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Financial Inclusion in Africa: Can Crypto Bridge The Gap?

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Image credits: Guardian.ng

Did you know that over one billion people in the world still don’t have access to financial services? In Africa, for example, a large percentage of its population still lacks access to basic financial services. In spite of this disturbing exclusion in vast sections across the continent, Africa’s population is increasing at a geometric rate. In Sub-Saharan Africa alone, it is estimated that by 2050, the population would be doubled.

The rapid population growth on the continent, has however, not translated into an improved economy for the people. The economies of African countries, still lag far behind, when compared to those of other countries of the world. Access to improved livelihood for many people still remains nothing but a dream.

Crypto and its underlying blockchain technology, come at a time where this long-standing challenge persists. As such, it holds potentials of constituting a viable tool to help achieve full financial inclusion on the African continent.

Following this backdrop, this article analyses how cryptocurrency can help reduce financial exclusion in Africa, amidst the ravaging population explosion and deeply-rooted poverty on the continent.

The constraint to financial inclusion

As a developing continent, Africa has enjoyed massive development in recent decades. The adoption of web and mobile technology has greatly transformed the continent. For example, the emergence of mobile money has further broadened improved access to financial services.

While these come as an improvement on the outdated infrastructure, this development, however, masks a stark reality: that a sizeable number of Africans, still lack access to basic financial services.

The current financial system in the continent, is largely under-developed and limited in reaching extremely remote areas. Similarly, opening and managing a bank account in Africa is still expensive. As a result, many African adults still use informal means to save and borrow money.

Daily contribution booklet still used in Nigeria, West Africa
Image Credit: Olist / Lady K Abefard

Financial institutions still make use of some hectic processes—such as strict account opening processes and opening fees— which often reduce the thirst for the adoption of ultramodern financial services. Owning a cryptocurrency, however, does not require all these.

A 2014 Global Findex survey, highlighted four common barriers as to why people do not have a bank account. These barriers are:

  • Lack of money.
  • Account opening being too expensive.
  • Financial institutions being too far way.
  • Lack of necessary documentation. 

These barriers are particularly toxic to the health of the African economy, as they hinder access to credit. Getting financial support has always been a major obstacle for individuals and Small and Medium Enterprises (SMEs) across the continent. Compared to developed countries, African entities often find it difficult to get loans or adequate access to other sources of funding.

As such, there is an urgent need for more financial innovations in Africa.

The path to inclusion

Financial inclusion removes the barriers to cheap and quality financial services, and also broadens access to services ranging from credits to cross-border payments.

In order to achieve financial inclusion, financial products/services need to remove the constraints that restrict people from participating in the financial sector. This way, more individuals and businesses—like the Somalian teacher and the small scale Zambian Cement Company—would be allowed to thrive in a financial environment that encourages them to engage actively in the economy.

Furthermore, a study carried out by GSMA, shows increasing smartphone and mobile usage in Africa. With such an improving connectivity profile, this scenario could provide an ample opportunity for mobile-based financial products to change the narrative of financial exclusion in Africa. This is where cryptocurrency comes in.

Whilst there are divided opinions and mixed perceptions on whether cryptocurrency is needed in our society, a close scrutiny of cryptocurrency, would immediately give away the endless potentials it holds to address critical issues such as financial inclusion in developing locations like Africa.

Blockchain-based products like cryptocurrencies, have an open financial system which allows anyone to participate. Essentially, there are little or no costs involved in holding or getting access to cryptocurrencies. The ripple effect of this is that most barriers attached to banking with traditional financial institutions, are bypassed. This would, in turn, considerably boost financial inclusion.

Similarly, all it takes for one to be jolted to the harsh reality of the deep financial exclusion that exists in Africa, is a trip to North-Central Nigeria. There, in areas like the Maikunkele–Zungeru Road in Minna, Niger state, one would have to travel for at least, 30 minutes in order to gain access to an Automated Teller Machine (ATM). The availability and reliability of financial services, still pose a huge threat to financial inclusion on the continent; notwithstanding the continuous efforts of governments and private organizations. On the contrary, cryptocurrency transactions can easily be conducted within seconds, and with a mobile device. This eliminates inadequacies triggered by limited availability. In turn, largely available and cost-effective financial services would be provided to the millions of Africans who are currently unbanked; thereby, boosting the economies of countries on the continent.

In conclusion, evidently, cryptocurrency is a viable tool for the promotion of financial inclusion in Africa. However, African governments still need to discard their suspicion and lack of support for cryptocurrency. Should this be achieved, Africa would be well on its way towards becoming a global economic giant.

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Bitcoin

The Great Mining Migration from China to the U.S. Explained

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Bitcoin mining

Coming off the heels of China’s now infamous crypto crackdown, the mining rate in the U.S. has now surpassed that of China for the very first time. With a hashrate – a term used to describe collective computing power of miners around 35.4% in July, the hashrate in the U.S. is up 428% compared to September 2020.

In a move dubbed the “great mining migration“, miners in China had been moving towards more crypto friendly countries since May, when the Chinese government called for a crackdown on bitcoin mining and trading. Some of the locations thought favorable enough to entice mining operations include Central Asia, Eastern Europe, the U.S. etc.

However, it is important to bear in mind that mining operations are extremely energy taxing. For said reason, many of the bitcoin miners who had migrated to the U.S. set out for the U.S. state of Texas, one with one of the lowest energy prices in the country. Another favorable advantage for miners moving to Texas is the crypto-friendly political atmosphere regarding cryptocurrencies.

A criticism often levelled at bitcoin mining is that it is bad for the environment and certainly so seeing the enormous amounts of energy bitcoin mining requires, most of which is supplied from fossil fuels. The mining migration has brought about a trend where miners are actively seeking out renewables and or nuclear power, especially in the U.S. Miners are now clustering around states such as Washington, New York and unsurprisingly Texas.


