Blockchain technology has proved its disruptive potential beyond cryptocurrencies and is finding its applications across industries. Multiple use cases are available in the financial sector which leverage Blockchain and smart contracts. Blockchain based
transactions come with promising features such as low cost, high speed, transparency, and security, and have driven the attention from many solution providers for designing Blockchain based payments solutions.

Access for all to financial resources has been the focus in the past two decades which brought in many revolutionary reforms in the area of financial inclusion. New age technologies are paving the way to build innovative solutions to fulfill the social mission
of achieving inclusivity by providing affordable financial services. Microfinance, which is the lifeline of financial inclusion empowers the under privileged and small businesses by providing small loans. While microfinance offerings improved over a period
of time, still there are setbacks which prevent the targeted sector of society from availing the benefits of these essential services. Some of the drawbacks include high interest rate, intervention of multiple intermediaries, non-standard evaluation methods,
slow KYC process and lack of trust in the financial service providers and micro finance institutions. Blockchain offers numerous possibilities to address these issues and transform the microfinance industry as a whole.

Blockchain and Microfinance

The conventional way of microfinancing involves multiple intermediaries such as societies or agents. The cost of acquiring the customer and processing a loan will be high as the amount involved is much smaller compared to a normal commercial loan. This implies
higher rate of interest for the loans to compensate the operational costs involved. With Blockchain the intermediaries can be avoided, and the decentralization feature eliminates the higher transaction costs.

Providing proper identification documents is another pain point for the customer. The customer mostly being located in remote areas has less awareness of the processes and relies on the agents or other intermediaries for identity verification. The lending
institution also lacks direct contact with the customer. All these results in slowing up the entire KYC process which is essential for customer onboarding. Blockchain helps to create a digital identity of the customer. The customer information can be stored
in a secured manner and can be accessed by the financial institutions. This eases the KYC process and reduces manual intervention as well.

Another struggle for the customer is to prove the credit worthiness. Being part of the unorganized sector of the society, it is difficult for them to provide any credit history. Here Blockchain can help to create a ledger record using multiple attributes
such as land records, financial transactions involving sale of goods, and other documents, so that a credit history can be provided for verification by the financial institutions. As these records are immutable and cannot be tampered with, there is no cause
of concern for the financial institutions about the validity of these information.

Another important aspect is the trust element as there is no direct contact between the borrower and the financial institution in most of the cases. While the borrower is unaware about the various products and services and the costs involved in availing
these, the financial institution always worry about the repayment capacity of the borrower. Blockchain using its smart contacts feature helps to create and record the contract between the borrower and the financial institution with the necessary terms and
conditions. This provides transparency to both sides and ensures repayment of loans in an efficient way. Another operating cost is the cost of collections after loan is disbursed which can be reduced by securing the payments through Blockchain.

Use cases: There are multiple use cases with success stories where the Blockchain based micro finance solutions are used. There needs to be a proper legal framework and increased adoption of these platforms by the end customers for the real
success to be achieved. Some of the use cases are:

Moeda: Moeda seeds is a Brazilian ecosystem which provides microfinance to female entrepreneurs to run social impact projects. The sector who face difficulties to avail credit from traditional banks are offered micro loans which helps them
thrive. The entire ecosystem is facilitated by a Blockchain-based payment and lending platform.

Uulala: Uulala is a fintech platform launched in Latin America which uses Blockchain to enable the unbanked and underbanked Latinos to get access to affordable financial services. The platform provides low interest micro credits. It uses
the records of financial transactions and remittances done using this platform to assess the financial abilities and credit worthiness of the customers.


Blockchain promises a new wave of technological and financial transformation for microfinance industry. Blockchain as a Service (BaaS) model offers cost effective solutions to microfinance ecosystem. Low value high volume ( similar to payments ) can be experimented
using Blockchain if cloud cost is high. Both the customers and the microfinance institutions can reap the benefits by using the Blockchain based platform. Connecting all the players ( borrower/FI/ valuators/KYC service providers etc.) in the ecosystem through
Blockchain can lessen the time for loan processing, reduce the operational cost and increase transparency. The future might see substantial improvement in the quality and quantity of microfinance products and services offering, thereby augmenting financial
inclusion to reach new heights.