The benefits of using blockchain technology to assess credit risk when dealing with supply chain financing : a Maltese banks perspective

Abstract

Even though governments and financial institutions have developed a vast number of products which target the financing needs of Small Medium Enterprises (SMEs), access to finance for SMEs will always remain a challenge. Most of the financing requirements of SMEs are normally related to working capital, such as accounts receivables financing, prepayment financing and inventory financing. Due to this, Supply Chain Financing (SCF) became more popular amongst enterprises across all economies. However, literature on SCF, indicates that banks along with other financial institutions and also SMEs have identified a number of limitations in traditional SCF models which can be easily mitigated through the use of a Blockchain-based E-commerce Platform. Such a platform, enables banks to address lasting prominent weaknesses of traditional SCF models, including problems associated with credit scoring and information asymmetry. Due to the lack of accurate and timely information, banks struggle to conduct accurate client profiling, assess credit risk appropriately and minimise transaction risk efficiently. This research study aims to identify the drawbacks of traditional SCF models and identify how banks and SMEs can both benefit from the implementation of a Blockchain-based E-commerce Platform.