Micro-finance has existed in various forms for centuries. However, the birth of the ‘modern’ miro-finance is said to have its roots in rural Bangladesh, where in the 1970s, a professor of economics at the University of Chittagong lent $27 to a group of women who made bamboo stools. The idea behind the loan was simple; break the cycle of debt and enable the women to purchase the raw materials themselves instead of relying on locals traders who would lend them the money in exchange for most of the profits they made on the stools. Thirty years later, Dr. Muhammad Yunus won the Nobel Peace Prize for pioneering what we now know as modern-day micro-lending, or micro-credit. More specifically, the service is aimed at making small loans available to people who would normally be excluded from traditional means of banking (typically poor people from developing countries) via programs designed to meet their particular needs and circumstances.
Commonly, the characteristic features of micro-credit loans look like this:
- They are relatively short-term; usually between 6–12 months
- Quite small to being with; typically range between US$100-$500 until the borrower can demonstrate their creditworthiness through regular payments. As they do so, they become eligible for larger loans.
- The average global interest rate hovers around 37%. Although this may sound high, it is usually much lower than other available alternatives, such as informal local money lenders.
However, banks are now making major profit over these tiny loans, something Mr. Yunus is explicitly against, stating “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people”.
This is exactly why Uulala was created. As a way to bring microcredit back to its roots but with an added bonus: blockchain technology. This ground-breaking technology is helping break the barriers of traditional microfinancing by introducing transformations essential to this industry. Blockchain increases transparency, and significantly reduces interest rates. It does so because of its decentralized nature, meaning that it can assist several microfinancing bodies without the need for mediators or central authorities. Furthermore, smart contracts make repaying these loans easier by creating a bond based on the terms and conditions specified for repayment.
Using this technology, Uulala has set it’s eyes on helping the most underserved market with the biggest financial footprint: the latino minority culture. With blockchain, Uulala will enable millions of unbanked and underbanked Latinos to complete financial transactions that were originally inaccessible or unaffordable. While many other startups have focused their attention to lowering the price of sending money abroad, they have failed to provide full-scale service and financial solutions to other problems, such as credit-building through micro-lending. Through their partnership with financial institutions, Uulala will allow its users to access and benefit from their credit score outside of the platform, effectively removing a significant barrier for important financial decisions.
Here’s how it works: through the app, clients use the platform for financial transactions, such as instant money transfers and remittances, paying utility bills etc. The platform will record the the transactions on a blockchain based ledger for immutable verification the transactions took place. By using their proprietary algorithm to track their users’ transactions, the app can effectively forecast their clients’ true financial abilities and creditworthiness. In turn, it has the ability to offer low-interest microcredit offers with proven track record that it will be repaid.
“The ability for the Uulala platform to connect the unbanked to the formal economy, track their creditworthiness through our microcredit ledger and provide them relevant microcredit offers allow us to decentralize the financial services industry” stated CEO Oscar Garcia.
Financial inclusion is an important step towards reducing, and ending poverty. It offers people the freedom to spend money where and when they choose. Anyone with an internet connection can access a wide variety of products and services for the un or underbanked at a fraction of the cost, which has the potential to drastically change lives. This is the power and future of Uulala.