When I have visited India in the past few years I have often found myself getting excited about the number of frictions and inefficiencies that exist in day to day transactions. More so, I’ve been excited by the potential that modern fintech platforms have to create solutions for these problems, which could have a mammoth impact on hundreds, even thousands, of communities if they attempt to address them. The implementation of micro-insurance schemes for example, could prove to be revolutionary.
It does seem like this is the case and this really positive news. In fairness, you could say it’s a no-brainer. A well-thought-out business model has the potential to create both social and monetary value which makes for a great story on both counts.
Interestingly, a discussion with a Nigerian friend of mine revealed that Africa has similar potential and arguably on a much bigger scale. With 54 countries, Africa presents endless possibilities for the right platforms to thrive. Financial services driven by mobile penetration have created a few “leapfrog” in recent years, but we are only just beginning to scratch the surface.
M-Pesa Could Make Waves in Africa
One great case study is M-Pesa, which was founded in 2007. The idea was simple, but the scope to apply it was huge. By its tenth year, M-Pesa – which provides a simple way of transferring money – had already reached 30 Million users across 10 African nations. Just to recap, that’s 10 out of 54. The potential is frightening.
M-Pesa’s success has singled it out as a model that could revolutionise the way in which the emerging world functions. In 2016, M-Pesa was used in six billion transactions as per statistics released by Vodafone. Research by Digital Frontiers also identified a 22% drop in female-headed households living in poverty in areas that had access to M-Pesa. The same piece of research observed that almost 200,000 women living in rural areas saw a shift in their income status from low-income, labour intensive agricultural sector to more prosperous small business creation.
Of course, there is still a lot to be done in the way of financial inclusion, and Blockchain could play a fundamental role in unlocking even more potential in places like Africa.
Micro-Insurance for Farmers:
Farming is central to Africa’s economy. Thousands rely on it as their source of both income and food, but farmers in Africa face several challenges. Primarily, farmers who had insured their crops and lost them in droughts encountered difficulties claiming money from their insurance providers. This was largely caused by a lack of understanding of the complexities around what triggered their insurance, along with corruption.
Blockchain could go some way towards helping farmers tackle these problems. Typically, Blockchain firms have two different exploratory routes to address pain points in the Insurance value chain. The first set of firms take the most common route – attempting 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. In some cases they even intend to create a new structure altogether.
How it Works
Blockchain-based company, Etherisc, is working on crop insurance in Africa and across the developing world with its ‘Parametric Insurance’ model. Through this model, the insurance payout is triggered by pre-agreed sets of simple triggers, which cuts out any middlemen. The data that triggers the pay-out would be sourced automatically by the system which disburses payments according to pre-programmed rules.
With crop insurance available from $1 a month, it’s an affordable option that traditional insurance providers simply cannot compete with. It all comes down to the simplicity and efficiency of an automated model.
For example, farmers can insure their crops against a lack of rainfall for during the year. Etherisc must therefore implement a rule that if the rainfall for that region in Africa doesn’t cross a certain threshold during that year, the pay-out to the farmer will automatically process.
Etherisc would then begin to source rainfall information automatically from the weather database, and again, payments would be automatically processed wherever this threshold was not reached. This totally removes the need for human intervention to assess claims or damages whilst ensuring complete transparency.
Crucially, the farmer receives his payment quickly and efficiently, which means he or she can continue to support their family without having to endure the stress of battling a system riddled with corruption to receive their payment. Etherisc is also working at integrating their product with M-Pesa to plug into the existing payments infrastructure in Africa.
In most developing countries, there has been little effort to extend financial services infrastructure. This is largely because of the costs and effort required to so. As a result, hundreds of millions of people scattered across Africa have been left with little opportunity of changing their social and economic circumstances due to a total lack of infrastructure. Instead, penetration of mobile phones and internet has provided the key means of growing economies. This has played a crucial role in helping communities shift from unbanked to banked.
IOTA is a lightweight crypto-token that is designed to facilitate micropayments. The brand name is a play on words taken from IoT – or the Internet of Things. The platform. 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 the verification of the network is not decoupled from the network’s users, as is the case in blockchains. The platform also has the potential to facilitate micro-transactions between millions of devices. This is because it enables them to pay minuscule amounts to each other in a frictionless manner.
Again, this removes the need for any third party, meaning that IOTA is able to incur zero fees on transactions. Due to this architecture, IOTA can be used for most business models that require a scalable ledger with no-fees. This is of particular interest for micropayments that flow through an ecosystem of connected devices. Even more impressively, the IOTA-Tangle infrastructure does not solely rely on internet connection and can operate through bluetooth.
Business A set up a solar electricity instalment and sells it per watt in real time to business B, which is a company that saw the potential in selling sensor data which can be used to optimise agriculture. Business B sells soil and weather data to business C, which is an analytics company that turns the data into useful information that it sells to business D which is a farming company that uses this information to optimise its crops.
All of these companies still need connectivity, so buy their bandwidth from business E, creating a completely self-sustaining and scaling business ecosystem that might previously have been impossible due to non-existent product margins caused by fees.
Unfortunately, the expansion of such business models in Africa is unlikely to prove quite so straightforward. There are challenges around how the security of these Blockchain infrastructures is going to hold and how regulations would evolve around these disruptive initiatives. The other key challenge is awareness. Unfortunately, the majority still struggle to identify the value of a Blockchain-based financial ecosystem due to lack of education. On the other hand, demand IS growing. This is because of an increased number of initiatives across Africa educating people about the positive implementation of Blockchain-based projects.