africa

Africa Fintech boom focuses on Remittance and Community lending

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Recently, during a conversation with an African colleague, he mentioned that Fintech in Africa wasn’t disruptive. I was shocked and mentioned that Africa was going through a Leap-Frog era with the Telecom and Fintech boom and asked why he thought it wasn’t disruptive. He felt that a few years ago (in 2010) 80% of the population were unbanked, so there was nothing to disrupt.

That has changed massively though. As of last year, about 220 Million consumers were using Mobile Wallet across the continent, thanks to the mobile penetration. Many such payment providers do not inter-operate and that has been restrictive, especially for payments across countries within Africa. This space is being regulated to force payment providers to allow inter-operability.

However, with the Payments space over crowded, startups in Africa are now looking at Remittance and Lending. Remittance is the largest form of Foreign investment into Africa. In 2015, $62bn worth of remittance flowed into the continent, whereas the total Foreign Direct Investment (FDI) was $55bn, and total foreign aid was just over $50bn.

Remittance GDP

Western Union charges close to 10% for remittances and have about 12% of the market share. If the remittance commission came down to 5%, $16 Billion of savings can be made. And Africa currently pays the largest commissions for remittances into the continent. No wonder its a huge inefficiency that start ups target.

Remittance cost

A Rwandan startup Mergims allow relatives abroad to purchase airtime, electricity and other goods for their family at home instead of transferring cash. Mergims was one of the nominated startups in “Rising startups awards” from SWIFT and came fourth globally. Remittance along with Payments make up about 50% of African startups, but unlike Payments, Remittance still is some way from reaching its peak.

Many Lending Fintechs in Africa have taken an approach which is culturally aligned. Stokvel, which is the name for community banking in South Africa is used traditionally by a group of people who want to save money. People often choose to save and lend in community groups rather than formal banks.

Stokvels can be a savings scheme where members regularly contribute an agreed amount from which they receive a one-off lump sum. The sum can cover the costs of groceries, investments, holidays , or simply to save.

StokFella a startup based on the Stokvel principle have developed an app that can be used for creating and managing such communities. Stokvels can not only be used in lending, but also can be used for health insurance for example. There can be innovative applications once the communities have been created.

Its interesting to see Fintechs taking a very customized approach that would suit Africa and its culture. They are not just replicating business models used in the developed world, but are thinking ground up to come up with new ones.

Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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BanQu – Financial Network on Blockchain creating Economic Identity for the unbanked

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In one of my previous posts, I discussed how startups in the Nordics were working with their governments to help refugees get on the social and economic ladder. With due respect to the work being done there, use cases of providing banking and payments capabilities to refugees, is a tactical short term fix almost. The real problem is that refugees do not have an economic identity. BanQu, led by Ashish Ghadnis and Hamse Warfa (an ex-refugee from Kenya) are trying to solve this problem. They are using proprietary blockchain technology to drive financial and social inclusion through economic identity for about £2.7 Billion unbanked people globally.

Between the two founders at BanQu, they have various stories to tell on why they embarked on this journey. Hamse Warfa was refugee himself from Kenya when he was 12. He lost his identity (not just a name), when he had to flee his country with his family. After twenty years, he now has a doctorate in public administration at Hamline University, left a job with Margaret A. Cargill Foundation to start BanQu. However the experience of being a refugee in the process made him realise the criticality of economic and social identity.

The average stay for a refugee in a camp is 17 years. This long duration of economic exclusion is compounded by high poverty settings that refugees live in, given that 90% of refugees come from regions considered economically less developed.

Ashish Ghadnis the CEO and Co-Founder of BanQu, is a serial entrepreneur. He sold his previous business in 2012, and started volunteering in Africa. During his charitable endeavours in Africa, he identified problems that many Africans face.

A woman farmer feeding a family of eight people at $300 a year, who has an acre of land on which she has been growing corn, and using the income to run her family for thirty years. This lady has no identity or financial history. But it is just common sense that she deserves financial inclusion and would be highly credit worthy. This is true for many women in countries like Myanmar, Bangladesh, Syria, Congo, Somalia, CAR, Burundi, Colombia, El Salvador.

True transformation, true inclusion, and true fairness and 100% worldwide inclusion in the global economy can ONLY come from a massive shakeup; a massive redesign that fundamentally changes the foundation of the world’s economy.

So how does BanQu provide economic identity using blockchain? In four simple steps.

