Ubuntu Informal Biz Credit DApp

[IMPACT] Please describe your proposed solution.

Summary

Build a dApp that fuses traditional co-operative operations in a form of a smart contract to provide credit to informal businesses in Africa. Organizing the informal sector on blockchain and recognizing its role as a profitable activity would contribute to economic development and the easy large-scale adoption of Cardano in Africa.

Background

The blockchain provides the platform for Africa’s informal sector to put its deep-rooted traditional co-operative system used to provide credit to informal businesses. It is public knowledge that Cardano blockchain has Africa as part of its strategic goal. To fully explore the potential of Africa’s market share, we cannot afford to ignore the informal sector in Africa. 

The informal sector is the engine for economic growth and employs 90% of youths in Africa, yet the development agenda in Africa and from multilateral development partners seems to ignore the very engine of economic growth in Africa. This proposal seeks to provide financial inclusion by providing credit to businesses in the informal sector. It is established that the development of the informal sector is a great accelerator towards solving critical socio-economic problems, including poverty, hunger, and improving the standard of living among others. Among the challenges faced by the informal sector, financing businesses or access to credit is a huge problem (Lader, 1996). Existing credit facilities and banks do not have financial products for businesses in the informal sector. This is due to the sector's inability to document its activity or provide easy identification for its players as well as the inability to raise the needed collateral to secure loans or credit from banks, microfinance, and financial institutions. Financial institutions in the formal sector structure their product to meet the needs of large corporations. 

There is also an element of discrimination with the credit constraints which depends on the gender disparity gap. Abor and Biekpe (2006) identified that female-owned businesses in the informal sector are relatively small and less likely to employ debt finance. This is because, the necessary collateral to qualify for debt finance is not owned in their names and females are unable to penetrate formal financial networks which affect their ability to gain useful information and source of capital (Greene et al, 1999). 

Solution in Details

The solution proposes to use existing co-operative operations in Africa through a smart contract on dApp and provide secured and collateral-free credits at a rate of less than 2%. It is estimated that there are over 500 million cooperatives across Africa. As of 2016, South Africa had 132,000 cooperative movements and there are 25,000 cooperatives with 14,000,000 members in Kenya. Ghana equally has about 15,000 cooperative societies. It must be noted that several other cooperative movements operate with little or no records on them. Traditionally, the extended family in Africa forms the basic economic unit of communities. It must be noted that the extended family operates with a pool of resources, however, the extended family is a private entity as several other private families exist even within one community. This is the Africa Ubuntu meaning 'I am because, we are', and the 'we' refers to the extended family that is a private entity and basic economic unit. Also, there exist co-operatives systems that pool resources on a mutual cooperative basis between several individuals from various families. For instance, members of a particular cooperative can undertake to contribute (money) to support individual farmlands in turns and on weekly basis. It is how, traditionally, co-operatives organize various economic activities including farming, retail business, and services among others.

The Cardano blockchain presents safety and reduces the risk associated with traditional cooperative operations. With smart contract developed on a dApp which would code the traditional co-operative operations on the blockchain. Blockchain technology would present secured, transparent and safe cooperation among individuals in the informal sector. 

Smart Contract and No Collateral Credit for Informal Sector Businesses in Africa 

Individual businesses in the informal sector form various cooperatives to contribute flat fees into a pool fund (savings mobilization) on a weekly or monthly basis. This amount is then given to one member of the cooperative group. This would continue until all members within a cooperative group receive funds from the pool fund when their turn is due to end the cycle of the pool fund.

This practice has sustained informal businesses till present-day Africa and the sector remains the backbone of economies in Africa. In such a cooperative system, no collateral is needed to receive funds from the co-operative pool but solely on mutual cooperation basis. The smart contract would provide an imprint for cooperative operations on the Cardano blockchain. The smart contract would function to allow players in the informal sectors to undertake the following;

1. Form co-operative groups of 3, 5, and 7 to access financial credit
2. The group formed would serve as a security for credit and there would be no need for collateral.
3. Individuals in the group getting more and high credit/good credit ratings are dependent on the performance of all group members in repaying the loans.
4. Governance mechanisms exist to resolve real-world situations of setbacks, bad debt, and participatory recovery plans.

