The following is a synopsis of a recent talk by CreDA CEO, Fakhul Miah for #HowWeb3WillReshapeTheInternet hosted by HIBOAT Media. Listen to it here: https://twitter.com/i/spaces/1nAJErvnPpnxL?s=20 (1:23)
Blockchain technology in Africa can open up a lot of opportunities, as many people across the continent lack credible identities in the eyes of traditional financial institutions, resulting in African lenders lacking the data needed to make good credit decisions.
According to the World Bank, almost half of sub-Saharan Africa is impoverished, with most people making between $100 and $200 a month. To make matters more difficult for lenders, 70 percent of loan applicants are rejected simply because they can’t obtain credit bureau scores for their customers. In addition, data suggests that 57 percent of Africans are unbanked or prefer to use cash-in-hand or debit cards over credit cards.
Because there is a lack of data, financial institutions often have to fall back on assumptions and bias when making their decisions. This further ostracizes unbanked individuals and keeps them from breaking out of the Credit Paradox. New technologies, such as blockchain, offer many opportunities to correct these issues and give credit where it’s due to Africans.
The World Bank has provided three core recommendations for expanding access to finances in Africa:
- Increase competition in the financial sector to drive innovation and access.
- Expand financial services to the unbanked through new channels beyond the traditional banks and financial institutions.
- Focus on end-users to develop and expand financial literacy, develop consumer protections, and address constraints outside of the financial sphere, such as in agriculture.
CreDA (Credit Data Alliance) is attempting to address all three of these points by providing alternative credit scoring using non-traditional means and the use of blockchain technology. Through our Credit4Good programme, we are working with partners to help educate individuals about the power of blockchain to overcome the Credit Paradox. Simultaneously providing lenders with more detailed and unbiased credit risk data for making more informed decisions.
Cross-Sector Challenges Abound
Retail in Africa is informal, with most consumers making purchases in open-air markets, small shops, tabletops, kiosks, and street hawkers. These sellers constitute the backbone of trade in many African countries.
E-commerce in Africa has increased by 57 percent between 2019 to 2020 as more shops begin operating online and more people tether their lives to their mobile devices. However, lack of access to consumer credit continues to hold back the retail sector. With better access to consumer credit facilities, people from low and middle-income classes will have a better opportunity to afford items that can improve their livelihood.
For example: A woman selling cold drinks packed in a cooler with blocks of ice while earning less than $100 a month, is unlikely to afford an outright payment for a freezer. However, with access to a digital identity, a credit score and consumer lending facilities, she can buy a freezer that will help her grow her business, leading to a greater quality of life for her and her family.
In the case of the agriculture sector, the use of credit to finance local farms is extremely low as farmers typically purchase things like fertilizer, seeds and pesticides with cash earned through other means. This too is an example of the Credit Paradox, because the lack of data results in a lack of understanding for how a farmer may be investing in their farms. Because they aren’t trusted with loans, farmers also don’t trust the banks, so instead resort to cash transactions.
Lack of Trust is Holding Digital Commerce Back
Trust has been identified as a limiting factor for e-commerce penetration in Africa. For example, in examining the causes of low e-commerce adoption in Central Africa, a GSMA report states that some “consumers have reservations about entering their bank card details on internet platforms or want to check the adequacy of goods on delivery before paying.” Allowing people the ability to purchase goods with credit could be an easy way to improve consumer trust.
Alternative credit scoring is emerging as a viable option for the continent, driven by AI tools that learn and assess risk through mobile data such as Safaricom’s M-Shwari’s mobile credit services (through M-Pesa) in Kenya.
Home-grown fintechs, such as Cape Town-headquartered Jumo and Nigerian start-up Kiakia, have also emerged, while overseas players like Credolab and Branch, which analyzes SMS data, are also gaining traction in Africa. Among lenders, First National Bank of South Africa, Kenya’s NCBA Group and Equity Bank, and Orange Bank have been early adopters of alternative credit models.
A shift is happening across the African continent that could provide access to credit for millions of people.
CreDA is Building a New Trust Architecture using Elastos DID Technology
Aimed at providing access to credit for people without credit histories or accurate personal identities, CreDA leverages blockchain technology and the open, transparent, and immutable data available on-chain to assess and provide credit scores without the need for people to share personal information.
CreDA uses a technology stack centered around the Elastos decentralized identifier (DID), which is W3C and DIF compliant and supports verifiable credentials. When users connect their mobile wallets to CreDA’s dApp, their wallet’s activity is assessed by CreDA’s Credit Oracle, a machine learning algorithm based on CreDA’s proprietary credit risk model. Their credit score is then minted with their DID into a credit NFT that can be used to access under- or non-collateralized loans.
Through CreDA, individuals can share real world data to improve their credit score, whilst retaining security and privacy on their own terms, unlike other types of credit scoring systems that harvest and collect user data. Right now, anyone in Africa or around the world can start to build credit with little more than a smartphone and a crypto wallet.
In regards to agriculture, CreDA is already building new models with a pilot project in Brazil that uses geo-data in addition to the Crypto Credit Score to provide better lending rates so that farmers can invest and grow their business and help feed their country.
CreDA is actively looking for partners in Africa who can help provide on-the-ground education as well as access to data and financing solutions and to work with CreDA to create a custom credit score that can help reduce risk for lending while opening up the huge business opportunities on the continent.
The opportunity is clear: African consumers need better access to credit. Providing DIDs and alternative credit scores can help fill the gap and make a substantial difference in capturing new e-commerce sales, generating repeat customers and driving rapid e-commerce growth while also allowing access to credit for people to invest in their future.
New credit systems are needed. CreDA is providing the infrastructure to make them happen.
CreDA’s Credit4Good programme uses the principles of DeFi such as transparency, immutability to provide access to credit for people without credit histories or accurate financial data. It’s part of the company’s mission to fulfill the original promise of DeFi, shape the world’s most powerful and equitable credit ecosystem and give ‘credit where credit is due’ to nearly 4 billion people who have been victims of the Credit Paradox.
If you’re interested to partner, please reach out.