# FediCredits ***Federated credit funds for local and online communities*** Translations: [español](https://doks.komun.org/_UvG2_zYRXqvkbz0I5hK-w) -- in case of differences, the English version prevails. :::info * 2025-05-13: New section "Reviewing a microcredit request" * 2025-05-12: New sections "The trust index", "Creating a FediCredit fund", "Setting the interest rate", "Minimizing costs", and "Submitting a microcredit request". Link to Spanish translation. * 2025-04-28: Initial table of contents (skeleton) completed. New "Who is Who" section. * 2025-04-28: First version shared for review. ::: ## Summary • Start a fund for your community with 5 funders or more -- no experience required. • Offer fair microcredits to community members based on their trust. • Follow principles to approve microcredits with low risk, no loss, and no profit. • Grow the fund only if you need, as you gain trust and experience. • Federate with other funds for higher resilience and network effect. ## Principles All FediCredits share these principles. They are designed to run an efficient and sustainable fund. • The fund must have a local or thematic scope. • The fund must abide to the FediCredit antidiscriminatory policy and code of conduct. • The fund starts with five funders or providers, each contributing the same amount. • If you want to grow the fund, you add more funders, without increasing their contribution. • A fund starts with a FediCredit document and only adds overhead when strictly necessary. • All the fund accounts and movements are public, with private personal data redacted. • A fair interest rate applied equally to all microcredits is set to prevent losses and profits. • Each borrower and funder has a trust value that defines how much they can request and approve. Their trust value increases or decreases when a microcredit succeeds or fails. • Two or more borrowers can request a microcredit to pool their trust values. • Microcredit requests are simple: what is the microcredit for, how much, how long, how will it be repaid, and why the borrowers can be trusted. • Each microcredit request is reviewed by three or more funders randomly selected. • Hard limits: no more than 10% of the fund for a single microcredit, at least 33% of the fund borrowed before growing the fund, no more than 66% of the fund can be borrowed. • Funds can federate to recognize each others’ funders, borrowers and trust values. • Federated funds can also share risks and redistribute losses. ### For example FundZine is a new FediCredit fund for fanzine creators. Five fanzine lovers have created it contributing 1000€ each. Lucía is the first person interested in a microcredit. She needs 300€ to print her new fanzine and improve its distribution. It’s the first FediCredit Lucía requests, and she has the starting trust value of 100€. She asks two friends to support her. They are also new, bringing 100€ of trust value each, which makes 300€ of trust value in total. Good! Three of the five funders are selected randomly. It’s the first microcredit request they approve, and their trust value is 100€ for each, 300€ in total. Good! They review everything and approve the microcredit. Lucía prints and distributes her new fanzine. A couple of FundZine funders are also providers of printing services, and she got a nice discount. Lucía repays the credit with the interest as agreed. Success! Now the three borrowers and the three funders have a trust value of 200€ each. If Lucía needs 300€ again, she will only need to find another borrower. If her second microcredit ends well, her trust value will increase again and she won’t need anyone else to request a third microcredit of 300€. **What about federated funds?** After several fanzines and several successful microcredits, Lucía has got a fan base and a solid FediCredit trust. She has bigger plans now, and needs 3.000€. This amount exceeds the limit of FundZine, which is 1.000€ for a single microcredit. No problem, Lucía splits her microcredit request with two more funds, one for female and non-binary writers in Spanish, and another one for independent creators in Granada. Her trust level is recognized by these federated funds. Because these two funds don’t know about Lucía, they request a funder from FundZine to participate in their microcredit reviews. The FundZine funder’s trust level is also recognized by federated funds. ### What about losses? The trust value system and other restrictions are designed to minimize the risk of losses, especially big losses. But it can always happen that a borrower is not able to repay a microcredit on time. This is how FediCredit funds proceed in these situations: 1. Help the borrower to repay as much as possible. Get partial payments, extend the deadline, encourage crowdfunding / donations in your community to support the borrower… 2. The part that isn’t repaid is a cost, and costs are covered with interests. Recalculate your interest rate to recover the loss. 3. FediCredit funds are encouraged to share risks and redistribute losses. If your fund lost 100 but you have agreements with nine of other funds, each fund takes a loss of 10, which means that the interest rate increase will be much lower or perhaps not even needed. ## The Manual Hopefully the FediCredits' big picture is clear with the information above. Here is where we dive into details. ### Who is who #### Funders * Funders contribute funds to support a local or online community. * Funders contribute an amount agreed from the start. No more, no less. This amount is big enough to show commitment, and small enough to take the loss in a worst case scenario. * Funders accept or decline credit requests in teams of at least 3 randomly selected members. * Funders decide the interest rates by consent (no opposition). * Funders approve the budget and expenses by consent. * Funders receive interests once per year, which they keep in the fund as long as they are members. This brings altruism in and keeps speculation out. * Funders can accept new funders by consent and can remove funders by a qualified majority of 75%. * Funders can leave at