  1. Create an identity for the unbanked on BanQu’s Distributed Ledger platform
  2. Onboard the banked, financial institutions and other financial stakeholders to BanQu
  3. Allow connections between the parties (banked and the unbanked) to build a mini financial network
  4. Create history of transactions on the platform, which would eventually become the economic identity of the unbanked, using which they can scale their access to various financial avenues.

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The integrated approach of using principles of Social Media and DLT in a financial context seems quite powerful. Some use cases BanQu are addressing are,

Remote Purchase: Say, A is banked and B is a unbanked friend/family living elsewhere. B can connect to A on BanQu.  This allows A to provide funding to B, which B can use to purchase goods from say C.

Funded Wallet: A could also remotely add funds to B’s wallet, and B can use this to purchase goods from C

Term Purchase: B purchasing goods from C could happen on pre-agreed terms, where payments can be spread over a period of time.

Remittance: Remittances can also happen using remote funding of wallets where, A can fund B’s wallet for a particular amount, and B can receive cash from C (instead of goods in the above case).

Credit Worthiness: All the above scenarios provide a track record for B to move from Unbanked to Banked. And over a period of time this could help B establish credit worthiness in the financial world.

Wearing my investor hat on, that’s too many use cases for a startup to handle so early in the game. And I often get sceptical and fear for the entrepreneur who starts with “I am going to change the world”.  But BanQu somehow feels right, honestly.

The real challenge is setting up the financial network infrastructure and bringing onboard a good mix of credible unbanked and helpful banked. Once this happens growth could be viral and the financial network could be used for endless purposes.

A case study as described by Ashish: If you’re a poor female farmer on the Tanzania-Rwanda border, feeding a family of eight or ten on $300 a year, which is less than $2 a day. At harvest, the broker says to her that unless she sells her corn to him at a price it will get wasted. The mother is forced to sell the corn because she has no access to information. She has no identity. But if she has a piece of land and has been harvesting crops for thirty years, she should be able to produce 100 kilos of corn. Then the U.N. has orchestrated buyer contracts for that 100 kilos of corn.

Using BanQu, this mother/farmer has three things which she never had before.

One: On her phone, through the blockchain and BanQu, she gets to know that her one acre land can help her produce 100 kilos of corn for which she has a buyer (the U.N.), even if the harvest is a few months away.

Two: If you dry the corn to 13 percent moisture content, the price of corn doubles. With BanQu’s technology, the mother has an identity, she owns a piece of land, has a produce forecast and a buyer. And that buyer is now going to allow her to get collateral to get a dryer so she can dry her corn. All that becomes part of her history.

Three: The blockchain has given her an identity created by her transaction history. She can now borrow as lenders can see  that she has a piece of land, a microloan, a harvest, a dryer and that she is selling them at market price.  If that Rwandan woman farmer has her identity in the blockchain and she has gone through three farming cycles, the lender would not charge her 30 percent on $100, but would charge her 4 percent on $100 because she has history.

This makes me wonder if the current financial system needs some very fundamental changes. So many products, with very high barriers to entry, which effectively ignore 2.5 Billion consumers. Surely, its time to go back to the drawing board, and may be, that’s what Banqu are doing.

Like most Fintech use cases of blockchain, this is still in pilot mode, and is yet to be proven as a viable business model. However, once/if it takes off, there is no reason, why this can’t become mainstream and create yet another leapfrog moment.

Arunkumar Krishnakumar is a Fintech thought-leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

IOT Meets DLT and Blockchain meets M-Pesa in Africa

 

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Editor’s Note: Last week, Aunkumar Krishnakumar (Arun for short) wrote a great post about the effects of Demonetization on Microfinance in India. We liked it so much that we asked for more and this week Arun has found two amazing stories from Africa. Both are practical uses of leading edge technology to change the lives of millions (for example to enable crop insurance for farmers). The technology used forces one to think again about some conventional wisdom. One uses a mix of Internet Of Things (IOT) and Distributed Ledger Technology (DLT), without using any Blockchain. Another uses Blockchain but with M-Pesa (not with Bitcoin or any Altcoin). Following our theme of “first the Rest then the West” we would not be surprised to see innovation like this coming to the West soon.

From next week, Arun will join our other Authors as a regular. Please see our announcement later today.

In the last few years, every time I visited India, I have got excited looking at the number of frictions and inefficiencies in day to day transactions. There were problems that could be solved to create huge impact to large communities of people. Of course, when executed with a good business model, those could be great stories creating social and monetary value. When I was talking about this to my friend from Nigeria a few days back, he mentioned that he had the similar thoughts about Africa, the continent with 54 countries, truly a land of infinite possibilities. Over the last few years, financial services driven by mobile penetration have created a few “leap frog” initiatives in Africa.

