Blockchain-based Debt Issues

Abstract

Debt is a major source of money for governments, corporations, municipalities, special purpose vehicles, and many others. In case of both central and state governments, debt is the only source of money that can be raised from capital markets. For corporations, apart from being a source of money, issuing debt in capital markets also helps in reducing the cost of capital so very important to identify profitable projects for increasing shareholder value. Outstanding Central Government debt In India at the end of December 2021 is Rs. 128.4 lac crore and is likely to rise further over time. Outstanding corporate bonds in India stood at Rs. 32.5 lac crore at the end of fiscal 2020 and is likely to reach Rs. 65-70 lac crore by the end of fiscal 2025 according to the CRISIL. The additional debt funds likely to be mobilized during FY 21-25 by various issuers/sectors, as per CRISIL estimates, are – infrastructure Rs. 5.5-7.5 lac crore, corporates Rs. 2.5-3.0 lac crore, non-banking/housing finance companies (NBFCs/HFCs) Rs. 14-15 lac crore, banks Rs. 1.5-2.5 lac crore, and infrastructure through innovative solutions Rs. 7-10 lac crore. In this article, I discuss the challenges faced by the key players in traditional debt issuance in the primary market and how blockchain technology along with smart contracts can help in overcoming some of the challenges and also reduce the time required for fundraising as well as the cost of issuance and the subsequent servicing. I will end the article by discussing some debt issues made in the recent past by the World Bank, European Investment Bank, and other corporate borrowers.