The EIB West and Central Africa SME Banking and Microfinance Academy 2022
Topic 9: How Blockchain can transform Africa’s financial digitization
25 May 2022, 01 pm GMT (Abidjan) / 02 pm (Cotonou, Douala, Kinshasa)/ 03 pm (Paris, Frankfurt, Lusaka, Harare, Johannesburg) / 04 pm (Addis-Ababa, Nairobi)
The ninth in a series of 10 webinars organized by the EIB Academy dedicated to banks and microfinance in West and Central Africa, in partnership with Making Finance Work for Africa (MFW4A), was held on 20 October 2022. The central theme was “How Blockchain can transform Africa’s financial digitization”
This webinar attracted an audience of 241 participants, who demonstrated their interest in this important topic through very relevant questions. From the outset, Hughes Kamewe Tsafack of MFW4A located the issue of the debate and how the digital transformation taking place on the continent impacts the economy and society as a whole. In this sense, blockchain has the potential to facilitate trade finance by eliminating paper-based processes and reducing fraud and the cost of transactions. After the opening remarks by Bernard Koissy of the consulting firm IPC GmbH, the moderator, Nishika Bajaj, deputy editor of PlatformAfrica.com introduced each panelist.
The first speaker, Blaise Bayuo, a blockchain specialist, and co-founder of Ghana-based Yensesa, a company active in building blockchain infrastructure and community, spoke on the evolution of blockchain with the introduction of central bank digital currencies across Africa and the development of sandboxes by most governments. For Blaise Bayuo, this is a wake-up call for the financial sector. He went further, to explain how the blockchain strengthens the operational efficiency of SMEs which, are thus, better managed and generate unimaginable revenues. For financial institutions, blockchain improves end-user experience and reduces risk in business operations. Finally, it leads to financial inclusion beyond local markets. Between July 2020 and June 2021, Africans received $105.6 billion (USD) in blockchain payments, a 1,200% year-on-year increase. Unfortunately, African financial institutions were not directly involved in processing these payments. Which is a big missed business opportunity. We are increasingly seeing the growing use of blockchain solutions for payments. This new technology provides financial institutions with the security and transparency that are key factors as well as the ability to program, create and execute smart contracts based on programmed logic. From a business perspective, blockchain enables data privacy, business process automation, new product development, and market capture through secure, scalable, and rapid asset transfers. On the other hand, automated processes that are more efficient incur infrastructure costs, operational costs and transaction costs. Going back to the issue of businesses, at least 44 million formal MSMEs, 51% of them, need more financing than they can access to grow. Blockchain facilitates access to more liquidity through streamlined processes and assets, high credit ratings, and expanded capital markets. Finally, it also promotes entry into new markets through increased participation in international trade and global production. Revenue growth from expanding markets and liquidity can help companies grow and mature further.
The second speaker, Dramane Meite, an expert in crypto, digital assets and fintech, is a product manager at Hashdex, a US-based company, which is a global pioneer in crypto asset management. He demonstrated how blockchain technology can disrupt financial services. Indeed, central bank digital currencies (CBDC) are digital assets, supported and controlled by central banks. They are programmable and can be exchanged between peers without intermediaries. Central bank digital currencies also aim to reduce intermediation costs and strengthen trade security, replace cash by developing a cashless society, fight against money laundering and corruption, and maintain the sovereignty of nations in the face of private crypto-currencies. Retail CBDCs could be a game changer. It is a digital currency intended for the general public (individuals, companies and financial intermediaries), accessible through electronic wallets attached to bank accounts that are directly held by a central bank. “Retail” central bank digital currency would be seen as an instrument of financial inclusion. Their introduction could have profound consequences on the financial sector and particularly on the global banking system. While CBDDCs present opportunities in terms of improving payment systems for businesses, they can also pose certain risks in terms of profitability, solvency and liquidity for banks. Stablecoins are focused on the private sector, with a potentially broader set of opportunities. They are instantly transferable 24/7/365 worldwide. Blockchain technology creates new experiences for international payments. Ripple, Stellar, and Celo are all blockchains focused on remittances. A new stack, without Swift messages or matching banks, is possible today. Blockchain-based payment infrastructure is maturing rapidly, but challenges remain. Furthermore, blockchain is disrupting fundraising and capital markets with ICO and tokenization. ICO is the initial coin offering which is the cryptocurrency equivalent of an IPO. It helps to tap into the global capital base and create an ecosystem of stakeholders/users. Tokenization brings blockchain capabilities to capital markets. Tokenization offers increased liquidity, lower costs, and faster settlement. In addition, the DeFi (Decentralized Finance) ecosystem offers countless decentralized applications capable of performing operations, and which allow users to manage their digital assets, regardless of their location or status.
The third and last speaker, Jamelino Akogbeto is a specialist in digital financial services and payment systems, and regional director for West and Central Africa of AfricaNenda. He spoke on the prospect of using blockchain for payments. Blockchain is of interest today because this technology fills a gap in the field of payment for several reasons. Firstly because of the virtual inexistence of instant and inclusive payment systems on the continent, then the economic model is not convincing and viable, and the regulations do not allow cross-border transactions. They are sometimes very regulated and in some cases not authorized. Finally, fraud, lack of digital literacy, and the fact that the platforms are not open to Fintechs for example. As an innovative technology for storing and transmitting information, blockchain amplifies the speed of transactions (by eliminating barriers), security and traceability (by encrypting the information contained in transactions), and decentralization (by eliminating certain regulatory constraints). Blockchain therefore serves as leverage for crypto currencies which, will provide strong alternatives to the usual payment channels. SMEs can use blockchain to eliminate certain constraints (geographical or cost-related, etc.), improve the acquisition system (value chains) through better monitoring and traceability, and remove the barriers that made the procurement process too long. “Smart contracts” will also help SMEs lift a certain number of contractual clauses. Looking at the statistics, we realize that the adoption of blockchain is still low in Africa, but the prospects for development are in progress. For example, startups raised 304 million dollars (USD) in 2022 compared to 117 million in 2021. While acceptance of cryptocurrency payments by merchants is massive in northern countries with a rate of 93%, it is still timid in Africa with a rate of only 7% for Nigeria, Ghana, and South Africa combined.
After a discussion session with the participants, the panelists shared some concluding messages, highlighting the future prospects of blockchain in Africa and its positive impact on SMEs access to finance.
The webinar ended on this note. For more information on the EIB’s technical assistance program for West and Central Africa, visit our website: www.msmefinanceta.eu and subscribe to our LinkedIn page https://www.linkedin.com/company/eib-technical-assistance-programme-west-and-central-africa