Establishment of a decentralized micro – business bank 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 became ill with Covid-19, he had to stop working and pay for medical care. When his family recovered, Flores still had customers and equipment, but could not afford the supplies needed to start his business again. He applied for a loan at a local bank but was turned down due to his low credit rating.

The situation was not unique: small businesses like Flores made up the bulk of Latin America’s economy. Most work in the informal economy and are not fully recognized by the government, which makes it difficult to obtain loans for growth or to overcome instability.

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

“It’s all 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 doesn’t ultimately improve the economy,” he said. Quipu CEO Mercedes Bidart SM ’19 says.

For now, Quipu is the one to provide loans, which are gradually increasing as entrepreneurs demonstrate the ability to repay them.. By the end of this year, the company plans to open its blockchain-based lending system to allow anyone to buy interest-bearing money tokens, which are then distributed to entrepreneurs using Quipu’s credit rating algorithms.

“We see ourselves as a digital, decentralized bank,” said Bidart, who co-founded the company with Juan Constein SM ’18 and Viviana Siles. “Along with microcredit, we want to add financial services and become a decentralized bank, adapted to the informal economy.

Quipu already has more than 10,000 users on its platform across Colombia, including Flores, who has been able to access Quipu’s loans based on its strong customer base and not only recover and operate, but also expand its business. .

Finding a new path

Prior to joining the Massachusetts Institute of Technology, Bidart worked for a think tank in her native Argentina to develop economic development policies. She also helped a local organization that worked with families in informal settlements. But she began to wonder if the work of locals could grow, while seeing that the government’s top-down approach was limited by a lack of data on the informal economy. She came to MIT to learn how to overcome these problems.

Bidart joined the Department of Urban Research and Planning (DUSP) in 2017. While studying with Associate Professor J. Philip Thompson and Gabriela Carolini, she was introduced to new financing models that focus on social banks, community currencies and the blockchain. She has also worked with Catherine Kaifer, a research associate at the DUSP Community Innovation Lab.

“I was starting to wonder how we could apply these models to places where there is scarcity and economic urgency all the time,” Bidart said.

Although she came to the Massachusetts Institute of Technology with no financial experience and no knowledge of startups, she began attending entrepreneurship classes at the Sloan School of Management and eventually received support through the PKG Center and the MIT Innovation Initiative to explore further. their ideas.

“When I joined MIT, I knew there was a problem and I was thinking of solutions,” Bidart said. “But I had no idea there was another way to do things – not through the work of ordinary people, public policy or big companies – but to actually start something on my own that could scale with 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 she returned to the Massachusetts Institute of Technology, she continued to develop the platform and partnered with Siless and Constain.

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

Today, when entrepreneurs create an account on the Quipu platform, the company digitizes information such as the location of the business, the goods or services offered and who their customers are.

“We are turning this social capital into economic capital with an algorithm based on artificial intelligence that assesses creditworthiness in an alternative way,” Bidart said. “We create a credit rating that serves as a digital financial identifier. With this ID, they can access rotating loans that start at around $ 25 and increase in value as consumers repay. “

Many Quipu entrepreneurs have a bad credit rating and do not have access to traditional bank loans. Private financiers are available, but they charge high interest rates and can use forced collection practices. Bidart says other microfinance solutions are slow to spread money because they rely on people to travel to business and analyze operations, while Quipu can spread money within three days of request.

Quipu is building a blockchain-based system so that the tokens associated with its loans increase in value when consumers repay the loans and repay the interest. The system will allow anyone in the world to borrow money from entrepreneurs on the Quipu platform.

Transforming economies

Quipu is currently working in Colombia and plans to expand in Mexico by June next year. Biddart sees Kipu as the engine of economic growth for lower-income neighborhoods that have been neglected by traditional institutions.

“The problem is that people don’t have access to financial products that are meant for their economy, so there is no economic development,” Bidart said. “Supporting people with loans and giving them other ways to sell more can improve the way their business works, and they can start using the data they already have to access not only our loans, but also our other financial services at better prices. “

Better interest rates on loans will level the playing field for families who have had to pay more for a range of financial services in the past.

“We want to change the reality that being poor is very expensive,” Bidart said. “Being born poor forces you to accept higher rates from banks and forces you to have access to supplies at higher prices 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 on what we do – non-financial data that we can use to assess creditworthiness – and that will give us all the opportunity to grow financially at the same pace.

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