Blockchain and microcredits can solve world poverty

Leer en Español: América Latina: Microcrédito y Microfinanzas

Muhammad Yunus won the Nobel Peace in Economics back in 2006 after his breakthrough in microfinance. Microfinance is defined as the range of socially responsible financial services for individuals who do not own any capital or leveraged lending.

Even though microfinance involves loans, saving plans, and insurance, the main element of microfinance is microcredit.

Microcredit

The world made an agreement to achieve sustainability by 2030 and a big element of sustainability depends upon the eradication of poverty. In consonance with global macro-trends, the financial sector has adapted to respond both to the global objectives and shareholders.

A microcredit is a small credit that’s given to an individual that has proven both to have the desire to invest his/her money in a productive task and for the task to be viable as a business itself. A microcredit can start from 25 dollars and has a due date with either a fixed interest or a floating one which may be designated with a benchmark rate like the Federal Reserve’s.

Microcredits are designed to kickstart personal initiatives which become sustainable over time. By granting the possibility to foster personal business a greater market is created, which generates the conditions for a more stable and integrated economy

Saving drives growth

A microcredit is worthless if the receiver is not educated on the importance of saving. Authorities take the risks of microcredits very seriously; a credit spent in consumption will not return money and interests will make the individual poorer.

Any credit taken without responsibility will backfire and that’s something a microcredit doesn’t intend but might end up causing. Microcredits are empowerment machines that permit social mobility through the sense of independence that owning a business provides.

Microcredits in Latin America

The Inter-American Development Bank reported that the Latin American microcredit portfolio increased from $5.5 billion dollars in 2005 to at least 40 billion in 2017. The southern continent has over 1000 microfinance associated institutions that have served over 10 million low-income clients.

The top three countries by current loan portfolio are: Colombia, which is in third place, that owns a portfolio of 1.4 billion dollars; second place, Ecuador that has a 1.7 billion portfolio and the first place is for Peru with a 3.2 billion portfolio

Room for opportunity

Regardless of the good results that microcredits show, there is still a long way before its full adoption. Today, microfinance is only available for 1 of every 6 possible clients, which is a breach that both philanthropists and shareholders will want to close.

Trend analysis indicates that a direct mechanism for money transmission could lay the cornerstone for optimal communication with rural areas who do not count with proper banking services. The greatest challenge for Latin American youths reside on the creation of next generation blockchain systems to transmit liquidity in a more consistent manner.

Some argue that ICO’s for crypto-currencies should be developed not for the open public,  but to respond to local needs for progressive local communities worldwide.

Video

https://www.youtube.com/watch?time_continue=70&v=k-GyVbeI4Qw

Latin American Post | David Eduardo Rodríguez Acevedo

Copy edited by Susana Cicchetto