Understanding and Undoing the Credit Paradox

4 min readApr 22, 2022
The Credit Paradox

I grew up as one of thirteen siblings in East London. Our parents were farming immigrants from Bangladesh. While I was growing up, I saw first-hand the challenges facing families who lacked an understanding of credit. Forced to live paycheck to paycheck, these families were unable to access traditional banking and therefor the opportunity to build creditworthiness.

I watched the wealth divide grow wider and the banking system continue to discriminate against gender, race and ethnicity. This led me to become an active advocate for financial inclusion and pursue a career in traditional finance at Morgan Stanley.

As my career progressed, I could not shake the feeling that whilst I helped drive more diverse representation inside traditional institutions, things were not necessarily changing for those outside the system. This ultimately drew me to decentralized finance (DeFi). Here was a technology that did not discriminate, and provided nearly instant, transparent, and equitable access to financial products and services. However, it has been disappointing to see that DeFi’s original promise to serve the underbanked has not been realized and crypto appears to continue the age-old trend of making the rich, richer.

Instead of breaking down barriers, crypto has put up new ones. The benefits that come from the trustless nature of the technology is also why DeFi loans are overcollateralized to the point where, unless you have the means, it is very difficult to get credit. How can we allow people to build trust across Web3 if they have not been given the opportunity to earn that trust in the first place?

This is what we call the Credit Paradox!

The Credit Paradox is a persistent cycle that stems from the historic absence of data within underserved populations around the world. The lack of data results in the inability to model a user’s track record and form a structure to make an informed decision. At this point ‘intuition’ becomes the guiding principle, which sadly is often led by assumptions, unconscious bias and even prejudice. When this happens the system becomes flawed and perpetuates these errors, creating complexity that ends in inertia and exclusion for those already marginalized within the system.

The Credit Paradox stems from the inherent relationship between reputation and trust. If you think of reputation as a picture made up of the cumulative layers of past behaviors and their outcomes and trust as the projection of future behavior based on reputation, then credit is the present value of that trust based on predictive intelligence.

In simpler terms, because of the patterns of your past behavior and the positive outcomes based on that behavior, I will trust you to behave similarly in the future and will credit you now. This credit can grow over time if you keep earning my trust. But this is always predicated on you having the chance to earn that trust in the first place. What if I do not know you? What if you were never given the chance? Then you are not given the benefit of the doubt. You would not get the credit.

This is how the traditional credit system has worked since inception. The idea of ‘building’ credit is a privilege awarded to those who were given a chance to prove their trust. Over one hundred years ago, this was established almost exclusively with already wealthy, white men. Everyone else had to fend for themselves. And we continue to see this disparity for people living in ‘emerging economies’, especially amongst women and minorities.

CreDA believes that through the application of Web3 technologies, we can create endless opportunities for everyone by circumventing the complex, traditional systems and allowing people to build credit and access to capital both on and offline.

We call this Credit4Good and its part of our mission to fulfill the original promise of DeFi, shape the world’s most powerful and equitable credit ecosystem and give ‘credit where credit is due’ to nearly 4 billion people who have been victims of the Credit Paradox. And it is not just for their benefit. If the underbanked can be included within the formal credit sector, it can boost global GDP by $250 billion a year.

To reach such heights we will need partnerships between on and off-chain technology and financial players. We will need to prioritize areas of the greatest need, such as food systems, which are severely stretched because local farmers cannot finance the scaling of their operations needed to ensure food security through local supply. We will need richer, more balanced data and new, inclusive models for assessing risk; models that invite participation.

We’re up for the challenge, and invite like-minded partners to join us at the Global Defi Conference on April 28th where we will talk about the Credit Paradox and our new program, Credit4Good.

Join us for the discussion. See you there.

Fakhul Miah is CEO of CreDA. Reach out on LinkedIn if you are interested in helping us tackle the Credit Paradox as part of our Credit4Good initiative.




CreDA is the world’s first decentralized credit rating service based on users’ on-chain data