Credit scoring is an essential service for billions of people all over the world. The ability to show that one can return a loan with ease extends the financial leverage of individuals, opening up opportunities that they can’t normally have, such as house mortgages and different forms of leases. The process relies on banks scrutinising data such as credit card, current and former loan history. This is used to ascertain the ability to pay back loans in the form of a credit score. But therein lies a big problem.
Underbanked, Under the Radar
Banks and other financial institutions rely on individual banking data for determining a credit score. The underbanked are massively hit by this. Even people with access to proper services are not spared. One in five Americans have issues with their data and are unable to leverage the full potential due to a bad credit score.
Underdeveloped countries have it worse. Lack of infrastructure and poverty means that significant populations do not have the means of even opening basic banking accounts, let alone obtaining credit cards or loans. In regions like these, alternative banking methods such as micro banking are very popular. Designed for smaller payments, these allow people to do nearly everything that a regular bank offers, such as e-commerce, paying bills, and transferring money to other people. Yet this rich data remains untapped. The World Bank estimates that 3.9 billion people remain cut off due to this, which, if corrected, could add as much as $250 billion to the world’s GDP.
A similar situation exists in the crypto sector. DeFi, with its more than $200 billion market cap, is growing at an exponential rate, offering anyone the ability to take part in the decentralized economy. One of the most sought after services in DeFi is to obtain loans. Yet this highly inclusive industry lacks any means of a credit scoring system, meaning overcollateralized loans of as high as double the required amount is a norm, making it an infeasible alternative.
“Whether you’re a rural farmer in sub-Saharan Africa or a fresh college graduate in Los Angeles, there are still a lot of barriers for accessing capital within the traditional financial systems,” says William Zhang, Security Architecture Lead at The World Bank Group and advocate for data as capital. “While blockchain and DeFi have helped democratize data and finance, there is still a lack of trust that can be limiting for people without existing collateral. But a solution that provides access by rewarding good on-chain behaviour and allows new users to earn trust within the system could unlock new possibilities for nearly 2 billion people around the world.”
In short, a modern credit scoring system needs to be developed to allow DeFi to be accessible to the underbanked.
cNFTs: The Crypto Credit Solution
cNFTs (credit NFTs) are a special class of non-fungible tokens developed by CreDA that any private crypto wallet user can mint. By connecting their wallets to the service, CreDA’s AI goes through the complete history of the wallet and creates a credit score for the user in the shape of a cNFT. The unique token can be used with partner organizations as a means to obtain loans at low or even with no collateral, creating a parallel credit scoring system for the DeFi world.
Since all data in a blockchain is made readily available, the users are assured that nothing goes misreported and their complete history is used to determine the score. At the same time, the AI uses complex algorithms to create the best possible score, enabling the users to obtain the maximum leverage they can.
Though CreDA runs on the Ethereum blockchain, it acts as a second layer solution and connects with a multitude of different blockchains, such as Polygon, Elastos Sidechain, Arbitrum, BSC, and HECO. The CreDA Oracle has already modelled the data of more than 50 million wallets and billions of transactions.
Having grown up in East-London, CreDA CEO Fakhul Miah understands the value that CreDA brings to the industry. He is an active advocate for financial access and inclusion, which is why he was drawn to CreDA from his traditional banking background.
“The implementation of credit scoring has the potential to impact billions of the world’s underbanked,” he says. “CreDA is changing how loans can be secured in the DeFi sector and we have ambitions to maximize the potential use of a Crypto Credit score by also connecting with the data from traditional banks to produce a holistic score that can be used both on and off-chain. Through this, crypto and traditional credit scores will be merged into a single system, giving the best of both worlds to people across the globe.”