The U.S. is not the only country to have benefitted from the aftermath of Beijing’s anti-crypto policies. Kazakhstan, the central Asian nation has also seen its share of the global hashrate grow with current levels around 18.1%, just behind the U.S. However, many believe that the Central Asian nation is just a junction on the larger trend of miners moving westward. Also, considering that most of Kazakhstan’s energy is derived from coal and a new law to further tax crypto miners in 2022, It stands to reason that many mining operations will eventually migrate from Kazakhstan.

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Business

From Libra to Diem: What happened to Facebook’s Digital Currency plans

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Facebook digital currency
Source: Getty Images (modified)

In 2019, Facebook Inc. announced the Libra, a digital currency project being developed by the company. Libra was unveiled to be a blockchain based stablecoin backed by bank deposits and short-term government securities and was to be integrated into Facebook’s services like Messenger and WhatsApp. The Libra blockchain was said to be able to handle 1000 transactions per second, in stark contrast to Bitcoin’s 7 transactions per second. Needless to say, the news that the largest social media company was working on a cryptocurrency rocked the market for a while. But for some reason, we haven’t seen anything really significant happen since then. Why?

First off was the regulatory hurdle. It would appear that Facebook realized that it didn’t have top marks in the trust department, especially in public opinion. To this end, the Libra project was grilled by U.S lawmakers in July 2019 and the central theme was the issue of trust and data privacy. Other regulators also commented on the issue, with European Central Bank board member Benoit Coeure reportedly saying that digital currencies such as the Libra could challenge the supremacy of the U.S. dollar. Similarly, France’s and Germany’s finance ministers at the time had expressed concerns over the Libra, citing risks around financial security, investor protection and anti-money laundering laws.

Libra also faced the hurdle of its project partners dropping out of the initiative. Founding members eBay, Visa, Mastercard as well as PayPal withdrew from the project which may have had a hand in stalling it. The regulatory scrutiny surrounding the project and Facebook’s own unpalatable reputation might have influenced the decisions of the partners who left the project.

This story would be incomplete without mentioning the efforts at rebranding which morphed the project from Libra to Diem in late 2020. These efforts may have been subtly aimed at distancing the digital currency from the scandals and scrutiny that plagued Libra as a result of its association to Facebook. However, those efforts haven’t been particularly successful. As a result of these factors and more, the Diem association scaled back its earlier hoped for global launch and instead settled for a U.S. stablecoin. That doesn’t seem to have happened.

All in all, it would appear that Facebook is adamant in the pursuit of this blockchain system. However, regulators aren’t completely convinced. The headache seems to be about the issues around it’s possible widespread use, considering the amount of Facebook users. The apprehension is about such a currency’s competitive power with other fiat currencies as well as privacy concerns.

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Africa Blockchain Institute

Africa Blockchain Institute Organized The First African Blockchain Summer Bootcamp For Teenagers In Ghana

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In the spirit of catching them young, the Africa Blockchain Institute organized the first-ever Blockchain Summer Bootcamp for teenagers (age range 13 to 19 years old). A successful Bootcamp, according to the participants’ testimonials and stakeholders, held at the OpenLabs, Ring Road, Accra Ghana, between Monday 2nd August, and Friday 6th August 2021. 

The teenagers applied from across Africa, and selected participants all converged at the OpenLabs, Ghana, for an intensive five days of learning, interacting, and implementing personal  Blockchain projects. The participants were divided into three significant tracks, thus; Blockchain Development, Blockchain for Creatives and Blockchain Entrepreneurship. 

Blockchain Summer Bootcamp for Teens by ABI
Blockchain Summer Bootcamp for Teens by Africa Blockchain Institute

Across these three tracks, the teenagers learnt introductory units to Blockchain Development for societal challenges, Blockchain evangelism, Non-Fungible Tokens, and how Cryptocurrency works. Another highlight of the program was the excursion to the Accra Digital Centre, where the Boot Campers were introduced to the tech ecosystem and feel of the Ghana Tech Lab and Accra Innovation Hub spaces. A visit was also made to the Museum of Science and Technology, and the teenagers got to understand the history of technology in Ghana. 

Worthy of mention was the panel session aimed at motivating the students to pursue a career in technology. While making his comments during the panel session, the founder of BankLess Africa, Mr. Muntala Mohammed Shaibu, urged the teenagers to stop seeing themselves as too young to experiment with new technologies. In her remarks, Ms. Elohor Thomas, CEO & Co-Founder of CodeLn, urged the teenagers to continue to explore their interest in technology and blockchain early.

Blockchain Summer Bootcamp for Teens by ABI
Panel Session, Blockchain Summer Bootcamp for Teens by ABI

The Bootcamp ended with personal project presentations from the Blockchain Development and the Blockchain for Creatives & Entrepreneurship tracks. Projects such as NFT blogposts, Blockchain product reviews and Blockchain for transport and logistics were presented. The best presentation won the OpenLabs scholarship for Robotics Course. Thanks to Dr Sujith Jayaprakash, the Director of OpenLabs, Ghana, for the offer of scholarship. In his closing remark, the Executive Director of the Africa Blockchain Institute, Mr. Kayode Babarinde, urged the teenagers to continue using the  skills and knowledge gained during Bootcamp to explore Blockchain-related solutions further. We also appreciate Mr. Ganzaro Omar, Chairman, AfroBlocks, for his supports, and fostering collaborations with the Ghanian Blockchain community.

The Africa Blockchain Institute will continue to hold future Blockchain Summer Bootcamp series in various African cities to drive Blockchain knowledge into innovators early enough. 

Oluwaseun David ADEPOJU

Head of Research,

Africa Blockchain Institute. 

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