IBM On How Blockchain Can Aid In The Growing Credit Problem For Small And Medium Enterprises (SMEs)


Blockchain Technology Is The Solution For The Growing Credit Problem In SMEs – IBM

In an article titled, “Blockchain can help increase access to credit for SMEs”, released on the IBM blockchain blog on Wednesday, benefits of blockchain based lending systems are outlined giving a perspective on how SMEs in particular, will profit from integration of the technology. The article further highlights the problems in the credit industry today and solutions brought about by blockchain technology.

SMEs across the world are plagued with credit constraints which harbor their growth and development. According to a World Bank report, the current credit deficit of SMEs across the globe stands at $2.38 trillion USD with 75 percent of these small and mid-sized companies being financially restricted. These SMEs lack an avenue to raise credit due to lack of collateral for the loans.

SMEs are striving to access the loans using movable collateral asset registries such as inventory and accounts receivables. However, the lack of trust in the data provided by the SMEs and low transparency in the financial systems discourages lenders from offering loans, a problem accentuated in developing countries.

The article provides blockchain technology as the solution to deal with the lack of transparency and trust problems to multiply the number of loans released to SMEs in developing countries.

The Blockchain Solution For The Credit Industry

The problem of trust and transparency can be solved through integration of blockchain technology in the lending system. The lenders and intermediaries will act as the node(s) and the integrity of the lender’s loan registry, at the secured asset level can be ensured, with the legal claim placed on the secured collateral.

Furthermore, blockchain systems provide a platform that can be curated to develop better-securitized assets with faster settlement times and faster trading abilities.

“Investors’ ability to monitor risk is limited due to the inherent complexity in securitization, especially the non-stationary credit quality that are time and structure-dependent.”

The article further explained lenders can act as public nodes on the blockchain which will allow them to collect and share information on the SMEs in real time across the network. Through real-time processing and settlements notifications on the blockchain, transparency of the SMEs will be enhanced.

The Future Of Blockchain Technology

Banks and other financial institutions in the lending business also can greatly reduce their cost of business on labor and time needed to revalidate data of these SMEs. The excessive costs are trimmed down through blockchain technology which provides immutability and permanence of data such as credit scores and movable collateral statistics.

The value added to the financial sector by blockchain technology is immense and potentially revolutionary to the credit sector.

The world of finance is slowly adopting blockchain technologies such as JP Morgan’s plan to introduce JPM coin, Ripple settlement systems in over 100 banks and security systems among other uses. With the integration of blockchain systems, the credit industry is set for a more transparent, secure and trustless future.

SMEs will see an increase in the number of loans available as lender become more acquainted with the benefits blockchain technology offers. With SMEs growing, developing countries will experience economic growth as SMEs account for a large chunk of the jobs created in the economy.

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