Blockchain continues to expand its services in current times as experts turn their attention toward the technology’s potential in addressing long-standing challenges that plague economic development of businesses. The technology has illustrated its potential in eliminating poverty for upcoming businesses by offering loans to demographics that are traditionally excluded from financial inclusion.
While it has been argued that the groups that significantly gain from microloans are lenders (owing to non-restrictive barriers, or lack thereof, which translates to high-interest rates), microlending has illustrated its potential to bail out struggling businesses (and people). As a result, blockchain hopes to mend the mentioned concerns, as well as large overheads, a slow structure, and potential for corruption.
With this in mind, Twiga Foods, a Kenyan logistics company that leverages mobile technology to offer a platform for farmers and agri-based traders to supply and deliver produce to clients has inked a blockchain-based microfinancing partnership with IBM Research.
This is a handy development that looks forward to addressing financial woes of small or informal businesses, especially when the need to get access to funds arises. The technology will use machine learning techniques to curate credit scores for applicants prior to distribution of microloans to the targeted business people. The program will at first target traders in Nairobi as it looks forward to expanding to continental Africa.
The technology was developed at the IBM Lab in Nairobi to foretell creditworthiness.
“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,” said Isaac Markus, a researcher on the inclusive financial services group at IBM Research in Kenya.
Unlike traditional platforms that are slow owing to lengthy bureaucracies, blockchain-backed microlending is a peer-to-peer platform that pegs trust on players in a distributed network. It allows the majority control of the networks sans interference from a single person or group.
So far, the technology, which underwent an 8-week pilot, has processed 220 loans with a distributed average of KES 3000 for recipients. These loans were disbursed with a repayment period of four or eight days that attracted a 1% and 2% interest respectively. These loans were distributed using mobile platforms with SMS correspondence.
“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,” said Andrew Kinai, the lead research engineer on the project at IBM Research.
Twiga, which started its business as a logistics company for bananas, has since expanded its operations to include more farm produce for distribution.