Blockchain’s Qwil Tackles The Small Business Loan Industrybr>
Banks all over the world have found different ways to apply blockchain — yet many have avoided its application in the loan market. One reason skeptics say it’s not considered is that a primarily paper-based system and outdated technology help financial institutions with control and hide risk.
Reinsch talked with Block Tribune about the loan industry’s status and blockchain’s potential role.
BLOCK TRIBUNE: What is your definition of a predatory loan?
JOHNNY REINSCH: I would define predatory as any loan type that includes features that can lock the borrower into perpetual debt with direct recourse against the borrower. In a traditional pay day loan, for example, the borrower is on the hook to pay a very high interest rate and any foot fault in paying the loan back results in exorbitant penalties. Ultimately the borrower may be stuck making interest payments into perpetuity or otherwise be forced to declare bankruptcy. This is known as the debt spiral and is an abuse committed by predatory lenders. Qwil’s advances are interest free and non-recourse to the borrower, avoiding the debt spiral.
BLOCK TRIBUNE: How does a paper-based system create abuses?
JOHNNY REINSCH: Paper-based systems are terribly inefficient and also increase opacity. Paper loan files make it very difficult to conduct diligence as a lender or secondary buyer of the debt. In 2008 bad loan files were a key reason for why loans were poorly underwritten at an impressively large scale.
BLOCK TRIBUNE: How would blockchain have prevented the 2008 crash?
JOHNNY REINSCH: Blockchain provides a level of transparency and auditability that would have ensured proper underwriting and ratings on loan files. By leveraging blockchain and being on-chain, one cannot say a bad loan is a “AAA”. The financial system as a whole would have understood the risk better and priced it accordingly.
BLOCK TRIBUNE: How does Qwii make a difference?
JOHNNY REINSCH: Qwil’s system provides an unparalleled level of transparency with built in custody and a secondary market.
When an advance is taken via Qwil we create a token containing all the underwriting attributes of the advance. This means any market participant that may own the loan knows exactly what the loan was for, the creditworthiness of the obligor and the history of the originator, underwriter and servicer on the loan. The blockchain acts as custodian, saving cost, and also enables secondary market trades of the loan within seconds.
BLOCK TRIBUNE: What problems would it solve for consumers?
JOHNNY REINSCH: Qwil’s technology is particularly good at advancing small amounts of money without requiring interest or recourse. At scale we also remove 10s of billions of cost by leveraging blockchain as a means of custody, transparency and secondary market liquidity. Ultimately lowering the overall cost to borrowers.
BLOCK TRIBUNE: What are the economic consequences of applying Qwii to loans?
JOHNNY REINSCH: We don’t currently require a credit report nor do we report to credit agencies. Our loans are non-recourse against the borrower, which also means no calls from collections if the loan defaults.
BLOCK TRIBUNE: What is your loan criteria based on?
JOHNNY REINSCH: We underwrite based on the company the freelancer works for. If a freelancer is performing work for a large fortune 100 company with a healthy balance sheet the cost will be lower, if for a company with very little operating history or even a bankruptcy then the cost will be higher. Ultimately we endeavor to provide an advance of some amount for any business type we’re underwriting so the freelancer has access to the cash.
BLOCK TRIBUNE: Would the loans be in crypto or fiat? If in crypto, could they be easily exchanged into fiat?
JOHNNY REINSCH: Loans will be denominated, funded and settled in fiat. There’s currently no demand for crypto denominated loans though we would consider it when the time is right.