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How African Economies Can Benefit From Blockchain Technology

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African economies blockchain technology

An economy is only as good as its gross domestic product (GDP), political climate, and technological development. In many parts of Africa, these three factors are left wanting. Most African economies have low GDPs, unstable political systems, and limited internet coverage. Fortunately, the blockchain provides a technological solution that can help to improve African economies.

According to a report by Standard Media, a simulation carried out by IBM found that blockchain adoption in the economies of South Africa, Kenya, and Nigeria could lead to lower prices, improved real GDP and fiscal balances across every country.

Improved Import and Export Trading

The benefits of blockchain technology in import and export trading are plentiful. The blockchain can enhance customs control, decrease theft, and improve payments to suppliers.

According to City Press: “Banks […] still issue letters of credit to importers, a practice that has remained virtually unchanged for 700 years since its origin in medieval Italy.”

The blockchain can eradicate this issue by creating trust. Intermediaries can be eliminated and the costs of transactions decrease. The blockchain also offers faster trading between businesses, provides real-time data of goods moving in and out of a country, and eliminates barriers such as cross-border regulations, fraud, and customs delays. When all the friction that works against trading is removed, the GDP of an economy will improve as a result.

Perhaps the biggest winners from blockchain-based trading systems will be SMEs. SMEs often have limited financial abilities to cover high trading costs and long transaction processes. The blockchain can get rid of these issues by making it easier for SMEs to export or import products.

Increased Financial Inclusion

Africa has a large unbanked population. According to 2014 World Bank statistics, only about 30 percent of the population in Sub-Saharan Africa have bank accounts. Some of the reasons why so many individuals are unbanked include poverty, lack of documentation, and inaccessible financial institutions.

Luckily, the blockchain has the potential to increase financial inclusion by formalising property such as land. It is not uncommon to find Africans with large pieces of land living in poverty. By formalising this land using blockchain technology, the landowner receives legal protection and a sense of trust. That means that any transaction concerning the piece of land is accessible and cannot be interfered with. Perhaps most importantly, the landowner can use the land as collateral for a loan to develop the land and hence get himself/herself out of the impoverished situation. A company like Land LayBy, for example, is making strides towards applying blockchain technology to the real estate sector in Kenya and Ghana.

The blockchain can increase financial inclusion which in turn increases the spending and investing power of those who were previously unbanked.

Better Delivery of Services by Financial Institutions

A study by the Cambridge Centre for Alternative Finance indicates that 30 percent of distributed ledger technology (DLT) use cases fall under banking and financial services. The study, for instance, found that possible DLT applications that central banks are investigating are the issuance of digital currencies, records management, audit trail, and payments.

On the other hand, a study by Accenture found that banks can save about $10 billion by applying blockchain in clearing and settlements. In Africa, banks refrain from setting up in remote areas due to operational costs concerns. However, by saving on clearing and settlement costs, banks in Africa might be able to afford to reach the unbanked population.

The blockchain has the ability to improve the process of updating customer records and providing digital identities to those without documentation papers. As a result, refugees, for example, could easily access financial services and contribute to the economy of a host country.

Faster Remittances

Remittances play a crucial role in African economies by indirectly contributing to the GDP. Sending remittances through a blockchain-based system takes a shorter time than using conventional money transfer operators such as Western Union.

Additionally, the blockchain eliminates third parties and consequently eliminates extra transaction fees. As a result, more money can come into the continent once blockchain-based remittances are being embraced by the general public.

Transparent Spending of National Expenditure

Money allocated to ministries and various departments in government often goes missing due to corruption. Consequently, projects that need implementation are often postponed to an undefined time period. In addition, potential job opportunities that could have been created are lost. Inquiry committees that are created to find the culprits often provide zero results.

A blockchain-based system that allows all stakeholders to view how the taxpayer’s money is spent might go a long way in providing transparency in state financial matters. In fact, such a system might be improved further by giving the taxpayer a degree of decision making power when it comes to how much to allocate to every sector and which remuneration cuts should be made in order to bridge budget gaps.

 

Currently, blockchain startups, governments, and financial institutions are still experimenting with the possible use cases for this technology. Blockchain adoption will not happen overnight in Africa but over the coming years, it will be no surprise to see more blockchain-based systems in place in both the public and private sector that will benefit African economies. 

Blockchain Technology

IBM and Twiga Foods Partner to Offer a Blockchain-Enabled Microcredit Solution

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Blockchain-enabled Microcredit

IBM Research in partnership with Twiga Foods announced a new microcredit solution that is now ready for rollout following an eight-week pilot. The pilot saw the two companies utilise the blockchain-based financing system to process 220 loans to recipients with the average lending amount of approximately $30 per recipient. The loans were for four to eight days with a one and two percent interest rate respectively.

The solution came about when Twiga Foods – a mobile-based supply platform for Africa’s retail outlets, kiosks, and market stalls – was looking to expand its logistics services into a total market ecosystem by adding financial services for its customers.

