As the United States, China, India, and some of the other major economic powers of the world continue to treat crypto assets with suspicion, disregard, or utter contempt, a few other nations have decided to welcome crypto with open arms. Malta’s crypto-friendly regulations have attracted the attention of both Binance and OKEx, two of the biggest crypto-exchanges today, along with a host of other projects. The Swiss town of Zug hosts a thriving blockchain development hub, aided by the nation’s progressive stand towards crypto regulations. And Singapore has always been at the forefront when it came to supporting distributed ledger technologies and fin-tech innovations.
Indonesia is one of the latest entrants to this motley club. Earlier this year, their financial watchdog BAPPEBTI (or The Commodity Futures Trading Regulatory Agency) identified Bitcoin and other cryptocurrencies as commodities and announced new regulations that deal with the trading of crypto assets on Indonesia’s futures exchanges. These regulations will provide protection to both consumers and investors, and legal certainty to the crypto futures sector. Indonesia’s recent ruling is being considered a precursor to further pro-crypto legislation and an indication of the government’s willingness to encourage blockchain projects while safeguarding the citizens’ interests.
The Current Crypto Scene
Indodax is the biggest crypto exchange in Indonesia today, with around 1.7 million registered users (as given in their website). Now, this isn’t a staggering number by any means, more so considering that Indonesia is actually the 4th most densely populated country in the world, with a population of over 260 million! But crypto has been gaining popularity among the young crowd, who are more welcoming to the idea of investing in high-risk financial instruments. In fact, Indonesia’s median age is just around 30.2 years now. Add to it the fact that out of the 260 million, only around 60 million people have access to bank accounts. Needless to say, there is immense potential for the application of blockchain-based solutions here, in providing banking to the unbanked.
Unfortunately, there haven’t been too many blockchain projects of significance in Indonesia, which explains the Indonesians’ lukewarm response to Bitcoin and its ilk. Part of the reason might be that the authorities hadn’t been exactly welcoming to crypto till their ruling earlier this year. The scenario is likely to change now, and the enormous human resource potential that Indonesia offers should act as a catalyst for crypto adoption.
One project that has started making waves in this island nation is Tokoin. Headed by Reiner Bonifasius Rahardja, Tokoin was initiated in July 2018, with the vision of accelerating the growth of Micro, Small and Medium Enterprises (MSMEs) in emerging markets. Their primary target is the MSME sector of Indonesia, but they hope to reach out to other ASEAN markets in the near future. But before we take a look at what exactly Tokoin is trying to achieve, we will take a detour through Indonesia’s economic scenario.
Overview of Indonesia’s Economy
Indonesia has the largest economy among all South-East Asian nations, and the 7th largest in the world, in terms of GDP by PPP. Gross Domestic Product in terms of Purchasing Power Parity (or simply GDP by PPP) is used to compare different countries’ GDPs in a more meaningful manner as compared to the nominal GDP calculation, by taking into account the standard of living in each country. PPP exchange rates have been found to be quite stable over time, and give a true sense of how large a nation’s economy actually is. In fact, research suggests that by 2030, Indonesia will become the 4th largest economy in the world in terms of GDP by PPP, trailing behind only China, India, and the US.
The MSME sector is a major player in Indonesia’s economy, accounting for more than 50% of its GDP. As per Indonesian laws, to be classified as MSME, a business enterprise should own net assets worth less than 200 million rupiahs (or ~$14 thousand), and have annual sales of less than 1 billion rupiahs (or ~$70 thousand). With over 58 million established MSMEs, Indonesia hosts the largest number of such entities among the ASEAN countries. And the number of MSMEs has been growing each year. In fact, MSMEs in Indonesia today account for 99% of all business and provide 89% of private sector employment!
Problems faced by MSMEs
Despite being such a vital cog in Indonesia’s economy, the MSME sector is riddled with problems. They face stiff competition from large scale enterprises, and are heavily dependent on banks and financial institutions for financial support.
The primary problem that MSMEs face is that banks are not always willing to provide them credit. 70% of MSMEs lack access to any sort of financing opportunities. The problem is even more severe for MSMEs operating out of rural areas, as they often lack proper legal documentation and long-term credit history. Credit is necessary for the survival of MSMEs, and in the absence of funding, their proper functioning gets severely hindered.
Another issue is that such enterprises have difficulty scaling up operations. Their order volumes are usually quite low, which increases the average production and transportation costs as compared to large scale enterprises. In a lot of cases, they also lack access to better suppliers of raw materials. All these factors further skew the playing field which was already tilted against these micro and small scale enterprises.
The net effect is that the MSMEs get trapped in a pit of high operating costs, low financial support, and increasing competition. The low visibility further complicates matters, as neither banks trust them to provide loans without collateral, nor customers to purchase goods in bulk.
Tokoin’s Role in Accelerating MSMEs
Tokoin is utilizing blockchain technology to build a platform for establishing reputation scores for these MSMEs. These MSMEs will be the primary participants in Tokoin’s ecosystem, which will also include various other entities which play critical roles in the functioning of these enterprises. These secondary participants would include material suppliers, logistics and shipping companies, credit providers, and so on. All real-time transaction data between these participants would be recorded on an immutable digital ledger.
Tokoin is also introducing their native token TOKO, which would be used for making any sort of payment on their network. When MSMEs record their data on Tokoin’s platform, they would earn TOKO tokens. This data can be transactional data, or identity data (such as company name, number of employees, and so on). If other participants want to use this data, they would have to pay through TOKO tokens. This would provide the MSMEs with an added incentive to upload their transaction data on Tokoin’s network. The amount of TOKO tokens they collect would directly determine their trust score on Tokoin’s network.
In the absence of credit history, the trust rating of MSMEs would provide banks with a reliable source of information to evaluate the credibility of these enterprises. Similarly, other service providers would also be able to utilize this data to determine how trustworthy the MSMEs actually are. The use of distributed ledger technology would ensure that there is no scope for any sort of fraudulent activity or fudging of records.
The Future of MSMEs
Today, access to finance is identified as the most critical barrier restricting the growth of MSMEs. Providing financial opportunities to MSMEs is crucial in advancing holistic economic development and reducing poverty in emerging markets. With Indonesia’s GDP growing at a steady rate, MSMEs are going to play an even more important role in their economy in the near future. By bridging the gap between the MSMEs and the financial sectors, Tokoin hopes to develop a sustainable ecosystem for MSMEs to thrive and prosper.