How Blockchain and WishFinance Can Help SME’s

It is often said that small and medium-sized enterprises (SME’s) are the backbone of any economy.

SME’s are defined as “non-subsidiary, independent firms which employ fewer than a given number of employees” (generally between 10 and 250 individuals).

According to the Organisation for Economic Co-operation and Development (OECD), SME’s make up more than 95% of businesses. They also account for 60% to 70% of employment.

If we look at the EU alone, 99% of businesses are SME’s that create 85% of all new jobs.

In the Asia-Pacific region, the 2010 APEC Ministerial Meeting specifically recognized SME’s as,

• “significant source of prosperity and employment”
• “a major contributor to innovation”
• and “a growth engine within the Asia-Pacific region”

As globalization becomes more prevalent and advancements in technologies level out the playing field, economies of scale become less of a factor. The potential for SME’s to compete and contribute substantially in the global marketplace becomes even greater. eCommerce, in particular, has given SME’s the opportunity of an international presence that was once only the forte of big corporations.

However, the problems facing SME’s are well documented. Less than 50% of small startups make it past the 5-year mark and an even smaller percentage grows into the large organizations that stand at the forefront of innovation.

Problems SME’s are faced with

SME’s around the globe face similar problems. This includes limited managerial expertise, disproportionate regulatory requirements, productivity issues, lack of clear business strategies and ineffective strategy execution.

The biggest obstacle though is one that could also be a solution to all of the above-mentioned problems. And that is a lack of funding.

85% of SME’s either do not have access to, or do not qualify for mainstream funding. That leaves a meager 15% of small and medium-sized organizations that make use of traditional funding channels.

This is a big problem. Working capital is essential to pay wages, purchase raw materials or stock and meet operating expenses. And that’s just to keep the business running smoothly on a day to day basis. Without funding SME’s has no chance of expanding.

The biggest barrier to funding by traditional financial institutions like banks is the perceived credit risk that is associated with it. Mainstream lenders find it hard to approve loans based on the informal basis many SME’s are run.

The ones that do get approved often face further constraints by being offered unfavorable terms or having to put up unreasonable amounts of collateral, as banks look to further reduce their own risks of lending to small entities.

And the global financial crisis has only compounded the problem. Regulators and FI’s are throwing even more caution to the wind by applying stricter approval criteria. The result is that fewer SME’s get approved for formal financing.

From the point of view of big banks, the fact that SME’s in general borrow less than multinational corporations, means the profit opportunities are too small to make the risk worthwhile.

According to the International Financial Corporation (IFC), the financing gap for SME’s in the developing world is between $2.1 and $2.6 trillion. There are around 245 million SME’s that needs financing to survive but can’t get a loan or even a simple overdraft facility.

How Blockchain can help SME’s

The growth in financial technology solutions over the last few years opened up a whole sector of alternative lending opportunities for SME’s that don’t just make it easier to get access to funding but, in many instances, the financing is also significantly cheaper than traditional avenues.

One such area is Blockchain, and the growing amount of use cases the technology is being applied to.

Traditionally associated with the cryptocurrency, Bitcoin, Blockchain is in fact a decentralized database of information. The fact that it’s decentralized means that data stored on a Blockchain can’t be altered or removed, making it the most secure data storing solution on the market today.

The data is also not controlled by a single party but rather by a diverse network of individual servers. This makes the whole process more transparent, less risky and cheaper.

Big Data refers to the information being captured on every individual and organization as we go by our daily, online, lives. With such vast amounts of data, Blockchain offers the perfect solution for this information to be stored securely and cost-effectively.

Blockchain and Big Data are therefore ideal partners.

In the modern economy, Big Data means big money.

It gives businesses the opportunity to focus their advertising campaigns directly to an individual’s needs, which has a significant impact on conversion rates.

It also allows organizations to study the data and make predictions and informed decisions based on the patterns identified within the data.

Common techniques used to analyze big data are predictive analytics and real-time analytics.

Predictive analytics (as the name suggests) looks at past information and analyzes it to come to an informed conclusion, while real-time analytics refers to the process of instantly analyzing information as it enters a system.

So what has this go to do with SME funding?

It can be used in credit management to offer tailored funding solutions to SME’s. By analyzing Big Data, credit providers can get a more in-depth and accurate picture on the applicant’s business. With a clear and accurate picture, credit providers will feel more comfortable to grant approval for finance, which ultimately means more SME’s will get access to funding.

And thanks to Blockchain, combined with real-time analytics, decisions can be made in a fraction of the time. There’s no waiting around for third-party entities to provide relevant information, which also means processing fees are significantly reduced.

Blockchain and WishFinance creates the ideal world for SME funding

We’ve seen how powerful the combination of Blockchain technology and Big Data can be for SME funding. And this is exactly what WishFinance is doing: making it easier, cheaper, quicker and more transparent for SME’s to obtain much-needed funding.

Based on the Ethereum Blockchain and by using Bid Data analytics, WishFinance can process loan applications in near real-time.

WishFinance does this by connecting directly with the POS of a company and scoring the merchant’s application based on actual cash flows.

By utilizing Blockchain technology the company eliminates the need for third-parties that often clog up the lending cycle and therefore interest rates are much lower than traditional banks (around 1% to 2,5% per month). Loan portfolios are also available on the public Blockchain (without revealing confidential information) so investors have the opportunity to monitor loan performances at any time and each loan is insured against bankruptcy.

Finally, loan repayments are effortless. Automatic repayments are guaranteed by connecting directly with the POS provider and deducting around 5% from each payment the borrower gets from their customers.

Conclusion

Blockchain, and its basis as a decentralized network, is a potential game-changer for SME’s.

It allows SME’s to:

• get access to previously unattainable finance at lower rates
• get access to the funds in a matter of days instead of having to wait around for weeks or even months, which can be a killer for cash flow conscious SME’s
• greater access to financing increases the survival rate of SME’s which plays a pivotal role in every economy
• enables SME’s to compete in a global marketplace with big, multinational corporations.

By supporting the backbone, Blockchain, with its emphasis on security, decentralization, and independence, can provide the basis for the rest of the economy to flourish on.