When it comes to the global lending market, there is one segment in particular that lacks transparency, i.e. lending between individuals (usually relatives, friends and acquaintances).
Although similar in size to the formal lending market (banks, credit card issuers, mortgage lenders, leasing providers), there are significant differences between the two.
Normalising this informal lending market would reduce the risks for lenders and improve the terms for borrowers.
No formal loan records
Disputes arise about repayment dates, terms and conditions; no reminders are sent
There is no mechanism for judicial enforcement of debt repayment
No credit history
which can have an impact on a borrower’s ability to obtain subsequent loans
No integration with the formal lending segment
Behaviour in one segment does not affect financing conditions in the other
No market-based mechanism for determining interest rates
The market is either smaller than its potential
No tools for risk management
No credit rating, diversification, insurance
We offer the following step-by-step solution to the above-mentioned problems:
- Creating an app to manage loans between relatives, friends and acquaintances: the app is used to find a lender and then to record, document and administer (e.g. send out reminders) the loan.
- Creating social groups (so-called bays) to pool financial resources through mutual lending, e.g. there are social groups centred around work, universities and social clubs that already have a certain level of trust, common values and a high degree of social control, not to mention little tolerance for irresponsible behaviour.
- Creating a blockchain to store individuals' credit-rating information (LBR)
- Using the blockchain for any financial transactions between individuals (non-credit assessment) (LBU)
- Developing the elements of an ecosystem for financial relations: mutual insurance; purchasing, selling or leasing items; and decision-making systems
- Every action taken by a Lendsbay ecosystem user is reflected in their rating, which is based on reliable and trustworthy behaviour within a social group. Since the ecosystem promotes users with high ratings, the amount of reliable and trustworthy behaviour will continue to increase.
LOANS BETWEEN FRIENDS AND ACQUAINTANCES
The system creates a new approach to loans between friends and acquaintances:
- A new approach to lending based on mutual assistance, trust and transparency that is always accessible through your phone
- The ability to quickly and easily record a loan to or from a friend or an acquaintance with confirmation from the other party
- Flexible loan terms at any time anywhere in the world
- A rating that combines all the advantages of a bank rating (based on data from credit bureaus and Big Data sources) and a proximity rating
- Recommended interest rates for loans
- Borrowers create social ratings and a transparent blockchain of their personal international credit history
- Loan documentation motivates compliance with the terms of the agreement and enables court action if necessary
- Simple and convenient analytics
- Artificial intelligence is used to improve the algorithms for social ratings
BENEFITS FOR THE LENDER
- A recommended interest rate for loans
- More effective use of free cash
- Relations are documented (loan agreements)
- Repayment notification and reminders
- Analysis of how free cash is being used
- Use of social control within groups
- Preparation of a statement of claim in case of default
- Possibility of using debt collectors
- Potential to use insurance to reduce risks
BENEFITS FOR THE BORROWER
- Quick decision-making
- Lower interest rates on loans than those from banks
- No mandatory insurance
- Remote loans through the app anywhere in the world
- Flexible loan terms
- Possibility of debt restructuring
- Possibility to obtain a loan without having a bank credit history
- Transparent international credit history and social rating in the blockchain
SOCIAL GROUPS (BAYS)
Ninety-seven per cent of all borrowers who borrow from within a group return the amount in full (HeadHunter poll, 2017). In the case of the remaining 3%, they either forget to pay back the loan or are removed from the group.
Based on a balance between transparency and the degree of social control, we plan to emphasise the following main social groups in the app:
relatives, friends and acquaintances
Given the high degree of trust within this group, the Lendsbay ecosystem adds a degree of responsibility (through loan documentation) and a convenient mechanism for accounting, management and oversight.
networks of co-workers
This social group is characterised by an ample level of trust and social control while Lendsbay's user rating and legal arrangements further reduce risks.
a group of people associated with one institution
This group is characterised by a sense of belonging and responsibility, along with the pluses and minuses of the above-mentioned groups.
BLOCKCHAIN - LBR
The development of a unique system for rating users that combines all the latest developments in the banking sector, social scoring (proximity), the benefits of blockchain technology and artificial intelligence.
An important advantage of our rating is that it reflects a user's entire history of financial relationships in a format that the parties can easily understand and that is necessary to make the right decision when granting a loan. The rating will be used by players in the formal sector (banks, IFIs).
Financial companies from all over the world will be able to create products using the LBR ecosystem, thereby improving the quality of information and expanding the geography of usage to a global scale.
THE ECOSYSTEM AND THE OUTLOOK FOR PROJECT DEVELOPMENT (LBU)
Blockchain (LBU) and the ecosystem
As the Lendsbay project takes off and the number of users increases, new elements of the ecosystem that extend beyond formal boundaries will be developed:
- financial services
- ratings of users and of suppliers of goods and services
- mutual Insurance
- formalising relations for leasing various items
- decision-making systems