Bitcoin Microfinance – How Does It Work? – Business – The Guardian Nigeria News – Nigeria and World News

Microfinance involves providing small loans to financially disadvantaged people and helping small businesses, communities, households and individuals start or develop income-generating businesses. Although the effectiveness of microfinance in reducing poverty is constantly debated, substantial evidence suggests that it has many positive effects. Thus it helps the financially disadvantaged population and the local economy.

The idea behind microfinance is relatively simple; break the debt cycle and allow borrowers to finance their business independently without relying on traditional lenders, who usually charge them high fees. Microfinance gives people excluded from traditional banking systems access to small loans with programs tailored to their circumstances and needs.

The main features of microfinance
Microloans have several characteristics that set them apart from other credit services. Its main characteristics include the following.

• They are offered for relatively short terms, which usually last 6 to 12 months.
• These loans are available in smaller amounts, usually between $ 100 and $ 500, until borrowers can prove their creditworthiness through regular bank transfers. Creditworthy borrowers can then take out larger loans.
• The average global interest rate on microfinance is around 37%. While this may seem high to some people, it is relatively lower than most loan alternatives, such as traditional moneylenders.

Thanks to Bitcoin and the underlying technology, microfinance institutions would now offer these services with much more security and convenience. The technology would also enable faster payment processing and lower interest rates than current ones. Bitcoin is a decentralized currency that enables microcredit providers and their customers to conduct transactions without outside influence.

Blockchain technology would facilitate smart contracts and ensure easy loan repayment through the creation of bonds on the terms set. Bitcoin microfinance would make it easier for companies and individuals to purchase and store virtual assets without going through the banks or crypto exchanges such as credit cards Bitcoin system.

How Bitcoin Micro Finance works
Bitcoin and the underlying blockchain technology are still new concepts, but offer numerous advantages for microcredit service providers and customers. Several forward-thinking microfinance institutions have introduced Bitcoin to provide low-cost loans and receive payments from various companies and individuals around the world.

Bitcoin microfinance providers have mobile apps and online platforms that customers use to conduct financial transactions. The platforms allow a variety of transactions, including instant bank transfers, paying utility bills, and wire transfers. Like the blockchain, they record the transactions in a permanently digitized ledger.

The apps use a unique algorithm to keep track of users’ transactions and predict their actual financial ability and creditworthiness. Unlike the traditional economies, there are no intermediaries involved in Bitcoin lending. Instead, customers sign virtual contracts with all lending and repayment terms on the blockchain. This significantly reduces transaction costs and the time it takes to process payments.

Bitcoin microfinance offers service providers more significant opportunities to expand their businesses and enter new global markets. The decentralization of Bitcoin and the security of the blockchain enable lenders, businesses and individuals worldwide to provide funding with a repayment guarantee for overdue loans.

Bitcoin microfinance borrowers don’t need bank accounts or banking services to keep their money. All that is required to use and store Bitcoin is a crypto wallet, which you can easily download for free or for a small fee from online providers. The lender will send the loan directly to your Bitcoin wallet and vice versa.

Bitcoin microfinance is still in its rollout phase and it could take some time to reach the masses. However, it is a significant step in promoting financial inclusion as it makes it easier for those without bank accounts, individuals and communities around the world to access capital for economic growth and development.