NEED FOR FINANCING
It’s a proven fact that a business can’t survive without financing. Sooner or later, every business goes for a round of investment in one form or another. Some prefer to start their business with a seed funding and then raise multiple rounds of funding with the help of micro-lending. Others would entrepreneurs bootstrap their businesses from their own pockets, but later on go for a venture funding or an IPO, depending on the stage their business is in.
Getting financed by an investor or an institute is a difficult task and takes weeks, even months. It involves a lot of boardroom meetings and heated discussions. And we are talking about established entrepreneurs and strong projects. In contrast, in the case of self-own small-scale businesses, raising a loan from a formal institute like bank is almost impossible.
LALA WORLD intends to fill this finance gap by extending loans to small-scale entrepreneurs and self-employed. It will help them to get financed by pledging LALA Tokens. Have a look at what huffingtonpost has to say about LALA word here.
CASE OF THE SMALL BUSINESS OWNERS
Small-scale businesses usually don’t have high-quality collaterals against which they can avail loans from the banks. Their businesses are pretty straightforward, having little or no innovation, hence they are not able to impress angel investors and other formal funding institutes. These businesses are often run by entrepreneurs living in tier-II, tier-III cities and sub-rural areas who don’t have flashy degrees to showcase, but some basic education.
But that this doesn’t mean that they are technologically illiterate!
Most of these entrepreneurs have Smartphones and use mobile apps in their daily lives.
“Today, if you look at financial systems around the globe, more than half the population of the world – out of six billion people, more than three billion – do not qualify to take out a loan from a bank. This is a shame”
- – Muhammad Yunus
MICRO-LENDING TO THE RESCUE?
To help these small entrepreneurs and to promote SMEs, many emerging economies offer various loan schemes via State-owned banks. However, these are not successful due to the huge demand for loans and many of those becoming non-performing loans.
Nonetheless, many small finance banks have popped-up in the emerging economies. However, their interest rates vary from 15% to a whopping 40%. Entrepreneur taking loans from these banks often find themselves in a debt trap.
United Nations Capital Development Funds (UNCDF) is actively working to finance the less fortunate in the world’s 47 least developed countries. UNCDF provides capital and technical support through inclusive finance programmes to ensure that more households and small businesses gain access to financial services.
BlOCKCHAIN & MICRO-LENDING
Let’s analyze why Blockchain is relevant to plug holes in the present micro-lending process.
The Digital Identity
Micro-lending involves financing the small business owners. They live in tier-III and rural cities. It is difficult to expect that they would have complete KYC documents. There are many immoral people who can even produce fake or forge documents for availing loans.
Blockchain can store Identities immutably, so that they can’t be forged or misused by an impersonator. Thus, the lenders can extend credit to a borrower without worrying about ending up in a ‘bad loan’ situation.
High Transaction Cost
The cost involved in the traditional processes of lending to the small businesses is so much that it doesn’t make economic sense for the lenders to extend their services to these small entrepreneurs.
Blockchain removes a lot of intermediaries and eliminates much of the paperwork, thereby reducing the cost of lending.
Reliable Credit History
The way the present credit scoring companies collect transactional data gives the half picture about the actual economic well-being of an individual or a firm. The data is collected without their knowledge and often has errors. These ratings don’t take into consideration the micro-transactions made in cash or those made in cryptocurrencies. Furthermore, these credit histories are not alter-proof.
Blockchain is a perfect platform to record each and every transaction immutably and build a history of credit data.
The physical verification processes are lengthy and can takes days even weeks. Even if the verification is successful, the time required for the funds to get actually credited in the account of the borrower is considerable, which leaves the borrower financially vulnerable for many days.
Blockchain-based Smart Contracts can streamline and automate many operational processes to expedite verification and overall lending process.
Read more: Digital Economy Impact Blockchain
LALA WORLD V/s THE TRADITIONAL MICRO-LENDING
LALA WORLD has embarked on a mission to help migrants who don’t have access to finance since they don’t have a history of credit information or collaterals to pledge, which are required by traditional micro-lending institutes. It has an idealistic vision of building a global financial system, in which migrants would still be eligible for loans in the target country on the basis of the transactions they made in their home country. They would be able to build their credit score by getting verified by more number of people in the LALA World’s ecosystem. What’s more, they would be able to pledge liquid assets for availing loans.
This is how LALA’s WORLD’s global financial ecosystem is going to take over traditional micro-lending processes:
Blockchain is an invaluable tool that has been chosen by LALA World to achieve its goals. However, the true strength of LALA World’s lending platform is in the sheer number of partners it brings to the table. It recently tied-up with world’s largest migrant database management platform – MiGram. It has been constantly striving to join more and more people in its endeavor – “Making Human Lives Better.”