*This article is part of an ongoing series of contributions by AERUM’s strategic advisors.
It has been a decade of soul searching and self-reflection for the financial world. In the wake of the 2009 crisis, people began to question, in earnest, the great money men and their institutions. Grass-roots movements such as ‘Occupy Wall-Street’ voiced their discontent with a system that had shut out many, and all around the world people started to question the value and interests of the banking powerhouses.
The aftermath of the financial crisis also saw more constructive grass-roots movements in the form of a revived interest in Peer-to-Peer (P2P) solutions, and the removal of costly middle-men, aka. the institutions that had contributed to the crisis. Bitcoin and its core technology, blockchain, led the charge for the cryptocurrencies and tokens which are becoming increasingly popular as more and more industries find uses for these digital token economies.
Around the same time as the crash, a new concept for social entrepreneurship began to gather momentum, which would be picked up and carried by this renewed interest in P2P. It’s founder was Prof. Muhammad Yunus, the economist and visionary behind the Grameen Bank, who was recognized for his efforts in micro-finance and social entrepreneurship with a Nobel Prize.
Micro-lending is P2P at its finest, empowering not only for those who need loans, but investors as well. The return can be low, but so is the risk and with such a small amount being invested, many investors can afford to have a portfolio that includes dozens of micro-investments; great for the loan seekers, and good for the investors too. Should the loan default, the loss is minimal, though interest rates can be higher than other types of loans.
The idea is not unlike the ever popular crowdfunding that is all over social media these days, and has proven wildly successful, with over $4.2 Billion USD raised by the European public in 2015 alone. After all, most people could lend $20, $30, or $40 to someone almost without thinking. The difference with micro-lending is that investors are still able to expect a return on their investment.
When coupled with the other P2P phenomenon of crowdfunding, these small investments allow for millions of people to access the credit they need to start small businesses and other entrepreneurial projects. Perhaps those who benefit most are in the developing world, where small businesses not only drive the economy, but foster modernization and growth in their local communities.
Zooming out and viewing this trend at scale, one can see how micro-lending empowers those small businesses and individuals with profiles that wouldn’t interest a national bank or venture capital firm. Thanks to online platforms, it also makes investing easy and inviting. Most importantly, it enables those who have prohibitively low, or even non-existent credit ratings to find funding. After all, over 2 Billion people around the world are unbanked and even more would never be given a chance by a bank should they ask for a loan. In essence, micro-credit allows anyone to apply for a loan, and almost anyone to become an investor.
Aside from the potential profits and the successful wealth creation, micro lending also helps to address serious issues in current aid and development models, whereby millions of USD are dispersed through long, massively inefficient bureaucratic processes that have neither the urgency nor the sustainability that small start-ups in the developing world need. Microlending cuts out this massive waste of time and money and removes a key source of corruption for governments and NGO’s.
The Yunus model and other micro-credit projects have already proven to be very effective using Fiat currency. As a response to this, there now are several projects out there looking to do the same with crypto, or to apply blockchain and tokenomics to the micro-credit process.
At their core, micro-lending and the crypto movement go hand in hand. Both present democratic, bottom-up responses to the failures of an elitist, top-down system that has not only left out millions, but failed the ones it did represent. But for this perfect match to succeed there are some preliminaries that must be met. I will discuss these further in part 2 of this series.
Bernhard Elkuch is a strategic advisor for AERUM. He has always had a deep interest in technology, marketing, communications and sales, having started programing DOS based code at the age of 12. Bernhard has held several business development positions in his career, all the way up to top management levels. His interest in Blockchain started at the beginning of 2016 with his partnership in CoreLedger and his subsequent founding of CRYPTOMEDIA, a full-stack Blockchain and ICO Marketing Agency based in Liechtenstein. Bernhard’s main interest is in projects and ICOs with clear industry and blockchain relations, rather than just crypto trading. He is the Co-Organizer of several Meetups and Crypto/Blockchain Events, as well as anAdvisor to several projects, including AERUM.