In some parts of the world, access to credit and debt financing is relatively easy for promising businesses to obtain. But in much of the world and most emerging markets, access to capital can be heavily restricted, even for businesses in good financial health and with strong cash flows.
In some cases lenders are only interested in corporations that have established credit history, or find it too difficult to efficiently originate smaller loans. Based on these and other constraints, the World Bank estimated the liquidity gap in emerging markets to be greater than $5 trillion annually.
Digital assets and blockchain technology provide a solution to the lack of standardization that forestalls many financing deals in emerging markets, as Thomas Bohner of Credix explains:
Using USDC and smart contracts can help streamline operations for lenders by automating many of the complexities of underwriting and funds disbursement process, including programmatically sending different sized payouts to investors and automatically accounting for incidents like late or early payment, modified ownership, changes to collateral and more.
By increasing data standardization and simplifying the settlement process, developing economies can increase transparency and trust in local borrowers and financial institutions, leading to a virtuous cycle of larger inflows of investment capital and greater economic activity.
In addition to increasing trust and efficiency within emerging markets, taking financial services on-chain can give regulators a more accurate real-time view of debt capital markets, helping fight bad actors and build compliance controls that are more effective while requiring less manual reporting from financial institutions.
More globally recognized standards for regulatory monitoring can also help make it easier for investors around the globe to invest in developing markets they are less familiar with. As USDC and digital asset infrastructure are adopted by more businesses and institutions, the velocity of money being put to productive use and, ultimately, economic activity can be increased.
Emerging markets are at the forefront of leveraging digital assets and blockchain technology to dramatically increase financial inclusion, transparency and capital efficiency in developing markets. Institutions in countries that have already developed robust lending frameworks could stand to benefit from integrating these innovations into their own operations to move money at scale around the globe, and to take advantage of growing opportunities in emerging markets.
Watch the whole webinar on how Circle is helping solve the liquidity gap in emerging markets, or get in touch with our business team to see what Circle can do for you.