Imagine that you are a grocery store owner in India with a profitable and growing business. You should be able to prove that you are an ideal loan recipient. However, without a file at the credit bureau or the type of documentation institutional lenders require, you and hundreds of millions of small business owners in emerging markets are invisible to the traditional lending system.
The lending market is built on an environment of trust that relies heavily on outdated systems. Even though you do not have an official file at the credit bureau, your business most likely uses multiple digital services that collect vast amounts of financial data on you and your business. You may pay your mobile data and utilities bills via a mobile wallet, and use a mobile Point-of-Sale (PoS) device to accept your customer’s debit cards.
While such transaction histories could support your creditworthiness to a lender, most digital service providers do not share data with financial institutions or credit bureaus, which prevents over 200 million micro- and small enterprises (MSEs) from accessing $8 trillion to grow their business.
The solution is clear: making borrowers’ digital payment data accessible to lenders will help bridge the multi-trillion lending gap between institutional lending money and informal borrowers.
The methods used to achieve this goal, however, have so far been ineffective, with a growing number of niche solution providers crowding the market and adding more gatekeepers.
So how do we tackle this challenge with a lasting solution? Enter blockchain.
Blockchain can solve a multi-trillion dollar problem
Blockchain provides an unprecedented opportunity to develop an affordable and inclusive lending market.
Indeed, an open network built on blockchain that connects lenders with digital data on a single platform and records all lending transactions will introduce transparency, trust and efficiency. This, in turn, will enable an inclusive lending market to flourish.
LendLedger, the blockchain-powered protocol I’m building, is developing this network to solve this $8 trillion credit gap for small businesses and informal segments.
The LendLedger network relies on the interaction of three distinct parties: lenders, borrowers and data providers. It benefits all parties on the network by allowing:
- Lenders to gain access to the data they need to reach untapped market segments.
- Borrowers to gain access to multiple lenders and competitive rates.
- Data providers to monetize their data, now accessible to hundreds of potential lenders.
By connecting lenders to sources of data on borrowers who were previously invisible, the network unlocks loan approvals. This will drive financial growth in underserved areas as more lenders get access to qualified borrowers.
How is LendLedger different
In order to meet its goals of unlocking lending for underserved segments, LendLedger is putting in place the following fundamental structures:
- Ensuring low barriers to adoption: Ease of adoption is absolutely key to making this blockchain-powered network accessible to hundreds of millions of small businesses. That is why LendLedger’s lenders and borrowers will still transact in fiat (local currency). The fact that they won’t need to be experts at token mechanics will significantly lower barriers to adoption in emerging markets.
- Keeping fees low and predictable: Bridging this multi-trillion dollar gap requires the ability to scale to thousands of daily transactions. Every day lenders will administer and disburse loans, and every day borrowers will make repayments on these loans. Repayments will range in size from large installments to micro-payments. For this reason, it is crucial to keep platform transaction fees as low as possible. Unlike other platforms such as Ethereum, Stellar helps keep fees low and predictable – at a fraction of a fraction of a cent. Fees like this make even small loans and the related micro-repayments tenable. The more loans of all types and sizes LendLedger can enable on Stellar, the greater impact we can have.
- Maintaining the highest safety standards: Once a loan is approved and the borrower has agreed to the terms, the disbursement and repayment are handled by smart contracts on Stellar. The Stellar smart contract system is simpler and more secure than many competing platforms. This is critical for such projects that handle large amounts of value for users. Frequent bugsand hacks of Turing-complete systems make them an unattractive option. Instead, Stellar enables a diverse range of smart-contract functionality without the complexities and vulnerabilities of such platforms. The simplified Stellar smart contract system also significantly lowers the learning curve for developers. Fewer moving parts means lower potential for bugs and greater speed and efficiency in development. Over the long run, this will translate into more resources spent on new development and innovation.
What’s next?
LendLedger’s network will drive business results and social impact. For underserved small businesses, this comes in the form of finance needed to grow, and the creation of a reputation. For data providers, credit evaluators and lenders, it means growth in revenue as they serve new customer segments.
LendLedger is also built out of Happy Loans, an establish emerging market leader that is already powering loans at a run-rate of $30 million per year. As it takes shape on blockchain, the LendLedger network will be a key component of deeper financial markets in emerging economies. LendLedger is changing the face of lending for unserved segments. And we’re just getting started.
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Gautam Ivatury, CEO of LendLedger