Bridging the $8T Financing Gap

Umoja is democratizing global access to DeFi credit.

Robert Greenfield IV
Umoja Protocol
Published in
8 min readApr 10


TLDR: Umoja is a decentralized credit protocol that crowdsources loan funding and collateral to provide affordable financing to African institutions and retail borrowers. To join the Umoja DAO and become a part of the African DeFi revolution, learn more here.

According to the International Finance Corporation (IFC), MSMEs account for over 90% of businesses and more than 50% of employment worldwide.

However, despite their contribution to the economy, MSMEs face a financing gap of over $8 trillion globally. This financing gap means that many MSMEs are unable to access the credit they need to grow and scale their businesses.

This piece covers the financing gap MSMEs face, what causes it, and how DeFi can help bridge it.

What Classifies As MSMEs?

The United Nations defines MSMEs (Micro, Small, and Medium Enterprises), MSMEs as:

“enterprises with a headcount of less than 250 and either an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million.”

Also, MSMEs are some of the strongest drivers of innovation, employment, and economic development due to the opportunities they create. According to the IFC, “MSMEs contribute significantly (over 40%) to developing economies.”

For example, “MSMEs in Nigeria accounted for 96.7 percent of businesses, 87.9 percent of employment, and 49.7 percent of national GDP in 2020,” according to data from the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). For context, Nigeria is one of the largest economies in Africa.

Therefore, supporting MSMEs in developing countries is a great way to reduce poverty and increase economic development. This is why it is important to address the financing gap that MSMEs face.

The $8T MSMEs Finance Gap

The $8T finance gap with MSMEs is caused by a combination of factors, including:

  • Lack of credit history or collateral
  • Limited access to traditional financial services
  • Limited financial literacy
  • High-interest rates and fees associated with traditional loans
  • Risk aversion among lenders
  • Unfavorable regulatory environment in some countries
  • Concentrated Banking Sector

Addressing these factors is crucial to bridging the $8T finance gap with MSMEs.

DeFi (Decentralized Finance) offers a range of financial tools that can help MSMEs to grow and scale their businesses. With DeFi lending and borrowing, business owners can interact with lenders to access affordable and flexible financing options.

Solving the MSME financing Gap with DeFi

DeFi (Decentralized Finance) refers to a financial system that operates on a decentralized, peer-to-peer network. It utilizes blockchain technology to create a transparent and open financial system that is accessible to anyone with an internet connection.

In DeFi, financial services such as lending, borrowing, and trading are conducted without intermediaries such as banks or other financial institutions. Instead, users interact directly with the DeFi protocols governed by smart contracts.

The underlying technology also opens more opportunities and a new host of financing made possible through blockchain technology. When used right, DeFi lending can offer the following:

  • Lower the barrier to entry for MSMEs
  • Reduce interest and fees
  • Transparency
  • Trustless transactions (remove the need for a third party to oversee loans)

The Problem with Traditional DeFi

While the existing DeFi protocols support some of the much-needed requirements of MSME financing, the vast majority of DeFi lending protocols aren’t usable for real-world financing (particularly in markets where the MSME financing gap is the largest).

Current DeFi protocols are limited in the following ways:

  • Over-collateralization: MSMEs cannot participate in over-collateralize lending models (e.g., like those provided by Aave and Compound)
  • Exclusive& Highly Selective Deal Flow: Virtually all under-collateralized protocols (e.g., Goldfinch, Credix, Maple, TrueFi, etc.) are only accessible to a selected few large institutional borrowers rather than the average MSME.
  • Added FX Conversion & Devaluation Risk Costs. Most real-DeFi protocols only denominate loan terms in USD or EUR, creating FX devaluation risk (and adding FX conversion costs) for the borrower.
  • Virtually No Retail Borrower Support. There are a few protocols that support peer-to-peer retail borrowing. This is problematic because many MSMEs are made of only one person.

Bridging the Gap with Umoja

Umoja is a decentralized credit marketplace that crowdsources debt capital and collateral from investors to finance MSMEs in emerging markets.

Umoja’s mission is to use the DeFi ecosystem to provide a risk-tolerant, affordable, and flexible lending infrastructure for business owners and, eventually, retail borrowers.

Umoja intends to provide affordable DeFi lending to finance borrowers in emerging market economies. To maintain this open-source financing, the protocol depends on a community of borrowers, lenders, collateral providers, and capital reserve providers.

Furthermore, to help MSMEs in emerging markets, Umoja is the first lending protocol to support multiple fiat currencies. That way, borrowers can eliminate FX devaluation risks that result from converting from USD to their fiat currency.

How Umoja can help MSMEs

  1. Provides Preferred Terms. Borrowers propose their preferred lending terms.
  2. Provide Affordable Capital. Lower MSME cost of capital by sourcing debt financing globally.
  3. Provides Increased Flexibility. Enables MSMEs to renegotiate loans if needed
  4. Provides Accessible Financing. Umoja was purpose-built for emerging market MSMEs.
  5. Minimizes FX Conversion & Devaluation Costs. Umoja supports multi-currency loan terms, disbursement, and payment.

How Does Umoja Work?

