Microfinance enables people living in poverty to become financially independent. The benefits of ethical microloans really are striking. Simply put, they create jobs. Can blockchain transform microfinance?
Bryony from DEKI explains more about their mission and the technological developments transforming microfinance right now.
Deki, a Bristol-based microfinance charity, provides small, ethical loans with business and social training to remote and marginalised communities in Africa. Through its innovative crowdfunding website, Deki raises capital to lend to people who would otherwise be excluded from the opportunity to access a loan from a bank. Deki lenders help entrepreneurs grow successful businesses – a sewing machine can create a tailoring business, a water pump increases a farmer’s yield.
100% of the lenders’ money goes directly to their chosen entrepreneur, and when the loan is repaid, it can be re-lent. Deki doesn’t charge any fees for making a loan, instead fundraises separately for operational and development costs. Microfinance grew in popularity in the mid-2000s but later came under criticism because it was found to have high-interest rates and created over-indebtedness. Deki partners with local NGOs and experts on the ground to overcome these issues. Deki entrepreneurs are provided with high-quality business training, providing essential knowledge to help run a successful business. Social health workshops help raise awareness about women’s rights, the importance of child education and HIV prevention. This training empowers Deki entrepreneurs and supports a greater level of independence.
“Deki use technology in every aspect of its operations. From connecting lenders with entrepreneurs, to measuring the impact of microfinance. As technologies improve, Deki explores how they can be used to improve communication and operational efficiencies. Blockchain is an exciting development, and may well be the perfect vehicle for delivering microfinance.”
Deki works banks and other third parties when sending loans overseas. The more third parties involved in a transaction, the more chance of human error and the higher the security risk for fraud and corruption. All issues that have surrounded microloans in the past.
Blockchain offers a higher level of security, where data cannot be altered without the acceptance and approval of the whole blockchain network, and has an inherent resistance to the modification of any data. Perfect for transferring business-critical information from organisation to organisation.
Cryptocurrencies help side-step currency rate fluctuations, help defend against exchange rate losses and speed up the transfer of money to international offices and remote communities – perfect for Deki’s local NGOs, all working with different currencies.
Utilising smart contracts on Blockchain presents the opportunity to store the impact data collected throughout an entrepreneur’s loan cycle, where the impact data would be impossible to manipulate.
Having all Deki loan transactions held on a public ledger ensures a greater level of transparency, which will help to build lender and supporter confidence. Increased security, less risk of human/technical error, quicker transactions and even substantially less banking fees would all help combat the issues traditionally associated with microfinance.
Blockchain offers many opportunities for an international charity such as Deki. However, it is important to recognise that it will not be the panacea. Continuous work will always be required, to improve on training methods, relationship management and impact recording, all contributing to what will be the perfect solution.
Deki accepts donations via Bitcoin and Ethereum donate here