Having already taken a massive hit from the lockdowns due to the COVID-19 pandemic, a majority of micro, small and medium enterprises (MSMEs) are still struggling with issues like lack of credit, falling cash flows and an unstable commodity price regime due to frequent global supply chain shocks.
While the government’s Emergency Credit Line Guarantee Scheme (ECLGS) brought relief to those with existing credit limits and outstanding loans, thousands of small businesses could not benefit as they had no prior financial history, a prerequisite for the scheme.
Defi or decentralised finance platform Censor Black, which serves investors and SME supply chains, seeks to leverage blockchain technology to aid the global MSME sector by providing them access to institutional and secure finance, making the process transparent and risk-free for all stakeholders.
Moneycontrol spoke to Raghav Gupta, founder of Censor Black. Edited excerpts:
The MSME sector globally has suffered a massive blow in the last two years due to the pandemic. What are the major reasons you see for businesses shutting down?
The majority of MSMEs in India took a hit during COVID. Struggling to survive the pandemic, 67 percent of such businesses faced partial or full shutdown. Some were forced to scale down or sell off. Lack of credit, supply chain disruptions, lack of customers and competition from online ecosystems were some of the many reasons for this COVID-led decline.
To what extent do you see credit support and access to institutional finance, particularly in India, as the reasons behind the body blow to small businesses?
Almost 80 percent of Indian MSMEs lack access to formal sources of finance. This, coupled with the decrease in cash flows due to COVID, is increasing credit demand by MSMEs. In the light of such circumstances, many small business owners turn to informal sources of credit which sends them spiralling down a trap of high-interest loans. Many industries were unable to survive this blow and were forced to shut down.
How can blockchain revive the MSME sector?
Small and medium businesses face problems mainly due to lack of credit, decreasing cash flows and instabilities in market prices for commodities due to more frequent global supply chain shocks. Fortunately, blockchain addresses all these problems. Censor Black is on a mission to use the same technology to bring more digitisation to Indian MSMEs while providing them access to credit and sources of passive income.
What do you make of ECLGS? A large percentage of businesses have shut down because they did not have a financial history, a prerequisite to avail of the scheme.
The scheme was a good initiative if implemented properly. Unfortunately, a lot of MSMEs in India rely on informal sources of credit, thereby lacking financial history. Lack of collateral is a major reason for such reliance.
The scheme doesn’t solve this problem and isn’t benefiting those who need it. Blockchain, on the other hand, acts as an enabler to bridge this gap by enabling lenders to trust the MSMEs and bringing data validation, distributed consensus and transparency to finance.
You have earlier stated that you plan to create 8 million jobs over the next three years. How do you plan to do that? Please share your business model.
Our business model is simple. We plan to leverage blockchain technology to aid the global MSME sector by providing them access to institutional and secure finance. We want to make this process transparent and risk-free for all stakeholders.
Employment in MSMEs will be a consequence of the prosperity and activity in this sector. With capital infusion in the sector, the gross value added will significantly change and as more funds are pumped into MSMEs, the scale of operations will give rise to millions of reliable job opportunities.
How will Censor Black solve the issue of accessibility of finance to MSMEs? How will decentralisation of finance help increase revenues?
Censor Black plans to make use of underutilised assets of MSMEs to provide them access to low-interest loans, and contribute to their cash flows. MSMEs in India face a credit gap of more than $300 billion, and it is increasing. Our vision is to incentivise MSMEs to embrace the digital revolution to provide small business owners the financial freedom they need to survive, grow and create opportunities.
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