How is Decentralised Finance (or DeFi) changing the business landscape in Africa? Donald Innocent-Ike (London Business School, MBA2025) reports.
Africa is typically regarded as the world’s fastest growing continent. It is now expected to outperform the rest of the world, with real GDP for 2024 averaging 4% (vs the rest of the world’s 3.2%), according to the African Development Bank. Nonetheless, within these figures there is an even greater shift in the continent’s financial narrative. As Africa accelerates and adapts its technology, there is a growing promise for ‘financial empowerment’, fuelled by a collective drive for not just individual prosperity, but also a broad and more equitable distribution of wealth and resources. Decentralised Finance (DeFi) seems poised to lead this shift by harnessing the power of technology to create a financial ecosystem that is both inclusive and resilient.
At a recent event hosted by Invest Africa, titled ‘Decentralised Finance (DeFi) Revolution: How DeFi Will Change the Way We Do Things,’ the spotlight was on the transformational potential of DeFi in Africa. Featured speakers included Chris Maurice, the founder of Yellowcard, and Duncan Keil, CEO of ICAP Africa. Their discussion centred on providing liquidity across the continent through the innovative use of fiat-backed stablecoins. This approach not only addresses the challenge of financial accessibility but also underscores the pivotal role of DeFi in reshaping Africa’s financial landscape towards more inclusive growth and prosperity.
Understanding Stablecoins and their Impact
Fundamentally, stablecoins are digital currencies tailored to combine the flexibility of cryptocurrency with the stability of traditional fiat currencies, such as the USD, Euro and GBP. They are pegged on a 1:1 basis with stable assets such as the US dollar and are aimed to mitigate the volatility notoriously associated with cryptocurrencies.
Yellowcard is the first licensed stablecoin company in Africa, which marks a significant milestone in the DeFi landscape on the continent. Simply by offering a stable digital currency that is directly pegged to the US dollar, the company aims to bridge the gap between traditional banking systems and the growing world of digital finance. They therefore facilitate smoother transactions, reduce costs and enhance access to financial services for the African population.
Benefits of DeFi: Capital Preservation
DeFi presents unique solutions for businesses as they aim to preserve capital and enhance transactional efficiency. One of the more unique benefits of DeFi is its ability to reduce and mitigate risks associated with currency devaluation and scarcity of foreign exchange (FX) reserves. These issues have always been difficult for financial systems to solve, particularly within Africa.
Case Study: Multinational Flight from Nigeria – Navigating Currency Devaluation Challenges
As of January 2023, no fewer than seven multinationals have either left or announced their decision to exit Nigeria, Africa’s most populous nation. These multinationals are companies whose businesses largely depend on FX availability. A notable example of the practical challenges faced by international businesses is the experience of Delta Airlines and Emirates. According to the International Air Transport Association (IATA), foreign airlines’ trapped funds in Nigeria have risen to $550M as of 2023. These global airlines reported substantial revenue, trapped within Nigeria, attributed to the country’s devaluation and the limited availability of FX reserves. This situation underscores the vulnerability of businesses to fluctuating economic policies and currency instability, which can significantly hinder their ability to repatriate earnings and maintain operational liquidity.
DeFi platforms offer a compelling solution because they leverage stablecoins. By utilising digital currencies pegged to more stable assets like the US dollar, businesses can circumvent the volatility of local currencies. This not only ensures the preservation of capital but also enhances the security and speed of cross-border transactions, providing a seamless avenue for companies to manage their finances effectively, regardless of local economic fluctuations.
Additional Case Study: Enhancing Agricultural Financial Inclusion in East Africa
Another example of DeFi’s impact on capital preservation can be observed in East Africa’s agricultural sector. Smallholder farmers in East Africa cannot participate in the mainstream economy because they lack access to financial services as a result of their location, their lack of financial literacy, and other barriers. Commercial banks within the region are highly risk averse, and typically demand high returns on loans made to farmers. Recognising this gap, several DeFi platforms have begun offering blockchain-based lending services, enabling these businesses to secure loans directly in stablecoins. In the report ‘Digitization of Agribusiness Payments in Africa: Building a Ramp for Farmers’ Financial Inclusion and Participation in a Digital Economy’, the World Bank Group made the case that a ramp up in digitisation of agribusiness payments can help advance financial inclusion of farmers.
This approach has multiple advantages. Firstly, it eliminates the dependency on local banking infrastructure, which can be unreliable or inaccessible in rural areas. Secondly, by receiving and repaying loans in stablecoins, these agricultural businesses are insulated from local currency volatility, which is crucial for maintaining the value of their capital and ensuring the predictability of their operational costs. Lastly, the transparency and security of DeFi can help reduce the risk of fraud and enhance trust between lenders and borrowers, further stabilising the financial foundation of these enterprises.
Challenges and Future Prospects
Exploring the transformative journey of Decentralised Finance (DeFi) across Africa necessitates an acknowledgement–not only of promising prospects for the future, but also challenges that await us. The DeFi landscape brims with potential; however, it is not immune to hurdles: regulatory uncertainty; technological infrastructure requirements and a digital literacy gap pose significant obstacles to its widespread adoption. DeFi’s nascent nature necessitates ongoing evolution in regulatory frameworks across numerous African countries; this presents a formidable challenge for businesses and users as they navigate through the uncharted terrain of these new financial possibilities.
Furthermore, parts of the continent still have underdeveloped technological infrastructure essential for maximizing DeFi solutions – including robust internet access and widespread digital device availability. This potential digital divide might restrict the reach and influence of DeFi, particularly in rural or economically disadvantaged regions. In addition, it is crucial to enhance digital literacy to guarantee that all can access the benefits of DeFi; this will empower users with knowledge enabling them to make informed decisions within this emerging financial ecosystem.
The immense promise of DeFi in Africa defies these challenges: its potential to drive financial inclusion; democratize access to wealth – unparalleled. Unquestionably, it can foster economic resilience. Emerging innovative solutions tackle current barriers with fervor–a testament not only to the urgency but also the collaborative spirit pervading stakeholders from governments, private sectors and civil society alike: all are working together harmoniously towards building an ecosystem that propels DeFi into flourishing prominence. Digital infrastructure’s improvement and the refining of regulatory frameworks position DeFi to revolutionize financial transactions on the continent.
As we peer into the future, DeFi’s sustained expansion in Africa hinges on tackling these challenges directly. It necessitates an environment that cultivates innovation and safeguards all stakeholders’ interests through a collective effort. By incorporating a precise blend of technology, policy, and education; DeFi could unleash unparalleled prospects for economic empowerment and prosperity across Africa. Standing on the precipice of this financial revolution, we anticipate a journey ahead brimming with potential to forge an inclusive – equitable even – resilient financial system for future generations.
About the author
Donald Innocent-Ike, MBA2025 is an Outreach and Communications Intern at the Wheeler Institute for Business and Development. After graduating from Georgia Institute of Technology with a Bachelor’s degree in Electrical Engineering & Economics and a Master’s in Computer Science & Quantitative Finance, Donald worked as a Graduate Research Assistant, before becoming an Associate at Truist Securities in Atlanta. He has a keen interest in finance, development, and business as a force for good, particularly in emerging markets.
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