Understanding MSMEs’ Funding Problems

Tokoin.io – As one of the main pillars of national economic development, MSMEs play an important role in a country’s economy. In developing countries, on average, 40-60% of their Gross National Product (GDP) and employment is supported by the MSME sectors. However, although they contribute significantly to the national income, quite many MSME players actually fail to become sustainable in facing funding problems.

Roughly, there are more than 400 million MSMEs in developing countries, acquiring more than 90% of the world’s businesses. Nonetheless, 40% of them still face difficulties in accessing business assistance from various financial institutions. They are constrained by the requirements for the credibility of the business, and this issue continues today because they are still unable to provide a complete record of their financial transactions.

In order to flourish further, MSMEs need an adequate level of finance. A recent IFC jobs study confirms that access to finance is one of the top three factors preventing businesses from growing and generating employment in developing countries[1]. Whilst it’s an important factor for all sizes of business, particularly for MSMEs, this is the most critical element in order to grow.

In solving that problem, financial institutions also hold a crucial role to play in improving access to finance. They need to be able to channel the capital to specific target markets which are underserved, including SMEs, micro clients, or customers in rural areas.

On the other hand, MSMEs themselves need to improve their credibility in order to be trusted to claim any credit as funding. All this time, improper financial records of MSMEs hinder them from accessing any funding from financial institutions or insurance services. An important focal point of prior recognition on MSMEs’ condition[2] is to understand their dependence on credit and cash flow. MSMEs face numerous obstacles in borrowing funds because they are small, less diversified, and have weaker financial structures.

The indications that MSMEs are financially constrained are: payment delays on receivables, declining liquidity, and an increase in MSMEs’ insolvencies and bankruptcies. In addition to the market signals that MSME firms are unfavorable borrowers, MSME firms find it difficult to provide high-quality collateral at all times or ensure transparency for their credit-worthiness[3].

Aiming to provide a platform to build credit-worthiness, Tokoin brings together the convenient ‘meet-the-needs’ concept between Tokoin’s users and its partners, such as financial institutions, insurance companies, and property business. Tokoin makes use of the blockchain technology to establish a valid identity and reputation of MSMEs, combining digital identity and digital ledger to build MSMEs’ credit scoring and to increase their economic scale.

Tokoin develops as the distributed ledger of transactions and works as a platform to facilitate the distribution of information among Tokoin’s users by creating a distributed database. Any information data distributed serve as valuable assets, while the blockchain acts as a system that secures the data.

The ecosystem will build transparent financial records as a growth indicator of the users, and all of the stakeholders can use the value of their digital activities to determine their credibility in order to build their credit-worthiness.

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Author: Tokoin Official

TOKOIN is a platform that establishes the identity of MSMEs as an acceptable reputation in the business ecosystem. TOKOIN presents a better and modern business ecosystem that offers valuable partnerships to address inclusive growth. As a platform, TOKOIN captures and processes business information from the users as a valuable asset, which, in our ecosystem, translates to the trusted reputation of the MSMEs as our users to access previously inaccessible financial business services from providers which act as our partners. Therefore, TOKOIN links the business and financial sectors to launch a scheme of financial inclusion. The partnerships formed in TOKOIN will subsequently contribute to the national economic growth.