Summary of Mercy Corps Ventures' Report: The Potential of DeFi Lending for African MSMEs
Mercy Corps Ventures (MCV) is the impact investing and innovative finance arm of Mercy Corps, with a mission to invest in and catalyze venture-led solutions to increase the resilience of underserved communities. At The Solar Foundation, we agree with MCV that web3 has the potential to address the interwoven, global challenges we face such as climate change, financial exclusion and gender inequality. We closely follow their work to learn as much as possible from their innovative pilots and well-written and thoroughly researched case studies and reports.
In November, 2023, MCV published an informative report entitled The Potential of DeFi Lending for African MSMEs: Pilot insights on stablecoin "Buy-Now-Pay-Later" products for informal vendors. The Solar Foundation's mission is to utilize new technologies like the blockchain to fund and accelerate solar for underserved communities in emerging markets; therefore, we are always looking for new ideas for sustainable financing models to drive value for our partner communities and scale our decentralized solar projects. Here are some insights we gained from this report (you can read the full report at the link above):
Benefits of Blockchain Tech
The benefits of using blockchain tech for efficient, cross-border transactions to reduce barriers include:
* Lowering transaction fees
* Decreasing processing times
* Decreasing collateral requirements
* Relying on stablecoins to lower the risk from the volatility of cryptocurrencies such as bitcoin.
Value of Stablecoins
By utilizing blockchain technology, stablecoins make cross-border transactions possible at very low costs and within seconds, and that "DeFi-enabled lending in emerging markets is cheaper, faster and more transparent than lending offered by banks/institutions." MCV also emphasized the importance of utilizing fiat-backed stablecoins (crypto currencies backed by a stable asset such as the US dollar) as an ideal way to enable everyday use cases such as P2P transactions, cross-border payments and savings.
DeFi-Enabled Lending Model: Buy-Now-Pay-Later
The Buy-Now-Pay-Later (BNPL) model is a way to utilize blockchain tech to help channel capital from the Global North to high impact uses in emerging markets. It provides inventory financing for micro, small and medium-sized (MSME) enterprises in a way that is easy to access and cheap. While DeFi-enabled mmodels provide more value and great accessibility, there are still many obstacles to the adoption of web3 technologies.
Opportunity for Low-Interest Financing from Global Liquidity Pools
One very interesting concept is the use of stablecoins via DeFi platforms to provide low-interest financing from global liquidity pools. This idea may be a possibility for financing the upfront costs of off-grid solar in a way that helps us to recoup the costs in order to fund and scale solar to more rural, low-income communities.
Thank you to everyone at Mercy Corps Ventures for sharing your insights and supporting research and pilot projects to increase positive impact for underserved communities in our world.
