Archive for the ‘Sharing Economy’ Category

Microfinance is the provision of financial products and services to economically active poor people who, for a variety of cultural, social, gender-related, and other reasons, are excluded from the mainstream financial sector, especially in the developing world. The microfinance sector has grown significantly over the past few decades and, in 2006, Muhammad Yunus, considered by many to be the father of modern microfinance, was awarded the Nobel Peace Prize for his pioneering work in fostering access to finance as a path toward more peaceful relations.

At first glance, it may seem that microfinance and the sharing economy have little in common. Microfinance focuses on poor people in the developing world. Women represent the vast majority of microfinance clients, and many loans are for working capital assets such as livestock and small shop supplies. Ironically, many microfinance beneficiaries share out of necessity – as they have done for generations – though they wouldn’t necessarily think of building a business around it.

However, this first impression is incomplete. Further investigation reveals a multitude of similarities and – perhaps most importantly – key lessons that the sharing economy and collaborative consumption could learn from microfinance:

· Empowerment: At their core, both microfinance and collaborative consumption enable and promote empowerment of individuals. Responsible access to finance unleashes a positive chain of ripple effects: livelihood, income generation, and a brighter economic future for clients, their families, and communities.

Collaborative consumption achieves similar ends. As Rachel Botsman says, “…my core driver is how empowers people. It empowers people to tap into skills and talent that they have but haven’t found opportunities to make money from before. It empowers people to be in control of their jobs and their lives. It empowers people to make new kinds of connections that are often quite tricky to make.” Technology has democratized, economized, and facilitated the ways in which ever-increasing numbers of people can transact with one another and create new value.

· Trust, Reputation, & Social Collateral: Microfinance and sharing-based businesses depend on these essential characteristics for their very survival, in addition to their popularity. No rational person would make an uncollateralized loan to a poor person she doesn’t trust. In microfinance, your reputation substitutes for credit history (because the latter doesn’t exist). The group lending model of microfinance, in which each member of a group is responsible for ensuring that all members repay their loans, is premised on social collateral: You’re banking on an individual’s trustworthiness within society, rather than her material assets, as the best indicator of whether she can and will repay a loan. As a result, social standing among peers – especially within tight-knit communities – is built over time and reigns supreme.

Similarly, in the sharing economy this kind of social fabric and “trust barometer” can be created thanks to new technologies. Engaging in collaborative consumption – and getting used to it – lowers the trust barrier over time. Botsman summarizes it well: “The first few interactions people go through typically involve quite a few exchanges. Once they figure out that most people are trustworthy and that the idea works, the amount of trust features they use for future interactions declines.” (more…)

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