The credit would not be given in isolation as plans exist to provide identity and accounting management to help businesses get credit ratings that can be an indicator to rely on for future access to credit.

Module: Bottom-Up Approach

The sustainability of the project hinges on advancing traditional cooperative principles. We seek to use the bottom-up approach for increased participation of businesses in the informal sector to have a sense of ownership in the entire project. Cooperative operation is grassroots oriented, therefore, the bottom-up approach is a sustainable way to address socio-economic challenges affecting informal businesses. 

Market Research

The informal sector is dominated by individual private businesses undertaking various economic activities that are vital to the economies of countries in Africa. Caprio & Honohan (2001) have argued that the GDP growth rate could increase by 2% if credit flow to the private sector is doubled. It has been established that the level of economic activities is highly affected by any disruption to the supply of credit (Melzer, 2007). Currently, the informal sector is faced with existing credit constraints. According to the World Bank (2008), access to finance is described as the absence of price and non-price barriers to the actual use of financial services (credit). In practice, the documentation process alone provides difficulty to the informal sector and prevents them from accessing credit from existing financial institutions.

Naturally, at the going market rate, when demand for credit exceeds supply, borrowers will be prepared to pay a higher rate to obtain credit but a high-interest rate will reduce the expected returns of lenders since a higher interest rate can be a disincentive to repay the loan. What is more crucial is that high-interest rate takes away the borrowers expected returns; therefore, borrowers are motivated to engage in high-risk ventures with high returns and low possibility of success. Therefore, there is a moral responsibility on lenders not to increase interest rate (price) in response to increasing demand for credit even though borrowers may want to pay a higher price (Domeher et al., 2014). However, the high-interest rates can induce more lenders to increase the supply of credit and reduce interest rates in the long run.

Since the project would take off in Ghana, it is important to note that, in Ghana, small enterprises in the informal sector's main source of credit are non-bank financial institutions and individuals who charge high interest. In addition, the nature of small enterprise borrowing in Ghana is interesting as Domeher et al., (2014) revealed that the amount of loan SMEs desire to borrow has a significant association with the average amount of cash generated per month by the business. Thus, the loan amount increases as the cash generated per month by the business increases and vice versa. This is good for lenders and the economy as a whole because informal businesses (including SMEs) only borrow as much as they can afford. To put it another way, SMEs that generate higher cash per month is relatively big business with bigger financial needs hence, more likely to apply for a large amount of credit.

This presents the opportunity to use smart-contract to imprint on the Cardano blockchain credit operations that have made informal businesses to survive in the face of adversities and neglect from financial inclusion. Also, existing credit charges higher interest rates, as well as a high cost of processing loans from banks, also take significant part of the loan which is used to pay for processing fees. Therefore, dApp would be a revolutionary and innovative solution as it solves existing problems associated with traditional cooperatives and provides financial inclusion using the blockchain.

[IMPACT] Please describe how your proposed solution will address the Challenge that you have submitted it in.

How the Proposal Fits The Challenge

The proposal provides blockchain and decentralized solutions to a critical and unique niche within the African continent thus the informal sector. The informal sector has the ability to scale up ADA use and adoption rapidly in the face of competition from other ecosystems in the crypto market share of Africa. 

The credit would be paid in ADA value and allow players in the informal sector to use the Yoroi wallet to receive credit facilities to support their businesses. This would provide evidence-based support and development of real businesses and grow cryptocurrency trust among real business owners in Africa. This would be easy to build grounds, in the long run, to adopt Cardano for real-world business value delivery while providing financial inclusion for actors, creators, and entrepreneurs in the informal sector. 

