THE PROBLEM
Small farmers do not have access to banking and due to lack of available private capital in their geographical area, they must bid to get it, because the lender has limited capital. This means they offer to pay interests even higher than 120% per year in order to obtain the required financing, because their crops generate enough benefits to cover it, even if their own profit gets reduced. On the other hand, socially responsible investors can’t directly invest in positive
impact projects, with high profitability and with affordable risk.

THE SOLUTION
The solution consists on connecting groups of small farmers from developing countries who currently offer to pay high interest for cash loans without leaving record of such payment history, with investors in markets with excess liquidity, allowing investors to obtain high returns for their money and at the same time, provide better interest rates for farmers. This is possible due to the difference in the cost of money in their respective economic zones.

We are the only platform that charges commissions only in case of success, that is, once the loan has been paid. We believe that no one should benefit from an unpaid loan.

Our strategy to capture and evaluate projects is based on people. At Ethic Hub, Local Nodes are people linked to the community they serve. They benefit directly from maintaining and increasing their
good reputation based on the accurate valuation of the projects they select. Local Nodes also generate another competitive advantage: they are the best way to identify users (probably the greatest problem of decentralized P2P loan platforms, since it is impossible to validate the existence, nor moral quality of someone asking for a micro-loan from across the world).

SaltLending and CoinLoan are focused on token guaranteed loans, so it will remain a niche project until an important economy’s tokenization process is generated. Its borrowers are already banked.

Eth-lend also had this approach but it seems they have pivoted to allow unsecured loans, perhaps considering the above. They have a very interesting point: to issue a generated according payment
history cryptocurrency; ownership of it allows you to apply for unsecured loans in regard of such cryptocurrency amount. Their system therefore presents a roadmap to future unsecured loans, but
with a long-term scalability. Their borrowers are already banked.
Everex is a project based on remittance transfers between countries, although it also has microcredit functionality. As ETHLend it shares the concept of a currency representing user’s reputation but with a
trade approach that we don´t consider.

Our main differentiation on Dharma is its macroeconomic approach based on rating providers to value the loans. Our microeconomic approach is based on the fact that a personal approach to evaluate a
small farmer in the other part of the world is better than one based on data. It does not intend to launch an ICO to finance the project so the system and its diffusion will take longer to develop.

Ripio, Lendoit and Fintrux have a profile very similar to that of Dharma, introducing some additional components, such as guarantee funds, unpaid auctions or people in local for the release of funds, but
always making a selection of projects based on datamining and so on with little capacity to reach the unbanked ones, which mostly lack sufficient data.

Although Micromoney is neither a crowdlending platform nor a decentralized system, it offers credits to unbanked users, at very short terms and very fast, with very high interest. Its machine learning based scoring system gets around 26% default against our system’s 3%, and their loans cost between 100% and 400% per year compared to 25-50% we can offer.

Bitbond is a non-decentralized transnational crowdlending platform based on Bitcoin loans. Unlike us, their target clients are not unbanked people. It competes in improving interest rates that banked
people pays.

Kiva offers credit through NGOs and other local agencies in developing countries. Since they don’t use cryptocurrencies and due to their project capture channel cost, borrowers pay same or even higher
rates than in our system, but without offering investors’ profitability; Kiva lender’s motivation is to make a positive contribution to the world, not to make money. Ethic Hub balances both for having even
greater impact, since offering good returns to investors can potentially redirect even more money to those 2 billion people.

In summary we could say that the platform more comparable with Ethic Hub is Kiva since the values and the target and the selection of projects are similar. And what differentiates us is that thanks to
Blockchain and the Ethic Hub cryptocurrencies, offering similar costs to the borrowers, it allows to offer a good profitability to the investors and in this way we want to promote a fair win-win relationship.

At the time of writing several so called 3rd generation blockchains (NEO, Waves, Stellar…) have come forward claiming to improve over the perceived limitations of Ethereum (scalability problems, slow transfers, rising gas price). However, we chose to start the project on Ethereum due to several key strengths.

ETX tokens will be the currency to operate within our platform. We also plan to modify the Lending Contracts to include a reverse interest auction to select bids, and to add the SmartContracts that will
manage the guarantee fund.

We will allow access to the platform using a self sovereign decentralized identity provider. A Smart Investment system will be added to handle investments for high volume lenders. When technology allows it, we will deploy our code in a decentralized hosting (like Golem) and decentralized storage platforms (like SWARM or IPFS).

EthicHub have a great document outlining their token sale model, You can read it here. 

