In the diverse landscapes of Africa, from bustling Nigerian cities to remote Kenyan villages, countless entrepreneurs teem with innovative ideas, yet they often find their ambitions halted by a lack of necessary funds. This is where Goldfinch steps in. This pioneering lending protocol serves as a transformative force, providing an inclusive, expedient, and cost-effective financing solution for entrepreneurs who have traditionally been overlooked by conventional banking systems. By using blockchain technology, Goldfinch is offering a lifeline to these businesses, breathing life into dreams and driving economic growth within these communities.

Shifting our focus to Africa's unique financial landscape, less than 50% of the populace, as of 2021, had access to a bank account and an even smaller percentage to credit facilities, according to World Bank data. This scenario presents a substantial financing gap for small and medium enterprises (SMEs), crucial economic players yet often lacking the collateral required by traditional banks. Goldfinch, however, with its decentralized platform, is set to significantly transform this narrative. By eliminating the need for crypto collateral and leveraging a 'trust through consensus' approach, Goldfinch extends credit to those most in need, promoting financial inclusion and propelling the continent towards a future of greater economic development and prosperity.

Goldfinch enables financing for sustainable & innovative businesses across emerging markets

Why does this Matter?

Goldfinch provides a decentralized marketplace for lenders and borrowers and empowers entrepreneurs and businesses that have been dismissed or overcharged by traditional banks. It delivers a more inclusive, expeditious, cost-effective and globally diverse lending experience, bolstered by the transparency of on-chain credit history. As a sustainable model with tangible real-world benefits, it represents a powerful use case for blockchain technology in the financial sector within African and has a book of over US$100m loans to businesses across Africa and emerging markets

Some Benefits;

Enhanced Lending Experience: Goldfinch offers a faster, cost-effective, inclusive, and global lending solution. Goldfinch achieves this by utilizing blockchain technology and smart contracts, which significantly expedite loan processing times compared to traditional banking systems, reduce administrative costs, and provide universal access regardless of geographic location.

Real-World Impact: The platform provides crucial financial access to underserved regions, empowering businesses where it is needed most.

Sustainable DeFi Yields: Goldfinch supports reliable DeFi returns, backed by actual businesses and profits, while efficiently managing risks and incentives through smart contracts.

How Goldfinch Works

The goldfinch protocol efficiently connects borrowers and lenders and takes 10% from the interest earned. In the image below, “Fees” are total interest income and “Revenue” is the portion paid to the goldfinch protocol.

Goldfinch is a decentralized lending platform that eliminates the need for crypto collateral and relies on an efficient method of risk management called “trust through consensus” to determine borrowers' creditworthiness. The key advantage is twofold; the protocol allows more potential borrowers to access crypto loans and helps investors gain exposure to the market.

As a lending protocol, it features three main groups of stakeholders:

• Borrowers

• Junior lenders

• Senior lenders.

  Borrowers naturally receive loans from lenders. Junior lenders assume higher risk and receive higher interest rates. Senior lenders, on the other hand, enjoy lower risk and receive lower interest rates. The protocol's smart contracts efficiently manage risks and incentives for all stakeholders.

An example illustrates:

1. Borrowers propose deal terms for credit lines (Borrower Pools) to the protocol.

2. Investors (Backers and Liquidity Providers) supply capital to these credit lines, either directly or indirectly.

3. Borrowers draw down stable coins (USDC) from their Pool, convert it to fiat, and provide loans to end-borrowers in their local markets.

4. Trust through consensus is used to allocate capital from the Senior Pool, relying on the collective actions of Backers and Auditors.

5. The protocol features junior and senior tranches in the Borrower Pools, with repayments first going towards the senior tranche and then the junior tranche.

6. Backers receive NFTs representing their deposit, while Senior Pool LPs receive FIDU tokens.

7. The platform uses two native tokens, GFI and FIDU, for governance and representing Liquidity Provider's deposits respectively.

8. Key borrower repayment incentives include maintaining a positive on-chain credit history, avoiding a halt in borrowing, and potential off-chain legal agreements with Backers.

9. Goldfinch is governed by a decentralized, community-driven DAO.

10. To ensure unique participation, Borrowers, Backers, and Auditors must pass a "Unique Entity Check," currently done through the Unique Identity (UID) NFT.

In the context of Africa, where access to capital is often severely limited due to stringent banking requirements and high interest rates, Goldfinch's protocol offers a beacon of hope. African entrepreneurs benefit by being able to propose credit terms suitable for their unique business models, bypassing the traditionally rigid loan structures imposed by banks. This level of flexibility can prove crucial in markets where interest rates are often prohibitively high.

How Goldfinch Aligns Stakeholders to Mitigate risk

Goldfinch aligns the interests of the three stakeholders’ efficient smart contracts.

