More about Microfinance
The microfinance asset class was the first impact investing segment with a track record (since early 2000)
- Market size for the asset class of nearly USD 40bn (2021)
- Total of >500 funds for >260 investment managers
- Switzerland is the largest deal sourcing countries (>35% of total), followed by the Netherlands (17%).
Description of microfinance investment value chain
- Investor: Can be an High Net Worth Individual (HNWI) or institutional asset owner willing to lend capital, mostly debt, to a microfinance asset class, typically between USD250k-to 1m for an HNWI and USD1-20m for an institutional asset owner
- Investment Vehicle: Can be a specialized microfinance fund or a foundation pooling capital from investors typically sizes of >USD50m
- Microfinance Bank: Can be a specialized microfinance institution or bank located in emerging markets, ideally one in Latam, one in Africa and one in Asia typically local and regulated bank with >100k clients
- Micro entrepreneur: Can be local micro or SME enterprises, ideally a dozen per project typically self-employed or small companies with less than 10 staff borrowing loans from $100 to USD5k
The attached ppt presents the MicroFinance key players:
Today the value chain includes many intermediates which leads to a lack of transparency and lack of traceability - the investors do not have traceability about how the money is distributed and what is the actual impact on the entrepreneur. From discussions with senior people in the industry this is a growing issue for impact investors demanding more transparency and a huge opportunity to use blockchain technology as a key part of the solution.
Attachments more reference reading:
https://symbioticsgroup.com/wp-content/uploads/2017/10/SPM_web.pdf
https://symbioticsgroup.com/wp-content/uploads/2015/08/Microfinance_Investment_Book_web.pdf
<https://www.adb.org/projects/documents/loan-agreement-special-operations-microfinance-development-program-subprogram-1>
The Proposal focus
This proposal will conduct a feasibility study of how the microfinance industry could adopt blockchain technology and Cardano in particular.
Bringing together a group of Microfinance experts with Cardano community members (research and technology) to analyse the current supply chain and suggest the key infrastructure required to transform the Microfinance industry to be more transparent and to be able to trace funds and impact on the ground.
Out of this process we expect to both suggest transformation of the traditional MF industry as well as come up with ideas for new opportunities.
Key activities
The following are key activities for the team of this proposal to succeed:
- Analyse the microfinance current supply chain - this phase is already in progress and led by Fabio
- Understand the role and incentives of each stakeholder in the supply chain
- 3 brainstorming sessions - 2 hours each
- Suggest a framework going forward and present potential models of how to build MF 3.0
- Include IOG and Cardano Foundation teams supporting with tech solutions and roadmap and co design the platform
The Expert Group
The expert group will be assigned by Fabio Sofia the lead proposer. Fabio is based in Geneva, Switzerland which is a significant player in the microfinance industry, and has over 20 years experience dealing with financial inclusion. Fabio has a strong network and will bring onboard key experts from the industry and the expert group will include at least:
- A microfinance investment fund
- A microfinance investment vehicle
- A microfinance institution in developing countries MFI
- An research impact expertise
Potential solutions
Some key technology models that will be evaluated includes:
- Atala Prism DID for entrepreneurs
- Smart contracts
- Money transfer infrastructure - traceability and transparency of fund and use of funds
- Impact reporting
- New business models (tokens, NFT, investor platform)
<u>Challenge question: How can Cardano-based solutions help meet real business needs and what would be their impact? </u>
The Microfinance industry is an impact driven industry,transferring funds across borders too developing countries. Using Cardano infrastructure and technology solutions could support more transparency, traceability and higher efficiency of fund transfers for lower interest rates imposed on the entrepreneurs. This leads to more funds for on the ground impact, avoiding excessive fees charged by legacy middlemen of necessity.
<u>Why is it important? Companies are finally discovering the power of blockchain technologies and Cardano is ready to onboard exciting B2B and B2C solutions.</u>
The microfinance industry is an important one, highly aligned with Cardano values and work in developing countries. However, this is unventured terrain for players to use Cardano’s tech and apply it in this industry and solve real problems.
<u>What does success look like? Innovative products and services that increase efficiency, transparency, and stakeholder engagement as well as expand business to new areas.</u>
Well, this is exactly what this proposal is all about as described before.
- The Microfinance industry is managed by many players of the traditional finance industry - which could be challenging for transformation of old habits. This is why in this proposal the process will include a group of experts from the industry to think and design together new solutions.
- Risk of currency exchange between ADA to local currencies. Part of the learning in the MVP stage will be how to mitigate this risk. The Empowa solution is one good example, www.youtube.com/watch?v=xE5WBUA35kY, and we will try to identify more
- Reglementary and legal framework will be a key factor as well that needs to be considered