Emerging Market Credit

What is Emerging Market Credit?

Small and medium businesses (SMBs) and startups are essential to support local economies in emerging markets, often being the backbone of the value generated by a country. Despite being crucial to economic growth and employing the majority of workers, these small businesses proportionally have very little access to the financial services they require to expand.

Emerging Market Credit (EMC) refers to the extension of loans directly to SMBs, startups or development projects (such as power plants and housing) in emerging markets by nonbank actors. This is an important segment of credit markets that can play a strong role in supporting the growth of real-world businesses in underserved markets and geographies.

An emerging market is a country that has some characteristics of a developed market, but is not yet seen as a developed market. These countries are often characterized by lower per capita incomes, less developed infrastructure, and less stable political systems than developed countries. These markets are highly competitive and play a key role in globalization. Investors frequently find emerging markets to be attractive due to their fast growth and adoption of innovation.

Emerging markets typically have large populations of young people and seek growth opportunities to advance economically so that their population can live in better conditions. Additionally, emerging markets import and export in large quantities through trade agreements with other nations, fostering international trade.

Business challenges

In emerging markets, access to capital is a particular challenge to economic development and growth. There is a clear gap between the need for capital and the funding available, as emerging market economies have limited domestic resources and access to credit to sustain the growth and development of SMBs and startups. The increasing demand for credit in emerging markets is not addressed locally due to the absence of financial information and a mature institutional investor base. TradFi actors in emerging markets see the opportunities to invest in SMBs and startups as unattractive and prefer to stick with safer options and alternatives. This is likely tied to the higher level of uncertainty that the general population faces in terms of economic and political stability. Furthermore, traditional finance solutions such as bank loans are not easily accessible to SMBs and startups in emerging markets because of limited availability of data about their business (credit information, historical performance, clients, and more). As a result, entrepreneurs are forced to take out personal loans to finance their businesses, reducing the origination ticket and increasing their personal risk.

Specialized Fintech and private credit lenders are able to fill this gap and extend credit to many real-world businesses in emerging markets that have been excluded by the traditional financial system.

How does Atlendis address Emerging Market Credit?

Atlendis can support Fintechs with access points to traditional payment networks to bring the benefits of DeFi to non-crypto-native borrowers in emerging markets, effectively abstracting DeFi from the equation while bringing additional credit efficiency and transparency.

Fintechs can open liquidity pools on Atlendis to access digital assets in order to facilitate the issuance of loans to their emerging market borrower customers. Lenders can deposit liquidity and access an alternative diversification product by lending to Fintechs that operate in EMC.

Benefits for Lenders to use Atlendis for Emerging Market Credit

• Attractive risk-adjusted returns.

• Boosting SMB and startup growth while earning real-world sustainable yields.

• Lenders can be confident that funds lent are supporting real-world businesses.

• Attractive markets (large populations, rich in natural resources, inexpensive labor, opportunities to provide capital to create jobs).

• High economic growth potential (positive GDP growth, high economic activity, moderate per capita income, fast growing economy).

• Engage in international trade on natural resources, technology, knowledge, and capital.

• Moderate to high risk: emerging markets can be highly volatile, investors should become familiar with these countries and their economic conditions before investing.

• Lending to a Fintech intermediary mitigates some of the risk as they are locally specialized, have historical data and absorb the default rate by securitizing the underlying product.

Benefits for Borrowers to use Atlendis for Emerging Market Credit

• High-quality, off-chain Fintech borrowers can tap into on-chain capital.

• Leverage the power and transparency of DeFi to facilitate access to credit and optimize financing operations.

• Reduce the cost of capital.

• Foreign investment brings a positive effect, spurs competitiveness and stimulates local companies to achieve higher standards.

• Atlendis provides bespoke, structured and flexible solutions adapted to your business.

• Borrow the asset of your choice among supported ERC-20 standard digital assets.

• Global, permissionless or KYCed accessibility.

• Quick access to funds, scales as your credit increases.

• On demand or recurring funding.