NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, March 2, 2015

Stellar, the cryptocurrency-based payments system launched last year by Jed McCaleb, announced a partnership with banking-software company Oradian to use Stellar platform in its core banking software for microfinance institutions (MFI), with an eye toward using digital-currency based payments networks to improve the ability of financiers to work with each other.

Since launching Stellar in July 2014, the team behind it – led by Mr. McCaleb, who previously founded both Mt. Gox and Ripple – has been busy managing its growth and looking for different uses of its protocol. In looking at the world of the unbanked and the microfinance industry, they think they found a good use.

Microfinance is a field pioneered by Dr. Mohammad Yunus in Bangladesh in the 1970s. The idea behind it is to extend banking services on a very small level to people in emerging markets who don’t have the resources to tap the traditional banking services. The industry has grown to the point where about 190 million families are currently served by microfinance, according to the World Bank. But it’s not exactly a modernized industry. Physical security is an issue, and the growth of the industry itself has stretched its ability to operate efficiently.

“There’s no way for microfinance companies to communicate with each other,” said Joyce Kim, executive director at the Stellar Development Foundation. The combined Oradian/Stellar product would allow microfinance companies to quickly send money to each other. “There’s something like 100,000 microfinance institutions, how do we connect them? How do they get the kinds of efficiencies that will change their lives?”