How many more businesses would survive and thrive if lenders had better information for loan decisions? When Ben comes to get a loan, he has to prove he is a reasonable credit risk . But he may not be able to provide all the information that a lender is asking for. What can he do to prove he is a trustworthy borrower? A lender doesn’t make money if they say no to a qualified borrower. There’s a new blockchain-based solution at hand.
Micro, Small & Medium Enterprises (MSMEs) generally have difficulties in getting loans from financial institutions because the conventional credit scoring process relies on analyzing the financial statements to evaluate creditworthiness.
“MSMEs represent 90% of global businesses and contribute to more than 40% of GDP in emerging economies. NAOS is on a mission to expand DeFi beyond the existing 1% of global users, and there is no better place to start than tackling the issue of financial inclusion for global MSMEs. We’re excited to partner with IoTeX to provide tangible solutions to shorten financing gaps.” Kevin Tseng, Founder of NAOS Finance.
The International Finance Corporation (IFC) estimates that 40% of these small businesses in emerging countries have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4x the current level of the global MSME corporate lending. A significant percentage of those businesses would be getting loans if they had the ability to provide more thorough documentation or if the loan criteria were better tailored to their business.
NAOS Finance and IoTeX want to help these small businesses. Blockchain technology is being integrated into the credit risk process which lets businesses have a greater range of data considered in their loan applications. This helps small businesses achieve their financing needs in a secure, verifiable way. Blockchain technology, provided by IoTeX, can verifiably track real-world assets to be considered as a part of the loan application.
Blockchain solves the issue of trillions of dollars being wasted or unallocated in the currently strict loan application process. This will save businesses from failing and allow lenders to originate more loans – and make money.
This is the first time this wasted opportunity is being properly addressed. This has the potential to impact the lives of business owners across the globe.
Though credit bureaus such as TransUnion, FICO and Experian provide additional evaluation support, their focus is still solely on banking, loan and financial data. To date, there are not many non-banking entities participating in this problem space in a unified way. NAOS and IoTeX are paving the way on solving this monumental problem.
In the emerging markets where banking and credit card adoption are both in the low double-digits, alternative data such as e-commerce transaction records, location-based ride hailing data, mobile micro-loan repayment histories, cellular data and social media are used as factors in Alternative Credit Scoring (ACS) to determine consumer’ financial and consumption fitness. All these data points can help more businesses and increase the volume of loans distributed. In turn, both the businesses and lending institutions are benefiting.
The NAOS and IoTeX perfect union will bring non-financial data on-chain to provide this alternative data scoring (ACS) for small businesses (MSME). For further context, The ACS combines financial data with alternative data such as electricity/fuel consumption, delivery frequency/quality and warehouse activities to predict possible loan defaults. When an MSME applies for a loan, NAOS automatically retrieves the requested alternative data from the IoTeX blockchain for use in credit scoring. The data is then fed into NAOS’ credit decision engine for further modelling and decision making.
“We are excited to partner with NAOS Finance to connect the real world with the blockchain universe. Together we are introducing a new utility for real world data from “Powered by IoTeX” devices to fuel trusted lending/borrowing of real world assets. This enables the transparent valuation of real world assets based on verifiable real-world data.” – Raullen Chai, Co-Founder of IoTeX.
IoTeX devices such as Pebble Tracker are designed to capture verifiable data from the real world and make it available to blockchain Dapps. Pebble Tracker is currently being piloted in several supply chain testbeds, which will be a perfect sandbox to bring NAOS-IoTeX trust scores to enterprise clients. Additionally, since 2020 IoTeX has been developing its TruStream protocol, a real world data oracle designed to work with all types of IoT devices. TruStream will bring an even greater variety of trusted data from trusted devices to the blockchain.
Non-financial data combined with financial data provides a strong foundation for the new age credit underwriting models. Each of the non-traditional data points will be treated as valid factors for credit scoring, and will be assigned specific weight depending on the nature of the businesses. The resulting credit scores now contain essential behavioral attributes that help NAOS and the community to make better decisions pertaining to assigning interest rates, debt ceiling and repayment terms.
Under this new system, if I’m a potential borrower I know that when a lender sees my past behavior it tells them how creditworthy I am. Now they can determine if I qualify for a loan and on what terms. NAOS and IoTeX make this process secure, streamlined, and beneficial for small and medium businesses beyond the conventions of traditional banking. This innovative partnership has the potential to change the credit risk process as we currently know it to provide capital to small business people who would otherwise not qualify. This people-first standpoint is made possible with blockchain technology to give borrowers a greater chance of prosperity.
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