May 18, 2023
It’s three hours before sunrise in Manila and Armand is beginning his day. His routine is familiar, if grinding: up before dawn, on to his moped for the moonlit commute to the bakery, hours of prep, firing ovens turning the space into an inferno. Doors open and customers stream through. Not the easiest work, but satisfying. He’s well known for his trademark malunggay pandesal, a fluffy Filipino breakfast bun made with moringa. That commitment to his craft means he does well, turning a healthy profit and employing fifty people.
And yet, when it comes time to expand, he struggles to secure financing. What’s going on here?
A flawed banking system
Millions of hard-working entrepreneurs are locked out of the financial system in emerging markets, where banks’ legacy lending practices have resulted in an estimated credit gap of $5 trillion. Even when banks or other lenders do step in to provide financing, their high interest rates end up extracting much of the value created by entrepreneurs. Armand recently considered taking a loan he was finally offered.
“When I saw the price, I realized it would take my whole profit.”
Banks build products as one-way streets, based on transactions, not relationships. The bank gives you a loan, you repay it, everyone moves on. There’s no sustained investment in you or your community.
What if there were a better way to provide financing? A method that taps into practices humans perfected centuries ago, when finance was rooted in relationships and communal exchange of value?
Leveraging community networks to expand finance
That’s what we’re building at Jia: a financial community where small businesses can participate as active members, access liquidity when they need it, be rewarded for the value they contribute to the community, and gain resources to grow their firms and build wealth for their families.
How does this work?
The model itself goes back to the fundamentals of community finance, which fueled economies for generations. This model still dominates emerging markets where the vast majority of businesses are underserved and overlooked by formal financial institutions.
In these markets, most small business owners are members of local savings-and-credit organizations. Sometimes these are small cooperatives. Often they are informal groups of entrepreneurs who pool cash and lend it on a lottery system.
These groups are the original LendingClubs, Kickstarters and GoFundMes of the world. Instead of relying on a bank officer to impose rules and chase late payments, lenders and borrowers in these communities build trust slowly through face-to-face interactions. Historically, defaulting on your loan meant disgrace, even excommunication. Unsurprisingly, default rates are extremely low in these lending pools.
These communal finance organizations go by different names around the world, from SACCOs and chamas in East Africa, to tandas and juntas in Latin America, from paluwagan in the Philippines to arisan in Indonesia and chit funds in India. But one common theme is that members have shared ownership of a communal pool of funds.
Owning a piece of the pie
This shared ownership is deeply embedded in group members’ mental models of finance. When I was working at a fintech lending company in Kenya, I remember asking a restaurant owner how we could better serve him. “In my chama [a Kenyan savings-and-borrowing group], after I repay and put my money in, I get shares. Can I have shares from you?” He had a positive experience with the company, provided value with his interest payment, and now wanted to own a piece of the pie, which would require the company to distribute ownership like his chama.
Yet this sort of distributed ownership has historically been impractical at scale. Even if a big fintech lender wanted to give ownership to its borrowers, how would it do it? Get the board together in California every time someone repays, vote on a stock issuance resolution, then mail a share certificate to Armand’s bakery in Manila? And then what would Armand do with it?
Banks and fintechs aren’t necessarily greedy. They’ve just been trapped with inferior technology that makes it too difficult for them to serve creditworthy borrowers and provide them a piece of the ownership pie.
Enter blockchain. Decentralized ledger technology allows us to distribute ownership fairly and efficiently by representing it in liquid form with a governance token. We can use permissionless blockchains to create trust, replacing the literal village with a digital one — and on a much larger scale.
This development, coupled with the desire for ownership I saw over a decade working in microfinance, is what led me and my cofounder, Cheng, to start Jia.
What we’re building at Jia
Our vision is based on insights from our careers working to expand financial access in Africa, Latin America, and Asia: small business owners want to be treated as just that — owners. They want to feel respected as partners in a community with shared interests. They work hard to create returns for their businesses and thus provide value to those who lent to them. They deserve to share in that value.
Jia provides blockchain-based financing to small businesses and rewards borrowers who repay with ownership, enabling them to create wealth and prosperity for themselves and their communities.
Jia goes beyond the basics of providing capital — it is a community for businesses to thrive. When we interview microfinance customers, they tell us they need more than just capital to grow their businesses. They need access to resources to help put that capital to work — connections to cheaper suppliers, experts to take their businesses online, and networks to unlock new markets.
We aren’t only unlocking access to global capital; we’re unlocking access to global resources and expertise too. Our business service provider network connects small businesses with experts across marketing, legal, finance, accounting, operations, and sales to help businesses grow. What bank does that?
The path ahead — join us!
Banks have been serving small businesses with transactional products for years. The numbers speak for themselves on how that’s going — a credit gap of up to $5 trillion. That’s $5 trillion of missed opportunities for entrepreneurs like Armand in the Philippines to live out their dreams and provide for their families and communities.
It’s time to try a new approach to finance — one that isn’t a one-way street but a community where everyone benefits. That’s what we’re building at Jia.
We’ve begun providing affordable financing to small businesses, from medical clinics and schools in Kenya to sari sari stores and restaurants like Armand’s in the Philippines. If you’re interested in financing opportunities, say hi!
In early 2023, we’re opening on-chain liquidity pools so investors can earn stable, sustainable returns insulated from crypto volatility from real-world assets — what’s more real than sales of Armand’s delicious pandesal? To get the early scoop on participating, drop us a line firstname.lastname@example.org. 🍞
Follow our journey @jia_DeFi as we work to reimagine finance around the globe. 🌍⚡️🚀