Could Blockchain Be the Solution for SME Funding Woes?

Could Blockchain Be the Solution for SME Funding Woes?

The difficulties for small and medium enterprises (SMEs) accessing traditional trade finance products, specifically in emerging markets, is well known. Could blockchain technology help solve the SME exclusion problem in the trade finance space?

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Bridging the SME Gap with Blockchain? Some Banks Think It’s Possible

According to the World Bank, the international financial institution that lends money to countries for capital projects, the credit gap for SMEs is currently estimated to be a whopping $2.6 trillion USD. Likewise, the institution also posits that 70 percent of trade finance requests by SMEs are turned down, with Asian SMEs facing the majority of the rejections.

With a ripeness for innovation in the sector, a number of private and public enterprises in Asia are riding the blockchain wave to narrow the huge trade finance gap.

The latest of these riders is a consortium of major Indian banks — comprised of both private and public sector lenders — that is set to launch a blockchain funding system aimed to make it easier to facilitate SME financing.  

The participating banks include ICICI Bank, HDFC Bank, Yes Bank, Kotak Mahindra Bank, Standard Chartered Bank, Axis Bank, South Indian Bank, and RBL Bank. External members of the consortium are Bank of Baroda, State Bank of India, and IndusInd Bank.

By using blockchain technology, the consortium aims to bring SMEs into the formal trade finance system by building tailored infrastructure and by increasing transparency in its entire system by onboarding all stakeholders on to a single platform.

However, the report does not outline the proposed time of the system’s launch and the technicalities of the platform.

Global Blockchain Trade Finance Efforts

Last year, similar efforts were made by the central bank of Hong Kong, the Hong Kong Monetary Authority (HKMA), which launched a blockchain-powered platform dubbed eTradeConnect in a bid to solve the financial inclusion problem by connecting banks and SMEs on a single platform.

The Abu Dhabi Global Market, an international financial center in the capital city of the United Arab Emirates, partnered with the aforementioned HKMA and Singapore’s central bank to develop a blockchain-powered cross border trade finance platform that would offer SMEs greater access to traditional banking.

However, going forward the piloters are likely to face some major challenges, including adoption difficulties and slow development. Even with the potential of blockchain, many enterprises are still mulling whether the tech is right for them. As such, it will likely take a good bit of time before blockchain can directly benefit SMEs.

But there’s hope. Last year, Global tech innovator IBM successfully piloted a blockchain-based micro-lending platform to help farmers and small businesses gain access to capital more easily.

Can blockchain technology solve the SME financial inclusion problem? Share your views in the comments section.

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