The proposal provides a win-win situation for players in the informal sector by addressing the problem of lack of access to credit by informal sector players and making Cardano adoption accelerate on the African continent. Developments in the informal sector in Africa have a huge tendency of accelerating adoption and hence should be given needed attention because blockchain technology exists to provide self-governance to the informal sector that abhors control from a centralized authority. 

By organizing cooperatives using smart-contract with businesses in the informal sector, the future of growth in adopting Cardano in Africa would accelerate since this proposal presents a solution to the informal sector which is the engine of economic activities in Africa.

[IMPACT] What are the main risks that could prevent you from delivering the project successfully and please explain how you will mitigate each risk?

The proposal tackles a need that has been a difficult challenge facing informal businesses in Africa. Despite its positive enthusiasm, the team foresees that the low levels of education and digital connectivity would be a major challenge for the project. However, we plan to mitigate the risks associated with internet connectivity by focusing on the urban informal sector and gradually expanding to rural areas with time. 

The team would also provide periodic educational outreach and annual event to constantly engage individuals in the informal sector and facilitate easy use of dApp, governance, and resolve challenges. These outreach events are categorized as follows;

Ubuntu Convention – This is would be an annual event organized once a year.

Ubuntu Outreach – This would be a quarterly event organized four times a year.

Ubuntu Family Event – This would be a self-initiated event that would be organized by individuals in the informal sector depending on their own needs.

Note: Ubuntu Origins Africa as an organization would provide resources including personnel to educate locals at various organized strategic events.

Also, there is an increasing number of graduate unemployment in Africa and these graduates would be provided the opportunity to serve as agents and assist business owners in the informal sector to facilitate easy use of dApp.

[FEASIBILITY] Please provide a detailed plan, including timeline and key milestones for delivering your proposal.

This project is estimated to be executed in four months thus 16 weeks. We seek funding to develop dApp and seed capital to provide credit to at most 40 informal businesses as the first step of the project. Details of the project timeline;

Phase A: 1 – 3 Weeks

§ Kick-off Meeting

§  User Research

§  User onboard & Outreach Strategic Plan

§  Financial Regulatory Research and Compliance

Phase B: 4 – 10 Weeks

§  Completely Develop dApp

§  Launch & Test-net for dApp & integrated smart contract

§  Monitoring & Evaluation Report 

Phase C: 11 – 14 Weeks

§  Marketing 

§  Engagement with informal business

§  Host workshop to onboard informal business owners/players

Phase D: 15 – 16 Weeks

§  Finalizing Project Completion & Report

The team is hopeful that achieving the following milestone would be a great indicator of success.

1. Completion of the dApp
2. 100 informal businesses credit application
3. At least 40 informal businesses access credit
4. At least 50 cooperative groups

[FEASIBILITY] Please provide a detailed budget breakdown.

Budget ($)

dApp Development – 30,000

Seed Fund for Credit – 20,500

Marketing – 7,000

Informal Sector Education & Workshop – 5,400

Product Management – 3,500

Team fees – 1,550

Total – 67,950

[FEASIBILITY] Please provide details of the people who will work on the project.

Nathaniel Dwamena - Chief Operation Officer

He has a B. A (Hons) in Geography and Rural Development. He is a researcher and has more than seven years of experience in think tank development, non-profit management, and business development consulting. He was part of the team contracted by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ Ghana) to conduct a study on red tape for doing business in Ghana. He successfully completed think tank training in Nigeria and project management training in Kenya, which aided in his successful graduation from the Atlas Leadership Academy, Atlas Network (USA). He is a member of Wada and has been involved in Catalyst since Fund 7.

LinkedIn : https://www.linkedin.com/in/nathaniel-dwamena-02578a127/

Kingsley Mensah - CTO

He holds an MSc. in Computer Science & Technology. Founder of a web-hosting company, Kingscel Technologies. He has proven skills in web designing, software development, computer networking and security, Javascript, Plutus, and CSS, and loves ideas for a free society. He was awarded the Star of Innovation Award in 2019 by the Hubei University of Technology (China). He also received the Young Achievers Award at the Pride of Africa Awards (Asia) 2020 by Appreciate Africa Network (Asia).