M-Pesa completed its 10th anniversary this month. It is the firm that revolutionised financial services by providing a simple way of transferring money, and has crossed 30 Million users across 10 African nations (only 10). But the impact it has created has already highlighted it as a model to be used for the emerging world.  In 2016, according to Vodafone, M-Pesa was used in six billion transactions. Research by Digital Frontiers found a 22% drop in female-headed households living in poverty in areas with access to M-Pesa. The same study noted that the source of income for almost 200,000 women in rural areas shifted from the low-income, labour intensive agricultural sector to more prosperous small business creation. However, there is a lot more to be done through financial inclusion and I believe Blockchain will be a key catalyst in unlocking the potential of this great continent.

Micro-Insurance for Farmers:

In my previous post, I discussed the challenges Microfinance had in improving farmers’ lifes in India. While researching for that, I came across instances where farmers who had insured their crops and lost them to drought had serious challenges in claiming money from their insurance providers. This was primarily due to lack of understanding of complexities around what triggered their insurance claims and also due to the bureaucracy and corruption that existed in the system. Crop insurance is one of the most underserved industries in the developing world.

Typically Blockchain firms have two different exploratory routes to address pain points in the Insurance value chain. The first set of firms which are the more common one try to add efficiencies around instant reconciliation using distributed ledgers. The second set of Blockchain firms, re-imagine the whole structure of the business from scratch, and in some cases intend to create a new structure altogether. A Blockchain company Etherisc is working on crop insurance in Africa and across the developing world. They are trying to solve the problem using a methodology called “Parametric Insurance”. In this model, the insurance pay-out is triggered by pre-agreed set of simple triggers, which do not involve any middle men. The data that triggers the pay-out would be sourced automatically by the system which will disburse payments according to pre-programmed rules. The other advantage is that this model offers crop insurance for one or two dollars a month, which is typically not economically viable for a traditional insurance provider.

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For instance, a farmer can insure his crops against lack of rainfall for a particular year. Etherisc would have a rule that if the rainfall for that region in Africa doesn’t cross a particular threshold, the pay-out to the farmer would happen automatically. From that point, Etherisc would source rainfall information automatically from the weather data base, and if the threshold is breached, the pay-out happens. There is no need for human intervention to assess claims or damages, there by keeping the process simple, transparent and efficient. More importantly, the farmer receives timely help, without having to go through the trauma of dealing with corrupt bureaucrats to get the payment. Etherisc are also working at integrating their product with M-Pesa to plug into the existing payments infrastructure in Africa.

Micropayments Ecosystem:

In most developing nations penetration of mobile phones and internet has been better than penetration of traditional financial services and the underlying infrastructure. The main reason that there is so little private or public effort to extend financial services infrastructure into these remote and often impoverished areas is that the cost and benefits don’t add up positively. This leads to hundreds of millions of people scattered across Africa with almost no infrastructure and thus little opportunity of changing their circumstances. The solution is to take a decentralised approach that the traditional financial services infrastructure hasn’t managed to achieve.

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IOTA is a lightweight crypto-token that is designed to facilitate micropayments. IOTA is derived from the acronym IoT which means Internet-of-Things. IOTA could be connected to millions of devices and could facilitate micro transactions between the devices by paying miniscule amounts to each other in a frictionless manner. IOTA is a completely new distributed ledger innovated from scratch. Unlike the Blockchain, it contains no blocks. They instead have developed something called a Tangle, which is a form of directed acyclic graph. Here a user sending a transaction verifies previous transactions through a small amount of proof-of-Work. This means that the verification of the network is not decoupled from the network’s users, as is the case in blockchains. Hence there are no external parties to be compensated, which means that IOTA got absolutely zero fees on transactions. I have painfully resisted the temptation to get too technical about IOTA’s tangle, but for those who like a good technical read, their whitepaper is here.

Due to this architecture, IOTA can be used for most business models that require a scalable ledger with no-fees. And this is especially interesting for micro payments that flow through an ecosystem of connected devices. The IOTA-Tangle infrastructure doesn’t need internet and can operate on Bluetooth as well.

