A credit system - Lender-less borrowing
There is no reason to have a lender when you borrow money, you can just borrow from yourself at zero interest.
If we can just electronically create money why do we need the depositor, or the bank - the lender?
The argument for banks is they are needed to decide who to lend to, to credit assess people and organisations to ensure most of the money is paid back (actually destroyed ensuring there isn’t an oversupply of money). The past has shown that they aren’t particularly good at this and essentially they just follow a set of rules which could be easily embedded in an algorithm.
Lenders look at previous borrowing and repayment history, income, security, and assets (often used as security). It would actually be easier for an algorithm to do this as we wouldn’t have to worry about privacy issues involved in sharing our private financial information with the bank.
Also, credit rating agencies, which many banks use, have incomplete and often inaccurate data because we don’t share with them directly. Their ratings can be falsified for money as happened during the GFC.
The system I propose utilises a Guaranteed Income system to ease repayments and loan amount calculation, plus you get all the benefits of a GI.
Borrowing and the default algorithm
Loan approval works on a tiered basis with reference to the money going into the customer’s Guaranteed Income account. And the whole thing can work without using (and losing) assets as security.
For example, borrow up to 30% of Guaranteed Income (GI) [30,000pa] per term. Plus 20% of average extra funds through the account (other income) over the last year. Average daily extra balance x 365. This is to prevent one-off large deposits used to bump up income.
The maximum term is the lesser of 30 years or [90 - Age (the age of the person)]. The borrower moves up the tiers upon the successful repayment of a loan. Or, if someone only ever wants one or a few loans, they can move up the tiers by years of active use of the currency.
One year = to one-tier.
The borrower is limited to a percentage of the max borrowing amount and term.
|
Tier |
% |
Max Term |
|---|---|---|
|
1 |
10 |
1yr |
|
2 |
20 |
1yr |
|
3 |
30 |
3yrs |
|
4 |
40 |
3yrs |
|
5 |
50 |
5yrs |
|
6 |
60 |
5yrs |
|
7 |
70 |
5yrs |
|
8 |
80 |
10yrs |
|
9 |
90 |
10 yrs |
|
10 |
100 |
Max |
Only one loan at a time
Examples:
Starter 30,000 GI = 1000 loan over 1 year tier 1 (no extra income)
MAX with extra 30 year loan = 30,000 GI x 30% x 30 = 270,000
Plus Extra income of 30,000pa x 20% x 30 = 180,000
Total loan 450,000
Payment Options
For loan terms over 2 months, the borrower must make regular payments at a minimum of one per month. The payment must be set up to come automatically from the Guaranteed Income account (GIa) - the wallet/account the GI is paid into. A new loan cannot be used to refinance an old one (roll it over). The loan must be paid out before a new loan can be drawn. The repayments must be pro-rata over the life of the loan to ensure full repayment.
Default GI terms
If default occurs, the GI is garnished by 40% until the loan is repaid (you can repay the loan with other income if you can) and you (the borrower) return to tier 1; you cannot borrow again until the loan is repaid + 1 year.
If default occurs more than 10/tier(n) i.e. you are on tier2 and you can default 5 times. If you do you will not be able to borrow for 7 years after the loan is repaid. Starting at Tier 1.
If a person misses one of their scheduled payments they can reschedule payments to ensure the loan is paid, but 3 times only (by new smart contract). If the loan was to be paid in full with one payment and this is missed automatic default.
Time limit on moving up tiers
The first 5 tiers have a 3-month time limit per tier; the borrower cannot move to the next tier until this time has elapsed although they can borrow again at the same tier provided they have paid off their loan.
The next 5 tiers have a 6-month time limit. Meaning a borrower cannot reach the 10th tier until they have been operating for at least 3.75 years. This ensures someone doesn’t just draw down loans and pay them off to move up quickly and then not pay back a large sum.
Fee (investment coin)
There is a 1% fee payable on all new loans at drawdown (this can be funded by the loan provided it is within the lending criteria). This is to discourage the fast turnover of loans to move up the tiers and to pay for the construction and maintenance of the system.
This is also the way to reward investors for funding the building of the system. A limited supply of 100 million coins (INV) will be issued and be based upon an Ethereum protocol.