LinkedIn - https://www.linkedin.com/in/kingsley-mensah/

Christopher Aikins - Credit Manager

He is a Senior Accounting Assistant with the Volta River Authority with 10 years of working experience in the Finance unit, he is good at holding strong ethical standards and good at implementing change. He holds an MSc degree in Accounting and Finance from the Kwame Nkrumah University of Science and Technology (KNUST), a Master’s degree in Computer Application from Amity University (India), a BSc in Business Administration (Accounting) KNUST, and a Higher National Diploma in Accountancy from Cape Coast Technical University. He enjoys researching and surfing the internet to learn about new development in the technology world. He believes in blockchain architecture and feels it solves many problems. He has been a community advisor and voter in the project catalyst funding cycle since fund 4.

LinkedIn: www.linkedin.com/in/christopher-pokoo-aikins-65181996/

Charles Fiifi Hagan - Accountant 

He has a BSc (Hons) in Business Administration (Accounting). He is a Pastor and a business development consultant and has more than seven years of experience in Ministry Accounting and, and business development consulting. He is the CEO of Chems Consultants, a business consortium that aims at helping startups. He has consulted for a few startups that are currently finding their feet in the world of business. 

LinkedIn: www.linkedin.com/in/charles-hagan-77570312a

Andrews Richmond Darkwah - Operations Manager

He has experience in start-up development and has operated within the informal business for years. He has a BSC. (Hons) in Sport and Exercises Science. He is a researcher and has over 4 years of experience in data analysis, project consultancy and community disease outbreak advisor, and project critics.

LinkedIn: https://www.linkedin.com/in/andrews-darkwah-50355mac123/

[FEASIBILITY] If you are funded, will you return to Catalyst in a later round for further funding? Please explain why / why not.

In the short term, No. This is because this proposal is independent and completely new and when funded the focus would be to execute the proposal within the specified timeline stated in the proposal and deliver value to the businesses in the informal sector. Also, the team has made research input into the budget and we believe that amount asked would be adequate for executing the proposal.

[FEASIBILITY] Are you or any member of your team working on any other proposals in this Fund9?

[FEASIBILITY] Are you or your team working on any other proposals from previous Funds?

[AUDITABILITY] Please describe what you will measure to track your project's progress, and how will you measure these?

Auditability

The project team behind the project welcomes openness to catalyst community members and businesses in the informal sector as well. and has integrated progress reports that would be published monthly on the website. Also, DApp development would be documented in Github. The project team is committed to providing funding updates, impact, and progress reports on Discord (https://discord.gg/NJrwsTDn) 

KPIs

The project sought to use the following indicators to measure progress.

§  Number of Smart Cooperatives

§  Number of Wallets Created (Yoroi/Nami/CC-Vault/Daedalus) for informal businesses

§  Number of Credit Applications

§  Number of Credit Facilitated and Approved

§  Number of Informal Businesses Paying Back Credit

§  Number of informal business owners/players attending the workshop

[AUDITABILITY] What does success for this project look like?

The ability to support and develop the informal sector businesses and give credit facilities that help to expand businesses is our success. The ability to facilitate financial inclusion of the informal sector.

[AUDITABILITY] Please provide information on whether this proposal is a continuation of a previously funded project in Catalyst or an entirely new one.

This proposal is new and independent. The three members of the team are not working on any previously funded project in Catalyst as well.

Sustainable Development Goals (SDG) Rating

The proposal in a broader sense seeks to develop the private informal sector by providing financial inclusion for the unbanked population (a sector that directly engages many livelihoods in Africa) in Ghana and Africa at large. This when executed through the Ubuntu Origins Africa organization would go a long way to achieving sustainable development goals such as;

1. SDG Goal 1 - No Poverty
2. SGD Goal 2 - No Hunger
3. SDG Goal 5 - Gender Equality
4. SDG Goal 8 - Decent Work & Economic Growth
5. SDG Goal 9 - Industry, Innovation, and Infrastructure