CHALLENGES

Currency exchange risk
If a borrower takes out a loan in a currency other than his own, and the value of this business operating currency depreciates during the loan’s term, in practice it means the borrower will have to bear a much
higher interest rate than initially agreed, highly increasing default risk. A borrower does not have investor’s ability to diversify his exposure to exchange rate risk. Thus, it is necessary to consider that
borrowers must repay the money in the currency in which his business operates. Exchange rate risk should be assumed by investors because they are more capable to analyze them (properly managed can even turn into opportunity for them by investing in countries where they consider there are better macroeconomic conditions for the exchange rate factor to improve profitability instead of reducing it. In fact, lending money through Ethic Hub is a way to diversify
investor’s asset portfolio with high yielding manageable risk investments. In addition, insurance services of the exchange rate will be offered to investors who do not want to assume this risk, in
exchange for sacrificing part of their profitability.

Cryptocurrency volatility
A cryptocurrency value large fluctuation could only be a risk during crowdfunding period (14 day timelock); to prevent from it, the SmartContract will automatically call off the process if a decreased
value means borrower does not receive at least 80% of requested amount. During loan’s period, such fluctuations are not relevant since cryptocurrency will only be used to transfer money between investor and borrower, and each of them will receive it in their respective
currency, i.e. Pesos and Euros: the parity between Euro and the cryptocurrency will always be very similar to the parity between Peso and the same cryptocurrency.

Trust
Being confidence the great catalyst of credit, we focus on it to provide transparency and solutions that convince investors and borrowers: We bet for Blockchain and SmartContract for their ability to
establish safe and inviolable conditions to transfer securities subject to compliance of such conditions. According to retail loan traditional approach, borrowers avoid default for two main reasons: negative
consequences on their future economic solvency and legal action leading to confiscation of property or bankruptcy. Ethic Hub Protocol considers negative repercussions concern as an important part of
the risk assessment mechanism described above. Traditional tools of the established legal systems will be also applied in the platform, being that loans are supported by valid legal documents in the
borrower’s country.

Privacy
An individual’s credit profile and financial history are extremely sensitive data. Protecting the privacy of borrowers is a critical element for the Ethic Hub Network and yet lenders need access to this essential data to make smart investment decisions. In order to protect both the privacy of users and the security of the system we provide a certification mechanism which do not contain borrower’s identity details. Debtor’s identity will be unveiled only in the event of defaulted loan and will be registered in the platform’s Defaulting Debtors record, accessible only to registered credit institutions.

Money laundering
In accordance to the ethic code we are promoting, we want to comply with all AML (anti-moneylaundering) regulations, adhering to KYC (Know your client) standards, applying filters like Norkom
(database for client filtering used by banks) and working exclusively with Exchanges that comply with these regulations.

RISKS

Regulatory Risk
To this day, there is a significant legal gray area regarding international crowdlending or anything cryptocurrency related , although this situation will most likely change in the future.

Political Risk
An unexpected risk associated with the promotion and success of this new financial system will possibly be found in governmental resistance to the change. Some countries may exert their political
power to prevent funds outflow or even declaring Exchanges as illegal, impeding borrowers from repaying their requested loans despite their best intentions; selecting countries remains investor’s liability but doing it wisely prevents largely from this kind of risk. Ethic Hub will provide investors with quarterly reports of risk situations in the countries where the platform operates.

Sybil Attack
Sybil Attacks (one person with multiple identities) are harmful to the extent that one borrower may obtain several loans under different identities. Lending money to strangers through peer-to-peer online
platforms is fairly risky. In 2014, fraud was responsible for 12% of online lending industry losses. The risk assessment associated with identity fraud within a decentralized-international context is even
more problematic. This is one of the main reasons why Ethic Hub promotes a Local Node figure, who practically eliminates this risk by personally identifying borrowers and geolocalizing their home and
productive land.

Malicious Local Nodes
Local Nodes necessarily must be trusted individuals to make the system work, preventing any fraudulent testimony relative to a project’s solvency or borrower’s identity. This risk factor must be
controlled by an adequate accountability and qualification mechanism aimed towards the detection of fraudulent certification (i.e. creating a misleading impression of an analyzed loans portfolio with an
slightly above the average repayment rate). It is crucial that Local Nodes may be trusted by investors through various means of verification, including supervision by an internal auditor, who should
complement the work of any public audits.

First loans repayment and borrowers, Local Nodes and system’s first rating. Ethic Hub 1.0 version public release and first projects financed P2P. 1st. TokeSale preliminaries.

Alpha release: https://mvp.ethichub.com/projects