Bullish on Crowdsourcing

This posting is part of our ongoing series: What A Crowd Can Do With 99¢.

Our team is constantly exploring ways to push the envelope of what an online or mobile-based crowd can do with 99¢.  This is an extraordinary example of a project model we're planning using crowdsourcing to access the highly-rewarding world of Wall Street-esque financial instruments…

Crowdsourcing meets Wall Street

Micro-loans in the developing world are given out to the poor by small and medium sized banks (called MFIs).  These developing world banks don't have enough capital for all of the loans that are needed so they borrow additional capital.  Unfortunately many of them don't have stellar credit ratings (for a wide range of reasons) so it's hard for them to borrow as much capital as they really need.  This is where things get interesting…

In a model that we've come across over the past year, a wealthy U.S. donor decides to assist, but rather than giving a donation, the donor has a major U.S. bank write a letter of credit against millions of dollars worth of the donor's assets.  The smaller, less credit worthy banks in the developing world then use this letter of credit as collateral when they go to borrow additional capital.  Because of the high credit rating of the major U.S. bank and its respective letter of credit, the smaller banks are allowed to borrow 3-5 times the amount of the letter of credit.  So if the letter of credit is written against $10M worth of the donor's assets, the developing world banks are allowed to borrow $30-50M.  This ends up being an extremely rewarding scenario for both the donor and the MFIs - the donor doesn't have to contribute cash and the MFIs can borrow 3-5x the donor's asset value.

Now imagine if the wealthy U.S. donor was replaced with millions of Armchair Revolutionary users.  Each user would loan Armchair Revolutionary 99¢ for a period of 3 years.  Once our 'asset fund' reaches $1 million or more, we would park it in a stateside bank account for the 3 year period.  We would of course earn interest on the full amount each year, and at the same time, a major U.S. bank would write a letter of credit against it.  Then we'd give our choice of developing world micro-finance banks an invitation to use the letter of credit as collateral for their borrowing purposes, enabling them to borrow $3-5 million for use as micro-loans in the developing world.

At the end of the 3 year period, Armchair Revolutionary has…

• Converted $1 million in user loans into $3-5 million in micro-finance loans for developing world entrepreneurs
• Returned the 99¢ to its users who are then asked to reallocate it to a new asset fund of their choosing
• Earned an income from the interest on the asset fund

Is that an amazing scenario or what!?!

Comments

[Karl]

Mind blowing stuff. I've been championing the use of social media to do fundraising and philanthropy in a new way, and this is beyond my imagination. Micro philanthropy on a macro scale. Love it! Every article on your blog intrigues and inspires me. Look forward to watching this revolution advance. If I can ever be helpful, you know where to find me.
Great work!
Karl