Microlending Startups | Blockchain for Loans

A new of wave startups believe blockchain can help microfinance deliver on lofty promises.

Billed as a silver bullet that could lift the poor out of poverty since the mid-2000s, microfinance, or the use of small loans to boost the unbanked, has failed to take off for various reasons – namely, a lack of transparency and the existence of middlemen that blockchain is said to eliminate.

"The problem with microfinance is not that it's a bad model. The problem with microfinance is that the people who put money into microfinance are completely invisible to the people who get the microfinance, and vice versa," said Ashish Gadnis, CEO of BanQu, a startup seeking to build an economic identity platform on top of the ethereum blockchain.

But while blockchain's transparency and ability to reduce middlemen have been extensively detailed, Gadnis said it was the tech's ability to help people achieve economic sovereignty when traditional financial institutions still won't bank them that led to his light-bulb moment.

During a volunteer stint in East Africa, for example, Gadnis discovered that a farmer who had received numerous microloans was still turned away by banks, even though he owned land and had made money from his most recent harvest.

Rather than putting her on the path to "financial inclusion" – the microloans seemingly had made worse off by trapping her in a vicious debt repayment cycle.