In much of Africa, many people still do not have access to basic financial services for many reasons. One of the reasons is that financial institutions have set standards or thresholds that prevent even low-income people from opening a bank account.
Access to soft loans or other forms of finance is even more difficult as punitive interest rates applied ensure that SMEs, farmers and other groups do not even consider borrowing from banks.
The fact that this has been going on for many years is a clear indication that the mainstream banking system has let these groups down. This particular failure is another example of the need for an alternative financial system. It also explains why more and more emerging fintech start-ups are now trying to solve this problem. One of these start-ups is Koinwa, a crypto borrowing platform.
Bitcoin.com News recently discussed resolving the issue with startup CEO Disu Hakeem to understand how the app is helping financially excluded groups in 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 the response been so far?
DH: The reception has been overwhelming as people want to find out what it’s like to own bitcoin. Additionally, we’ve made it possible to purchase bitcoin as low as $ 2 on the Koinwa app.
BCN: You say you created an app that allows Nigerians to borrow bitcoin, but the Central Bank of Nigeria has imposed restrictions that have essentially kicked crypto players out of the banking ecosystem. How then will borrowers switch from crypto to fiat when there is this directive?
Disu Hakeem (DH): The Koinwa app is not intended only for Nigerians, it is primarily designed 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 limited liability company registered in the USA.
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 also allows you to be your own bank and control the price of bitcoin.
Thus, with this application, an individual can decide to sell on our P2P trading solution or preferably to 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 bitcoin.
BCN: Who else can use this app?
DH: The platform is primarily designed for Africans to bridge the gap between Africans and the Western world in terms of trade and payment. This app was created with the aim of providing financial services to the unbanked African population.
BCN: Regular banks often ask for collateral before approving a loan. This is done to protect the banks from defaulting customers. How does Koinwa tackle this need for collateral?
DH: The loan scheme is (only a) value added service to our clients as it has been designed to target underserved groups such as SMEs, farmers, market traders, widows, students etc. We do not collect any collateral for any of the loans. app just to make it transparent to everyone, but there are terms and conditions to help undermine the loan collection system.
BCN: You said that crypto loans offer a cheaper alternative to regular bank loans which, as you say, can come with interest rates of up to 25%. However, some might argue that the volatility of crypto assets works against the low interest rate charged. How do you respond to that?
DH: Surely all cryptocurrency enthusiasts are aware of volatility. The Koinwa app was launched after the results of our research revealed that there are likely many people who want to be involved in the cryptocurrency market but do not have the required funding. We now understand these challenges and that is why we have taken care of this by providing a cryptocurrency based lending platform to Koinwa.
Each approved cryptocurrency loan is pegged to the user’s local currency. For example, a user from Kenya can apply for a bitcoin loan of 0.0002, and let’s say this equals 10,000 Kenyan shillings at the time of the loan application.
Therefore, each time the user repays the loan, the user will pay 10,000 Koinwa shillings plus the interest rate which is 10 percent. So this solves the problem of volatility if the cryptocurrency rate rises or falls at the time of loan repayments.
BCN: We are seeing a sort of coordinated crackdown on cryptocurrency exchanges and related businesses. Do you think this will slow down interest in cryptocurrencies?
DH: The crackdown was expected as cryptocurrency has yet to be regulated worldwide and also given the huge market capitalization and acceptance of bitcoin.
But I don’t think this will slow down the pace of cryptocurrency acceptance, as most countries are now considering launching their own digital currencies (CBDCs). For example, China is already piloting its digital currency while Nigeria and Tanzania also plan to launch their own CBDCs.
Either way, countries that don’t embrace cryptocurrency in the 21st century will be left behind. Additionally, I have a feeling that in 2022/2023 there will be conflict between governments and the crypto community when bitcoin becomes mainstream beyond our imagination.
What do you think of this interview? Let us know what you think in the comments section below.
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