Importance of Microfinance
Microfinance is a form of small loans that are designed to help poor people in their day to day needs. Generally, a forum or group comes together to provide these micro finances to these low-income group. Hence, the interest rates on these microfinances provided are also kept minimal or almost negligible. In such a scenario, it would not be advisable to spend a lot of money developing a technology or a system that would cost lots of money to provide these microfinances as it would in turn increase the fixed cost of providing these loans. In such a scenario, Blockchain could be a groundbreaking technology as the code becomes the law in it and no banking staff if required to complete the transactions, hence almost no transaction fee. Only one-time establishment cost would be there which the micro finance providing company could absorb with years of business.
How AI and Blockchain will help Micro Finance Thrive
Blockchain is a new groundbreaking technology in finance sector. It allows the digital currency transactions without any need of banking professionals to authenticate the transactions to avoid double spending. Blockchain have its own inbuilt system that helps authenticate the sender and receiver and thus completes the transactions by debiting the sender’s account and crediting the receiver’s account. With AI, the transactions can be enhanced by exploring the profile of the person who is coming for the loans by exploring his historical credit score online and how he dealt with his loans in past. Apart from this AI can also help manage the demand for loans and keep the loan rates at their optimum level. AI can also help the micro finance companies to design new products suiting their local customers and their needs.
Precisely these technologies are at nascent stage and are quite expensive however, like some corporate groups can invest into this technology and build it for microfinance and then have a cheaper business model to distribute it further to these micro finance companies.
Putting Technology to Test
Blockchain is a technology where the code becomes the law. Hence a proper legislative system must be in place to avoid any tampering into the code at source and thus allowing a gateway to frauds. Also, Blockchain is a complex technology and all governments and countries are not yet ready to accept it. Hence, it’s a long way to go before this technology is widely accepted. However, this technology will save billions of dollars from transaction fee that people and businesses pay to banks for flat money transactions over the year. Also, this will help poor people get micro finances are much cheaper rate than it is now as it would cause efficiency in terms of no only the transaction fee but also, this is an automated system, hence no or minimal human intervention is required. AI on the other hand is quite nascent at this stage and requires developing more before it could be widely accepted.