Everyone wonders why there is so much talk about decentralized finance (DeFi) and why most African crypto startups are so keen on basing their products and applications within its spheres. There is always that saying of DeFi being the greatest tool for “banking the unbanked” in the African economic system. As simple as that phrase sounds, many do not understand the essence and meaning behind it.
What exactly does it mean to be unbanked?
Being unbanked simply implies financial exclusion or having no access to a bank account or banking services. According to a survey carried out by World Bank in 2017, the unbanked population of the world mostly resided in Asia and Sub-Saharan Africa with Sub-Saharan Africa alone having about 350 million unbanked adults at the time.
Now according to recent data from Merchant Machine, this analysis still holds strong with Asian and African countries taking the lead. Nigeria itself sits as the sixth most unbanked country with 60% of the population regarded as unbanked. A valid question would be why the number of people who do not have bank accounts or access to banking services is so high. Major reasons revolved around distrust in financial services, lack of access especially in rural areas, unemployment, or lack of funds to even open an account.
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How DeFi bridges the gap
Before the DeFi craze begun, there were already quite a few fintech ideas that sought to solve the issue of financial exclusion in Africa. This saw the rise of mobile banking platforms and services like Paga, OneFi, Jumo, Fawry, etc all around the continent. However, these platforms still required a level of trust in a centralized authority and did not put power in the hands of the people.
Then came blockchain technology and DeFi, with all its decentralized and peer-to-peer glory. By eliminating the total need for third-parties in financial transactions and matters, DeFi gives true freedom to the consumer. No longer does anyone in need of financial services like loans, investment, remittance, etc have to fill lengthy forms or queue at any bank office. All users need are crypto-wallets. The next step after this is to open the platform, link a wallet which they are in charge of personally and gain access to services.
DeFi gives consumers access to ready crowdfunding options for their businesses. An example is the DAO Maker, which gives startups a more secure decentralized launchpad and crowdfunding opportunity for their projects. Others include Compound that allows users to access peer-to-peer lending without the usual hassles of obtaining loans in the world of traditional finance. Users can obtain loans to fund their businesses and take a leap out of poverty. Uniswap and Pancake Swap are decentralized exchanges that allow consumers to trade cryptocurrencies of their choice freely and easily.
Read: Into the World of Decentralized Exchanges: Pancake Swap
The Final Say
As interesting as DeFi seems, it still comes with its problems. The technicality of the space is still not understood by many and due to its highly unregulated nature, a lot of novices can fall prey to scams. However, a lot of projects are out to solve these issues through solutions like education, friendly user interfaces, optimized user experiences, proper auditing, introducing credit scores to ease the access of loans and reduce scams, etc.
Cryptocurrency and digital assets are the future and Africa is fertile ground. It is all just a matter of time. Once these issues can be addressed, coupled with the fact that DeFi platforms need very little human input to be run successfully, we can say that financial and payment systems are up for a serious revolution in Africa.
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