least after one year, and they will get their contribution back within 90 days, or later if the fund doesn’t have enough cash available. #### Providers * Providers are funders that also provide products or services to borrowers. Providers and borrowers share an interest in working together. * Providers in a fund share a location or an area of activity that contributes to the specialization of the fund. * Providers are encouraged, but no required, to offer special conditions to borrowers, based on the community and trust embedded in the system. #### Borrowers * Borrowers receive a microcredit with the commitment to return it in a time and with an interest and with a number of payments agreed. * Multiple borrowers can share one credit request, and each individual will be responsible of their equal share. * Borrowers are encouraged, but not required, to promote the fund in connection to the activity being funded. ### The trust index All funders and borrowers have their trust index. This trust index defines the maximum amount borrowers can request and funders can approve. There are no exceptions. The initial trust index of a FediCredit is the 10% of the amount each funder has contributed to create the fund. For instance, if their individual contribution was 1.000€, the intial trust index for the fund is 100€. If a borrower needs more trust to borrow more money, they need to partner with more borrowers. If a funders want to review a microcredit with an amount higher than their combined trust index, they need to include more funders. When a microcredit is returned, the trust index of all funders and borrowers increases according to the credited amount. For simplicity, we leave interests out of the calculation. For instance, when a borrower returns a microcredit of 100€, their trust index increases 100€. If the microcredit was approved by three funders, each gets a trust index increase of 33€. When a microcredit fails and the full amount is not returned, the missing amount is equally substracted to the trust index of borrowers and funders. In the example above, if 100€ are missing, the borrower would loose 100€ of trust index, and the three funders would loose 33€ of trust index each. If 50€ were repaid and 50€ are missing, then their trust indexes will be reduced 50€ and 16€ respectively. ### Creating a FediCredit fund A FediCredit is created when this information is publicly available and announced * name * scope * antidicriminatory policy * code of conduct * accounting document including funders' usernames, contributions, and interest rate. A FediCredit fund needs to have a scope and a reason to exist, usually to support a local or thematic community, or a type of activity. The fund needs at least 5 economically independent funders contributing the same amount each. The funders should know each other well, or at least trust each other. Exchanging proof of their legal identities is recommended but not required. Discuss the risks if something goes wrong. Every funder contributes the same amount. This individual contribution should be big enough to start a useful FediCredit and small enough to afford the risk of losing it entirely. For instance, five contributions of 1000€ each allow for an initial fund of 5000€. The fund must abide to the FediCredit antidiscriminatory policy and code of conduct. The fund must have a FediCredit document with the usernames of the funders, the amounts they have contributed, and the interest rate applied to microcredits. ### Setting the interest rate The purpose of the interest is to allow funders to run the fund without losing money – NOT to enrich the funders. The interest is calculated based on the fund’s operational costs plus the adjustment to cost of life inflation. All credits are assigned the current interest rate. If funders agree to increase the interest, open credits keep the old rate. However, if the interest is reduced, funders may decide to reduce the rate to open credits. ### Minimizing costs Ideally, a new FediCredit can be run at zero cost, which means that the interest rate can be set as low as cost of life inflation. Mosts costs are related to the size of the fund, and the basic way to save costs is to keep the fund small. If you have bigger plans, consider federating your FediCredit before growing it. These are the potential costs, and the ways to avoid them: * Failed microcredits, missing repayments, are the biggest risk and can become the biggest cost if you review them lightly. * Web hosting - use open source community infrastructre for the docs, a one-page site, communications channels... * Banking and transactions - don't create a bank account before your really need it -- you can go far with your FediCredit document (a spreadsheet) and direct transactions, and you can even reduce the amount of transactions if your funders are providers. * Taxes and professional accounting - keep your FediCredit simple and small, and stay below the amounts set by your government for required tax declaration. Very important: the costs of money transactions are paid by the borrowers. ### Submitting a microcredit request Microcredit requests must be simple. If funders need more information, they will ask. The request must be public and contain this information: * Objective. What is the microcredit for. It must align with the scope of the FediCredit. * How much. The amount can't be bigger than the 10% of the fediCredit and it can't leave the FediCredit with less than 34% of cash reserve. Take into account the money transfer costs, which are paid by borrowers. * How long. When will you pay back the microcredit with the interests. Don't be too optimistic. You can always pay advances or the total amount earlier, which will save you interests. * How you are going to pay the microcredit. Where will the money come from. Present a good scenario and also a not so good secenario. * Username(s) of the borrower(s). Why can the FediCredit trust you. Mention previous and current FediCredits, other (micro)credits, sources of income, skills and experience... Don't give away more personal details than needed for the