How Blockchain Is Facilitating Financial Inclusion in Africa

Blockchain is becoming a word kindergarten children will learn soon. As often as we hear about it in the news, it is still a hot topic with a rapidly growing number of practical applications and experimentation being unveiled every other day. Today won’t be an exception, as another blockchain-based payment transfer network has launched instant money transfer in Nigeria. And there are two parts to the news that should excite a person. First – logically – is the fact that it is blockchain-based. And the second is the location.

Two companies, Stellar, the Stripe-backed open-source payment network, and Oradian, a cloud-based software provider for microfinance institutions in developing countries, have partnered to bring instant money transfers to Nigeria.

Image source: Stellar

The new payment-transfer network inside Oradian is built on top of Stellar’s platform and will allow 300,000 Nigerians (90% of them women) to cheaply transfer money between microfinance institutions over the Stellar network. It's not all smooth yet; users will still need to visit their MFI branches to send and receive the funds. For convenience, Nigerians will have 200 branches operating across the country, mainly in rural areas.

As Joyce Kim, Executive Director of Stellar, shared, With the Oradian integration, communities that primarily relied upon cash for money transfer in and out of their villages can now transfer money instantly and safely, regardless of their location.

Stellar was founded by Mt. Gox/Ripple Founder Jed McCaleb a couple of years ago and operates as a decentralized protocol for fund transfers in any pair of currencies. It is a non-profit foundation that aims for financial inclusion by connecting different financial systems around the world.

Why Nigeria?

Image source: Stellar

Oradian has shared its inspirational insights on the country choice, saying that Nigeria is the largest economy and most populous country in Africa (174 million people). Moreover, a diverse nation full of ethnic and socioeconomic contrast, Nigeria is the seventh most populous country in the world and has one of the world’s largest youth populations. The port city of Lagos is home to one of the fastest-growing middle classes. At the same time, almost half of Nigeria’s population is unbanked, with 80% of those people living in rural areas.

The initial pilot will focus on connecting MFIs in Northern Nigeria, a region where 68% of the population is financially excluded. The larger ambition is to bank the bottom billion.

What does this mean for Africa?

The case with Stellar and Oradian bringing an instant money transfer system to Nigeria is not the first time an African country is at the forefront of innovative technology deployment.

Two weeks ago, global money transfer app WorldRemit also introduced instant transfers to Nigeria. In addition to its same-day bank transfer service, WorldRemit now allows people to instantly send money to more than 140 cash pickup locations in Nigeria.

People in more than 50 countries can use the app to send to Nigeria. Recipients can collect money instantly from 140 branches of Skye Bank. WorldRemit customers currently send over 400,000 transactions every month.

Nigerians living abroad sent home $20.8 billion in 2015, by far the largest volume of remittances to any country in Africa and the sixth largest in the world, according to the World Bank.

A week later, Rand Merchant Insurance Holdings (RMI) and Rand Merchant Bank Holdings (RMBH), which are strategic active managers of a R759-billion financial services portfolio powered AlphaCode – a collaborative club for entrepreneurs in next-generation financial services based in Sandton, South Africa. Even though the hub has just launched, it has already signed up 50 diverse, rapidly growing financial services entrepreneurs.

At the end of last year, MFS Africa announced a group framework agreement with Vodafone, expanding the partnership between the multinational mobile operator and the pan-African FinTech firm globally. As the largest aggregator of mobile wallets in Africa, MFS Africa connects mobile wallet customers across networks and countries in sub-Saharan Africa, enabling convenient and affordable international money transfer to anyone with a mobile phone.

Another significant expansion happened in Africa last year with the remote bill pay platform Regalii enabling immigrants to pay their bills with 60 of the largest utility companies in Nigeria with 18 of the largest remittance companies in the world.

Africa is an important region to drive our continued business growth and we are squarely focused on delivering against our millennial immigrant strategy, said Regalii Co-founder Edrizio De La Cruz.

Remittances sent home by relatives or friends working abroad are the financial lifeblood of many poor countries. One of the biggest and fastest-growing markets is Africa, which is expected to receive more than $40 billion this year.

These are not the only significant moves by international FinTech companies around the world in an attempt to change Africa and empower financial inclusion of the continent. However, they signify the importance of the region and the fact that FinTech can truly change the world and connect previously isolated financial systems and populations. Rapidly growing financial inclusion in rural African regions may soon make Africa one of the hottest markets in the world.