Denis Opudo
The typical limitation across different African banks is their averseness towards small businesses when it comes to lending. This is because they cannot access or evaluate the business creditworthiness and the owners depending on different factors. However, there exists a $331 billion lending gap in Micro, Small and Medium Enterprises (MSMEs) across Africa yet to be bridging.
The Blockchain technology has played a significant role in bridging the lending gap across Africa. Blockchain utilizes distributed ledgers to assist informal business in accessing loans and build credit in nations such as Kenya. There are applications, which have been created by top multinational corporations (MNCs) such as the IBM, which is used to bring the unbanked into the business finance world. Therefore, the blockchain technology has been instrumental in assisting the $20 billion informal economies of Kenya to compute the creditworthiness of traders.
Based on the figure provided by the International Finance Corporation, there is a chance for innovative business, which can be valuable in rebuilding the creditworthiness across the continent. For instance, in Kenya, the SMEs require about $6.5 billion every year based on the quotation by 4G Capital, a small business lender across Kenya and Uganda, with the value of the informal sector currently at $20 billion. Based on the company’s CEO, Wayne Hennessy-Barrett, the company is projecting to lend $40 million in the next year, compared to $20 million loans lent in the last year. However, the CEO of Kenya Bankers Association, Habil Olaka, notes that technology could not be the absolute solution for the informal sector considering the snag involved in evaluating clients and businesses.
Different informal sectors have managed to benefit from the blockchain technology by using a mobile phone to access business loans. For instance, in Nairobi, Janeffer Wacheke, a fruit vendor can access loans for buying fruits and vegetables from producers. Additionally, Kenyan startup Twiga Foods Ltd. helps to deliver the produces to the vendor hence saving time and cuts cost as she builds her credit. As users such as Waceke use this platform, they are tracked and evaluated by different companies, utilizing parameters such as re-payment trends, demand, and spending habits to develop the credit history of the traders. Therefore, Twiga Foods Ltd. is assisting other small businesses to implement and use the blockchain in building their credit through their mobile phones. IBM developed this strategy so that it could help small African businesses to take care of their major hindrance, which is lack of finance.
