At the recent Global DeFi Conference, CreDA CEO Fakhul Miah hosted a panel on the Credit Paradox with the World Bank, DeHaat from India and a financial expert from Brazil. Here are three takeaways that will help guide us in the development of CreDA’s Credit4Good program.
3.9 billion people around the world (68% of adults worldwide) are locked out of the formal economy due to a lack of credit history.*
1. The Credit Paradox is a truly global problem
When setting up the panel and explaining the concept of the Credit Paradox, Fakhul referenced his childhood growing up as one of 13 siblings in London. His family came from Bangladesh where they were farmers. They struggled in both places with securing credit and capital.
Dr. William Zhang, Lead Security Architect from the World Bank went on to describe how the problem persists in emerging markets around the world. His organization is using blockchain and DeFi to begin to address these challenges in places like Haiti and Africa.
Vicente Vuolo Jr, Financial Consultant and Advisor to small and mid-sized farmers in Brazil explained the specific example of how the Credit Paradox affects agricultural producers in Mato Grosso, one of Brazil’s most prominent agricultural states. These farmers are looking to grow, which would add to GDP and food security, yet the economic situation in Brazil means that banks require extreme amounts of collateral and high interest rates which make borrowing locally impossible.
Ankit Gupta, VP of Business Products and Innovations at DeHaat, provided a picture of how the Credit Paradox is also affecting farmers in India. Through DeHaat, one of the very few companies providing end-to-end solutions and services to the farming community in India, they are using technology to gather geo data for assessing the risk and value of farmland before providing loans to rural farmers. But they can only see part of the picture so they are partnering with CreDA to look at how DeFi credit ratings can be used to help fill in the data gaps.
Even though the panel was only focused on how the Credit Paradox affects food systems, it’s clear that the problem persists around the world. Brazil, Bangladesh, India, Haiti, Africa and Asia are all in need of improved data and access to capital to support the farmers that ensure food security, especially when pandemics and wars further challenge the food chain.
36% of the adult population is not registered with any credit bureau and even more have little opportunity to borrow due to a lack of formal credit history or ability to account for their financial behavior at all.**
2. But it isn’t just affecting food systems
The Global DeFi Conference included a whole 2-day track on the potential and existing impact of DeFi on society, the economy and on business. Many of the panels were more focused on social impact and had titles like Defi for All , DAO for Good and Using DeFi For Good and Pushing for Global Financial Inclusion.
Given these topics, it’s easy to see the potential for how decentralization can impact the traditional systems that have historically left out much of the world. Some panels focused on the tension between needing to deliver on Defi‘s ’promise and the issues of regulation and education which are barriers to more universal adoption of the technology. Most of the panels discussed theory, with few specific examples of how DeFi is creating greater access.
Through his own example of growing up as an immigrant family in London, Fakhul expanded on CreDA’s ability to support people who are cut off from the traditional banking systems and that it isn’t just farmers in emerging markets who are affected. It’s a problem that persists in the most developed markets as well. The Federal Trade Commission (FTC) estimates that 1 in 5 Americans have a “potentially material error” in their credit score that negatively impacts their ability to get a loan. This predominantly affects visible minorities and people who are marginalized in their societies.
The global environmental crisis is another area that is greatly impacting families, creating more variable risk for lenders. When people are displaced because they’ve lost their homes, what can they put up for collateral when trying to build a new life? On the flip side, social impact entrepreneurs who are trying to solve the climate crisis in their communities, aren’t able to secure loans because their businesses aren’t ripe for huge returns on investment, even if they have large returns on impact.
At the closing of CreDA’s panel, Fakhul used the opportunity to formally announce CreDA’s Credit4Good program, whereby CreDA is already working with partners like DeHaat to provide additional data and Crypto Credit Scores to rural farmers in India. This fits under one of the program’s three key pillars: Food Security. The other two areas of focus are on the Climate Emergency and Global Inclusion.
It’s an ambitious program that is just in the early phases. But it is a tangible and realistic opportunity to use technology, data and education to give credit where credit is due to the 4 billion people without access to credit.
If the underbanked can be included within the formal credit sector, it can boost global GDP by $250 billion a year.**
3. The ecosystem is ripe for partnerships
Throughout the two-day conference, the energy was palpable. Kudos to Tech Circus for hosting and coordinating the event and its many speakers.
What was most encouraging was the overall spirit of collaboration. That DeFi, Web3 and decentralized models could truly disrupt the systems and usher in a more inclusive future. Traditional bankers were intermingling with crypto projects, investors with technologists and everyone was unified in their hope for a better world build on the blockchain.
It’s not always clear how people and projects can fit together though, and even though CreDA presented a call for more partners to join us in building Credit4Good across all three pillars, we want to take the opportunity now to clarify where we see the most obvious fit and to encourage others to reach out and get involved.
Potential partners could include (but not limited to):
- NGOs working in markets of need, who have access and opportunity for helping educate and onboard people into crypto so they can begin building a credit score.
- Traditional or DeFi lenders either globally or locally, who wish to gain access to potential new markets that were traditionally ignored.
- Data companies, brokers or researchers on and off-chain who can provide support in building new risk models.
- News and media publishers who can support the program by helping raise awareness.
- Alternative credit agencies or technologies that could bolster our efforts with additional data or machine learning systems.
We look forward to growing our network of partners in an effort to achieve our mission to leverage our technology to provide Credit4Good.
* World Bank Global Findex database https://globalfindex.worldbank.org/