A simple example highlighted by IOTA:  Business A set up a solar electricity instalment and sell it per watt in real time to business B, which is a company that saw the potential in selling sensor data to be used to optimize agriculture, so now business B is selling soil and weather data to business C which is an analytics company that turn the data into useful information that it sells to business D which is a farming company that use the info to optimize their crops. Of course, all of these companies buy their bandwidth from business E which saw the need for connectivity between these other businesses. A completely self-sustaining and scaling business ecosystem that might previously have been impossible because the profit margin was non-existent due to fees. A micro insurance model could work like a dream on such an ecosystem, a friction-free economy of things.

Unfortunately, expansion of such business models in Africa, is not going to be as friction free. Between 2010 and 2017 internet penetration in Africa grew from 10% to a mind boggling 27%. And in model countries like Kenya, this has reflected in the GDP growing as a result. However, there are challenges around how security of these Blockchain infrastructures are going to hold and how regulations would evolve around these disruptive initiatives. The other key challenge is awareness, where most people still struggle to understand what the value of a Blockchain based financial eco system is. However all is not doom and gloom, as there are quite a few initiatives across the continent educating people about bitcoin and Blockchain, and the demand for such programmes has never been higher. Onwards and Upwards!!

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Arun is a thought-leader specializing in how technology is changing consumer financial services around the world.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Banking API innovation from emerging and frontier markets

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Two big themes on Daily Fintech are:

  • First the Rest, then the West (the idea that innovation in the 20th century flowed from the West (America and Europe) to the Rest (Of the World, aka ROW, emerging, developing, frontier, high growth) and in the 21st century that flow of innovation is reversing as the Rest leapfrog old technology and innovate out of necessity (which as always is the mother of invention).
  • Rebundling innovation enabled by APIs that abstract utility layer services so that entrepreneurs can just pay for that on a transactional basis without writing a lot of new code.

In this post we bring those two themes together.

Yodlee in South Africa

Thanks to @Vincent Van Dugteren from Netherlands for the heads up (on this thread) on what Yodlee is doing in South Africa as reported by VentureBurn.

Yodlee was into Banking APIs before they were famous. They were an early Fintech IPO and got taken private by Envestnet for $590m.

Yodlee built a partnership with an API marketplace in South Africa called Limitless Technology (which is the company behind South Africa’s first Personal Financial Management tool called Moneysmart. PFM relies on Open APIs from Banks.

Limitless uses a RESTful API (which is pretty mich de facto these days).

If you want to sell a PFM, it is smart to do it in emerging/frontier markets such as Africa where a new middle class is emerging that needs to “watch every penny” and where these tools are relatively new. In contrast, in the the West, these kinds of tools have been around for a while (Mint was founded in 2006). A modern PFM in the Rest will be fully optimised for mobile and the web browser version may hardly get used.

Singapore and India

We have often written about the Fintech innovation coming out of India (most recently here). Singapore has deep cultural and business ties to India, so it is natural for a delegation from Monetary Authority of Singapore (MAS) to spend time there focussing on enabling that innovation as we can see from this Event. Thanks @ericforgy from Hong Kong for the heads up (on this thread) He was able to watch this on a live stream (which for some reason I cannot view in Switzerland) and quoted Roy Teo from MAS making statements along these lines:

“1. Some banks will not survive the FinTech disruptions. Those who do not embrace APIs will die.

2. MAS is asking banks for a list of their APIs on a regular basis (implicitly encouraging them to build APIs).

◦ I’ve asked if the list is public with no response yet. Please let us know if you get your     hands on the list.

3. MAS itself is developing APIs that will be used for regulatory reporting purposes to simplify the process. Again, encouraging banks to use APIs.”

Tech Smart Regulation

It is fascinating to see a regulator such as MAS taking the lead on these kind of initiatives. We see this kind of “tech smart regulation” in Europe in the form of PSD2. It maybe even more advanced in Asia where “lite banking regulation” came in the form of Payment Bank Licenses and where mobile wallet interoperability is partly enabled by regulation.

If you want to see the future of Fintech, it pays to head to Asia.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Bernard Lunn is a Fintech thought-leader.

The Pan African Currency Union based on bitcoin replaces US $ as reserve currency

Headline found in Business Insider dated 2025.

