When Hernando de Soto published his classic The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else in 2000, he had no idea that emerging technologies would solve the problem before the end of the new century that had just started. This Peruvian economist, known for his work on the informal economy and on the importance of business and property rights, had just brought to the attention of the world how a simple lack of address verification data could contribute to poverty. “Imagine a country,” De Soto wrote, “where nobody can identify who owns what, addresses cannot be verified, people cannot be made to pay their debts, resources cannot be conveniently turned into money, ownership cannot be divided into shares, descriptions of assets are not standardised and cannot be easily compared, and the rules that govern property vary from neighbourhood to neighbourhood or even from street to street.” Technology has brought to bear that which developing countries must do to eliminate the scourge of poverty. Welcome to the age of what has been dubbed “the Internet of Assets.” Welcome to Blockchain, which is beginning to disrupt virtually every sector. Blockchain, sometimes referred to as distributed ledger, is a type of data structure that facilitates identifying and tracking digital transactions and sharing the information across a distributed network of computers leading to a seamless distributed trust network. Today, I focus on its disruption in financial and agricultural sectors where a Kenyan-based food logistics start-up Twiga Foods working closely with IBM scientists are using machine learning and the blockchain to determine a credit score and distribute non-collateralised microfinance loans for small food stands across Nairobi. They ran an eight-week pilot, giving out, on average, token credit of Sh3,000 ($30) to 400 Micro, Small and Medium Enterprises (MSMEs) to understand behaviour and used the data to develop a method of credit scoring. As a result the loan increased the order size by 30 per cent and profits for each retailer, on average, by six per cent. The technologies address a fundamental challenge in the region — how small businesses gain access to microloans, without a credit rating, to scale up their businesses? These questions were unthinkable just a few years ago when De Soto was grappling with identity and ability of the poor people to repay debts. Technology has enabled credit modelling and better financial profiling that opens up opportunities for the poor to access more other services like insurance, letters of credit, or just building their financial history to qualify for bigger loans to scale their micro enterprises. This will herald a new chapter where the poor would inclusively compete for government contracts that often had discriminative requirements. IBM and Twiga Foods on Wednesday announced that they are seeking to solve problems faced by MSMEs in Africa where many of the them are faced with “difficulty accessing sufficient credit due to the complexities of financing processes, high loan costs, collateral requirements and lack of a credit score. This can make it difficult for these organisations to scale their businesses or implement new processes or technologies.” This comes at a time Kenya’s ICT Ministry decided to form a taskforce that will look into the possibilities of blockchain technologies. From enabling micro payments systems to digital identity management to smart contracts, blockchain-based solutions can leapfrog traditional or non-existent technology infrastructures in African nations and drive a new era of more inclusive growth. The fortunes of the poor could further change if blockchain is used to create immutable land records. Bitange Ndemo is an associate professor at the University of Nairobi’s School of Business. The views expressed in this article are of the author.