Grant Brooke, Twiga Foods Co-Founder said, “Previously, we were focused on helping farmers distribute bananas, tomatoes, onions and potatoes to 2,600 kiosks across Kenya, but we soon realized that we could help them sell even more produce with access to working capital. It’s simple, if the food vendors can sell more, we can distribute more, growing both of our businesses.”

Twiga Foods begun working with IBM Research in Nairobi late last year to establish a blockchain-enabled finance lending platform that could foretell a vendor’s credit score. Isaac Markus, a researcher on the inclusive financial services group at IBM Research in Kenya, said: “We analysed purchase records from a mobile device and then apply machine learning algorithms to predict creditworthiness, in turn giving lenders the confidence they need to provide microloans to small businesses. Once the credit score is determined, we used a blockchain, based on the Hyperledger Fabric, to manage the entire lending process from application to receiving offers to accepting the terms to repayment.”

Benefits of the Blockchain-based Microlending Platform

With the blockchain, the lending process is transparent to all parties involved. Blockchains are immutable which helps in reducing fraud since no one person can add to the blockchain without agreement from the entire network. Also, blockchains can make use of smart contracts that are executable in real-time, therefore, reducing the time it takes for loans to be manually processed and issued. The technology will also help address the financial woes that informal and small businesses encounter when looking for cash to re-invest in their businesses.

The eight-week pilot saw the loan order size increase by 30 percent with each retailer having an average of a six percent increase in their profit. All 220 loans were executed through mobile phones and deposited directly towards the businesses’ working capital. If a retailer had an order delivered, they would then get an SMS with loan options that they could use to finance the order. The retailer would then respond to the SMS confirming the loan option they wanted.

“We had several iterations of the platform based on feedback from the retailers. The SMS-based solution provided an effective channel for a diverse set of users, some with limited IT literacy, to access financing for their orders,” stated Andrew Kinai, the lead software engineer on the project at IBM Research.

Following the successful pilot phase, the platform will first be rolled out to traders in Nairobi and then target SMEs across Africa by the end of 2018 with expansion into new sectors.

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Blockchain Technology

IBITx Launches New African Brand to Focus on Blockchain Incubation

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IBITx

IBITX Software Inc., a cryptocurrency exchange service and crowdsale software provider, has launched its new African brand called AFRIBITx.com. The company aims to position itself as an incubator for the development of blockchain concepts and companies in Africa.

A New Blockchain Incubator for Africa

IBITx is a digital currency exchange that matches investors with token sales on a single platform for ‘offerings’ as well as a free market trading system for all aftermarket cryptocurrency purchases and sales.

In a company press release, IBITx CEO Rose Marie D. Araos said:

“Our intention is to launch in partnership with a financial service provider a regulated environment in at least 2-8 African countries to start ideally by June 2018. The system’s skeletal structure is available for testing, however, we are still endeavouring to negotiate with regulated brokers and regulatory organisations as to which country will house the first African blockchain incubator, exchange, and crowdsale system.”

The new brand, AFRIBITx aims to become the exchange, crowdsale, and blockchain incubator brand for Africa. IBITx Software will harness its talent pool of blockchain developers in Philippines, India and South Africa with the objective of developing cryptocurrencies and decentralised technologies across the African continent.

The company also plans to put in place revenue sharing partnerships with local brokers, which will see them handle management and custody of the various local markets.

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Blockchain Technology

South African Startup Vio Digital Launches Blockchain-Powered Money Transfer App

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Vio Digital

Vio Digital, a South African fintech startup, is launching an Ethereum blockchain-powered money transfer app that will go live in May 2018.

Vio Digital is offering a new form of international money transfer that enables people to transfer money from anywhere in the world with zero transfer and exchange fees. Moreover, Vio Digital has not set a foreign exchange markup, which translates to affordable money transfers for users. Vio Digital, therefore, eliminates the price barrier that Africans in the diaspora face when sending money back home.

“For people sending money home to their families, additional processing and admin costs can be crippling. Our app uses technology to give people safer and more convenient ways to move their money. Technology like the blockchain means we can take cost out of the system to give people cheaper ways to move their money,” Praga Govender, CEO and founder of Vio Digital, stated.

Vio Digital held its initial coin offering from February 19 to 2 March 2, 2018, where the startup managed to raise approximately $1.2 million in ETH.

How Does the App Work?

The startup’s app is currently available in the Google Play Store and will initially be available in Kenya, Ghana, Nigeria, and Cameroon. To use the app all you need to do is download it and register your account by completing the KYC process. You will then receive a Vio wallet address, which you will use to make money transfers.

The next step is topping up your wallet by buying Vio tokens using Visa or Mastercard. Once you have done that, you can send or receive money. To cash out, convert the Vio tokens into your local currency and then transfer the amount to your linked Visa Debit card through Visa Direct. The Vio app also features a transaction history to keep track of your transfers, exchanges, and top-ups.

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