amount you are requesting. Your trust index must cover the amount requested. If there are several borrowers, the trust indexes will be added proportionally. Borrowers must bring all of their trust index or only a percentage, but the percentage must be the same among the borrowers. Some examples on how you could cover a request of 300€: * One person with a trust index of at least 300€. * Two persons with at least 150€ each. * One person bringing 200€ from their trust index of 400€ (50%) and one person bringing 100€ from their trust index of 200€ (also 50%). ### Reviewing a microcredit request Congratulations! You got a microcredit request. Now you need to review it and approve it or decline it. First, check that the request meets all the requirements in "Submitting a microcredit request". If not, communicate to the borrowers which requirements are unmet. The request must be public and you need to offer a confidential communication channel to receive community feedback and especially any potential flags with the request or their requesters. Then, form the team of reviewers. Select three funders randomly. * You can't approve a microcredit with less than three reviewers, but you can have more, always randomly selected. * Reviewers contribute their trust index proportionally, following the same calculation used for borrowers. * If a funder has a conflict of interest (direct connection with the requesters, involvement in the project...) they must disclose it to the other reviewers. It is recommended that in these cases the funder recuses themself and doesn't join the reviewers team. However, exceptions are allowed if the other reviewers agree unanimously. A typical exception is when a reviewer is a provider that will be paid for services related to the microcredit request, as long as this relationship is clearly stated in the microcredit request. * If your combined trust index isn't enough for the amount request, add a fourth funder also selected randomly, a fifth if needed, and so on. If you can't reach enough trust index with all your funders, you probably shouldn't take this credit. Still, you can optionally add more funders from federated FediCredits. For the review, consider these risk factors and write down your conclusions as a team: * Do you believe the scenarios to repay the credit make sense, regardless of who are the borrowers? * Do you believe the borrowers can be trusted, purely based on measurable factors contained in the microcredit request, and in previous requests made in the FediCredit network? * If the borrowers can't fully return the microcredit through the activity described in the request, do you think they could repay their debt through donations or crowdfunding? * Is the microcredit directly contributing to your community or your providers, in ways that would make a loss less painful? * In a worst case scenario, would a total loss put your FediCredit in a really bad situation? VERY IMPORTANT: unconcious and systemic biases are real and nobody escapes from them. Not you, nor anyone who might flag a request publicly or confidentially. When reviewing a request, keep in mind the FediCredit antidiscriminatory policy and the code of conduct. Assess requests and their requesters based on the information they have provided in this and previous requests in the FediCredit network. If you need more information, ask the requesters. Don't start your own investigation unless you have received a flag. Publish your resolution between 1 and 2 weeks after the request has been published and considered valid. There are three possible resolutions: Approved, Needs improvement, and Declined. * Needs improvement: must include the specific improvements you expect to approve the request. * Declined: must include specific reasons why you are not approving this request and you are not considering improvements to approve it. Resolutions about approved requests must include this information: * Microcredit ID, name, and link to the request. * Microcredit amount requested. * Microcredit start and end dates. * Interest rate and estimated interest added to the amount requested. * When and how the money transactions to and from the borrowers will be made. * Borrower and reviewer usernames and the trust index each is contributing. * Team conclusions about the risk factors mentioned above. * Link to the FediCredit document including the bookkeeping data about the microcredit approved. ### Bookkeeping (coming soon) Credit payments return to the fund. Interests received remain in the fund. Operation costs are paid from the fund. All the fund accounts and movements are public, with private personal data redacted. All credit requests approved and their repayments are logged publicly, with private information redacted. ### Transferring money (coming soon) Borrowers pay the costs of making repayments. The number of repayments is as small as possible to avoid unnecessary costs for the borrowers. ### Handling losses (coming soon) ### Increasing the fund (coming soon) The fund can be increased when at least 33% of the fund is borrowed, to avoid excessive unused funds. The fund is increased with new funders, not with bigger contributions, to distribute the risk and the governance. ### Federating with the network (coming soon) • FediCredit Funds can federate with the goal to pool funds and trust while distributing risks and costs. • Borrowers could request bigger amounts by combining requests from different funds, as long as they respuect their trust index limit. • Credit reviewers could be borrowed and exchanged based on their experience and trust index. • Funds could agree on sharing costs and risks so that a loss in one fund could be distributed across other funds as a mutual insurance. • The fund data could be federated so that every fund hosts a copy of the data of all the federated funds, to inform their credit decisions, to evolve their fund, and to have backup data in case it’s needed. ## Documents (coming soon) ## Software (coming soon) ## License This FediCredit specification has a [CC0](https://creativecommons.org/public-domain/cc0/) license.