P2P Lending Will Change the Way Credit Is Dispensed Globally

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One of the greatest problems that we face today is the disconnect between the economy and the people. It is the hard work of everyday people that drives growth but it is not always the case that people who struggle on the ground get to reap the rewards.  As an example OECD research points out that financial sector works constitute 19% of the top 1% earners but the share of finance in the overall employment is only 4%. Just like the skewed numbers surrounding financial sector, the whole state of the economy is lopsided and favours people in certain geographies, positions or sectors. What if we could restore the balance in the economy and give everyone a fair chance at achieving success? What if we could create a system in which people would be able to bring their financial dreams to fruition on their own terms? Karma is attempting to build a new economic ecosystem that would allow individuals, entities and professionals around the world to be partners in economic success.

Giving credit where credit is due

Credit equals power in today’s economies. If you have access to credit, you can start a business, fund a school or a hospital, start a factory and do much more. The lack of credit means squandered dreams and projects. However, for the vast majority of the world credit remains an obstacle to be overcome. There is also a huge imbalance in the way credit is structured around the world. In developed world, there are huge reserves of money lying in banks at sub zero, zero or miniscule interest rates. On the other hand in the developing world where there is a dearth of credit, loans can only be had at rates as high as 20-30%. This disparity makes it very difficult for people in developed world to realise good returns on their idle money and for people in the developing world to get access to credit at favourable terms that would allow them to start Small and Medium Enterprises (SMEs) or businesses. Andrey Kostin, CEO of VTB Group, one of the largest financial holdings in the CIS recently said at a conference, “SMEs loans are pointless for banks.”

Banks are failing the people of the world

SMEs have a huge role to play in the development of the world economy. According to Eurostat, SMEs represent around 99% of all enterprises. In OECD countries alone SMEs are responsible for job creation to the tune of 60-70%. However, are these enterprises getting the kind of support from the banking sector that they should be getting? Karma’s founder and Vice Chairman of the Blockchain Experts Chamber of the Russian Parliament George Goognin’s example proves otherwise. He tried to get a business loan from 23 Russian banks. The banks put conditions such as 200-300% collateral in terms of real estate and bills of exchange. There is even the example of one Russian bank that spent 6 months trying to process a SME loan and then finally gave up. George Goognin tells us, “I've had a profitable growing business with long corporate contracts and tried to get an SME loan less than my 1-year net profit. I've called and mailed to 23 banks, but nobody wanted to talk with me without 200-300% collateral in real estate or the same bank's securities.”

It is not the case that the banks are faring better in other areas as well. Given that a vast amount of people from developing countries choose to migrate abroad and send money home to their families, the banks could provide better services to this floating populace. However, what we have normally seen is dismal performance from the banks. According to the World bank Remittance Prices Worldwide, As of September 2017 the banks provided most expensive remittance services with the average cost being 11%. It also takes multiple days for banks to process remittances.

Karma wants to create a better alternative

The answer to a lot of the ills that afflict the modern day economy is in peer2peer (P2P) lending. Creating an economy in which the constituents of the economic power hold the power. What we need today is an ‘economy of trust’. Karma plans to use the blockchain in such a way that individuals as well as legal entities can make the most of profitable relationships with each other. This will entail creating a community of participants, who will be able to lend money, borrow money, insure against default, Score loans and carry out assessments and even collections. All of this will be fuelled by the Karma token that will be at the centre of this new ecosystem. The best part is that Karma will try to remove the shackles of geography and allow people anywhere in the world to loan money to other people. The blockchain based system would be reliable and based on ratings of the users of Karma. In a whitepaper put out by Karma the jist of the system has been explained as, “The task of Karma is to create an ecosystem with a rich variety of relations between participants. People will have the opportunity to exchange their available resources directly with other people, with and without interest, for a period of time to be determined between peers.”

Engaging people to build the Ecosystem

Karma are engaging ordinary investors to build this economic ecosystem of the future. A token sale is being held by them between 27-29 November 2017. On the first two days of the token sale i.e. 27 and 28 November, the sale is open for investors who are know your customer (KYC) compliant and have been added to the white list. If there are tokens leftover from these days, they will be put on sale on 29th of November on an open sale. The sale of Karma tokens is legal in all jurisdictions including the United States and China. Qualified US investors can participate. The basic price of Karma Token is US$ 0.01. Early investors can get discounts of 50% till US$ 1 mln is collected, thereafter 30% discount is available till US$3 mln is collected and 15% till US$ 8 mln is collected. There is a hard cap of US$ 10 mln on the token sale.

The Karma token will be used for commissions on activities such as scoring, transaction processing, insurance collections etc. Token supply will remain fixed and as more people utilise the Karma tokens and purchase them for conducting transactions, scarcity is expected to drive the price higher. Token holders will benefit from priority access to new applications if they hold more than 100,000 tokens and can also avail 50% discount on conducting transactions on the Karma platform.

Karma is about commonsense

Giving people access to cheap credit just makes sense. The route adopted by Karma is just one step in that direction. In order to start a project on this scale, it would need the involvement of the world at large. Yet every journey begins with the first step. The token sale for Karma is that step. They are planning to launch an Alpha-Version as soon as November 2017, which would allow p2p lending in the form of crypto pawnshop where USD loans would be available against BTC/ETH collaterals and SMEs zero collateral loans. Can Karma change the way we look at money, banking and finance? It won’t take long to find out.

Last modified (UTC): September 12, 2019 10:09 AM