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Trust, Credit, and a Belief in the Future

The belief that the economy of the Future will be more prosperous than the economy of Today is a prerequisite for establishing credit. Without confidence in the prospect of wealth creation, Lenders would be disincentivized to loan capital, smothered by doubts of their own financial stability and a lack of assurance of how the borrower could repay.

The Economy of the Past

Back when credit was restricted, the human race was trapped in a vicious cycle. Let’s say you were an enterprising villager, wanting to earn an income by selling produce in a store. If you had no capital, this was simply impossible. Without capital you could have no store. Without the store you could sell no goods. Without selling goods you couldn’t generate capital. And without capital you could never open a store, and so the cycle continued. Humans were probably stuck like this for a very long time.

On a macro-level the lack of credit drove economic growth at a snail’s pace. Because credit was restricted, it was hard to finance a new business. Because there were few new businesses, the economy barely grew. Because the economy didn’t grow, no one ever believed that it would grow. Since no one believed it would grow, no one would lend money to start a business.

Credit enables us to build the present at the expense of the future. It’s founded on the assumption that our future resources are sure to be far more abundant than our present resources. A host of new and wonderful opportunities open up if we can build things in the present using future income.
- Yuval Noah Harari, Sapiens

Creating Credit

The debilitating loop of mistrust was broken only recently in the span of human history. The historical record of the past few thousand years reveals loans that were priced according to caste and family ties in ancient India and the Philippines. The ancient Athenians had lending but their moral code apparently argued against charging interest. These are probably some of the earliest documented instances where credit helped ease the slow pace of economic growth.

Some historians have claimed that in the last two thousand years, the growth of credit triggered the Renaissance to occur, the scientific method to develop, and allowed humans able to make real progress over shorter and shorter periods of time.

This fascinating chart from the Economist argues that if “History” = economic activity or number of years lived, we’re now making History at unbelievable speed.

The Economy of the Present

William Gibson said, “the future is already here — it’s just not very evenly distributed.” That was in the early 1990’s and it’s still true about access to credit, thirty years later.

Globally, billions of people remain disconnected from financial markets and stuck in local stalemates that harken to ancient times — their family members and individual community leaders are the primary source of capital. Rather than bet on a prosperous future as their motive to lend money, they’re banking on historical ties of blood and obligation.

Why is this still the case? Until now, the data formal lenders needed to make a judgment about creditworthiness was simply not accessible. Bank accounts went unused, either due to the lack of a nearby bank, the lack of proper identification to open an account, or an unfriendly experience. Family and business income came in the form of cash. What little credit data was available was fragmented and unverifiable.

A lack of credit information means Lenders cannot determine the creditworthiness of borrowers. Borrowers cannot gain access to credit, because they are unable to show their creditworthiness. And because credit is unavailable, borrowers have no way to build a reputation with lenders.

The Economy of the Future

Citizens of the world, we are zooming into the future. Even as the “informal” economy accounts for half of all employment and 90% of micro- and small enterprises (MSEs) worldwide, more and more of us are no longer invisible to lenders.

Whether it’s payments made or accepted with mobile phone wallets, spending on digital services like voice and text, social network data or geo-positioning tracking, the volume of useful credit data available about us sky-rocketing.

At LendLedger, we believe that distributed ledgers and digital micro-transactions will harness data to expand affordable credit to the majority of our fellow human beings, who have yet to take advantage of it.

The LendLedger Protocol creates a decentralized network where data collection, credit analysis, and loan disbursement and repayment are automated by market players in a seamless, frictionless manner. Lenders are able to trust Borrowers by accessing household and business data provided by data partners (such as payments and e-commerce sites) that they use on a day-to-day basis.

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Originally published