Africa’s financial systems have proven to be very unique compared to the rest of the world. On some parts of the continent we may still straddle behind but on others we’re true global leaders in financial technologies. We’ve seen this clearly through mobile money’s strong dominance in nations like Kenya through M-PESA.
Regardless of the disparities in technological uptake, what has shown to be strongly common across the continent is our communal approach to saving and lending through the millions of financial groups in almost every small community on the continent.
Africans have been saving and building their wealth for several years through Chamas, Saccos and other small financial groups set up between friends, family and community members. I like to call this offline or informal DeFi (Decentralised Finance).
The stats tell us that over 65% of adults in Africa are unbanked, so what are these 800 million people doing? They’re on informal DeFi, and it seems to work, but it still isn’t enough, here’s why…
The $421 billion SME Financing Gap
Do you know what are the most downloaded applications in Kenya and Africa today? Take a quick look at the top 30 apps and over half of them are lending platforms, primarily malicious digital lenders. If you were to take out all the entertainment apps; your Facebook, Instagram, WhatsApp, YouTube, what’s left are just lending apps.
In 2021, Fuliza, a lending product run through M-PESA by Kenya’s biggest telco, Safaricom, processed 300 loans per second. That means in a little over 2 days they would issue as many loans as they are people in Kenya.
Last year, the Kenyan President launched what I’d personally describe was the 2nd fastest growing startup in the world’s history, not just Africa but in the world, second only to ChatGPT.
In just 2 weeks, the Hustler Fund signed up 17 million users with 3 million repeat users, processed over 16 million transactions, disbursed over $100m in loans and registered over $5m in user savings. In comparison, it took Facebook about a year to reach 1 million users, Hustler Fund did 17 million in just 2 weeks. The Hustler Fund is also a lending service and its uptake was faster than the iPhone, Instagram or Facebook.
So the question now would be, what’s happening, why is everyone in Africa on these lending platforms. Most of them are malicious lenders with crazy interest rates. But why do a large number of people still use these platforms?
65% of Africans have no access to banking and offline DeFi isn’t enough. There’s a $421 billion financing deficit every single year SMEs across the continent have to contend with. I believe blockchain technology could probably be an answer to this, through DeFi.