Blockchain technology presents solutions to SMEs
Small businesses are increasing in numbers and face many challenges, including access to capital, inefficient procedures and lack of information necessary to conduct business efficiently. Blockchain technology presents itself as a plausible solution to these challenges as it can assist small and medium-size enterprises (SMEs) in Jamaica and across the Caribbean to increase access to capital, as well as solve many of their inefficiency problems by reducing information asymmetry.
Compete Caribbean and the London School of Economics (LSE) outline that blockchain has the potential to merge alternative information and reduce friction between transactions. This will allow these participants to increase their security on a platform that is accessible to everyone. Blockchain would substitute trust in humans with trust in mathematics, and if done without entry error can be more accurate. Blockchain technology can also reduce data vulnerability to manipulation and disjointedness processes.
Secure Communication Techniques
Block chain uses secure communication techniques to secure transactions. Think about it as chunks of blocks in a chain with digital signatures, hashtags and consensus protocols with non-centralised repository of information. This makes the technology resistant to cyberattacks.
The blockchain technology will assist these firms in these economies to overcome problems associated with asymmetric information, collateral requirements, a lack of sufficient credit reporting agencies and Internet data security and cybercrime. The SMEs are seen as the avenues for growth in this new world. Compete Caribbean and the London School of Economics propose a credential management system that will incorporate alternative data points placed on a secure blockchain-based self-sovereign identity system.
These alternative means of financing that emerge outside of the regular banking system are now becoming the solutions to market failures associated with banks and credit union systems but require certain innovation to assess associated risks. Their findings suggest that current databases in the Caribbean are not as secure as they ought to be. They propose a new system to assess the creditworthiness of SMEs in the Caribbean. The proposed platform will build a bridge between the banks, the SMEs and the data provider, with blockchain technology being the facilitator.
The loan system will connect technology to how people think and behave to determine who is credit-worthy. The system will link alternative payment data to accounting certificates to mobile and social data to psychometrics. The alternative payment data looks at utility payments, rental payments and accounting certificates. Mobile data incorporates information that is available to provide real-life understanding about participants’ spending habits, while social data will provide and verify important unobservable information. Psychometric testing provides a low-cost way to make more information about the loan applicant more available.
The LSE explains that self-sovereign identity system is a digital identity landscape where every human being incorporated holds ultimate and autonomous authority over all of their own data. This aids with providing alternative information to determine creditworthiness. This method increases security, controllability and portability. It controls all the block of data at once, and any claims have to be authorised and approved by the other parties using algorithms.