How blockchain accelerates small business growth and development
- Blockchain technologies are revolutionizing how small-and-medium enterprises(SMEs)are approaching their businesses.
- In developing economies, blockchain payment solutions can bridge a gap and open new markets for many business owners.
- The connected nature of blockchain means developing economy SMEs can access new markets while boosting economic growth at home.
Blockchain technology is a platform for designing financial services to bridge many gaps in today.'s virtual market system. While traditional databases track records for single entities only, blockchain conne ts a group of entities and allows for data to be synchronized across multiple, independent stakeholders.
Blockchain usage is particularly alluring for small businesses. It provides them with an affordable and efficient avenue to make and receive payments, access investment, and savings products, and build a credit history. Enabling greater access to this technology can foster SME growth, which, in turn, enhances job creation and economic development.
Blockchain and digital resources for SMEs
SMEs account for roughly 90% of all businesses and 50 % of all jobs worldwide. In emerging economies, SMEs are the formal sector that contributes up to 40% of national income while creating 7 out of 10 jobs. Their role in economic growth is critical, as the World Bank estimates that 600 million jobs need to be created by 2030 to absorb the growing global workforce.
The world Bank's Enterprise survey identifies lack of access to finance as one of the biggest obstacles for MEs in the informal economy. This can negatively impact their operations and growth. The demand for SME finance in developing economies stands at 8.9 trillion, while the current credit supply is $3.7 trillion. This financing gap and looming effects of automation and skills shortage illustrate a stark reality for many SMEs.Blockchain technology, however, can help SME s build, grow, and adapt to many of these challenges.
Connecting Small-Scale businesses to global markets through blockchain
Aminu, a hypothetical artisan in Nigeria, has a small business in Abuja's small-business market. The market connects farms, nurseries, bakeries, meat and seafood providers,chees makers, especially food products, crafts, and artisans.
Before the pandemic, Aminu used to sell his products in the market, mainly for cash. Since the COVID-19 restriction, the market, like many others in the region, transitioned to an online store. Many other small business owners in the Abuja market adapted easily to online sales and accepting digital payments. It has enabled them to reach new audiences -in Abuja and beyond. Abuja's small businesses collectively entered into a partnership with a mid-size retailer in Germany. This German company now takes quarterly orders from Aminu too.
Blockchain Solutions save costs while simplifying payments
Aminu's small business is being paid in digital currencies by the german retailer, which is then settled in his local account in Nigeria Naira. With a stablecoin account, the client transfers the corresponding amount for each quarterly order to the digital wallet of Aminu's small business. Aminu can keep the stablecoins for investment purposes or settle a percentage of the amount to his Naira Bank account
Affordable and efficient cross-border payments are a reality for Aminu's small businesses now, supporting his business model, without the high foreign exchange fees from traditional money transfer services. Importantly, Aminu's small business can start saving and building a credit history to access lending facilities in the future.
Due to expansion into new markets, the small business has moved to a larger warehouse. Here, Aminu and his newly hired assistant are working more efficiently and comfortably on the growing number of orders. He is looking at buying a new machine to increase productivity and thus, increase the number of quarterly orders.
Flexible entrepreneurs for a digital future
Thanks to blockchain technology and digital financial services, a gap has been filled for Aminu and other SMEs like his. While his small business uses stablecoins to accept cross-border payments,he can switch to whichever digital currency makes sense. This may, potentially, in the future, include central Bank Digital Currencies. And while the finance world evolves around him, he can continue to grow his business with durability and flexibility.
Aminu's story reflects the important ways blockchain technology supports small business growth, which has a knock-on effect on economic development and job creation in the formal economy.
Aminu's case may be hypothetical but, with more and more SMEs enjoying the benefits of blockchain technologies,we are entering a global marketplace where it can positively impact many lives.
The blog is a part of an agenda series led by the world economic forum's
