Author – Anujit
Vilnius, Lithuania based Debitum Network is leveraging Ethereum blockchain to solve a well-known problem of world economy, that of small businesses lacking sufficient access to credit. The Initial Coin Offering (ICO) for their token, DEB, was from November 30th to December 30th 2017. The company also won US $ 1 million prize money after beating 120 participants in the prestigious ICO pitch competition at the d10e Gibraltar.
Small and medium enterprises lack access to credit almost everywhere. World Bank estimates that in 2017, 70% of all micro, small to medium sized businesses in the emerging markets did not have access to credit. Regulations of the banks and financial institutions certainly favour big businesses, when it comes to lending. Small businesses currently need to go to middlemen, and raise money at exorbitant rate of interest to fund their business expansion, or remain small. It is estimated that US $ 2 trillion worth of lending opportunities are wasted due to this mismatch between supply and demand of credit. In some cases, national governments are stepping in to remedy the situation, for e.g. Government of India (GOI) has set up Micro Units Development and Refinance Agency (MUDRA) Bank in 2015 to facilitate credit to small businesses.
Banks and lending institutions need to be assured of satisfactory returns of the money they lend, and mechanisms exist to help them in this. Prior to lending, risk assessment is one such step, whereas there are post-investment mechanisms such as debt collection, and selling ones investment into secondary market. For the banks to lend to small businesses in a faraway country, executing these mechanisms can be challenging. On the other hand, small businesses simply aren’t aware of the local opportunities of raising funds for expanding their business.
Debitum Network is solving this with their Ethereum blockchain-based platform that will bring small businesses, lenders, risk assessors, document validators and insurers. Blockchain is a technology that ensures immutable record and complete audit trail, because a network of computers maintain a shared, verifiable, and permanent record of data. In this distributed database each node is considered as a ledger, and the entire database is maintained by all nodes. Changing or deleting an existing block is not possible, hence, to update a blockchain, a new block has to be created. To create a new block, each “Miner”, i.e. the combination of powerful software, specially designed hardware, and their user, has to provide proof of work (POW) for the last recorded block in the blockchain, using a massive number-crunching operation done at high speed. This is in an environment where many other miners are also doing the same, which makes it more difficult for any miner to provide POW. This makes updating blockchain very hard, i.e. only when a miner provides proof of very significant number-crunching work done, he/she gets to create a new block. Hacking blockchain is, hence, not economically viable. Ethereum is an open-source, public, blockchain-based computing platform with smart contract functionality. With Ethereum blockchain, Debitum Network is ensuring secured and incorruptible transactions. Furthermore, the transactions on the platform will be in fiat currencies, i.e. currency backed by the governments as legal tenders, because the small businesses actually need loans in such currencies. To that extent, this is a hybrid platform.
The transactions will feature fiat currencies in terms of actual loan disbursement, however, they will be fuelled by the Debitum (DEB) token. With increase in the number of loans processed on the platform, more DEBs will be needed, however, like every cryptocurrencies, DEBs are limited in supply, which will cause the token value to increase. To apply for a loan, a borrower needs to submit a loan application, and provide a collateral, as is the normal process. Anyone with spare money can join the Debitum Network, and lend money to the applicant.
Debitum Network was founded by Martins Liberts, Donatas Juodelis, and Justas Šaltinis. The company is backed by Debifo, a leading alternative financing platform for small business, and Inntec, a well-known innovative IT company in Lithuania. Debitum Network already has a Minimum Viable Product (MVP), and following is their roadmap:
- Q1-Q3 2018:- build Debitum Network 1.0 including Crowdsale Round B, start of product development, expand team to prepare for global expansion, establish platform in the first target country, testing and auditing platform;
- Q4 2018:- develop Debitum Network ecosystem version 1.0 with manual on-boarding of asset generators, investors and additional service providers.