Borrowers
Why do borrowers seek loans from Goldfinch?
Traditional banks often reject loan applications or impose high interest rates.
What motivates borrowers to repay loans on Goldfinch?
Junior lenders can enforce legal contracts and secure borrowers' assets as collateral.
Borrowers have a permanent, public credit record on the blockchain.
Delayed repayments hinder borrowers from obtaining new loans.

Junior Lenders
Why are Junior Lenders diligent in assessing loan quality?
Since Junior Lenders are repaid last, they face the greatest risk, which strongly incentivizes them to thoroughly evaluate loan repayment potential.
What motivates Junior Lenders to lend money despite being paid last?
Junior Lenders receive a significantly higher interest rate, compared to Senior Lenders, which rewards Junior Lenders for the higher risk they take.

Senior Lenders
What drives Senior Lenders to provide loans?
They receive competitive interest rates from real-world businesses while diversifying their portfolio beyond traditional lending markets.
Why are Senior Lenders willing to accept lower interest rates compared to Junior Lenders?
Senior Lenders benefit from not having to spend time evaluating loan quality, as Junior Lenders handle this task. Additionally, their loans are prioritized for repayment and automatically diversified across all lending pools, resulting in significantly lower risk.

Achieving a Balance: Low Interest Rates for Borrowers and Attractive Returns for Lenders

Goldfinch has an elegant solution to achieve balance between low interest rates for borrowers and high interest rates for lenders by combining senior debt (low interest) and junior debt (high interest) in a 3:1 ratio. This composite interest rate satisfies both junior and senior lenders while keeping borrowing costs low for borrowers.

Each loan is built using many parts (tranches): -

• Senior debt, which has a low interest rate

• Junior debt which has a high interest rate

  These tranches are put together in a ratio of 3:1 (3 parts low interest, 1 part high interest). This makes the total interest much lower for the borrower – while still satisfying both Junior & Senior lenders.

An example illustrates

A borrower can afford a loan with an interest rate of 10%. The loan is made using 4 parts:

• 3 parts Senior debt, with interest of 7%

• 1 part Junior debt, with interest of 19%

  When we add these 4 parts together (to make up the loan), we get a composite interest rate of 10%, which the borrower can afford.

Is this model more efficient than traditional bank loans?

Goldfinch doesn’t have the scale of traditional banks, which would make Goldfinch more resilient and allow for potentially lower interest rates. But Goldfinch outperforms traditional banks in several other ways:

• Speed: The lending process is expedited through the use of smart contracts. Cost

• efficiency: Reduced middlemen lead to lower costs for all stakeholders.

• Global diversity: Goldfinch sources and allocates funds globally, diversifying risk.

• On-chain record-keeping: Public, transparent credit histories enable better lending decisions.

• Inclusivity: Personal due diligence and on-chain credit history enable access to loans for previously excluded borrowers.

How Goldfinch impacts African entrepreneurs

Goldfinch has facilitated loans to a diverse range of businesses within Africa, each of which has used this funding to catalyze unique initiatives.

• One such example is Tugende, an East-African asset-financing fintech. Tugende helps fill the credit gap for small businesses in Africa, enabling informal entrepreneurs through credit and asset ownership. Through their partnership with Goldfinch, Tugende has financed over $50M worth of assets that generate income. They've used these funds to support motorcycle taxi operators, significantly boosting their daily profits. With a growing client base and a robust staff presence in Kenya and Uganda, Tugende is a compelling example of how Goldfinch can support local African businesses.

• Goldfinch is also supporting Cauris, a company aiming to drive financial inclusion by assisting small and medium businesses in the Global South. With its mission to extend credit access to 100 million people through fintech partners in Asia and Africa, Cauris is currently expanding its lending operations in several African countries including Ghana, Nigeria, Kenya, Uganda, and Rwanda.

• Goldfinch and Almavest are making a significant impact on African entrepreneurship by providing a $4.875 million borrower pool to finance a loan for the Ghana-based micro-lender Oya Group. This initiative supports access to credit for small businesses, particularly benefiting the 82% of Oya's borrowers who are women, often facing more barriers in obtaining financial services. Through this strategic partnership, Goldfinch and Almavest are not only driving economic growth but also promoting financial inclusion across Africa.

These examples showcase how Goldfinch's blockchain lending protocol is making a significant impact by facilitating loans to businesses in Africa, supporting entrepreneurship, sustainable development, and financial inclusion.

Conclusion

Goldfinch is revolutionizing the lending industry by leveraging blockchain technology to provide a more inclusive, efficient, and cost-effective solution for borrowers and lenders. By aligning stakeholders and offering a competitive alternative to traditional banks, Goldfinch is poised to make a significant impact in the world of lending, starting with entrepreneurs in Africa and emerging markets.