How Blockchain Technology is Taking Microlending to a Whole New Level in East Africa

Blockchain technology has disrupted a growing number of industries. However, the agribusiness industry, especially that of the East African region, has remained the least impacted by this disruptive technology. But in recent times, there’s been a series of initiatives that have deployed blockchain to address agribusiness challenges in ingenious ways.

One of such initiatives is poised to lower the barriers to loan facilities for smallholder farmers to access adequate funds for expanding production. This initiative, poised to furnish smallholder farmers with micro-lending options through blockchain technology, is the fruits of a collaboration between Kenyan-based food logistics startup Twiga Foods and IBM

The Rising Popularity of Mobile-Based Loan Facilities in the Region

Digital credit scoring is creating a buzz across East Africa, facilitating wider access to affordable loans. Mobile financial facilities are the main agencies promoting this trend. These facilities use digital credit scoring instead of real credit scores, lending history, collateral, bank statements required by traditional lending institutions. The trend has grown strong especially in Kenya, where there’s an ever-increasing prevalence of mobile services. These mobile services are disrupting various industries in the country, from health care to education, transportation, and lots more. For example, fin-tech firms such as Tala, a data analytics and mobile technology company, have been striving to deploy mobile services to provide access to affordable loans to farmers in Kenya, Tanzania, and many other countries.

Recently, blockchain technology has been integrated into mobile services to provide more robust credit facilities to farmers. This new program runs using a decentralized ledger to record and track transactions without errors and data breaches. Kenya has particularly warmed up to the widespread use of blockchain technology in ensuring accountability and integrity in the operations of digital systems.

The Lowdown on the New Blockchain-based Credit Facility

Twiga Foods has been in the business of helping farmers sell their farm produce through kiosks around Kenya. So far, the company has helped open 2,600 kiosks across the country. But the company’s lofty ambitions have had them striving to help farmers sell much more by providing access to adequate funding for the farmers. In light of this ambition, the company has partnered with IBM to create a credit score system based on machine learning and mobile data, in order to expedite access to loans.

The program has undergone numerous test runs based on multiple iterations that incorporate suggestions from users feedback. Now, the user ready system is geared towards users with varying levels of IT literacy.

The platform works by analyzing purchase records of sellers through their mobile devices and then deploys machine learning algorithms to determine creditworthiness. Lenders can then access the creditworthiness of borrowers through the medium to access the prospects of giving microloans to the farmers.

While the program deploys machine learning to determine creditworthiness, it deploys blockchain technology based on the Hyperledger Fabric to administer the lending and repayment processes. Within the first eight weeks of the program, the platform administered over 220 loans of an average $30, which were paid back between 4-8 days at an interest rate of up to 2%.

The Future Prospects of the Blockchain-based Loan Facilities

The main challenge facing the blockchain based microlending facility is convincing the investors to key into the platform, given the risks associated with the adoption of any new technology. However, the prospects have been encouraging, with more optimized terms, as well as the involvement of an increasing number of technology start-ups such as iProcure and FarmDrive in this model of microlending.