The Technext Coinference breakout session on DeFi and the future of finance in Africa hosted had Obi Emetarom, CEO and Co-founder of Appzone, Gideon Orhovhowo, COO Korapay, Buki Ogunsakin, BBO Solicitors and Mohammed Jega, Co-founder of Domineum Blockchain Solutions share their thoughts on decentralised finance and its prospects in Africa.
The speakers spoke on how DeFi and digital assets are helping to transform the economy from traditional finance systems. They also spoke on how DeFi and digital assets were in themselves enhancing inclusive lending as well as a robust financial system that has the potential to help the African economy leapfrog to a higher pedestal.
One of the major problems of finance in Africa is the inability of certain individuals, usually the unsophisticated or lower income class to access finance and credit from conventional institutions due to unavailability and limited coverage.
According to the speakers, this problem can be solved with a decentralised finance model.
Most notably, the speakers discussed how Decentralised Finance paves a way for all-inclusive finance for all, which supports individuals at all levels of societal strata to benefit and grow their ideas. In holding digital assets individuals can make transactions seamlessly and not have to worry about lending at any point.
For them, Decentralised Finance is a major player when it comes to innovation and creativity, which are fundamental for an economy to thrive.
According to Obi, DeFi platforms give everyone the opportunity to own numerous digital assets using the Blockchain wallet system. This will help any African to create and store wealth without direct inflationary effects that affect its value.
What is Decentralized Finance (DeFi)?
DeFi is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. It is a system that is actually meant to represent the opposite of the traditional centralised way finance has always been accessed, transacted and recorded.
In Nigeria for instance, the Central Bank of Nigeria (CBN), defines the rules and regulations for centralized financial institutions like banks and mortgages, which consumers rely on to access capital and financial services directly.
DeFi challenges this centralized financial system by empowering individuals with peer-to-peer digital exchanges.
DeFi and Africa
Currently, there are 41 central banks in Africa. While each independent country has its own apex bank, two currency unions are connected to global central banks. These Central Banks have over time been the major regulators of the direction of finance in their jurisdiction.
However, with the introduction of Blockchain, a major component of DeFi, digital finance is gradually eliminating the need for Central Banks and their regulations.
Digital currencies like cryptos have become an alternative way people hold and meet financial obligations and according to a new report by Chainanalysis, Africa is one of the fastest-growing markets for cryptocurrency adoption.
The African crypto market has grown by over 1,200% in terms of value received over the past year. Chainalysis estimates that African countries collectively received around $105.6 billion worth of cryptocurrency between July 2020 and June 2021. However, Africa is still the smallest crypto economy of all the regions that the research firm studies.
What this means for the future of finance in Africa
With the rate of adoption of cryptocurrencies, a major aspect of DeFi, the African continent is on a trajectory that poses a threat to conventional institutions and even countries’ monetary policy institutions.
Financial control is gradually sliding away from structured and government-regulated systems to P2P boundless systems, controlled by individuals themselves. This paves way for SMEs to thrive and for income to be evenly distributed without bottlenecks.
No doubt policymakers are going to try to fight it, just like they did with other revolutions before it, a major lesson from experience is that innovation through technology always brings changes to conventional ways of doing things.
In all, the structure of finance in Africa is transcending beyond what was, a regulated system that operates to conform and benefit a social goal to what would obtain, a system that benefits individuals directly.
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