Microfinance & Cardano blockchain research

Challenge : Decentralised Finance

Vision: Use Cardano currency and technology infrastructure (smart contract, SSI, DeFI solutions) as use case for microfinance investments - from the lender (generally a fund located in Europe or US) to the end-borrower (a micro-enterprise located in emerging markets)

Starting date: June 2022

End date: September

What we are working on

Objectives:

• Foster financial inclusion in emerging markets and improve impact measurement tools
• Prove the validity of blockchain as a decentralized finance opportunity (peer to peer), transparent (impact data generation & social outcome), efficient (speed & scale) and affordable technology (low cost for all)

Steps

1. Validation phase:
1. legal & reglementary: use of smart contracts for financial terms/conditions & legal covenants, creation of secured and compliant wallet (KYC/AML compliant), definition of FX risk (use of stable coins), definition of social impact metrics and retrofeed solutions).
2. Proof of concept (partner with 3 local banks, and on-lend to 100x borrowers):
• One case in Latam (Ex. Colombia)
• One case in Africa (Ex. Kenya)
• Once case in Asia (Ex. India)
3. Develop a MVP (automated smart contract platform, crypto wallet generation, and impact monitoring stacks).
4. Partner with a regulated investment platform to scale the project.

Project phase

1st phase

1. Brainstorming session:
1. Define scope: supply chain analysis & new models & technology opportunities
2. Identify microfinance candidates in 3 different geo zones
3. Validate timeline and testing phases
2. Lead people:
• Fabio : 15Y in microfinance investments, 2Y in asset tokenisation, >5Y in impact VC
• Yoram : 20Y in Start-ups & Technology, last 5 years on technology for impact
• Razali Samsudin, Research lead. Blockchain & Sustainability Researcher, Social Entrepreneur
3. Invited people
• Microfinance fund manager - Finethic
• Microfinance investment broker - Symbiotics
• Fintech accelerator - Seedstars
• Fintech expert: Aiaze Mitha,
• Blockchain for impact - Christian Speckhard
• Microfinance banks - Colombia/India/Kenya (regulated, digitalization process, reglementation-friendly)
• Blockchain expert - Cardano Foundation, IOG, Cardano developer community

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Microfinance asset class & impact investing

• Microfinance asset class was the first impact investing segment with proven positive track record (since early 2000)
• Market size for the asset class of nearly USD40bn (2021)
• Total of >500 funds for >260 investment managers
• Switzerland is the largest deal sourcing countries (>35% of total), followed by the Netherlands (17%).

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Description of microfinance investment value chain

Traditional money flow & impact metrics

$100m

$1m

$1k

Ave return 3-5%

Total expenses of 2-3% (TER)

Ave operational costs of 10-15%

Ave interest rates 20-25% (USD)

Specific set of social & environmental metrics (about 10-15 weighted ave metrics)

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Specific set of social & environmental metrics (about 20-30 metrics)

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Specific set of social & environmental metrics (about 20-30 metrics)

No specific impact output/outcome reporting, exc. randomized studies)

18 months funding cycle

Money and Impact Flow

$100m

$1m

$1k

Terms

Terms

Terms

Smart contract

Smart contract

Smart contract

Reporting

Impact

Escrow

Funds

fee

fee

fee

Efficiency of money transfer

Develop impact reporting solutions

Making the current system more efficient in transaction and impact reporting, Reduce cost for entrepreneurs and have clear impact measurements (a key area to develop)

Being able to provide a system to onboard entrepreneurs reducing the work of local MFIs - maybe could be achieved for specific segments of the market i.e. local shops.

Invest direct in MFIs, might be relevant for some investors, focus here is on the MFI platform

Direct investors to entrepreneurs. Kiva model made more efficient, but through blockchain open the model also to investors investing large amounts

10

Cardano’s Market Infrastructure

Exchanges

Wallets

Trading Algos

Settlement

Storage

STO / ICO Services

Multi-Asset

Regulated Custodians

Spending Policies

Risk Management

Treasury, Collateral

Automated Solutions

Structured Products

Compliance

Portfolio Management

Payment Rails

Digital ID�Data Storage

Assurance�Audit�Authenticity

KYC, AML

KYT, �Forensic Tools

International Standards

Governance Models

Developer Libraries

Open Source Tools

Infrastructure Layer

API Interfaces

Data Analytics

Market Integrations

Staking Operations

Liquidity Providers

Micro Payments

Margin, Leverage Trading

Asset Issuance

Self-Directed

Research, Market Data Services, Ratings, �Upgrades to the Protocol, CIP Process

Integration Layer

Financial Services +

Trust Layer

Areas where blockchain could make a difference

Blockchain in general

• Digital identity
• KYC
• Credentials & wallet
• Reporting
• Data integrity
• Legal contracts
• Smart contracting
• Covenant checks/compliance
• Secondary sales
• Disintermediation (transaction)
• Lower fees
• Higher speed
• Data management
• Social impact outcome
• Climate off-sets (CO2)
• New models

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Questions for blockchain experts

Interviewed: XXX (Cardano), Christian Speckhard (Tavis Digital)

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Technical questions:

• Reduce transaction fees? Where?
• Could ADA accelerate the speed of transaction? Where would it be most helpful?
• Where could a blockchain like ADA Could the new model reduce interest rates?
• How we redefine the work of each party?
• Can we use ADA in the process? how to protect from volatility?
• Shall we introduce tokenisation model in parallel?
• Define investors profiles? different solutions for different profiles?
• What is the plan of the industry to go to blockchain? and why?
• How is the impact being registered today?
• How can we improve the impact registration and reporting?
• …….

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Questions for Microfinance Broker/Asset Manager (AM)

Interviewed: Vincent Lehner (Symbiotics), Jacques Grivel (Fundo), Charlie Graham (Seedstars)

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Questions:

• How do you see from your point of view the digitalisation of microfinance investments, including blockchain?
• Are you aware of blockchain solutions used by MFIs? What kind of solutions/in which area of activities? Ex. crypto-currencies, digital identity, solar-off grid trading, impact reporting, etc.
• Are you aware of fintech/blockchain regulatory- friendly countries where the project should first focus for the proof-of-concept?
• Where do you blockchain to increase speed, transparency and cost-efficiency?
• …

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Questions for Impact Measurement Expert

Interviewed: Aiaze Mitha (Digital & fintech), xxx (ask Christian Sp.)

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Questions:

• Are you aware of digital impact measurement solutions adapted to microfinance?
• Are you aware of area where blockchain could add trust? Ex. time stamping, transparency, etc.
• Are you aware of impact tokenisation solutions? Are any of them monetizing the incentives to report and/or to achieve specific results?

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Link for more information

THANK YOU

Next steps:

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• Identify and interview MFIs
• Finalize report - phase 1
• Apply to next funding round (fund 10)

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