Berlin International School II (2018)

Virgo – A Financial Ecosystem Reinventing Microfinance

Virgo, explained.

The Problem
3 billion people all around the world are currently living in absolute poverty and more than 2 billion people do not even own a bank account. This resulted in a rapid development of less formal Microfinance business activities – more than 20 billion dollars has been invested in them.
However, the originally NGO controlled Microfinance market has been practically taken over by private businesses, which has lead to large-scale subprime overlending to the most vulnerable members of society who, having no experience in such business activities, often spend the borrowed money on consumption, which gradually ruins them financially, psychologically and socially.

How the Virgo-Platform solves the problem
Virgo is an attempt to increase the accessibility of the basic financial services to people who would otherwise be denied the right to use them, whilst minimizing at the same time the negative aspects of informal financial services, such as microcredit. Furthermore, Virgo is a digital platform, that uses cryptocurrency to create virtual value, thus reducing the amount of startup and operating capital needed. The platform consists of three integral parts: V-Score, V-Friends and V-Assets.

How sustainable is the solution?
Being purely a digital platform, Virgo is able to be financially, socially and ecologically sustainable. Virgo is able to create virtual value in the financial ecosystem and provide loans on the platform, as well as control the number of withdrawals, thus reducing the amount of cash needed in reserves.
Moreover, monitoring the usersʼ expenditure ensures that customers do not spend loans on non-profit-returning activities. Furthermore, being a socially responsible project, Virgo has developed a series of risk mitigating products allowing to provide significantly lower interest rates, which reduces pressure on repayments, thus making Virgo socially sustainable.

How it works, in more depth

The V-score is Virgoʼs proprietary risk assessment method. Unlike a traditional finance company, Virgo uses many comparisons to not only understand the customer but also assess risk on a more relative, adjusted scale. A key component of Virgoʼs method is machine learning. Due to the fact that Virgo is a financial ecosystem, that allows transactions to occur, Virgoʼs algorithm can survey a customers account over a 6 month “survey period” and from there gather enough data to make an accurate risk assessment.

V-friends is a system whereby users can partner up, allowing them to act as guarantors to each other and, therefore, take larger loans by spreading the risk among all parties. This is also connected to the V-Score system, which takes this lower risk into account by reducing risk premia on the loans.
Thus, V-Friends allows us to provide more people with larger loans. The V-Friends system is easily accessible on our platform and enables users to immediately create and join a group.

One of Virgo’s main features, whereby users are able to list assets such as land and the property, cars, etc. and receive some monetary value for those assets that otherwise have no listed monetary value in the country’s economy. How are V-assets useful? Due to the high informal economy present in
developing countries, Virgo aims at widening the gap between what makes someone financially included by introducing farming land, property and even smaller scaled goods as viable assets that can help users participate more freely in a connected economy by using these assets as a collateral.

The team selected this topic

Promoting Financial Inclusion: New Policies and Technological Innovations through Digital Finance (2018)

The media continually reports about the failure to provide help. For example, the failure to provide help in the case of a deceased pensioner in an Essen bank. The phenomenon can be seen in almost every country and happens in very different situations, for example mobbing, racism, accidents and attacks, where many people do not intervene and help even though they could. In addition to the personal suffering of the victim, failure to assist has social consequences for society as it reduces macroeconomic welfare. ‘Nudges’ could be a way of increasing the willingness to help. A nudge is a method that influences the behaviour of people without having to resort to bans or laws or having to change social incentives. Nudges are becoming a more popular way of influencing people’s behaviour as new laws or regulations do not have to be issued as policy. Nudges could help to overcome individual blocks such as fear or uncertainty concerning responsibility, thus increasing the level of social welfare.

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