How can you ensure stability in your supply chain when something as small as a thread of cotton can threaten to disrupt it entirely? Learn why multiparty systems are the rising tide to raise all boats—by helping SMEs thrive.

For someone who has spent the past 20 years working at large, global corporations, I know quite a bit about small business owners.

That’s because I come from an entire family of them.

My parents, my husband, my cousins and even my friends — they all run their own businesses! One of them was a private, non-bank lending business in Bengaluru. Every day, they would see countless other small- and medium-sized enterprises (SMEs), from private taxi services, traders (in jute, cotton, allied products) and manufacturing units to tech startups. Though vastly different, they all share one problem in common: Access to financing to run and scale their businesses.

This problem presents a tremendous challenge for the greater trade ecosystem, where large corporates depend on smaller businesses for stability in their global supply chains. Without credit to manage working capital, small businesses risk shutting down and disrupting the network.

COVID-19 compounded the liquidity squeeze and the risk it represents

All over the world, business losses due to COVID-19 have made it harder for SMEs to generate much-needed cash to continue operations, service debts and keep things running smoothly. At a time when borrowing costs are rising, they have to borrow even more.

Globally, 26% of SMEs closed between January and May of 2020. In the U.S. alone, more than 100,000 establishments permanently closed as a result of COVID-19.

As more and more small businesses risk going out of business, the big picture is clear: Supporting SMEs is integral to restoring stability and preparing for future disruption.

The underlying cause: A longtime lack of transparency and information sharing

Many of the businesses my family worked with would approach private lenders after failing to secure funding from banks. This was a problem long before COVID-19. On average, 50% of SME requests for financing were rejected, leaving 70% without conventional financing alternatives. Invariably, reasons for rejections included:

  • Lack of collaterals – Bank loans often come with extensive collateral requirements and strict repayment tenures.
  • Extensive documentation – Bank processes for document exchange and reconciliation are complex, time-consuming and cumbersome.
  • Insufficient credit history – A proper credit history is mandatory to grant financing, but many small businesses simply don’t have the information banks need to verify their creditworthiness.

As a result, most SMEs fail to make the cut. The ones that do secure funding face lengthy bank turnaround times and higher rates, spiked by the higher cost of due diligence and residual risk. All these issues cause eligible borrowers to search for speedier sources of credit elsewhere.

Non-bank and private channels provide loans faster, with more flexibility—even without the above attestations. But because this type of lending is based on arbitrary judgement, they also come at high risk, with high interest rates.

My family’s business would often give lower rates to SMEs that had a history of working with large corporates, as they appeared to pose a lower risk. But without a reliable way to verify their transactions or collaterals,  that would on occasion lead to defaults and delinquencies.

Now, technology is changing everything.

Large corporates hold the key to unlock liquidity

Seeing first-hand the influence of larger trading partners on small business financing, I’ve often wondered: What can they do to solve this?

The key is enabling ecosystem partners to share information in a more reliable way. That means creating a foundational infrastructure that allows buyers, suppliers, banks and third-party institutions to share data about onboarding (KYC), credit and payment behavior in a more direct, secure and transparent manner.

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Real-time assurances and 360-degree transparency make it easier for SMEs to obtain credit at lower cost and risk, improving liquidity and stability in the greater trade ecosystem as a whole.

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Multiparty systems like blockchain, distributed ledger and distributed databases allow for this type of data sharing in real time while eliminating friction, inefficiencies, unknowns and risk. Gone are costly, paper-heavy, back-and-forth processes. In their place? Enhanced trust, collaboration and privacy—businesses can program who can see the data they share, for what purpose and for how long.

This is huge for large and small businesses alike. Real-time assurances and 360-degree transparency make it easier for SMEs to obtain credit at lower cost and risk, improving liquidity and stability in the greater trade ecosystem as a whole.

By increasing visibility into SME transactions, multiparty systems unlock value for all

Let’s get more specific. How do multiparty systems open access to credit and remove constraints that have long held trade finance back?

1. They make more trusted information available to generate credit scores.

The biggest barrier to financing is often the lack of credit scores and trusted information on SME transactions. With multiparty systems, information from vetted sources around trade volume, receivables, payment patterns and more can be used to generate credit scores while preserving data privacy.

Additionally, blockchain platforms enable large corporates to give binding guarantees on their payables, making it possible for their suppliers to access cheaper funding options.

2. They're easy to stand up and manage.

Multiparty systems can streamline supplier onboarding with a single platform experience across various banks and jurisdictions. Trade IX's Marco Polo, for example, automatically checks supplier lists against credit databases before onboarding them with a simple link. Suppliers then review invoices from large corporates and request funding from banks, which need only see the invoice values and the promise of the large corporate to pay by the due date—eliminating risk of default and the need for lengthy KYC procedures.

Another added benefit? Multiparty system-driven platforms make for an easy way to help small suppliers manage their details and receipts, acting as a form of enterprise resource planning (ERP).

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MarcoPolo network of suppliers, buyers and banks

The hidden $1.5 trillion

Insufficient information sharing has led not only to a liquidity squeeze but also a myriad of issues for global supply chains, from fraud to trillions of dollars in trapped capital. 

READ ON

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3. They enable new business models by extending transparency across tiers.

Just as you can track the source of a material for environmental, social and governance (ESG) reasons, you can track it for financing reasons.

By establishing traceability across a product’s value chain, multiparty systems make models like deep tier financing possible, where banks leverage a large company’s credit rating to finance payables on product materials down the N-tier supply chain.

Say a large, well-reputed clothing brand is on a blockchain with its manufacturers. Banks can use the information they share to fund the yarn maker, who’s waiting for payment from the lace maker, who’s waiting on the fabric maker—knowing payment will ultimately come from the clothing brand. It’s easy to see how this type of financing could drive increasingly important ESG objectives, whereby banks offer lower rates to small suppliers based on sustainability scores. (For an example of deep tier financing in action, take a look at Skuchain.)

Additionally, what this technology and the multiparty construct brings is access to a network, not just to multiple banks for financing but also a wider marketplace of ecosystem participants with opportunities to help grow their businesses.

The tools are here, the time is now: Take control of your supply chain

The lack of trust in trade finance is threatening the liquidity and livelihoods of the SMEs that supply chains depend on. But with multiparty systems, organizations can share real-time information seamlessly and securely—opening access to cheap credit for SMEs while empowering large corporates to breathe stability and resilience into their global supply chains.

And so it goes: When small businesses succeed, so do the rest of us.

For more, feel free to reach out to me on LinkedIn or contact us at blockchain@accenture.com.


Disclaimer: This document is intended for general informational purposes only does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. Accenture, its logo, and New Applied Now are trademarks of Accenture. 

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Pooja Sanghvi

SUPPLY CHAIN AND TRADE FINANCE LEAD – ACCENTURE BLOCKCHAIN & MULTIPARTY SYSTEMS

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