Blockchain and Microfinance

Despite the advances that many countries around the world have made in recent years, poverty remains a major concern in all developing countries. One attempt at solving the problem is that of microcredit, which originated with Muhammad Yunus and the Grameen Bank in the late 1970's in Bangladesh. Today, microcredit is widely used in the developing world for its potential to the rural poor who would have trouble using traditional banking services.

For all its success, microcredit still has its detractors. Indeed, many still believe that the interest rates are too high, and that at such a small scale microloans often go to paying day-to-day necessities rather than actually encouraging entrepreneurship.

However, with this is where the blockchain can come in. With the development of the internet, microfinance and microcredit have gone online in recent years. Peer-to-peer technologies have allowed multiple lenders to aggregate their loans, which minimizes the risk to each individual lender, and allows for lower interest rates. The distributed nature of blockchain seems to lend itself quite well to aggregate loans, which has the potential to solve the problem of excessive interest.

There are other advantages of a blockchain-based microloan system. Blockchain does not require a brick-and-mortar establishment in order to operate. This could be very convenient for those living in rural areas. Moreover, since it operates on a distributed network, the expenses needed to run it are minimal. This will further reduce the costs associated with running a traditional banking establishment, and the benefits can be passed off to the borrower in the form of lower or almost negligible fees.

Credit: fortune.com

Furthermore, the blockchain ledger now "now provides unprecedented transparency" according to Forbes, while also preserving anonymity. With recent advances, contracts and other asset certificates can be recorded in the blockchain ledger. Indeed, Sweden and Japan, according to Forbes, are already experimenting with the blockchain for land titles and government contracts.

Everex is one such company that is attempting to bring banking services to over 2 billion people who do not have access to traditional bank accounts. A wallet essentially serves as a bank account that one can carry on a mobile phone. Transactions can then be made digitally (or perhaps by QR codes ), and people can apply for loans using their wallets alone.

In conclusion, blockchain has the possibility to do a lot of good for the developing world. If it can be harnessed, the problems with traditional microcredit and traditional banking serves can be used to assist those who are in dire situations.