There are those who argue that everything breaks even in this old dump of a world of ours. I suppose these ginks who argue that way hold that because the rich man gets ice in the summer and the poor man gets it in the winter things are breaking even for both. Maybe so, but I’ll swear I can’t see it that way.
-W.B. Masterson 1927
All around the world those who live at the bottom rung of the socio-economic scale are caught in a Catch-22: they need money to develop a solid financial history, but credible financial history is required to get the loans that will allow them to develop a solid financial history.
This paradox creates the situation we have today. If you are rich and a master of industry, you can get millions of dollars in low-interest, easy-terms loans with a few phone calls. If you are living in a developing economy, resources and accessibility to expertise become limited.
But studies have shown that providing capital to those who are trying to improve their lives by getting a new venture off the ground or through expanding their small business is one of the best things you can do for them. (1) (2) (3)
LendLedger is a new platform being developed to tackle this exact problem. The platform is the brainchild of Gautam Ivatury and Manish Khera who in 2016 created ArthImpact, a financial services company with offerings that serve the un- and underbanked in India. The experience they gained getting this platform off the ground has given them practical experience on how to overcome the challenges of microfinance for both lenders and borrowers.
While ArthImpact is designed for the Indian market, LendLedger takes makes this platform available to lenders and borrowers in emerging markets around the world. Further, by using the Stellar blockchain (which can handle large volumes) and smart contract capabilities, the project seeks to make credit histories, and secure transfer of data between borrower, data provider and lender seamless and scalable.
How LendLedger Works
Let’s imagine I run a small grocery in a developing country. I would like to expand my business, but getting a low-cost loan is nearly impossible, as I have no credit history.
Well, in fact, I do. Nearly everyone in the world right now has a variety of financial transactions and payments tracked and recorded. But this is happening in piecemeal fashion so when I try to go get that loan, it would cost a bank a lot of money, time, and effort just to gather the information they would need to approve the loan. And since we are talking about a low-sum loan, the ‘origination’ cost of the loan might be more than the loan itself! Usually, it’s not worth it to the lender to pursue.
This means that the records exist, but that they are hard to get to. And this is the core problem that LendLedger seeks to tackle. Through the use of APIs, a kind of automatic information sharing protocol on the internet, LendLedger will collect my financial history and anchor it securely in the immutable Stellar blockchain. (See here for why LendLedger has chosen the Stellar blockchain to work with).
Now, when I apply for a loan, the lender can quickly and trustlessly get all the information they need to confirm that I am a good bet. At the same time, my information is private and secure as it is encrypted. I get to choose who will see this information.
Once the loan is approved and I have agreed to the terms, the disbursement and repayment are handled by smart contracts on Stellar. This will lower overhead, ease management, and make borrowing and lending in this fashion possible across borders, thereby opening up credit markets.
Now, with the easier access to money, I can expand my grocery store. More than that, my developing business will positively impact the community that I live in. For example, I will be able to pay more farmers for goods, and hire more people in need of employment. Now these people will have more financial stability to improve their lives and their communities.
Furthermore, other businesses in my community will be able to get loans and expand. This can create a virtuous cycle of prosperity. The streets are safer to walk as there is less desperation, the schools are better funded, and my kids will be better educated with an expectation that their future will be bright.
About LendLedger Tokens
LendLedger has created two types of tokens to power its global platform: The LOAN token and the LedgerCredit.
LedgerCredits will be used for internal accounting as a way to ensure that everything that happens on the platform is trusted. In essence, LedgerCredits will be what is known as a ‘stable’ coin with a value pegged to the local fiat currency. It will only be used on the platform and will not have value or be useable outside of that network.
In contrast, LOAN tokens will be publicly traded and will float in value relative to fiat.
When a lender wants to stake a 500-dollar loan, they would send 500 dollars worth of LOAN tokens to the platform, which would convert them into 500 dollars worth of LedgerCredits. Because completing the loan process may take some time, doing this will ensure that that the fiat value of the tokens will be protected the whole time.
Bat Masterson had it right. Things are rigged in favor of the already well off, and we do not have to accept that is the way it has to be. Whether the project can deliver remains to be seen, but they seek to have a hand in making the world a better, more inclusive, and more prosperous, place.
You can find out more about the project by visiting them at lendledger.io/.