VZ (Verslo Zinios), one of the leading business/finance newspapers in Lithuania invited co-founder of Debitum Network Martins Liberts for an interview. Martins sat down to share his vision of Debitum Network, behind the scenes of preparation for the upcoming release of the platform on the 3rd of September, and future plans. Below are some of the themes that were covered during the interview.
The title of the article “The banks are not necessary for borrowing” put a smile on our faces. IFC (International Finance Organization) has recently released a report, which indicates that there is 5.2 trillion $ gap in credit for micro, small and mid-sized businesses in the world. Traditional banks are not that interested in financing these. Debitum Network aims at filling some part of the gap by connecting small businesses in need of capital with investors. As a result, a new market is being created, where Debitum Network will connect borrowers to investors who invest in fiat. Thus, banks will also be able to participate in the financing process.
Martins singled out that in Lithuania and around the world there are a lot of internet lending platforms that are P2P (peer to peer), while Debitum Network is B2B (business to business). The main focus is to connect businesses that want to borrow with businesses that want to invest.
Individual investors will also have a chance to onboard the platform and invest flexible amounts, but the recipients of loans will only be businesses, not individuals. At the beginning of September, Debitum Network is organizing a fundraising event in London, where more than 100 institutional investors are expected to participate.
Most P2P platforms lend at 20% or more annual interest rates and few if any businesses will borrow under such conditions. When Debitum Network platform launches, SMEs will be able to borrow up to 10 million EUR, at an average 10-15% interest rates annually with terms between 2 weeks to 2 years. Banks typically lend at 3-8%, so you may see that we fit in the golden middle.
Martins, likewise, stressed that loans will be distributed responsibly and each SME that applies for a loan will have to provide legal documents, prove its’ solvency and pledge some assets as a guarantee.
Blockchain technology will be key to test the reliability of a borrower, as all operations and will be recorded on the blockchain and will be available to everybody.
Trust rating algorithm, together with a risk assessment score give star ratings for each participant on the platform. Trust rating algorithm was created by KTU (Kaunas Technological University). Third parties will also offer services of risk assessment, insurance, and debt collection.
Martins states, that it is expected to start with € 500 000 – 1 000 000 worth of loans, on the day of the launch and have a turnover of 10 million EUR by the end of the year. Debitum Network has already made agreements with enterprises from Lithuania and Latvia and will soon be joined by companies from Estonia. The Czech Republic and other European countries will follow suit.
Liberts admitted, that initial plan to launch in 16 countries and later expand to 50 countries were too ambitious, and the plan was moderated to expand at a slower pace, but in a more decisive manner and convincingly, by starting in 5 markets.
In the beginning, the funds between investors and SMEs will run through Debitum Network, and as the system reach maturity, Debitum Network will perform the function of a “bulletin board” by simply connecting investors with businesses who need to borrow.
Besides Martins Liberts, the other two co-founders of Debitum Network are Donatas Juodelis and Justas Saltinis, both of them are also co-founders of invoice financing company “Debifo”. Donatas is also one of the co-founders of INNTEC – a progressive IT company.
Thus, Debitum Network is being built on the practice and experience gained in the sectors of finance and technology. The company currently has around 30 people working on the project.