Transforming Credit Guarantee Schemes with Distributed Ledger Technology

TL;DR

This paper explores how Distributed Ledger Technologies, especially blockchain, can enhance Credit Guarantee Schemes by improving operational efficiency and transparency, addressing existing shortcomings in financial sustainability.

Contribution

It proposes a comprehensive framework integrating DLTs into CGS processes and compares architectural features to identify optimal configurations for implementation.

Findings

DLT integration can improve transparency and traceability in CGSs

Different blockchain architectures have varying suitability for CGS needs

The framework guides policymakers in adopting DLTs for credit guarantees

Abstract

Credit Guarantee Schemes (CGSs) are crucial in mitigating SMEs' financial constraints. However, they are renownedly affected by critical shortcomings, such as a lack of financial sustainability and operational efficiency. Distributed Ledger Technologies (DLTs) have shown significant revolutionary influence in several sectors, including finance and banking, thanks to the full operational traceability they bring alongside verifiable computation. Nevertheless, the potential synergy between DLTs and CGSs has not been thoroughly investigated yet. This paper proposes a comprehensive framework to utilise DLTs, particularly blockchain technologies, in CGS processes to improve operational efficiency and effectiveness. To this end, we compare key architectural characteristics considering access level, governance structure, and consensus method, to examine their fit with CGS processes. We believe this study can guide policymakers and stakeholders, thereby stimulating further innovation in this promising field.