How blockchain accelerates small business growth and development

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 connects a group of entities and allows for data to be synchronised 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.

SMEs account for roughly 90% of all businesses and 50% of all jobs worldwide. In emerging economies, SMEs in the formal sector contribute 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 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 SMEs 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, alongside looming effects from automation and skills shortages, illustrates a stark reality for many SMEs. Blockchain technology, however, has the ability to help SMEs build, grow, and adapt to many of these challenges.

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, cheese makers, speciality food producers, crafters, and artisans.

Before the pandemic, Aminu used to sell his products in the market, mainly for cash. Since Covid-19 restrictions, the market, like many others in the region, transitioned to an online store. Like many other small business owners in the Abuja market, he adapted easily to online sales and accepting digital payments. It has enabled them to reach new audiences – in Abuja and beyond. In fact, 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.

Aminu’s small business is being paid in digital currencies by the German retailer, which is then settled in his local bank account in Nigerian Naira. With a stablecoin account, the client transfers the corresponding amount for each quarterly order to a 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 business 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 future.

Due to the 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's looking at buying a new machine to increase productivity and thus, increase the number of quarterly orders.

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 businesses’ growth, which has a knock-on effect for 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’re entering a global marketplace where it can positively impact many lives.

This blog is part of an Agenda series led by the World Economic Forum’s Crypto Impact and Sustainability Accelerator (CISA). To learn more, please contact cisa@weforum.org.