Driving Down Remittance Costs to Enable Global Access for Local Producers in Africa
African economies suffer from massive local currency devaluations, losing support to the US dollar.
The continent is the most expensive global region to send funds to, with the average fee in sub-Saharan Africa being 8.46% — far higher than the 3% target of Sustainable Development Goal 10.
Africa’s central banks are unable to provide sufficient foreign reserves, leaving it to the informal market to fix exchange rates, exposing countries to exploitation — Nigeria lost $17 billion in foreign exchange (FX) arbitrage in the last 3 years. At the same time, global commodity exchange has shown no sign of slowing down, with cross-border trade and outsourcing only growing and remittances from the African diaspora amounting to $95.6 billion a year.
The result is costly and inaccessible cross-border transaction rates for underserved local producers and businesses. Despite the critical demand for import, export, and outsourcing, the shortage of foreign currency means small businesses find it more and more difficult to pay suppliers, source critical goods, and receive payments for digital/remote work. Reducing these fees would encourage more transactions, giving local producers access to trade and employment within the continent, and globally.
THE BITMAMA SOLUTION
For remittances and cross-border trade, the main barrier is foreign reserves liquidity. Bitmama is building a critical FX hub with enough liquidity for individuals and small business owners in Africa to get inputs and machinery for production, export products and services beyond borders, and support their families from overseas. Bitmama’s payment platform uses stablecoin infrastructure (stablecoin being global by nature) to solve current market inefficiencies like dollar shortages, currency devaluation, high cost of remittances, and long and complex processes.
Initially built to facilitate cross-border payments from Africa for overseas student tuition payments, their crypto-to-fiat payments system now enables any business to scale their regional and cross-border trade activities with a hyperlocal (peer-to-peer) on- and off-ramp layer. The company’s target audience is primarily producers, merchants, and commodity traders, reducing costs and hassles in cross-border transactions even when they are not crypto savvy: Changera is their Web2-style platform that has moved the Web3 complexity beneath a simple user interface for non-crypto-native customers. Users could be freelancers receiving payment from US/EU while located in Africa, or nomadic prosumers that need to pay online or send funds in bulk to employees.
Impact is achieved by providing cheaper and highly liquid fiat-stablecoin FX transactions, reducing cost and time for global transactions which can lead to greater transaction volume and overall improved financial health.
“As a remote designer, Changera has been the easiest way for me to work across borders and receive payments from my clients worldwide. I am able to work in my genius zone, knowing that my money flow stays intact.”
Yvonne Adams — Freelance Product Designer & Changera User
Replicating the Transferwise (Wise) playbook for Africa, with a crypto twist, Bitmama is live in Nigeria, Kenya, and Ghana and registering money transmitter licenses in the US, Europe, Canada, and UAE the company is working to directly connect with the 350 million African diaspora.
Functionally, Bitmama captures the incoming remittance flows of foreign currency (USD) to feed the outgoing cross-border trade transactions. At scale, combining both complementary flows will eliminate liquidity friction (and lower costs) for both migrants sending money to Africa and cross-border traders sending money from Africa, and is scaling this across multiple countries, beyond what a single bank could offer. The company operates at the intersection of 4 pillars: fintech payment players, remittance companies, banks, and pure crypto platforms. This means they can offer the relevant services from all these 4 offerings to their target community, such as leveraging stablecoins for global transactions when a competing Web2 fintech or bank can’t.
“Bitmama was founded by a strong “hustler”, Ruth Iselema, from the ground up out of her own cross-border payment needs as a student a few years ago. She discovered how to use stablecoins to pay for tuition and receive funding from her parents in Nigeria (while in other countries — Ghana). She started helping other students and parents as the Nigerian central bank disengaged from centralizing access to the USD. She quickly became known as “BIT MAMA” and given the rising demand, proceeded to formalize the company. Since then, she managed to assemble the right team and resources to build the best “borderless financial platform for global south customers in their journey to travel, work, and trade with the rest of the world.”
Toffene Kama, Investment Principal at Mercy Corps Ventures“This is an exciting phase for us, as one of the most respected VCs backing impact-focused companies, Mercy Corps Ventures brings its wealth of experience, action-oriented insights, and network support to catalyse our growth and advance our mission on financial inclusiveness in cross-border markets. This investment will enable us to pilot new approaches in new markets, consolidate existing products and integrate partnerships to reinforce our impact. We’ve already started on a promising note and cannot wait to achieve more with them.”
Ruth Iselema — Founder & CEO, Bitmama
THESIS AREA — INCLUSIVE FINTECH
Bitmama is enabling Africa to reinvent its financial rails from base layer infrastructure upward, leveraging the latest technologies such as blockchain, stablecoins, and P2P FX. On top of this new payment infrastructure, many real-world applications are built by Bitmama directly (e.g. Changera) and by other fintechs, in order to circumvent the negative consequences of the current rails: local currency drops, expensive remittance costs, complex and costly FX processes preventing businesses to scale their activities. Despite the crypto winter, Bitmama more than doubled its transaction volume in 2022, with a 90% retention rate. We are excited to be part of their journey to scale.
Stay tuned for more updates on our portfolio here.
