKMA) embarked on a similar undertaking and launched eTradeConnect. The blockchain-powered platform was aimed at solving the various challenges that hamper the link between banks and SMEs.

Later, the Abu Dhabi Global Market, another multinational financial hub located at the heart of the United Arab Emirates, entered into a joint agreement with HKMA and Singapore’s central bank. They aim to create a Blockchain-powered, cross-border trade and finance platform for SMEs hassle-free access to funding.

The project is in its piloting stage, although it’s clear that the project is going to face immense challenges, especially on its development and adoption phases. It basically represents the myriad of bottlenecks that may still hamper the adoption of such systems among SMEs.

Challenges Aside, There’s Hope

IBM, a global tech giant, last year completed successful piloting of a Blockchain-based micro-lending platform designed to benefit farmers and SMEs in Africa. Several private and public enterprises in Asia are understandably banking on the Blockchain technology to solve their woes and increase their chances of getting financed.

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