Jia: Finance Fairer & Faster

A single article can change your life.  It happened to me.  In November 2006, almost twenty years ago now, I read about a debate between Mohammed Yunus and Pierre Omidyar on microfinance: what is the best way to bring affordable financial service products to millions of people largely excluded from credit markets worldwide?

Yunus had just won the Nobel prize for his pioneering work building Grameen Bank.  He insisted that financial services for the poor should be developed  by non-profit institutions, so as to limit the market excesses that result from profit motive.

Omidyar, the founder of eBay, built a business on the premise that people are fundamentally good, and that improved information allows independent buyers and sellers to all be better off in a market economy.  He advocated for the scale and efficiency of the market to build products that serve the poor.

Reading this article back then, as a former teacher, South African resident, and recent MBA graduate, I had a natural affinity for Omidyar's position. So much so that I found a way to join the foundation he started with his wife Pam Omidyar to invest in organizations working to implement the ideas advocated in the piece.

I spent five years partnering with wonderful organizations working to improve the financial services available to individuals and small businesses across Sub-Saharan Africa.  We invested with non-profit microfinance lenders such as BRAC in the DRC and Sudan, and for-profit investors such as Manocap in Sierra Leone and Liberia.  We partnered with Ministers of Finance, NGOs, local entrepreneurs and global investors to consider deeply the questions of access and affordability, risk and regulation, and, most especially, ownership.

More than a decade later, though my roles have changed, I'm still invested in this work.  Some progress has been made. Yet, a large part of the world still has limited access to the basic borrowing, saving and insurance products fundamental to long term financial security.

All of which brings me to Jia, a new lending platform that I hope will make a significant contribution to this enduring challenge. Zack and Cheng, the founders of Jia, are fellow long term travelers on the road to improved financial services globally, having both been leaders at Tala, a company I have long admired, before joining up together to start Jia.

Like eBay, Jia is a business model innovation made possible by a new technology. The web allowed eBay to connect disparate buyers and sellers together, one of the very first instantiation's of what would later be named (by Chris Anderson) the Long Tail thesis. 

Jia is a lender, providing loans to small businesses in emerging markets.  Today, they operate in Kenya, the Philippines, with additional expansion planned.  It is also built on a public blockchain, allowing Jia to credibly provide borrowers with upside when they are in good standing.  When a borrower makes payments on the loan, the borrower receives a token. The token can be used to unlock higher credit line, pay service providers, or participate in the governance of Jia itself.

In this way, Jia operates a bit like a lending co-op.  Yet, because it is on the blockchain, the lending community can scale beyond a traditional co-op model. And, the pool of capital available to fund the loans is global because smart contracts reduce transaction and trust friction.  

In considering lending businesses, I always question how a lender will create a positive selection bias - in other words, why, on average, will the borrowers that make it into the loan book have lower than predicted risk.  

Jia has a credible claim here based on their loan structure. The tokens essentially convert quality borrower into equity holders over time, as natural feature of the loan product.  If it works, this creates a positive feedback loop, better borrowers will become a larger portion of the book over time, and naturally attract other quality borrowers (as equity owners, they share upside if other quality borrowers join), fueling growth without marketing.  Over time, Jia should be able to lower costs and provide more attractive terms to borrowers, further accelerating the virtuous circle.

The Jia loan structure could theoretically exist without blockchain.  Just as a small collectibles shop in Michigan could have sold products anywhere in the US before eBay started.  In both cases, it is prohibitively expensive for the millions of potential sellers and buyers to connect without the new business model innovation.  eBay brought retail online. Jia brings community owned lending online.

Any lender could design a product that gives borrowers equity upside in their business. But, consider the paperwork, documentation and shareholder approval processes needed without a token based organization. It's implausible even within one country, let alone trying to diversify a risk pool across many different countries, and lowering the capital cost by accessing investors across the world.

The blockchain that makes Jia's business innovation possible.  I always like to find a business model innovation rather than a technical innovation.  If the thesis is right, Jia could openly advertise exactly how it operates, and the thousands of existing banks and private lending companies built as traditional companies could do little to respond.      

Over the past year, I have also appreciated how Cheng and Zack are building this company.  They spend a lot of time with borrowers.  Building financial and technical products that fit for customer demand.  The company is still very young, but it has great potential.  And, more importantly, if successful, will make a positive dent in one of humanity's most pernicious long term disparities.  

Onward.