Alternate Lending, Alternative Lending, Blockchain, FinTech

Re-Define Collateral in Digital Lending and Economy. Youngsters are Digitally Rich than Asset Rich.

Do we need to re-define, “Collateral” in DigitalLending? Is collateral only about something physical?

– Isn’t storing contact details from a borrower’s mobile phone collateral?

– Isn’t asking for social media information and taking virtual access to mobile phone collateral?

My question is, can someone’s YouTube, LinkedIn, Facebook content and connection quality be used as collateral for a loan?

Ok, Let me explain.

Can I take a loan by pledging my YouTube earnings from my videos and content as collateral? And the lender can then own my earnings till the time I completely repay the loan.

We have seen such things happening through #Blockchain like increasing use of Non Fungible Tokens (NFTs). This concept is actually working for other industries.

Why insist only on physical collateral? Not everyone has physical collateral, many have social collateral which is worth more than the physical ones.

The way physical assets get evaluated, we need trusted companies which can evaluate Social Collaterals too. It needs different thinking and new tools.

Next generation will Thank us for doing that..

It’s the time when not only tools but even definitions should be redefined.

Ok, a bit more with background.

The digital economy is on the rise in India and eventually many people are choosing freelance or gig work to earn their living and to get work satisfaction. Few have left their well-paying job to do so, while many started it because they didn’t get a job for a long time, got unemployed, could not work due to family commitments etc to name a few big drivers. People who got success in this pursuit got addicted to it and never wanted to go back to a full-time job but decided to pursue their passion and profession. Many who did not get much success, got bored, got stuck, got a wonderful job offer etc and left their passion and interest, to join an employer.

People who are in a job, get a loan easily due to the fixed salary date and amount, however, it’s not true for a gig worker or freelancer who follows his passion. They get evaluated based on their income tax return and not on their potential to earn money from the virtual assets which they have created. And if they mention that they have an online business and not a regular income they are mostly denied for a loan. Thanks to COVID-19, we realised that even a fixed looking job can end at any point with no surety. However, in the pandemic, people who were working on the virtual assignments, online etc did not get much affected unless their parent industry got threatened.

Lockdown increased the time at home or time on the internet, which means more internet consumption, means more content. And who got benefitted in the entire thing? The content creators, bloggers, you tubers, movie creations, online teachers etc. They observed an upsurge in their subscription and income which further motivated them to create more content. Entire world economy changed, and we started exploring the new normal, which was virtual. But one thing did not change. The business became digital, mindset could not leave the legacy systems, and banks and traditional lenders still believe that a job is more secured than a gig work.

The concept

With the reducing cost of smartphones and the internet, India is getting into Bharat and vice versa, this cultural and technological transfusion between the two worlds is creating a new and digital India. Technology is reaching everywhere, and we can see a lot of talent, unseen and unheard actors, and professionals on TikTok, youtube, Facebook, bloggers, what’s app, Instagram, etc. These social media tools become their medium of expression and distribution. We all appreciate it and share it with our network creating a viral loop and increasing their reach and confidence.

Now, these talents want to touch newer heights however they are restrained by the limited availability of finance to them. Most of the traditional lenders and credit bureaus still rely heavily on salary slips, income tax returns etc. However, many gig workers do not make to the minimum slab of the income tax return and hence are not required to file the return, but they need capital to break that slab and earn more. Through this concept note, authors want to develop a model which can be used to assess the earning of a gig economy worker as collateral and provides enough comfort to lenders that their money is safe.

Case in point

Imagine a person who is earning an average of Rs. 15,000 per month from youtube, blogging or by selling their courses online. If s/he wants to use these assets as collateral with any traditional lender, we know most probably it will be a big no. But what about these platforms, can youtube, blogging websites and course platforms assess the past earnings and extend a line of credit to these freelancers and gig workers. And as collateral, they can take the right of these virtual assets on which their entire business works on. These virtual collaterals are the raw material for these social media platforms on which they run their business empire.

A few proposed Business models

  1. Single Party Model– These social media platforms extend a cash advance to these people when in need, depending on their past earning and potential etc
  2. Two-Party Model – Social media platform ties up with a lending company, where the platform helps to get control on the virtual collateral and date for underwriting and lender provides loan at an agreed rate of interest. The platform also shares a % risk.
  3. Three Party Model – Platform provides information for underwriting, the second party provides a specialised service in assessing the worth of virtual collateral, the third party provides the money. Here second party’s role can be taken up by the third party as well. All three/two share a % risk.

Please share your thoughts. Let’s have a discussion.. here –

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