December 17, 2017
OpenLedger DEX

Karma shows there are no limits with their new P2P lending platform, and the question of what is security, and what is not, has been redefined.

With other lending platforms, a limited option of assets is given, but with Karma, any assets can be used as collateral and credit. Security, or collateral, can be an issue when lending through other platforms.

The Founder and CEO of Karma, George Goognin is familiar with the current problems in the lending market. He states: “While real estate is the most used type of collateral in business, there are issues with the registration of the security and collection.” This is where Karma comes in, automating the process of working with securities where investors from one country can issue a loan with a security to a lender in a different country.

So which assets can be used as collateral? First, crypto-assets including cryptocurrencies or tokens, digitized gold (Digix) or real estate (BankEx). The procedure of the operation is simple: the pledge, or collateral, is placed in an electronic smart contract, which is in escrow. Then, the creditor and borrower sign a smart contract, or agreement. Afterwards, the lender transfers the money to the borrower. If the borrower cannot achieve his obligations, then the pledge is realized on the exchange. From the received funds, the loan amount is returned to the creditor, and the borrower gets the balance.

Second, fiat currency as collateral. When the borrower has one fiat currency, and the credit has to be in a different fiat currency, a pledge on the escrow account is agreed. The lender transfers money to the escrow account, and after the borrower receives the credit, the platform will block the pledge on the escrow account. The moment the credit is repaid, the pledge will be unlocked and returned to the borrower.

During the evolution of the Karma platform, different types of pledges will be added including works of art, collections, cars and goods. The pledge will be held by the escrow agent, who blocks it until the responsibilities of the parties are fulfilled.

Lending without collateral is possible, but it’s essential to evaluate the borrower’s creditworthiness correctly. Modern mechanisms of scoring and checking are used.

When the unsecured loan isn’t paid back and the borrower and investor can’t come to an agreement, the investor has some options including selling the debt to collectors with a discount, filing a lawsuit to collect the debt or referring the debt collectors to recover.

With Karma’s previous experience of their lending club, Kiva, their own fund, and the statements of banks, it is expected the entire amount of overdue debts on unsecured loans will not surpass 10%, and ultimately stick in the region of 2% to 5%.

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