A Solution to Predatory Lending
A $2 Trillion Dollar Global Credit Gap
Despite overwhelming need, over 200 million businesses are unable to get the credit they need, both for working capital and for investments. Individuals in need of a loan are often at risk of predatory lending practices or middleman gouging.
Access to finance is frequently identified as a critical barrier to growth for Micro, Small and Medium Enterprises (MSMEs). MSMEs drive economic development and reduce poverty in emerging markets and are one of the strongest drivers of economic development, innovation and employment.
49% of all Americans are living paycheck-to-paycheck and approximately 12 Million Americans are expected to turn to payday loans. The interest rates for these loans can have an annual percentage rate of almost 400%!
Predatory lending practices hinder the borrower’s ability to repay the debt. These lending tactics often try to take advantage of a borrower’s lack of understanding about loans, terms or finances. The above image is not an exaggeration, but the reality for many people around the world.
This is the plight of people who are overlooked and ignored by the existing systems. According to the consumer finance agency, 11% of American adults are credit invisible and on a global scale, 2 Billion people are unbanked.
Unfortunately, this means many borrowers have no other choices to make ends meet. This makes bad-faith lending a reality for many people around the world. A lack of a personal credit history and immediate need is like blood in the water for bad actors. These financial service organizations are more than willing to provide short term relief, but in the long term, they work to the detriment of the borrower.
Predatory Lending is often identified by a few points
- High Interest Rates (up to 400% per Year)
- Significant Fees (In the case of Dan Raciazek, $411 for $1000)
- Disadvantageous repayment terms (penalties for early payment)
- Harassing and Agressive Collection Tactic
- Deceitful advertisement and practices
Cryptocurrencies and the underlying incentive based economic systems have the potential to provide underserved markets with financial services and combat predatory lending practices.
The Digital Reserve Network (DRN) is a new proposed financial platform designed to empower the people who need the most help. It will offer a suite of services through its native currency — the Denarii.
To combat predatory lending, the Digital Reserve will offer competitive rates that are capped at the average rate from microfinance institutions. We will be able to do this with a focus on decreasing the default rate through acupunctural intervention and direct investment in financial education.
Together we can offer credit to those with need sustainably. Another major difference that the Digital Reserve Network will offer from existing products is that the borrowers will place a bid for the interest rate and repayment terms they feel comfortable with. This will help them better understand the terms and help facilitate a reduction in defaults.
This is just a brief introduction to our solution. Please join our community to learn more about the work and receive our whitepaper and primer. We want to work together to create and build a network that empowers communities and brings the best of blockchain and cryptocurrencies to the real world.