Building a decentralized bank for microenterprises in Latin America | MIT News

In Barranquilla, Colombia, Edinson Flores has run a small family fast food business for many years. But when his family got sick with covid-19, he had to stop working and pay for medical care. When his family recovered, Flores still had customers and equipment, but he couldn’t afford the supplies he needed to get his business up and running again. He applied for a loan at a local bank, but was denied due to his low credit score.

The situation was not unique: small businesses like Flores’ make up the largest part of the economy in Latin America. Most operate in the informal economy and are not fully recognized by the government, making it difficult to borrow to grow or survive volatility.

That is what Quipu Market is trying to solve. The company, founded by two MIT alumni, is using data from the informal economy to offer a series of small loans to entrepreneurs. Quipu has developed an online marketplace that helps entrepreneurs post product catalogs, record transactions, and increase sales. By digitizing business activity, Quipu can assess creditworthiness in a new way and make loans at rates comparable to those of traditional banks.

“It’s about using new data and networks to help entrepreneurs not only access financial products, but also create wealth, because if you don’t create wealth, then money isn’t ultimately improving the economy,” said co-founder and executive director of Quipu, Mercedes Bidart. SM ’19 says.

For now, Quipu is the one granting the loans, which gradually increase as the entrepreneurs demonstrate the ability to repay them.. By the end of this year, the company plans to open up its blockchain-based lending system to allow anyone to buy interest-bearing tokens with money that is then allocated to entrepreneurs using Quipu’s algorithms to assess credit worthiness.

“We see ourselves as a digital and decentralized bank,” says Bidart, who co-founded the company with Juan Constain SM ’18 and Viviana Siless. “In addition to microcredit, we want to add financial services and become a decentralized bank designed for the informal economy.”

Quipu already has over 10,000 users on its platform across Colombia, including Flores, who was able to access Quipu loans based on his strong customer base and not only got back on track, but grew his business.

find a new way

Before coming to MIT, Bidart had worked for a think tank in his home country of Argentina to craft economic development policy. He also helped a grassroots organization that worked with families in informal settlements. But he began to question whether grassroots work could scale, at the same time that he saw that the top-down governance approach was limited by a lack of data on the informal economy. He came to MIT to learn how to overcome those problems.

Bidart joined the Department of Urban Studies and Planning (DUSP) in 2017. While studying with Associate Professors J. Phillip Thompson and Gabriella Carolini, she was introduced to new financing models that focused on social banking, community currencies, and chain of blocks. He also worked with Katrin Kaeufer, a researcher at DUSP’s Community Innovators Lab.

“I started wondering how we could implement those models in places where there is scarcity and economic urgency all the time,” says Bidart.

Although he came to MIT with no finance background and no knowledge of startups, he began taking entrepreneurship classes at the Sloan School of Management and eventually received support through the PKG Center and the MIT Innovation Initiative to further explore his ideas.

“When I got to MIT, I knew there was a problem and I had been thinking about solutions,” says Bidart. “But I had no idea there was this other way of doing things, not through grassroots work or public policy or big business, but by starting something myself that I could scale using technology.”

Bidart spent the summer of 2018 designing a prototype financing system with a group of entrepreneurs living in a public housing complex in Barranquilla, Colombia. When he returned to MIT, he continued to develop the platform and teamed up with Siless and Constain.

In 2019, the co-founders entered the School of Architecture and Planning’s MITdesignX accelerator, an experience Bidart calls “game-changing” because the program helped them realize they could build a profitable business around the new data they collected. .

Today when entrepreneurs make a profile on the Quipu platform, the company digitizes information such as the location of the business, the goods or services it offers and who its customers are.

“We turn that social capital into economic capital with an AI-based algorithm that assesses creditworthiness in an alternative way,” says Bidart. “We created a credit score that serves as a digital financial ID. With that ID, they can access revolving loans that start at around $25 and increase in value as users pay.”

Many of Quipu’s entrepreneurs have poor credit scores and cannot access traditional loans from banks. Private financiers are available, but charge high interest rates and may use violent collection practices. Bidart says other microfinance solutions are slow to disperse money because they rely on people traveling to businesses and reviewing operations, while Quipu can disperse money within three days of a request.

Quipu is building a blockchain-based system so that the tokens linked to its loans increase in value as users repay loans and interest. The system will allow anyone in the world to lend money to entrepreneurs on the Quipu platform.

transforming economies

Quipu is currently operating in Colombia and plans to expand to Mexico by June next year. Bidart sees Quipu as an engine of economic growth for low-income neighborhoods that have been overlooked by traditional institutions.

“The problem is that people do not have access to financial products designed for their economy, so there is no economic development,” says Bidart. “Supporting people with loans and giving them other ways to sell more can improve how their business works, and they can start using the data they already have to access not only our loans, but also other financial services at better rates” .

The best loan rates will level the playing field for families who have historically had to pay more for a number of financial services.

“We want to change the reality that being poor is very expensive,” says Bidart. “Being born poor forces you to accept higher rates from banks and forces you to access supplies at higher rates because you are far from the city or there are many intermediaries. And what we want to do is say, ‘It doesn’t matter where you were born. We all have data about what we’re doing, non-financial data that we can use to assess creditworthiness, and that will give us all the ability to grow financially at the same rate.”

Leave a Comment