Thursday, December 1, 2022

IBM’s Blockchain Venture to Offer Microloans to Small Businesses in Africa

IBM’s Blockchain Venture to Offer Microloans to Small Businesses in Africa

American multinational technology company IBM is forging ahead with a piloted blockchain-based finance solution to help small businesses throughout Africa. IBM’s research wing successfully accomplished a blockchain-based micro-lending pilot project with Twiga Foods, a Kenyan logistics company. The project uses Hyperledger Fabric, a blockchain framework implementation that acts as a bedrock for developing applications and solutions.

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Retailers Profit from Blockchain-based Microlending Project

Kenyan-based Twiga foods used mobile technology to develop a supply chain for farmers and traders. However, to scale its business boundaries and offer microloans to those businesses, Twiga joined the tech giant to employ blockchain technology to develop a transparent market ecosystem.

The blockchain-enabled micro-financing pilot program handled over 220 loans provided to food retailers across Kenya. The average loan amount was around $30 USD, at a one- to two-percent interest rate for a repayment period between four to eight days. The initiative extended routine orders by 30 percent and found that, on average, retailer profits increased by 6 percent.

Andrew Kinai, the lead research engineer at IBM Research, said:

“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.”

IBM Plans for an Interdependent Ecosystem in Africa

The aim of the program was to develop an entire interdependent ecosystem. Initially, Twiga zeroed in on logistics, transporting fruit and vegetables from farms to retail stores. However, with microlending, retailers could use the extra cash to buy more, while farmers could sell additional products. Twiga benefited from the interest it earned and the boost in business.

The project only required a retailer to own a mobile phone, which most Africans do, and all they needed was capital to grow the business. The IBM blockchain program aims to fill the finance gap so small ventures can flourish on the African continent.IBM blockchain microloans Africa

Isaac Markus, a researcher on the inclusive financial services group at IBM Research in Kenya, was quoted explaining the blockchain program on Capital Business:

“After analyzing purchase records from a mobile device, we used 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.”

Such projects prove that blockchain technology fever is not only rampant among multinational companies, but also small businesses that consider it groundbreaking technology able to solve real-life problems. The reason for using blockchain is that it is secure and transparent in nature. No individual or single entity can alter entries on the Distributed Ledger.

Alteration is only possible with the consensus of the entire network. Moreover, a smart contract on Distributed Ledger technology is more efficient and quicker to process than paper-based loans. The banking infrastructure is underdeveloped in Africa, yet the blockchain venture plans to involve banks in the future. The success of the pilot project has led IBM to spread the program throughout Africa.

Will the adoption of blockchain technology increase on the African continent? Share your views in the comments section below.

Images via Pixnio, Pxhere

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