The principle guiding Umoja is simple: crowdsource debt capital and collateral from global investors to finance emerging markets MSMEs.

The flow chart below is a simplified flow of the lending process on Umoja.

A flow chart of the Umoja protocol lending process
The lending process on Umoja

If you’re not sure how that works, here is how Umoja lowers the cost of capital to finance borrowers and protects lenders:

  1. Flexible Loan Terms: Borrowers propose their preferred financing terms for approval. Instead of standard financing conditions for payment plans and duration of loans, borrowers are allowed to propose their preferred interest rate, grace period, late fee structure, required collateral, and even loan currency (USD, KES, NGN, ZAR, & TZS in V1).
  2. Decentralized Underwriting: Umoja lowers the cost of underwriting by outsourcing it to “Approvers.” Once an Approver has approved a loan request submitted by the Borrower, the Borrower’s loan (i.e., “Borrower Pool”) is activated and can fundraise debt financing.
  3. Crowdsource Loan Financing: Umoja crowdsources loan funding from institutional and retail investors to provide a more affordable blended financing. In exchange for their investment into the Borrower Pool, debt investors proportionally earn APY as the loan is paid back by the Borrower.
  4. Crowdsource Loan Collateral: Debt investors may elect to rent additional collateral from the Collateral Pool at any time during the loan’s maturity, giving them 100% default risk controls.
  5. Secondary Debt Market: Debt investors can sell their investment position within any Borrower Pool on Umoja’s secondary debt market anytime they want. This offers a flexible way for lenders to get their capital at any time.
  6. Pay Back Loan. MSME Borrowers pay back their loan just as they would traditionally.

To maintain this model of hyper-crowdsourced financing, Umoja depends on stakeholders, including lenders, borrowers, approvers, and stackers. Below are the stakeholders, what they do, and the incentive.

  • Borrowers: Borrowers get access to affordable and flexible loan options on Umoja. They are individual entities (MSMEs) looking to borrow capital to fund their business (and soon retail consumers!).
  • Backers. Backers are junior tranche debt investors who directly invest into Borrower Pools (i.e., loans). Backers earn higher, variable yields from financing loans, provided that they take on more risk. Backers may be retail and institutional investors.
  • Liquidity Providers. Liquidity Providers (LPs) are senior tranche debt investors. LPs provide capital to the Lending Pool, which distributes senior tranche financing across all Borrower Pools elect to have such financing. LPs earn a lower, fixed yield from financing loans, provided that they take on less risk. LPs may be institutional and retail investors.
  • Collateral Providers. Collateral Providers provide capital to the Collateral Pool, which rents capital to Borrower Pools to further de-risk debt investors from the default (i.e., top up their collateral). Collateral Providers help minimize the cost of financing for MSMEs by requiring them to put up less collateral themselves. Collateral Providers earn a portion of the APY paid back on the loan, APY generated by Aave on their idle capital, and 40% of the protocol’s transaction fees (as they take on considerable risk).
  • Insurers: Insurers (a.k.a., “Stakers”) provide capital to the Default Insurance Pool to limit the risk exposure of Collateral Providers by pooling capital that may be used as default insurance. Should the protocol’s default percentage exceed 5%, the Default Insurance Pool will reimburse Collateral Providers for all capital they have lost until the protocol-wide default rate is back to (or lower than) 5%. In exchange, Insurers earn 30% of the protocol’s transaction fees (in proportion to the capital they stake in the Default Insurance Pool).
  • Approvers: Backers stake capital within the Approver Safe to become an “Approver.” Approvers are eligible to underwrite loans on the protocol, review and approve loan requests from borrowers’ pools. They make the decision to either approve or reject a loan request after reviewing it. Approvers may only underwrite loans that they are also debt investors (i.e., “Backers”) of.
  • Governors: A Governor maintains the protocol by voting on proposals submitted to the community to update the economic parameters of the protocol and help expand the Umoja ecosystem. Governors must stake $UMJA to become eligible to vote. In return, governors get 10% of transaction fees.

You can learn more about how Umoja works via our White Paper here, or our Black Deck (i.e., protocol overview deck) here.

The Team Building Umoja

Umoja’s core developer is Umoja Labs, an American and Tanzanian-based company backed by the likes of Coinbase Ventures, Mercy Corps Ventures, 500 Global, and Norrsken. Umoja Labs provides Web3 financial infrastructure purpose-built for the real-world inclusion.

Umoja Labs has alumni from Goldman Sachs, Paypal, Amazon, Plaid, ConsenSys, and Oxfam, with advisors from ConsenSys, Cauris, Avalanche, and others. We have over a decade of financial engineering and product development experience and have collectively deployed the most dApps in emerging markets globally (in our respective careers).

Join the Financing Revolution & Become Shujaa

Umoja can only reach its vision of providing over $100 billion in MSME financing through partnership and community participation. To join the Umoja DAO and become a shujaa (i.e., “warrior” in Swahili), learn more here.



Robert Greenfield IV
Umoja Protocol

CEO of Umoja Labs, Former Head of ConsenSys Social Impact, @Goldman Alum, @Cisco Alum, @TFA Alum, Activist, Intense Autodidact