🤝Credit Lines

Credit Lines are EthicHub's core financing mechanism. They allow small agricultural producers and cooperatives —referred to as Originators— to access capital on a recurring basis, without having to negotiate each loan from scratch.

A Credit Line works like a pre-approved facility: once opened, the Originator can borrow, repay, and borrow again within the established limits, repeatedly over time.

How does it work?

The process involves three main actors:

Auditors: Assess the Originator's repayment capacity and open the Credit Line with the corresponding parameters (amount, interest rate, term). They are responsible for the credit risk within their assigned quota.

Originators: The borrowers. They draw capital from the Credit Line to finance their productive activity and repay it with interest at maturity.

Investors: Provide liquidity to the pool through Collective Loans. That capital is what funds the credit lines and generates returns.

Structure of a Credit Line

Each Credit Line is permanently recorded on the blockchain, ensuring that the Originator's credit history is transparent and auditable at all times.

Within a single line, multiple successive credits can exist: once a credit matures and is fully repaid, the Auditor can renew or expand it based on the Originator's payment track record, building a long-term credit relationship.

The parameters of each credit include:

• Principal: maximum amount available to the Originator.

• Interest rate: annual, calculated on the outstanding borrowed balance. Longer terms and a good payment history may lead to better conditions.

• Term: minimum of 3 months per credit.

Fee distribution

When a credit is opened or renewed, fees are charged on the principal and automatically distributed to three parties:

• Collateral reserve: strengthens the ecosystem's guarantee fund, protecting investments alongside Collective Guarantees.

• Platform: covers EthicHub's operational costs.

• Auditor: compensates the Auditor for their credit evaluation and monitoring work.

This distribution aligns the incentives of all participants: Auditors only earn a return if they open quality credits, and the collateral reserve grows with every operation.