The DApact is a blockchain framework for microfinance that lets existing microlenders perform credit operations as non-custodial entities – i.e. with no escrow of the loan principal.
The BaaS protocol creates a remittance bridge between international lenders and micro-borrower in low-income countries, allowing field intermediaries to dedicate more resources to operating activities: underwriting, collateral management and installment processing.
The DApact aims to slash the costs of bringing financings to the unbanked by refocusing microlenders onto field operations, using end-to-end value transfer capacities of the blockchain.
The DApact || How It Works
Microfinance is expensive. Contrary to popular belief, high interests don’t make up for high loan default as the industrywide non-performing loan portfolio is under 2%.
Microfinance is expensive because field intermediaries such as local lenders face high financial costs and operating costs.
Local lenders bear the costs of maintaining trust within and around their organisation.
Maintaining trust around the organisation lets local lenders access capital markets. This constitue the financial costs of a microlender, with average interests paid on capital ranging from 5% to 15% (this is their financial breakeven).
Maintaining trust within the organisation means minimizing capital losses throughout microloan origination and repayment process (embezzlement, collusion, manifest error, etc.). This is achieved by sliced up operations (underwriting vs. sales vs. field visit) and multilayered approval processes. Higher payroll – 2/3 of MFIs costs are on payroll – creates higher overhead and thereon mammoth fixed costs.
The DApact experiments how these costs can be expunged when local intermediaries are non-custodial entities.