Using a Crypto Loan App to Bring Financial Services to Excluded Groups in Africa

In much of Africa, many people still lack access to basic financial services for many reasons. One of the reasons is that financial institutions have set standards or thresholds that make it impossible for low-income earners to even open a bank account.

Access to soft loans or other forms of financing is even more cumbersome while the punitive interest rates charged ensure that SMEs, farmers, and other groups do not even entertain the idea of borrowing banks.

The fact that this has been ongoing for many years is a clear indication that the conventional banking system has failed these groups. This particular failure is another example of why an alternative financial system is needed. It also explains why more emerging fintech start-ups are now attempting to solve this. One of such start-ups is Koinwa, a crypto borrowing platform.

Bitcoin.com News recently discussed solving the problem with the startup’s CEO, Disu Hakeem to understand how the application is helping financially excluded groups from Africa.

Bitcoin.com News (BCN): When was the app launched?

Disu Hakeem (DH): The platform was launched in 2019 but the mobile application was released in May 2020.

BCN: How has been the response so far?

DH: The reception has been enormous, as people want to experience what it feels like to own bitcoin. In addition, we have made it possible to purchase bitcoins that are worth as low as $2 on the Koinwa app.

BCN: You say have you created an app that allows Nigerians to borrow bitcoin yet the Central Bank of Nigeria has imposed restrictions that have essentially kicked out the crypto players from the banking ecosystem. How then will the borrowers convert from crypto to fiat when there is this directive?

Disu Hakeem (DH): Koinwa app is not meant for Nigerians alone, it is majorly built for Africans and can be accessed from anywhere in the world. So anyone from any part of Africa can access the Koinwa app as we are also a registered limited liability company in the United States.

We also have a peer-to-peer (P2P) escrow-based bitcoin trading service on the platform, where you can exchange bitcoin for local currency and vice versa. This by the way enables one to be their own bank and control bitcoin price.

So with this app, an individual can decide to sell on our P2P trading solution or preferably sell to a third party. Alternatively, an individual can use the borrowed cryptocurrency to make payments for goods and services from many companies that now accept bitcoins.

BCN: Who else can use this app?

DH: The platform is built majorly for Africans to bridge the gap between Africans and the Western world in terms of trade and payment. This app has been created for the purpose of providing financial services to the unbanked African population.

BCN: Regular banks will often ask for collateral security before approving a loan. This is done to protect banks from defaulting clients. How is Koinwa approaching this need for collateral?

DH: The loan system is (only a) value-added service to our customers as it has been built to target the underserved groups such as SMEs, farmers, market traders, widows, students, etc. We are not collecting collateral for any of the loan application just to make seamless for everyone, but there are terms and conditions in place to help savage the loan recovery system.

BCN: You have said crypto loans offer a cheaper alternative to regular bank loans which as you say can come with interest rates as high as 25%. However, some might argue that the volatility of crypto assets works against the low interest rate that is charged. How do you respond to this?

DH: Every cryptocurrency enthusiast is certainly aware of the volatility. The Koinwa app was launched after the findings of our research found that many people probably want to be involved in the cryptocurrency market but do not have the requisite funding. We now understand these challenges and that’s why we have taken care of this by providing a cryptocurrency-based lending platform at Koinwa.

Every cryptocurrency loan approved is pegged to the local currency of the user. For instance, a user from Kenya can apply for a bitcoin loan of 0.0002, and let us say this is equivalent to 10,000 Kenyan shillings as at the time of applying for the loan.

Therefore, whenever the user is paying back the loan the user will pay Koinwa 10,000 shilling plus the interest rate which is 10 percent. So this solves the problem of volatility if the cryptocurrency rate increases or drops at the time of loan repayments.

BCN: We are witnessing some kind of coordinated crackdown against cryptocurrency exchanges and related businesses. Do you think this is going to slow down interest in cryptocurrencies?

DH: The crackdown was expected as cryptocurrency is yet to be regulated worldwide and also considering the huge market cap and the acceptance of bitcoin.

But I don’t think that it will slow the pace of acceptance of cryptocurrency as most countries are now planning to launch their own digital currencies (CBDCs). For example, China is already piloting its digital currency while Nigeria and Tanzania are planning to launch their own CBDCs as well.

In any case, countries that are not adopting cryptocurrency in this 21st century will be left behind. Also, I have a feeling that in 2022/2023 there will be a conflict between governments and the crypto community when bitcoin goes mainstream beyond our imagination.

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