Blockchain is much hyped around the world, but in Africa in particular the technology is proving to add real value to businesses trading across borders. Whether it’s for tracking the movement of goods, making cross-border payments or administering microloans, blockchain has plenty of use-cases. Sanne Wass looks at four tech firms utilising the technology to help trade on the continent flourish.
Under the tagline “the blockchain for raw materials”, Dorae is an Ethereum-based solution that tracks a mineral’s journey from source to end-user. The aim is to make global supply chains for anything from smartphones to electric cars more responsible.
The company was founded by two entrepreneurs, Aba Schubert and Ricardo Santos Silva, who together also run Aethel Partners, an asset management and financial services firm.
Dorae’s platform records information about the origin, transit and processing of raw materials into finished goods, so that companies, financiers and consumers will know exactly where a material comes from and what has happened to it along the way. The firm has started at the root of the challenge, in DR Congo, a hotspot for minerals mining, but also a country hugely troubled by armed conflict and a poor human rights record.
Its first pilot project is tracking cobalt and coltan from three mines in the Central African nation. Over time the project will expand to more mines and countries, and other raw materials.
“The highest value of blockchain is addressing the disconnect in the information that’s needed in one end of the supply chain and the information that exists at the other end,” Schubert tells GTR. “That’s why we decided to start our project in DR Congo, because there is information on the ground that end-users need, particularly US manufacturers who have regulatory requirements to conduct diligence on their supply chains, but it gets lost along the way.”
The new information sharing system will not only save companies time and money spent conducting supply chain due diligence; the expectation is that firms will ultimately be rewarded by the end-consumer for observing proper standards. It could also give more comfort to trade financiers, who, because of high due diligence requirements and scrutiny, are increasingly risk-averse when it comes to financing minerals from countries like DR Congo.
IBM’s new supply chain finance platform uses machine learning algorithms and blockchain technology to extend microloans to small businesses.
The initiative came out of a partnership in early 2018 between the tech giant’s research lab in Kenya and Twiga Foods, a logistics company which helps farmers distribute bananas, tomatoes, onions and potatoes to 2,600 kiosks across Kenya.
Over an eight-week pilot period, Twiga executed working capital loans for 220 small food retailers via their mobile phones. When a retailer had an order delivered from Twiga, they would receive an SMS with options for financing that order. The retailer would then respond, confirming which loan option they preferred. The average loan was around US$30, offered for four and eight days with an interest rate of one and two percent, respectively. The trial saw Twiga’s customers increase their order size by 30%.
Speaking to GTR, Andrew Kinai, the lead research engineer on the project at IBM Research, says the platform is about “linking SMEs, their suppliers and the banks” and using alternative data to give lenders the confidence they need to provide financial services.
This data, which includes information on purchase history as well as repayment, is crunched by the platform’s machine learning algorithm to predict the creditworthiness of a vendor. Once the credit score is determined, the blockchain platform, powered by Hyperledger Fabric and executed through smart contracts, will manage the entire lending process, from application to receiving offers, to then accepting the terms and eventually repayment.
Connecting multiple parties, blockchain is an optimal technology to manage the loan process, as it becomes transparent to all permissioned parties involved, from the lending bank to the borrower’s bank and the loan applicant themselves.
The platform is now ready to be rolled out across Africa – to new sectors and suppliers – by the end of the 2018. While the pilot didn’t involve any banks, the next stage of the project will be to bring in lending partners.
Block Commodities is a blockchain-focused commodities trader operating across Africa. In April, it launched a project to bring cryptocurrencies to the commodity financing space, providing US$10mn-worth of loans to 50,000 smallholder farmers in Africa.
The initiative is run together with Wala, a blockchain-powered financial services platform; Dala, a provider of a crypto-token designed to enable instant, zero-fee and borderless micropayments; and FinComEco, a firm that helps farmers get access to a wider market for their crops.
The project will kick off in October in Uganda, where Block Commodities and FinComEco will lend 100 million Dala tokens – equivalent to US$10mn – to smallholder farmers in order for them to purchase fertiliser. In time, the same will be provided to local farmers in South Africa, Congo, Malawi, Zambia and Zimbabwe.
Speaking to GTR, Stefania Barbaglio, who is in charge of Block Commodities’ public relations, says the project is the first to use tokens for commodities lending. Utilising cryptocurrency and blockchain technology, the firms are able to streamline payments and loans, and thereby provide farmers with access to financing at more affordable interest rates.
“It’s very difficult for smallholder farmers to get fertilisers,” she says. “With blockchain, we reduce the cost for the farmer to buy fertiliser at present consumer interest rates in the region, which are between 25% and 80%, and which they must pay monthly. We will charge around 12%, which will only be charged once the farmer has sold his goods.”
The farmers will be able to transact and cash in and out with Dala at over 100,000 merchants throughout Africa.
For Block Commodities, this is “just the beginning”, according to Barbaglio, and it will be looking to expand to other projects – including other commodities and countries – later this year.
Binkabi is a startup developing what it says will be the world’s first commodity exchange on blockchain.
While many countries in Africa have attempted to set up commodity exchanges, “the reality is that most of these exchanges have failed, because of lack of liquidity, but also the cost of setting up and running them”, Quan Le, CEO and co-founder of Binkabi, tells GTR.
This is a problem blockchain can help solve. The vision behind the new exchange is to lower the barrier to entry for people wanting to trade commodities: instead of depending on brokers or paying expensive fees for a spot on the traditional trading floor, the decentralised platform will be a place for anyone, anywhere in the world to trade commodities in the form of tokens.
How does it work? When a farmer or depositor brings a commodity into a warehouse, a warehouse receipt is issued and converted into a token, which can then be traded on the blockchain platform. This is what Binkabi calls the “tokenisation of commodities”.
“It makes the commodity tradable instantly, and you can also use the token as collateral to borrow money from a bank,” Le says. “More people can engage in it, and really make the market very liquid.”
In July, the firm initiated a pilot phase in Nigeria, after having partnered with TAK Agro, a local agricultural conglomerate. Binkabi hopes to obtain a licence to start trading in Nigeria from Q1 2019. Ultimately the goal is to expand, one country at a time, into a pan-African exchange.
The platform will integrate with Barter Block, another Binkabi flagship product, which the firm is currently implementing with commodity traders in partnership with Ecobank. The solution matches trades moving in opposite directions (say, for example, an export of cashew nuts from Côte d’Ivoire to Vietnam and an export of rice from Vietnam to Côte d’Ivoire) for the purpose of settlement, allowing bilateral trades to be settled in local currencies, thus saving FX costs.