This is science fiction, which is a fun way to speculate on the future – just ask Arthur C Clark, the science fiction writer who is credited with the idea for geo stationary satellites for telecommunications in 1945.
Warning: the value of Bitcoin can go down as well as up. Please don’t bet your kid’s college fund on this outcome.
I thought about interviewing real experts on the subject of Pan African Monetary Union by reaching out to crypto experts in Africa and people at the World Bank, but figured that nobody sensible would want their names associated with an idea as crazy as this.
Here is how the story unfolded:
  • 2016: the politicians in the member states of Africa could not agree among themselves on how to create a Pan African currency, so the idea of using Bitcoin starts to circulate in policy journals and it gets the label AfriCoin.
  • 2017: America, Japan and ECB export inflation through money printing. A minor problem in the West becomes Zimbabwe level hyperinflation in some African countries. Confidence among African people that politicians can create a stable Pan African currency plummets.
  • 2018:  somebody creates AfriCoin with 100% convertibility with M-Pesa and launches it on Reddit and HackerNews. It catches fire. African tech entrepreneurs bill and pay in AfriCoin. AfriCoinTrends on Twitter and then hits mainstream media.
  • 2019: The Bill and Melinda Gates Foundation writes a big cheque to fund AfriCoin. Goldman Sachs writes a report on AfriCoin.
  • 2020: Xapo does its IPO and offers 1 million free vaults to store AfriCoin.
  • 2021: China buys agricultural land from Africa priced in AfriCoin.
  • 2022: AfriCoin labelled a money laundering tool.
  • 2023: AfriCoin labelled a terrorist financing tool. Anybody discussing AfriCoin by phone, email or text sees the black helicopters circling outside.
  • 2024: South Africa declares AfriCoin a parallel currency to the Rand. Egypt, Morroco, Libya, Tunisia and Algeria quickly follow suit.
  • 2025: World Bank records more cross border trade happening on AfriCoin than through US $.

For the record, I think AfriCoin is a great idea with odds about 99 to 1 against. Anybody want to take this bet onto Augur?

Fintech Global Tour To Africa To Discover The Biggest Story of the 21st Century

The emergence of billions of people out of subsistence farming into a global middle class is the biggest story of the 21st Century. This is the equivalent of the industrialization wave that started a few hundred years ago in the West. Except this time around it is driven by digitization not industrialization.

You can feel the heartbeat of this massive change when you go on a site like Zidisha and witness the struggles, hopes and fears of thousands of micro-entrepreneurs.

This is happening all over the Rest (those countries outside the developed world sometimes called Emerging, more recently simply high growth or rapidly developing economies):

  • There are people working on financial inclusion in America and in the UK. The Underbanked is a global market in the West as well as the Rest. The rise of the Rest is causing a lot of short-term pain in the West even if it is eventually a huge opportunity for people in the West as well.

Companies from all over the world are seeing this opportunity, but Africa is ground zero of this revolution. If necessity is the mother of invention, we may see this invention coming from Africa.

It is certainly true that the M-Pesa innovation in payments and digital currency is far eclipsing Bitcoin in actual traction.

Bringing these two worlds together is Kipochi, a venture that:

“allows people to send/receive BitCoin and convert it to and from an M-Pesa balance.”

Kipochi is a UK venture, which is interesting because M-Pesa was originally created by a small UK software company on contract to Vodafone, which launched it in Kenya via their subsidiary Safaricom.

The most authoritative data about the Global Underbanked comes from the World Bank which has these data points for measuring Financial Inclusion (what they call the Global Findex Database) for the 2.5bn adults globally:

  • 50% have an account (and 50% are Unbanked).
  • 22% have saved in the past 12 months.
  • 9% have taken out a loan.

The most commonly reported barriers cited by the World Bank are

  • high cost
  • physical distance
  • lack of proper documentation.

The World Bank, given its heritage is focused on public policy and what it calls “formal financial institutions”. The digitization revolution of M-Pesa and Bitcoin really change those barriers:

  • high cost (Transfers via M-Pesa and Bitcoin are cheap as are loans via Zidisha).
  • physical distance (digital transfers are distance independent and when every road side stand can become a bank branch, the old way of setting up bank branches in remote places becomes irrelevant).
  • lack of proper documentation (this one is critical. The practical default today is that your mobile phone is your ID, but this has issues).

In the West we may moan about the pain of proving who we are to get through KYC checks but we take for granted the benefits of having a proven identity through artifacts such as passports and social security numbers and drivers license. Without that proven ID, you cannot have financial inclusion. The Indian Government is innovating in this area through the Unique Identification Authority of India (UIDAI). There are other people tackling Identity at a technical and global level using Blockchain technology such as Identifi.

These are all tools – Bitcoin, M-Pesa, UIDAI, Identifi. What will be interesting to see is who are using these tools to create practical services that make a difference in people’s lives. Sendwave is an example.

