hiveonline microfinance

We've been getting a lot of enquiries about our microfinance offering, so here's a quick breakdown of what our service can do to support lending to the unbanked.

the microfinance opportunity

Microfinance Institutions (MFIs) today lend money to one of every ten people on the planet, The average interest rate charged is 40%, partly because of the very high cost of administration and risk of default, but also because their customers have no alternatives.

Unbanked microbusinesses in developing economies don’t have access to banking services and often lack formal ID, leaving them unable to access loans from banks, and subject to exploitation from local lenders.

hiveonline’s capabilities take away the risk and reduce costs for lenders and borrowers alike

• Customer validation based on phone records, automating KYC.
• Evidence-based trust scoring and adherence to agreements creates reputation for all parties and reduces counterparty risk.
• Financial transparency through in-house, fiat-pegged cryptocurrencies ensures traceability from receipt of proceeds to final payment and beyond.
• Contract automation and intelligent evidence assessment ensure execution is controlled and frictionless reducing execution and corruption risks.

Lenders, borrowers and investors can all see the reliability of counterparties and control the flow of money, reducing costs and risk.

evidence-based trust

Financial transactions in developing countries are hampered by a lack of trust and counterparty risk. Microfinance Institutions face high costs of customer validation; lacking records such as credit history or formal ID, customer have to be validated through manual checks which are laborious and subject to fraud. After loans have been given, the only metric customers can be measured by is whether or not they repay the principal and interest.

hiveonline addresses both ends of the trust problem; neural network analysis of customers’ phone records gives a rich, contextual and fact-based view of their interactions, validating them as genuine actors in the community where they work and live. hiveonline’s analysis identifies whether a business is genuine based on the type, and frequency of interactions.

Once a loan is arranged, hiveonline continues to validate interactions, and through the currency transferred to the customer, can track where and how that money is spent, building further context into the trust profile. Transactions over the phone (e.g. using mobile money) or via hiveonline give further evidence of the health of the business.

Relevant information is retained by the system to provide context and confidence to both lenders and any underlying investors, who can see both that the money has gone to genuine actors and, if they are interested, a level of detail (e.g. their money bought a goat named Elsie for x smallholder) without the need for any documentation.

financial transparency

Moving money around between MFIs and their customers can also be difficult and expensive; it’s either done in cash, which presents latency problems associated with transportation, risk of fraud and theft, or in mobile money, which is expensive to move around. 

Risk of default is high because it’s hard to control the flow of funds; genuine small and micro businesses may be exploited by third parties or family members, while high interest rates leave them struggling to pay interest. Smallholdings are subject to fluctuations in crop prices and the risk of bad weather, and farming communities often lack access to important community facilities such as irrigation and pest-free storage. Other businesses, such as motor repair or construction, may need to replace broken equipment, leaving holes in a tight budget.

Our in-house cryptocurrencies are pegged to local fiat currencies on a private, low energy usage, blockchain. Cryptocurrency units can be controlled to be received only by certain groups, and each unit carries a full audit of its history. This means hiveonline can control and trace the movement of all funds from the receipt of proceeds to the payment to borrowers and beyond. 

Customers can transact with other parties using the same currencies, further building their reputation history and ensuring the wealth remains in the community. 

the hiveonline microfinance ecosystem

Our system is based on three elements:

• Cryptocurrency pegged to fiat currencies, which is programmable to only be paid to certain parties or communities, and fully traceable through each transaction
• Self-executing contracts, which will perform an action such as making a payment when pre-agreed conditions are met
• A behavioural reputation system that measures facts, such as neural analysis of telephone records, records of transactions over the system and how well contracts have been met by customers, lenders and investors, giving each a relevant, tailored score showing their reliability

In combination, these elements allow us to create complex financial ecosystems where much of the movement of money, measurement of parties and administration is automated. Integrated with our SME app, which helps MSMEs interact with their customers, we can provide full community financial ecosystems.

Our reputation system shows how genuine actors in the system are using resources, opening out opportunities to confirm land and property rights and other hard to prove access and ownership challenges. This has potential to bring informal economy businesses into the formal economy, benefiting from things like land rights but also into taxation, reducing both the opportunity and the need for corruption in developing economies.

benefits

• The cost of borrowing is dramatically cut, reducing defaults, while risk is also reduced
• Investors such as funds get a guarantee that their money is being used well and efficiently. 
• Individual investors can see exactly what their money is spent on
• Investors and borrowers can see the lenders’ reputation, incentivising them not to exploit customers
• Automation reduces the cost of managing microfinance and brings opportunities to manage portfolios more effectively

If you'd like to learn more about hiveonline and our products, please see our website or get in touch at [email protected]

Sofie Blakstad @SofieBlakstad is CEO of hiveonline @wearehiveonline, the financial trust platform that's making the world a fairer place for small businesses.