How decentralized finance can genuinely build a healthy African economy
The African continent has been seen by the outside world as backwards because many African countries are poor, and they are late at adopting new technologies. The tide is changing tho as many African countries are developing blazing fast, with Kenya, Tanzania and Nigeria leading technological development in some cases globally. The arrival of smartphones has opened many Africans to the outside world, and many employment opportunities have been created. The development is incomplete without mentioning the contribution of blockchain technology to African development through decentralized finance.
Will DeFi decentralize power in Africa?
Decentralized finance is a movement of replicating classical financial instruments that exist for centuries but this time in a trustless and decentralized manner by using smart contracts. For the continent of the unbanked people this could mean one thing : escape from poverty. When you don’t have access to even the basic financial services you don’t have access to loans, debt or borrowing that can help you invest in your future and the future of your children. No way to hedge against disasters and in general stabilize your life. Debt is what the western civilization was built upon and we believe it’s time that everyone participates in that future.
Can DeFi improve the African banking system?
Let’s talk about banks first. The banking system in Africa improved over the past decade with the introduction of mobile banking, it has ensured that borderless transactions can be completed without friction or hassle. This is where countries like Kenya are leading the pack — first in the world.
However African banking system has many faults; banks have many problems like long withdrawal queues, failed transfers, and failure of small businesses to secure loans not only because of trust issues but lack of records or acceptable data. When small businesses cannot get loans to build their businesses, it affects African countries’ overall development.
Blockchain-powered decentralized finance can remove barriers to the traditional finance system. DeFi powered networks are entirely resistant to government policies, especially suppression, corruption and control. Some African governments are notorious for creating policies that are cruel to small businesses and the general populace. Some give loans to some specific people, and also only a few companies are in the finance system, which subjects the finance system to total control. DeFi creates a system in which people have permissionless to financial services without barriers or restrictions of any sort.
One simple example that fact is our collaboration with BitLipa. Currently this is THE most efficient and effective way for people in Kenya to transact freely across the globe. Freelancers working for companies abroad get their payments settled in minutes and cost a fraction of what they used to. The same goes for Kenyans working abroad. This collaboration is a testament to our commitment to build an whole ecosystem of businesses across the African continent making people’s lives better.
That’s one of the many reasons why KENYA recently ranked in the Top 10 countries in the world in cryptocurrency adoption.
Can DeFi loans can replace the traditional borrowing system?
Some African companies find it very hard to get small business loans. There is no specific system that determines the creditworthy businesses and this opens the lenders to a lot of risks.
UTU and Maramoja was once a small business and we know how hard the system can be. That’s why we decided to build a fully decentralized peer to peer reputation mechanism that solves the problem of trust, creditworthiness and other problems small businesses can face. Our system provides a credit scoring system that enables peer to peer lending through the DeFi or even through centralized finance institutions. A lender can see the borrowers reputation by observing many parameters available in UTU protocol and the collateral, risk and many other variables that depend on that score will be decided based on that.
Many economies in Africa are growing fast, and the financial system is revolutionizing, but this development is incomplete without embracing decentralized financial systems. The genuinely decentralized economy created by our platform has a genuine chance to finally enable the system that builds trust among borrowers and lenders and take decentralized applications that the people can trust. Help us to make this a reality, change the whole continent and push further than anyone could imagine today.