Sendwave is an American company focused on Remittances from America to Kenya via M-Pesa. What I want to see is the innovation happening on the ground in Africa. So I checked out an innovation challenge focused on this called Matchi.biz (sponsored by Standard Bank in South Africa in 2014).

“The challenge received a total of 60 qualifying responses from firms located in 16 countries”

 

The 6 Winners and the runners up in are:

  1. Security & Fraud Reduction

 Sedicii (Ireland)

Runners-up: Rippleshot (Chicago), Feedzai (Portugal)

  1. Mobile Payments & Customer Service

 Photopay (Croatia)

Runners-up: Sedicii (Ireland), Nomosphere (South Africa)

  1. Lending & Alternative Financial Services

 Loancoin (California)

Runners-up: FireWorks (South Africa), FriendlyScore (England)

  1. Personal Financial Management & Investment

 Stockpile (California)

Runners-up: Monipulse (Florida), SavedPlus (California)

  1. Business Banking & SMEs

 OneNet (Israel)

Runners-up: FireWorks (South Africa), Nihilent (India), Appdator (Israel), Riskflow (South Africa)

  1. Corporate Banking Solutions

 BCL Technologies (California)

Runners-up: FireWorks (South Africa), Market Prophit (New York City)

That has given me a list to add to my Fintech 1,000 database and lots of interesting ventures to review in the coming weeks.

This year’s SWIFT Innotribe Challenge also has South Africa as one of the regional showcase centers (along with the more traditional London, New York and Singapore).

It is interesting to note South Africa as the meeting place for this subject. It is a bit like folks coming from all over Europe for conferences in London or all over Asia to Singapore or all over America to New York. However I need to return to this subject to find more radical innovation such as Zidisha. The most radical innovation often starts as a not for profit model, gets scale with for profit and loses its way when fast money tries to extract too much profit and finally settles into real value by firms who are willing and able to extract profit on razor thin margins at massive scale. Then this “frugal innovation” will come to the West to serve the Underbanked in the West. This First The Rest and then The West is already playing out in mobile phones and may happen next in financial services. We are still in the first innings of this game.

 

 

Zidisha takes a radical approach to the global underbanked market

Banks are worried that Fintech startups will “eat their lunch”, cherry picking their most valuable customers one service at a time.

Instead of thinking defensively in traditional red ocean markets, they could be looking at blue ocean markets that they are not serving today.

One of the biggest blue ocean markets is the underbanked. These are the billions of people who have been left out of the current financial services, who do not have access to banking.

Most of the underbanked live in the Rest (developing world, emerging markets, frontier markets, rapidly growing economies, whatever we want to call them). However there are also plenty of underbanked in the West. For example, look at the customers being served by Ffrees in the UK.

I prefer the term “underbanked” to “unbanked”. The millions using something as simple as M-Pesa are not unbanked. They have moved from subsistence to a trading economy and have a basic current account – they can make and receive payments. However they do not have savings or lending accounts – so they are “underbanked”.

It was witnessing the M-Pesa revolution that first drew me to this market.

M-Pesa is genuinely disruptive and revolutionary and changing millions of people’s lives today.

The Fintech City Tour went to India to find the key to the Underbanked market. Today I want to go to “where it all started”, to Africa, to look at Zidisha. If M-Pesa is the basic current/checking account, Zidisha is the lending account. Zidisha can also be seen as 3.0 of Micro Lending (aka Microfinance):

  • 1.0 The Gameen Foundation proves that default rates can be low when lending to the very poor. Microfinance is born.
  • 2.0 Fast money rushes in and interest rates go to a level that is still better than loan sharks, but not the low rates that billions need in order to escape from poverty. Microfinance may not be a suitable market for the VC to IPO high velocity model.
  • 3.0 The poor lend to each other via a platform. This is what Zidisha is doing. It is peer-to-peer micro lending. Conceptually, the beauty of this model is it “kills two birds with one stone”. The poor get both a saving account (they lend their excess cash) and a lending account (they borrow when they need extra cash).

Look at this in banking terms and you see:

zero credit risk

zero balance sheet exposure

zero asset liability mismatch.

Zidisha has its critics. Nothing radical escapes criticism, so this is not surprising. Zidisha is not for profit, but there is no reason why a for profit model cannot work as long as it is efficient, transparent and low cost. Many large companies have shown that there is money to be made in the “bottom of the pyramid”.