An Idea Whose Time Has Come — Investing in the 2 Billion People Without a Bank Account

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You won’t get too far trying to start a business with only an idea. Like the old saying, “it takes money to make money.” A bank is where people in need of money usually go for a loan, but it’s hard to get one if you’re a micro-business. To a bank a small startup means more risk with less return.

Further, banks want to see assets like collateral, capital, cash flow and credit which micro-businesses often don’t have. In third world countries the cost of just opening a bank account is a major obstacle. And there two billion people in the world who still don’t have one. Instead, these micro-businesses are forced to pay high interest rates on local cash loans and struggle to get ahead.

The ONLY FUNDS THEse farmers can access are local cash loans with interest rates as high as 20% monthly.

Jori Armbruster believes it’s time for a micro-business revolution. He’s created a blockchain-based crowd lending system that helps the smallest businesses succeed. In this interview he explains what Ethichub is, how it works and how you can get a 15% return-on-investment by lending money to farmers in third world countries while reducing their borrowing cost.

What is EthicHub?

“Ethichub is a social network that connects investors from around the world to farmers in developing countries where startup bank loans are expensive and rare. The only funds these farmers can access are local cash loans with interest rates as high as 20% monthly. It’s crazy. Even though they may have a profitable business, they’re living to pay off the interest. And it’s keeping them poor.

A major obstacle preventing farmers from getting a bank loan is not only the cost but the fact that banks are usually too far away from their village. Digital banking is not possible either because they don’t have digital identity or even a smartphone. For that matter, there’s no internet access. And even when they have smartphone and internet, they lack of digital data enough to make a solvent risk analysis.

Going through a bank is expensive, too. Not only because of the transfer but opening a bank account in a developing country can cost you over 100 euros. It doesn’t make sense for a small farmer to spend 100 euros to open a bank account. But this situation is quite common in Latin America, a few Saharan countries in South Africa and some Asia countries.

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For example, I just came back from Mexico where farmers told me their stories. The message they want to send to investors is that they’ll gladly pay a 25% for a loan because for them this is extremely low. And for an investor a 15% return is pretty good.”

What Motivated You to Create Ethichub?

“When I started Ethichub I wasn’t clear on what it would become. I hadn’t even heard of blockchain until I earned a master’s degree in innovation and read a statistic that 2 Billion people in the world are unbanked. That’s when I decided to do something meaningful to helps farmers. I felt that a lack of capital in developing countries would be a problem worth solving.

With 2 Billion people stuck in poverty because of a costly financial system, I figure we’ll never run out of customers. Let’s face it. This is one of the biggest problems in the world. Crowd lending is an idea whose time has come. But while it’s a growing trend is certain economic certain regions, European investors are only investing in European projects, US investors are investing in US projects, and it’s the same in Mexico.

Blockchain and cryptocurrencies break down the barriers to international investment while cutting out the middleman. Ethichub is not another middle man, but a social network for developing smart contracts that enable direct transactions between investors and borrowers.

So, not only are you getting a 15% return you’re saving the farmer 35% off their cost of borrowing money.”

Part of my inspiration also comes from an organization called Kiva.org. This is non-profit like Ethichub that does international crowdlending using fiat money through non-profit micro finance institutions. But these are very inefficient so we also try to desintermediate them. Ethichub has made the leap to using crypto and smart contracts which cut the risk for investors, automate the process while keeping everyone honest.”

How Does it Work for Borrowers?

“Our system at Ethichub depends on Local Nodes. These are the project managers who build relationships with the farmers. They choose who gets a loan and then earn a commission when the load is repaid. But they must choose carefully because they’re responsible for defaulted loans. And their trust rating will decline meaning investors will be less likely to invest through them and they’ll earn fewer commissions.

Not only do we teach Local Nodes how to evaluate borrowers, they’ve lived in these communities and know the people. They typically have family in the community and a network of farmers they can trust to repay their loans.

The investment money reaches the borrowers in three phases. At the beginning, the community cooperative must nominate a representative to open a bank account. Then crypto from investors is deposited and converted into local fiat currency and it’s given out as cash to borrowers by the representative of the community.

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In a second phase we will give borrowers a personal debit card for accessing their loan, so they can make purchases at local shops so the representative will not be necessary in the future.

The third phase is part of our long-term vision. This where we’ll be developing a network of local exchanges that let shops exchange our tokens. Then we’ll no longer need a bank or a local representative, and we won’t have to pay for the cost of using debit cards.”

How Does it Work for Investors?

“After logging into our app, you can choose an investment opportunity. Here you’ll see a photo of the borrowers, the interest they’ll pay, when the loan must be repaid and an explanation of why it’s needed. There’ll also be information about the Local Node and photos of the community. You can decide how much you want to invest and pay in crypto.

You’ll hit send, the Meta Mask will open, you’ll enter your signature and your money will go to the smart contract. Normally you’d only invest 1–2% of the total requested amount. There’ll likely be a hundred or more investors into a single loan. When there is enough money in the smart contract, you’ll be asked to confirm your deposit and the smart contract will automatically send the money to the representative’s wallet.

For example, if you put 1 Ether into the smart contract, the borrower would receive 97% of that. This is because 3% of the total will go into our Smart Contract Warranty Fund which protects investors against defaulted loans. The borrower may have to pay back 15% interest. And investors will be encouraged to reduce the interest competing to fund the loans.

It will break down the barriers to accessing capital and bring the unbanked into the global economy.

The Local Node would get around 4% commission, 3% would cover Ethichub’s operating costs and 3% would go to the Warranty Fund. So, 25% is the peak cost for each loan. When the loan in repaid on time the smart contract sends the local node their commission and their reputation score will increase.

Including your 15% return, the borrower will pay back $125 on a $100 loan. Like I stated earlier, the only alternative many of these farmers have is getting a local cash loan. With that they’d have to pay back $160 instead of just $125. So, not only are you getting a 15% return you’re saving the farmer 35% off their cost of borrowing money.”

What’s Next for Ethichub?

“Our Alpha version will be released June the 23rd and Investors will be able to usse the platform now to start lending money to Mexican farmers. We’ll be holding our ICO in September. And from that point on, we’ll switch from using Ethereum on the platform to our own token, Ethix. Then we’ll be ready to scale globally.

After our ICO our token will aquire value and we’ll be able to use it to incent thousands of Local Nodes around the planet. We’re still deciding what the distribution of the tokens will be, but a good percentage will go to incentivizing Local Nodes to bring them on board with Ethichub.

After the small pre-sale we held in the first quarter of 2017, we were able to complete our platform and attend roadshows in Tokyo, Seoul, Beijing, Singapore, Hongkong, Shanghai, Berlin, London, Paris, New York, Barcelona, and Mexico. We gathered a lot of valuable feedback and built up awareness for Ethichub. Now our team is focused on bringing more users into the platform prior to the ICO in September.

I’m confident our project will succeed. It will break down the barriers to accessing capital and bring the unbanked into the global economy. This will increase the productivity of the farmers by letting them increase productivity, diversify their crops and sell their products more effectively.”

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