Blockchain To Advance Africa’s Traditional Financial Sector

By Rishma Banerjee

On 23rd September, Sierra Leone’s president Julius Maada Bio, at the 73rd Session of the U.N. General Assembly (UNGA), announced his plan to create a national, blockchain-based credit agency. This announcement comes at the heels of a new partnership forged between Kiva, which is a non-profit organization, U.N. Capital Development Fund (UNCDF), and the U.N. Development Programme (UNDP).  

Blockchain can greatly benefit those who do not have access to bank accounts and are thus cut off from important financial services such as credit and money transfers, and serves as a more secure financial alternative. This technology takes care of two very pertinent problems that emerge while availing traditional banking facilities- identification and credit history.

The high costs of infrastructure and the general low income of the general populace make it difficult for any financial institutions to approach the unbanked public in Africa.

The banking gap in Africa can be drastically cut down on by relying on alternative financial solutions like cryptocurrencies for example. With that in mind, many Africans have started relying heavily on cryptocurrencies, which is their respite from the abysmal condition of traditional banking in the region and the poor remittance rates. The most important financial model in Africa is microfinance.

Kiva has been functional since 2005 and has reportedly crowdfunded over a million loans totaling more than $1 billion, but this is the company’s first attempt at putting the system on blockchain rails. The organisation offers both online and offline access to their digital wallet. The wallet can be accessed by a mobile app, or via the company’s collaborators like microfinance institutions and government “agents”. The system will work similarly according to the original scheme, but with some minor alterations.

If a loan is made by a lender via the DLT protocol, a signed verifiable claim along with the specifics of the loan is sent to the borrower. The borrower on acceptance of the claim posts it to their private credit ledger available in their digital wallets.  On repayment, the lender gain sends a verifiable claim, which the borrower approves before posting it to their ledger.

Rishma Banerjee

Rishma is currently pursuing a bachelor’s degree in International Relations and has a special place in her life for sifting through all sorts of random trivia, thank you very much.

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