What is Microfinance?
In many developing countries, it is very tough to find good paying jobs or to start your own business. Micro finance is a way of supporting individuals who are unemployed or from low-income groups. Micro finance institutes such as SKS Microfinance and Spandana Spoorthy Finance are providing individuals a small amount of money to support their families. This financial support includes anything from compensating their children's education to building toilets at home or mainly to start some small “Micro-ventures” that range from $100-$1000. Majority of these institutions offer credit to beneficiaries without any collateral and previous credit history.
Major challenges of current System:
- Budgets are very Limited:
It is not possible to Banks and MFI to lend for all the Ideas of people. To help maximum people Microfinance Institutes are partnering with Crowdfunding websites like Rangde.org and Milaap.org. Any MFI or NGO can register with these sites and raise funds. In this case the individual need to bear extra costs such as taxes and payment charges of websites. - Transaction Cost: As the credit given to people are very small and they are going through banks, the cost incurred as transaction fees are more when we see as a whole. Either MFI or banks need to bear the extra cost, if not the individual will end up paying for it.
- High rates of Interest: As loans are given to individuals without any collateral, the interest rates charged by majority of the MFI are relatively high than any traditional banks. Even if we use any crowdfunding websites the cost of payment gateways are coming in to picture as the borrowers need to bear the cost.
- Credit Risk from defaulters: There are some cases that the credit given to individuals may not be recovered as there will be unforeseen circumstances. If MFI is funding to farmer or small micro-venture, there are problems like drought and death of lenders.
Top Microfinance Institutes in India:
- Ujjivan Small Finance Bank: Its head office is located in Bengaluru, India. It has presence across 24 states of India and going deeper into unserved population to enhance their financial ability.
- Bharat Financial Inclusion Limited: Previous known as SKS Microfinance, was founded in 1997 in Hyderabad, India. It has presence in 13 states of India.
- Asmitha Microfin Ltd: Which was founded in 2002 in Hyderabad, India. I has more than 375 branches across the country.
- Spandana Sphoorty Financial Ltd: It was established by Ms. G. Padmaja Reddy in 2003 in Hyderabad, India. They have presence in 12 states of India.
- Share Microfin Limited: It is also located in Hyderabad, India with presence in 19 states of India.
Blockchain based Microfinance as a solution:
If all the major companies are adopting blockchain based micro-finance, we can address the major challenges such as interest rates and transaction costs.
If we are running these applications on top of Steem blockchain, users can get loans without any interests and there is no fee for using network. We need to build a solution where individuals can withdraw their funds to fiat currency. MFI and field partners can handle this for borrowers. In this case the borrowers are creating content as they have variety of stories to tell.
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Microfinance is not really helping the poor in the first place, rather they preying on them. Unless we have something like your idea is. Microfinance on top of the blockchain is far better I think.
You know what this could work! Awesome idea and great aritcle
nice post
@dcrpto great job. I am from Nigeria and I know how difficult it is to get loan from bank aside from collateral, the interest rate is too much, if only developing county can key into blockchain technology fast this will solve our banking problem and we will develop fast
I am a Nigerian too, I worked in MaxiTrust Micro Finance Bank Port Harcourt as a Branch Accountant. I can honestly attest to the fact that we lend at a high interest rate , most times also the incidence of customers default is also alarmingly high to the extent that the Banks has to make adequate provisions for loan recovery expenses.
Bottom line , I think Block chain technology and Steem has a pivot role to play in the industry. I dont mind being a volunteer to this course of affirmative action to bring blockchain knowlegde to the ignorant Nigerian masses as it will go a long way towards increasing our income per capita and also creating a more rubust economy where transparency , prudence and effectiveness reigns.
Great
This could be an awesome solution for many trying to start or operate a small business.
Tell your story make your money Steemit!
great job
Good idea, thanks for this
Seems very in tune with people centered development, a good way of cutting the state and the corporations out of the whole process.
This would be a great idea and opportunity to help out all those that really need it!
Microfinance is complicated. It has under the right circumstances helped people but under other circumstances it has become the equivalent to a loan shark. Ideally, when an organization gives a loan it asks for a business plan. The business plan -asks a lot of important questions like, how are you going to repay the loan. What is your profit margin? What is you budget, what is you contingency plans? Who do you have advising you? (Board of directors, others who have done this in the past.) In some cases this has been successfully done via a group of neighboring women, and there is social responsibility for repaying all the loans. The group of 12 women are better able to advise on needs and profit potential than a foreigner. The real benefit from the program comes not from the money but from the business plan and related questions. (I am not saying one needs a formal business plan to be successful, I am saying that not having good answers to the questions a typical business plan asks could be detrimental.) While many loan programs have helped, another alternative is savings programs, where people save a little money each week then loan it out to a member of the group. These have the advantage of not being dependent on outside banks. One successful program like this also had a emergency/compassion fund where each member gave in an amount and when a tragedy happened. -A family death- the group could give a set amount to that family member. (for example 20% of the pooled money, or X amount for this type of event.) This more or less was the beginning of a an insurance. Now if a crypto currency program incorporated these "business planning" aspects, and also incorporated the "joint social responsibility" it is much more likely to have a positive impact. -Note I have an MBA and two years of second & third world travel experience.
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STOPI think India has made great progress in this area. I would love to explore the possibility of applying some of the models to Latin America. Do you know if there is any study comparing the success rates of different initiatives / platforms?
I run a foundation and co-founded another one, and this is an important issue that has come to our attention several times in the past few months. We would like to explore more in depth the India case. Any suggestions on where to look for info other than the cases you mentioned in your post would be so welcome! Cheers and good post!