# FediCredits ***Federated credit funds for local and online communities*** :::info * 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. ### Creating a FediCredit fund (coming soon) ### Reviewing a microcredit request (coming soon) ### Bookkeeping (coming soon) ### Transferring money (coming soon) ### Updating the interest rate (coming soon) ### Increasing the fund (coming soon) ### Federating with the network (coming soon) ## Documents (coming soon) ## Software (coming soon) ## License This FediCredit specification has a [CC0](https://creativecommons.org/public-domain/cc0/) license. ----- ----- ----- ----- ----- ## (((Work In Progress))) The sections below are notes that need to be processed and moved to the doc above. ### What is What #### Fund • The fund needs to have a scope and a reason to exist, usually to support a local or thematic community, or a type of activity. • Initial fund: 5.000€ or local equivalent from 5 economically independent funders. • 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. • Up to 66% of the fund can be borrowed, no more, to respond to contingencies. • 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. #### Credits • Credit requests must be aligned with the scope and objectives of the fund. • Submitting and asessing a credit request must be simple and explain: what is the credit for, how much, how long, how will the credit with interests be repaid, and why the requesters can be trusted. Funders may request additional information. • Credits can be requested by one or more borrowers sharing equal responsibilities. • The trust index of the borrower(s) defines the maximum amount they can request. • A credit request cannot be higher than 10% of the total fund. • Borrowers pay the costs of making repayments. The number of repayments is as small as possible to avoid unnecessary costs for the borrowers. • Credits are assessed by a team of three funders selected randomly. If they don’t sum enough trust, then a fourth members is randomly selected, and so on. • All credit requests approved and their repayments are logged publicly, with private information redacted. #### Interest • 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. • 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. #### Trust • All funders and borrowers have their trust index. This trust index defines the maximum amount borrowers can request and funders can approve. • Everyone starts with a trust level of 100, which means that borrowers can request up to 100€ and funders can approve up to 100€. • When a credit is successfully returned, funders and borrowers get an increase in their trust index equivalent to the amount they individually approved as funders or borrowed as borrowers. #### Costs • Costs are likely to vary from fund to fund, but the idea is to keep each fund relatively small and federate them, rather than aiming at growth and economies of scale. • Costs related to banking and web hosting might be small but unavoidable. • Other costs like accounting, tax filing or coordination may happen only when a fund grows significantly. • Failed credits, missing repayments, are costs too, which will cause higher interest rates to recover the balance. #### Federation • 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.