Could Peer-to-Peer Microfinancing Be a Game Changer In The Industry?

Everus wants to change the game of financial services, combining the separate worlds of microfinancing and peer-to-peer (P2P) lending to offer P2P microfinancing. But what exactly does this entail? To explain further, we must first dive deeper into the key concept of each form of lending.

What is microfinancing?

Microfinancing, also known as microcredit, is a primary source of funds for small-time entrepreneurs and lower income groups seeking to start businesses of their own. Often described as “banking for the poor”, its accessibility to individuals trapped in poverty has been hailed as revolutionary as well as humanitarian. Led by revered economist Muhammad Yunus, Grameen Bank in Bangladesh pioneered early endeavors in efforts to prove the viability of the business model in the 1970s. As of 2017, the bank serviced nine million borrowers, with a staggering repayment rate of 99.6%.

Thanks to its unprecedented success, the model has since been replicated and implemented in many developing countries worldwide.

Even developed countries such as the United States have seen merit in microfinancing, highlighting how the model is a potential game-changer for lower income groups, regardless of region. Although the concept of microfinancing does have its detractors, the key is its accessibility to the unbanked, which often makes up the majority of societies in underdeveloped nations.

The success of the model is largely down to historically high repayment rates, with the majority of borrowers being women. Statistically, women are less likely to default on loans than men, which makes for a sound investment. Simultaneously, these microloans empower women by giving them entrepreneurship and business opportunities, which offers the chance to lift themselves out of their current economic situation.

For example, a small loan of US$100 is often sufficient to set up a sustainable microbusiness which can lift entire families out of poverty in the long run. Similarly, the effect can also trickle down. With new businesses springing up, this also creates employment opportunities, thus boosting the small local economy.

What is peer-to-peer lending?

Also popularly known as P2P lending, this allows businesses or individuals to seek smaller loan amounts directly from lenders. This also creates better interest rates compared to what traditional banks would offer. As for lenders, they can get more returns at a quicker rate compared to conventional investments, creating an ideal situation beneficial for both parties.

P2P lending allows borrowers to seek smaller amounts directly from several sources. Image from lawyer-monthly.com

P2P lending allows borrowers to seek smaller amounts directly from several sources. Image from lawyer-monthly.com

However, most P2P lending platforms tend to offer loans to small-medium enterprises (SME) instead of individuals or microentrepreneurs. As a concept, P2P lending is becoming more popular but the take-up rates have not been as encouraging in some regions. Credit scores and varying levels of risk and uncertainty could all be potential factors in why P2P lending has not taken off at expected rates.

According to a survey conducted by Blumberg Capital, 43% of borrowers in the UK shy away from alternative lending platforms due to a fear of fraud. This highlights the need for a better understanding of what P2P lending offers, and the benefits of engaging an alternative financial model.

So why choose Everus microfinancing?

The concept of microfinance is aimed at making financial services accessible for those who do not qualify for it by traditional standards of assessment. Although securing funds microfinancing or P2P lending is easier than a conventional loan from a bank, there are still long forms to fill out and plenty of red tape to get past.

With Everus, borrowers can bypass these arduous steps as they will be securing loans directly from the source. EVRs can be transferred to any wallet anywhere in the world, for a small fee. Not only does this speed up the process, but lenders also stand to benefit as they can secure returns on their loans much faster.

In addition, guarantees are secured through smart contracts, allowing lenders to provide microloans with confidence to several individuals simultaneously. Case in point, borrowers could be residents in India, Mexico or Russia, with all of them taking microcredit from a single source.

Individuals seeking loans also have an additional reason to seek microfinancing through Everus, as interest rates are globally competitive. This means that there is no reason why P2P microfinancing cannot compete with existing platforms.

Credit scores will also be visible via the blockchain, ensuring every single transaction is recorded and verified. This acts as another layer of security for lenders, as they can make informed decisions based on potential borrowers’ credit scores. If anything seems amiss, they can reject any application without needing to meet the person in question. This convenience factor works both ways, as borrowers can also secure microloans without having to spend a long time preparing for an application.

To get started in the Everus ecosystem, sign up for your free Everus Wallet today!

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