Why World-class Microfinance Institutions Should Collaborate

microfinancing institutions collaborating

In 2010, Apple released iPad, a device that simplified the consumption of digital content. It offered users a convenient way to buy and read eBooks. It was a direct competitor to Amazon’s Kindle reader. However, Apple and Amazon partnered to allow users to access Amazon’s content on iPad. In the end, it was a win-win for both corporations.

When entities operate in the same space, it is often looked at as a zero-sum game. One loses for the other to win.

However, it shouldn’t be like that.

Working together for favorable regulation

The other option is co-opetition, a relationship where competitors collaborate to win together. This is possible and necessary within the microfinancing subsector.

Microfinancing is still new, and its legal place is being defined. As microfinance regulations are put in place, stakeholders’ voice has to be heard. Moreover, it is better if it is a single voice.

This calls for collaborations in appreciating common challenges and coming up with coherent proposals on how to remove them.

Share cost of the underlying infrastructure

It costs a lot to build a foundation for delivering financial services. A huge corporation could absorb the price, but even those choose to work with others.

A microfinancing agency cannot set up the most basic infrastructure. However, it is possible for several of them to pull sufficient resources together.

It is the case with blockchain-based financial platforms. Several independent agencies form a peer-to-peer network that has a distributed ledger that they maintain through consensus protocols like Stellar.

With the shared infrastructure in place, it is easier for an agency to enter a market, battle the competition and survive. AssetStream is an example of a platform that different stakeholders collaborate to run.

Providing user-friendly interfaces

In the world of interconnectivity, users expect to move value across multiple interfacing platforms. A lender and a borrower could be using different agencies, but in the end, their transaction should complete smoothly.

Collaborating allows different players to create interfaces that make it easy for users to move value across platforms if and when they want to.

Being able to supplement one another

By working together, different microfinance institutions can have others take care of clients that they cannot. One agency can refer a client to another if it feels that it cannot meet their needs.

In return, the other agency can refer back potential clients it feels the first agency is best suited in different ways to serve. In the end, everyone becomes a winner.

Share risks and minimize losses

In the case of AssetStream, agencies collaborating also provides an opportunity to share risks. The platform allows multiple lenders through various agencies to fund one loan. Indeed, a lender can only fund up 10% of a business loan.

That means the risk associated with that loan is spread out so that there is little impact on any of the lenders in the event of a default or failure by the borrower to meet their obligations under the contract.

Want to see an excellent example of microfinancing institutions collaborating?

AssetStream is a P2P lending platform that brings together different stakeholders who could be competitors. Join the platform and see how they relate in co-opetition. Sign up here.

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