The ultimate equalizer: Role of stablecoins in empowering SME growth

Kotani Pay
7 min readMar 2, 2023

Small and medium enterprises (SMEs) are crucial for developing a country’s economy. How important? According to World Bank, they represent 90% of global business and are responsible for 50% of employment worldwide thus contributing to the GDP of both developing and developed countries.

In Sub-Saharan Africa alone, there are 44 million SMEs providing 80% of the population with a livelihood which results in a rise in the economic growth, and development of these countries. Currently, Africa’s SME sector has an annual financing gap of $136 billion. Despite so, the population of Africa is expected to double in 25 years, which means that SMEs are proving to have investment potential for the future market.

Here is the problem

But the high-economic impact industry faces a myriad of challenges. Take for example Kenya, the informal sector, popularly known as jua kali industry comprises 98% of the business in the country. These informal businesses contribute to almost 80% of the Country’s employment and almost 30% of Kenya’s GDP.

It’s hard to estimate how much this sector makes as a majority of the businesses don’t use traditional banking. Without a credit history, these businesses do not qualify for credit to expand their businesses. This in turn leaves them to seek alternative credit from unregulated lenders in the country who can grant them the loan through disposable assets. The outcome of this is a long, strenuous repayment process that eats at the business leading to loss and eventually closure.

In South Africa, it is estimated that 20% of SMEs fail in the first year and an additional 30% in the second year of operation. This can be attributed to a lack of financial literacy and poor money management among other reasons. For an SME, exploring a new market for expansion, especially outside Africa, is a high-risk venture. According to the World Bank, the cost of sending $200 across borders to low and middle-income countries is at 6%. The high cross-border transaction cost is a bottleneck for any expansion plans for most SMEs. Despite so, large corporates still manage to overcome these challenges and expand beyond Africa.

SMEs Vs Corporates

Bigger enterprises have a high advantage compared to SMEs due to their established reputation and business history. This set of qualities makes them reputable and reliable for investors to fund. This allows them to take more risks and explore more opportunities for the business.

Large companies also have a variety of products and services that generate revenue. Through the large employee base of more than 250, these corporates can delegate and specialize tasks to cover the various aspects of the company.

Despite taking a big share of the cake, small businesses have their advantage too. For one, SMEs have a personal connection with their clients. This allows them to build a reputation in its community both online and offline.

These companies also have the flexibility to make any changes and with a short chain of command, there is more efficiency to it. A small team also means that they get to focus on a niche and perfect it to be a go-to solution for its users.

Blockchain and SMEs growth

The goal for every SME is growth, expansion, and eventually being a big enterprise. But how can they accomplish this when the big corporates have already established dominance in the market?

For one, SMEs have to prime themselves to compete with these giants by harnessing the power of emerging technology such as blockchain to tap into these markets.

The very nature of blockchain technology offers transparency, immutability, security, and decentralization. In a globalized world, blockchain brings people with different needs, and financial abilities together in a network with no central authority but works on a mutual trust basis. From this decentralized ledger network, we have dApps revolutionizing the financial system and cryptocurrencies such as stablecoins speaking to the challenges faced by SMEs.

Leveling the playing field using stablecoins

Stablecoins, a type of stable cryptocurrency that offers price stability is enabling global payments and storage of value for businesses. These digital assets have unlocked opportunities for SMEs to explore giving them a competitive advantage over large companies.

How are these cryptocurrencies equalizing the market for SMEs to play catch up and grow?

1. Access to decentralized finance (DeFi) platforms

DeFi is a decentralized alternative financial system that allows users to access financial services such as borrowing, lending, trading, and investing in a trustless manner through the help of smart contracts. Unlike traditional financial services, DeFi only requires borrowers to have collateral to tap into a global liquidity pool.

Stablecoins power DeFi as they provide a stable and reliable means of value transfer and storage. By eliminating the aspect of volatility, stablecoins enable transactions, payments, borrowing, and lending across borders.

SMEs can tap into these lending pools and get credit to expand and service their business. This can be seen in the Cinch employer-based lending project. Cinch, which is an SME, was able to access credit to provide salary advances for its employees using Moolah Market, a DeFi lending platform. They started by posting collateral on the platform and they were able to access credit in the form of cUSD, a Celo stablecoin. The employees were able to cash out these stablecoins directly to their mobile money in their local currency using Kotani Pay’s USSD solution.

Cinch employee receives funds from cUSD to Kenyan Shillings

Cinch in the past faced a lot of challenges accessing credit using traditional financial systems due to the high-interest rates and credit scores. Through DeFi access using stablecoins, they can provide services such as salary advances like big enterprises.

2. Lower transaction cost

Stablecoins powered by blockchain technology offers SMEs the benefit of lower cross-border transaction. For a growing SME, every dollar matters. To expand, SMEs need to spend less on the cost of the movement of money and more on volumes.

All stablecoin transactions are processed on the blockchain networks making them relatively cheaper compared to traditional payments. The network eliminates the need for intermediaries and all transactions done are peer-to-peer.

SMEs, get to save more money and still perform as many cross-border transactions as possible. This means that SMEs can explore global markets and move large volumes of funds across borders just like big corporations and still get to save.

The Kotani Pay Stablecoin settlement solution facilitates the movement of funds across borders using stablecoins and the conversion of these digital assets into local currency for use.

3. Increased efficiency

Stablecoins not only offer low transaction costs but also faster, immutable, and secure transactions. Combined, SMEs get to experience efficiency in all their transactions.

Whether it’s high volume or low volume, transactions done in the blockchain network take minutes. There is no limitation to the number of digital assets you can move or the frequency of transactions. Unlike traditional transactions where SMEs have to wait 1–3 business days, SMEs can access cross-border transactions any day and at any time. There is no limitation when it comes to peer-to-peer transactions.

SMEs can also track their transactions as stablecoins offer a transparent and secure transaction. SMEs get to have visibility on all transactions performed with a time stamp. All transactions are secured by highly advanced encryption and decentralized data storage.

Stablecoins are immutable meaning once data is recorded, it cannot be altered giving a high degree of security and trust. Immutability increases the level of trust as all transactions are transparent which makes it easy to verify the information and be auditable which helps to prevent fraudulent activity.

Overall, stablecoins are becoming an increasingly important tool for SMEs to level the playing field with large companies. They offer financial inclusion through DeFi for SMEs to explore their growth in the global economy. By providing much-needed stability in a time of high financial uncertainties, stablecoins allow SMEs to operate on tight budgets and still flourish.

Our Kotani Pay API and Stablecoin Settlement Solution(SSS) offer SMEs stablecoins for a competitive advantage against big corporates. Our SSS product offers SMEs a one-time solution to access stablecoins for cross-border transactions and convert them to local currency for use. Our API allows SMEs to access these fiat-backed digital currencies for their payments and transactions anytime they need to.

Learn more on how you can leverage Kotani Pay’s reliable on-ramp/off-ramp solution for your cross-border needs.



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