Multinational giant IBM has launched a pilot blockchain-based project to support small businesses throughout Africa with a Kenyan logistics company.
The company, Kenyan-based Twiga foods, has used mobile technology to develop its supply chain for farmers and traders. To expand and offer microloans to its African clients, the company has joined IBM to employ blockchain technology to improve its current business model and deliver a more efficient and transparent service.
Skeptics have argued that it has been lenders who have historically benefited from such microloans, due to non-restrictive or in some instances a complete lack of barriers, which often translate to high-interest rates. The application of blockchain-based solutions to these loans is increasingly being cited by business as a way of addressing other microloan issues such as large overheads, slow delivery and corruption. The reason for using blockchain is that it is secure and transparent in nature. No individual or single entity can alter entries on the distributed ledger.
The IBM pilot project, developed at the IBM Lab in Nairobi, uses Hyperledger Fabric, a blockchain framework implementation that acts as a bedrock for developing applications and solutions.
The project simply requires African users to own a mobile and need capital to grow their business. The IBM blockchain program aims to fill the finance gap so small ventures can flourish on the African continent.
Isaac Markus, IBM researcher on the project, commented:
“After analyzing purchase records from a mobile device, we used machine learning algorithms to predict creditworthiness, in turn giving lenders the confidence they need to provide microloans to small businesses. Once the credit score is determined, we used a blockchain, based on the Hyperledger Fabric, to manage the entire lending process from application to receiving offers to accepting the terms of repayment.”
So far, the technology, which underwent an 8-week pilot, has processed 220 loans with a distributed average of KES 3,000 Kenyan shillings (KES), approximately USD 30, for recipients. These loans were disbursed with a repayment period of four or eight days that attracted a 1% and 2% interest respectively.
Andrew Kinai, the lead researcher at IBM research, suggested that the aim of the program was to offer the opportunity for small businesses to participate in an interdependent ecosystem based on SMS. Users, some with limited IT literacy would be better positioned to access financing for their orders.
As a result of the pilot, Twiga has benefited both from a boost in business and earned interest. Twiga, which started its business as a logistics company for bananas, has since expanded its operations to include more farm produce for distribution.
IMB now intends to spread the program throughout Africa.