Home to 54 countries, the most on any continent, Africa’s growth in finance and banking has not been tremendous. Out of the unbanked population in the world, 350 million of them live in Africa, representing 17 percent of the global figure. The situation looks grimmer when you come to the continent: the unbanked represent between 66 and 80 percent of the population of Africa.
There are many causes for this appalling situation, including numerous political, economic, and social problems. The lack of capital for infrastructure, generally low literacy rates, political instability, and government policies are, among other factors, at the crux of the financial woes inhibiting the continent’s growth.
So what is the way forward? For many international organizations such as the IMF and the World Bank, possible solutions have centered on a strong push towards financial inclusion, which generates policies to bring as many Africans as possible onto the global financial landscape. Such means include making banks accessible to the average Joe, encouraging banks to flex their muscles for small and medium businesses, and boosting the creation of new fintech firms.
But after many years of these policies, it is clear that a lot of people are still not part of the financial system. Something is missing.
It turns out Africa doesn’t need the current approach to financial inclusion
Disruptive inventions take time and financial resources to materialize, and the creation of a paradigm shift doesn’t happen overnight. That’s why these sweeping innovations are sometimes left to nations with both the financial and human capital to undertake the research, create innovative products, and implement solutions that span across the entire world.
The bad news is, Africa lacks the political will (and in most cases, also the resources) to take high-risk bets on innovative solutions. The good news is, however, that we don’t actually have to go through the long, innovative, and research-intensive route just to improve our current banking system which itself is not helping much.
Africa is growing in population, development, and influence on the global market. In 2010, the McKinsey Global Institute described African economies as “lions on the move”. And though growth seems to have reduced, adopting cryptocurrencies will undoubtedly turn things for the better. Let’s find out why the continent needs Satoshi’s invention:
Bypass the banking revolution
Africa can use cryptocurrencies to bypass the entire banking revolution and solve the continent’s financial inclusion woes. Developed countries have moved from bank tellers to ATMs, from ATMs to online banking on desktops, and then from the desktop to mobile payments such as Venmo, Apple Pay, and a lot more. Going from one of these standards to the other requires a remarkable amount of capital, time, effort and brainpower, as well as strong adoption from the ordinary people.
Thanks to cryptocurrencies, Africa can bypass these standards. Just like many parts of the world, it costs a lot of money to make transfers via banks in Africa. Also, getting a bank account is hectic and requires a lot of paperwork, which is sometimes out of reach for many of the ordinary people on the continent. Small businesses also find it difficult to get credit because of the formal documentation that is required by banks.
Just like how M-Pesa was able to revolutionize money transfer in Africa and around the world through the mobile phone, cryptocurrencies could allow Africans undertake day to day transactions without banks, make transfers without huge fees, and get access to finance without going through a ‘formal’ financial institution with all the cumbersome paperwork.
Peer to Peer cryptocurrency transfers is already gaining grounds in Africa. Among others, Bitmari from Zimbabwe, BitPesa from Kenya, Naira Exchange from Nigeria, and PayPlux from Ghana are building the backbone for a p2p financial future on the continent – a journey where cryptocurrencies will be at the center of payment and banks will gradually be phased out.
Tackle Fiat and Central Bank Woes
What have cryptocurrencies got to offer to the African continent that fiat hasn’t been able to? You don’t need the knowledge of an economist to understand that most of the products you purchased a few days or months ago have suddenly increased in price. Your response will probably be “That’s only natural. There is nothing to be done about that. That’s how things are supposed to work. The cost of manufacturing has probably increased“.
The truth is, it isn’t the cost of the product that has increased, but rather the value of your money that has reduced. This trend has been seen around the continent. Hyperinflationary spirals from Zimbabwe and South Sudan make fiat currency useless in many cases. Double-digit inflation rates are affecting economies of Ghana, Sudan, Central African Republic, Angola, Egypt and many other countries on the continent. But governments and central banks keep printing money, they control its supply and determine the value of your money come three, six or one year’s time.
The good news is, this phenomenon is not natural and cryptocurrencies could save us the hassle. Cryptocurrencies are peer to peer and their production and supply do not lie in the hands of the central bank or the government. Their production is also capped at a certain figure, 21 million in the case of bitcoin. This creates scarcity in the long term and increases their value over time – a feature many fiat currencies around the world have already lost.
Propel Global Remittance
Since the 2000s, migration by Africans to the west has been on the rise, and the continent is now home to the world’s largest migrant population according to an analysis by the Pew Research Center. This migrant population, numbering in the millions, send money to family and friends at home.
As such, remittance to Africa has been part of the continent’s growth, contributing to GDP, poverty reduction, and income inequality – with remittance alone constituting 25.9% of the GDP of Liberia in 2017. As migration increases, money transfer to the continent is going to grow, and the World Bank estimates that remittance to sub-Saharan Africa will reach 39.6 billion this year.
But there is a huge problem. Global money transfers are costly and are draining a lot of money that could go to poor countries through high fees. The World Bank posits that it is more expensive to send money to Africa, the world’s poorest region, than anywhere else in the world. For instance, the average cost of sending money to Africa in 2017 was 9.4 percent, a figure far from the Sustainable Development Goal of slicing cost of money transfer transactions to 3 percent by 2030.
These issues emanate from different angles, right from money transfer agencies such as Western Union and Moneygram to commercial banks. In their bid to curb money laundering, many governments and central banks also institute unfavorable remittance rules that prevent people in Africa from engaging in smooth global transfers. Additionally, the World Bank puts some of the blame on special engagements between banks and money transfer companies, as well as state institutions.
For Africa, this is an opportunity (and not a problem) to adopt cryptocurrencies. Cryptocurrencies do not belong to a single country and are not restricted by national borders. Because there is no exchange cost when sending money around the world through these cryptographic forms of money, they are capable of saving Africa from the cost of financial losses during exchange rates. This will also help the continent bypass many remittance issues, from third parties like banks and money transfer companies to corruption.
In many parts of the continent, the journey to a peer to peer, global remittance system has already kicked off. Cryptocurrency start-ups such as Bitwala, Kobocoin, Abra, Beam, BitPesa, Bitstake, BitFinance, BTCghana, and Bankymoon among others, are championing solutions for fast, easy, cheap, and email-like money transfers for the continent.
Is Africa’s survival possible in the crypto space?
Cryptocurrencies are still new in the system and are being tested in many parts of the world. Although some governments have made strides towards understanding them, a majority of the countries in Africa are still battling with these currencies that they think are not produced by the government and are not backed by the central banks. This is what is keeping the industry from going forward as expected in Africa – low level of trust in cryptocurrencies.
Additionally, cryptocurrencies are to slash transaction costs of remittances, reduce corruption, and give the printing, supply, and the value of money back to the people. This is not something that will go well with remittance companies, banks, and the government, and a major stumbling block to the growth of cryptocurrencies on the continent.
Nevertheless, the future looks bright.
Groups like Satoshi Centre are working to educate Africans on the benefits of blockchain technology and the freedom of cryptocurrencies. Education is the key to proliferating the technology and reaching the point of mass adoption. Time will bring more and more cryptocurrency educated Africans into the network and perhaps we will see some of the major use cases transpire to the majority. Now with the new Blockstream satellite running on the Mainnet, anyone can connect to the Bitcoin network from anywhere in the world without an internet connection. However, it does require a satellite dish and some programming skills.
Generally, the entire industry is still young. Peer to Peer is somehow overrated and adoption is still slow. But if the African continent is ready to work around these challenges, the continent could do to crypto what it did to mobile payments.