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RealFi as A Technological Bridge for SMEs in Emerging Markets

Published 24.5.2024

Out of nowhere, IOG announced the launch of the RealFi service. The service should support the growth of underbanked businesses in emerging markets. The CEO of the project is John O'Connor, former director at IOG who strives for the adoption of blockchain technologies in developing countries. Charles Hoskinson considers RealFi the vanguard of efforts to Bank the UnBanked using Cardano. Although the ties to Cardano are obscure from the announcement, it is worth looking at what RealFi is and what problem it solves. Read on to learn how RealFi can facilitate Cardano adoption.

What is RealFi?

RealFi is a fintech entity that offers a suite of tools designed to facilitate private credit opportunities in emerging markets. These tools help users understand, build trust, and demystify private credit opportunities in these markets.

In emerging markets, small and medium-sized enterprises (SMEs) are the backbone of the economy, contributing to 70% of job creation. However, these businesses often need more access to credit to grow.

Traditional lenders in developed markets are often hesitant to lend to businesses in the global south due to the complexity involved in risk assessment. These businesses are typically small and require relatively small loans, making them less attractive to lenders who prefer to invest in high-yield government debts. This preference stifles the expansion of the real economy.

The rise of financial technology (fintech) entities presents a promising solution to this problem. These fintech firms specialize in developing tools for underwriting the risks of specific businesses or loan types, providing capital, and promoting inclusive economic growth, equality, and job creation. They often finance SMEs with or without collateral, using data to assess the risk of the businesses they finance.

Despite these advances, fintech companies still face a significant hurdle. They need access to balance sheet funding to finance their loan portfolios, but their licenses do not permit them to accept deposits for these activities. This gap is typically filled by wholesale lending in the established global finance ecosystem, with institutional investors relying on trusted intermediaries, such as investment banks, to find deals and assess risks.

Developing markets offer new opportunities, but only if they are addressed appropriately. This is exactly the goal of the project. This is where RealFi comes into play.

RealFi’s suite of tools includes access to financial statements, loan tapes, and a dynamic financial model. These tools enable users to make capital accessible to millions of SMEs in emerging markets by making risk more transparent, quantifiable, and predictable.

RealFi’s tools also help users monitor early warning signs of changes in repayment patterns and revise their risk model. This process helps users evaluate the value of an SME’s lending portfolio.

RealFi collaborates with fintech lenders in emerging markets to improve and standardize their data. This improved data is shared with users to increase transparency and provide insights, enhancing opportunities in these markets.

By leveraging technology to scale this service across various fintech lenders, RealFi boosts user confidence and allows users to address potential issues before they escalate. RealFi is more than just data – it establishes a common risk and reward language that encourages users to engage in small-scale opportunities with a new group of counterparties.

The ultimate goal of RealFi is to equip users with the tools they need to lend confidently and efficiently, thereby promoting SME growth in emerging markets. After a fintech lender is onboarded, RealFi links measurable data points to global impact frameworks, allowing users to follow impact metrics and compare these against other opportunities as easily as they track returns.

RealFi unlocks opportunities for developing markets. Users can search for new opportunities in emerging markets with more transparency through data that has not previously been available. This approach not only promotes economic growth but also fosters inclusive economic growth, equality, and job creation.

How can RealFi be useful for Cardano?

Indeed, the potential integration of RealFi’s risk management tools with Cardano’s blockchain technology could be a significant step forward in the adoption of decentralized finance (DeFi) services in emerging markets.

Just as WorldMobile is striving to bridge the digital divide by connecting the unconnected, RealFi is also working to bridge the financial divide by making credit more accessible to SMEs in emerging markets. Both these initiatives share a common goal of fostering inclusivity and equality, albeit in different domains.

Cardano could provide an ideal platform for services connected with RealFi’s suite of tools. The blockchain’s ability to execute smart contracts can be leveraged to create transparent and secure lending agreements. This could significantly reduce the risks associated with lending in these markets, thereby encouraging more investors to participate.

As a global network, Cardano can easily connect investors from the West with SMEs in developing countries.

Moreover, the integration of RealFi with Cardano could also pave the way for the development of DeFi services tailored to the needs of emerging markets. By making these services more accessible, we could see a surge in economic activity and growth in these regions.

The integration of RealFi’s risk management tools with Cardano’s blockchain technology presents a promising opportunity to drive the adoption of DeFi services in emerging markets, foster economic growth, and promote financial inclusivity. It’s an exciting prospect that could have far-reaching implications for the future of finance in these regions.

In a tweet by Charles about RealFi, he also shares a link to a blog post by Hyperledger on Decentralized Identity (DID). The blog introduces an open enterprise agent, a fresh initiative by Hyperledger Lab, aimed at self-sovereign digital identity applications. This agent employs the Cardano blockchain as a verifiable data registry (VDR). The post was authored by the team at Atala PRISM, which is a management solution for DID.

The connection between RealFi and the Hyperledger activity mentioned in Charles’s tweet isn’t immediately clear. However, it’s plausible to conjecture that the RealFi solution might incorporate Hyperledger’s DID application to verify the identities of entrepreneurs in developing countries.

Conclusion

When you consider the broader picture, it becomes evident that the implementation of DeFi in developing nations is considerably more challenging than in developed ones. Unreliable internet connections in these countries pose a significant hurdle, a problem that the WorldMobile project aims to address. The collaboration between Hyperledger and the Atala PRISM team can offer a solution for Decentralized Identity. RealFi, in this puzzle, serves as a risk management solution. Consequently, Cardano, in conjunction with the DeFi ecosystem, can function as a financial infrastructure working together with the technologies described above.

The mission of bringing banking to the unbanked is one of the most noble and beneficial endeavors of blockchain technology. However, it’s also one of the most daunting challenges. The excitement surrounding approved ETFs sometimes overshadows this crucial mission, which is unfortunate. Initiatives like RealFi, WorldMobile, Atala PRISM, and others are not just beneficial for Cardano, but for all blockchains. Every individual from developing countries who gains access to banking services is a step forward. There are times when we hear that Cardano’s mission in Africa has not succeeded, or that it’s taking longer than expected. Despite all the hurdles and the challenging journey, this mission continues unabated.

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