November 27, 2017
Already re-energizing the banking industry and promising to change the way people think about finance, blockchain finance technology may be able to soon change the way people borrow money. Blockchain produces an inexpensive, secure and transparent way to record transactions, which can have serious implications for loans.
Blockchain is prone to make a significant impact on lending instruments
Loans play an important role for both individuals and businesses. Individuals need loans for personal plans such as buying homes or going to school. They are also the lifeblood of most of business, allowing for operation and expansion. However, it is often difficult for people to borrow money from banks. People usually do not give money to those they don’t know beforehand because they may not trust each other. Banks are no exception, and therefore require a lot of information before they give loans to anyone.
Usually, poor people are financially excluded from formal financial systems, and may not be able to participate in digital finance the same way others do. This means they do not have expansive financial records or histories that prove responsibility. Therefore, they may not be able to get well priced loans or loans at all.
Small and medium-sized enterprises and startups often struggle to get loans. Banks identify them as having a higher risk of fraud, making them less likely to lend them money. Because banks often do not have access to enough information (asymmetric information) about a company, they may decide not to loan money. This hurts the banks as well as the company because they miss an opportunity to earn money from interest payments. What is critical now is to have a system that helps banks securely lend money and understand debtors.
Underbanked problems has prevented individuals and businesses from getting access to loans
Blockchain technology allows for the removal of centralized banking institutions and moves lending into the hands of a peer-to-peer networks, replacing the manager with technological solutions and algorithms, allowing for more careful and informed lending decisions. It removes the human errors in record keeping and calculation that can mean denying loans that shouldn’t be denied. Furthermore, information about customers can be obtained much easier and faster than traditional methods. Because data on the ledger cannot be manipulated or falsified banks can trust it more than they ever could before. These developments are all terrific for individuals who would not previously have gotten a loan from a bank.
Blockchain finance allows banks to expand globally and reach companies and individuals in places they could otherwise not. Using blockchain’s distributed ledger, banks can accomplish tasks like local compliance, KYC or AML without needing to be physically present. Banks can efficiently track the services provided at various touch points like distribution of fees and charges in the local syndicate banks. Furthermore, they can access required data for local country activities as required.
Compared to the old way of taking out a loan, blockchain finance does not require drawing up contracts, communicating with investors, making payments, and extensive administration, all of which are time and resource consuming.
Moreover, traditional loan contracts are managed in analog format, whereas “smart” contracts that rely on blockchain automate the loan’s order book, the creation of agreements, and checks to ensure payments have been received. With a blockchain-based loan, all parties involved have instant access to an identical, distributed record. This means payments and distributions can be maid much more timely, and if they are not, it is easy to address the guilty party.
It is still early for blockchain finance in regards to loans. But the benefits it has brought so far is outstanding, and points to great long-term impacts. However, it is important to acknowledge the hindrance that must be overcome for the blockchain technology to reach its full potential. Before blockchain technology can be used effectively in the syndicated loan market. Industry participants and regulators will need to discuss how to properly regulate the technology. The conversation should focus in part on how to confirm the security of the technology and how to address new ethical considerations.
Infinity Blockchain Labs is a visionary R&D company engaged in intermediary and RegTech services employing blockchain technology. We focus on forming alliances with established businesses and regulatory institutions across various industries, as well as providing collaborative incubation for early stage blockchain projects. We aspire to empower Vietnam to become a global leader in blockchain. In our attempts to nurture a community which can leverage blockchain’s exceptional features, we are delighted to share and discuss blockchain potentials in countless industries, particularly in financial sectors. We are especially passionate about compliance and regulation and are certain that with increased awareness of blockchain, the necessary oversight for lending can be achieved and the technology can be adopted on a wide scale.
You can learn more about Infinity Blockchain Labs (IBL) and stay current with our activities. Visiting our website and social media accounts below:
LinkedIn: Infinity Blockchain Labs
Contact: Nicole Nguyen PR@blockchainlabs.asia
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