Cryptocurrency: Its Impact on MSMEs

How crypto can bridge the credit gap and fuel the growth of Indian MSMEs?


Cryptocurrency: The term has literally been everywhere! Be it the stock market, tech-geniuses, or people around you; everyone has something to say about cryptocurrency, and how it has changed the way we do business and trading. 

One mere statement from Elon Musk skyrocketed the price of cryptocurrency one day and crashed it down the very next day - but why did it happen?  What is the impact it has had on our lives, and most importantly, how can it help you scale your business? 

Here’s a complete breakdown. 

What is Cryptocurrency? 

Cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in the form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. 

Simply put, Crypto is a digital form of money that can be used online in exchange for goods and services. It is decentralized and supported by blockchain technology - instead of a centralized bank, they depend on a network of computers to keep track of transactions. 

Crypto is an easier way to transfer funds between two parties digitally. As there is no third-party/middleman involved in their transactions, the transactions are completely safe and secure. Every cryptocurrency uses a public and private key for transfers. The public key belongs to the wallet/account address of the user, whereas the private key is known only to the owner who uses it to make transactions.

The entire transactional process of cryptocurrency is at minimal cost as it avoids the additional fees taken by banks or third parties for their service. 

How Crypto Benefits Small and Medium Enterprise Owners?

According to the World Bank, Indian MSMEs have a massive credit gap of $380 billion. This is despite the extensive credit mechanism (Banks/NBFCs/Fintech Lenders) that the nation has for small and medium enterprises. 

Lack of capital is one of the most significant challenges that even a well-performing MSME faces. Lack of physical assets or collateral stops them from accessing loans or credit through the obvious channels. Experts believe that cryptocurrency can help bridge this credit gap that prevails in the market. As crypto investors have an appetite for the high risk that is combined with a global outlook to back the high-risk assets of MSMEs, they can address the small business liquidity crisis. 

“There is a fundamental shift happening between private and public equities that is fueled by blockchain technology and an evolving regulatory environment. India should democratize private investing and work on providing value propositions of crowd financing to SMEs, while simultaneously growing a robust community of retail investors passionate to support the companies of tomorrow. Basically, the Indian government needs to create a framework for SMEs to apply for crowd financing through initial tokenized equities offering to the public on a crowd financing investment platform,” Hitesh Malviya, Founder, (Financial Express Online)

“There are a couple of ways to filter out participants from the masses, one of them is creating a lottery-based auction. For example, if a company is raising Rs 10 lacs through crowd financing, then a fixed limit on both investment per person, and the number of participants can be applied using a lottery-based auction,” he explains further. 

If the government plugs in the proper support system for investment through crypto, it can end the capital woes that hamper the capability of the flourishing SMEs in India.