229

Decentralizing Finance

As for the bond market, digitalization will reduce the cost of origination and issu­

ance, allowing the quantum for digital bonds to be much lower and hence, enabling

issuances in the range of US$1–10 million. This opens up the debt capital market

space for smaller corporations, which have lower revenues and assets and are unable

to issue traditional bonds for capital. They typically have to resort to high-interest

corporate loans, which does not really help them to securitize any of their assets.

Through tokenization, they will be able to unlock liquidity from their illiquid but

valuable possessions. Such digital issuances can be further strengthened by risk-

sharing asset-backed concepts like the sukuk (Mohamed, 2021).

Furthermore, a digital bond can be a structure for social impact, such that the

payment structure keeps “accountability a requirement for the delivery of goods and

services, and that effectively spreads the risk of the underlying project amongst the

investors and shareholders, instead of transferring the entire risk to the issuer with­

out having achieved the objectives” (Mohamed, 2019).

13.7  EXAMPLE: UNLOCKING VALUE IN

AGRICULTURE AND LIVESTOCK

As per the United Nations’ Food and Agriculture Organization (FAO, 2015), “about

2/3s of the emerging world’s 3 billion rural people live in about 475 million small

farms works on land smaller than 2 hectares” (Nagayets, 2005). A large majority are

poor and in constant need of food and clean water. Access to basic markets, finance

and essential services is limited. Since their options are hampered, they end up farm­

ing the land and harvesting food from nature. They eventually become skilful farm­

ers, rearing cattle and many forms of livestock and growing crops, which collectively

provide for an extensive quantity of the population worldwide. However, as the years

go by, capital and credit constrain their ability to adequately use natural resources

for maximum production. Their lack of credit, and subsequent scoring information,

inhibits their access to capital in many ways and severely impacts the availability of

rural agricultural financing.

FIGURE 13.6  Comparative settlements in capital markets. (Author’s own.)