IBM announced today that their Kenyan research lab is prepared to roll out a new blockchain-based microlending solution, prepared in partnership with Twiga Foods. Twiga Foods is a Nairobi-based business-to-business coordination platform for kiosks and food stalls in Africa that had previously expressed interest in extending financial service offerings to its customers.
While Twiga Foods was interested in ways that they could offer access to working capital to their customers, many of the businesses did not have credit scores or another existing way to assess their creditworthiness. Fortunately, IBM researchers had a solution and proposed using both machine learning applied to mobile phone data, including purchase and repayment patterns, in order to build a picture of a business’s financial health. In the past, IBM has successfully used similar data in partnerships with an African bank and with a mobile service provider. In those projects, over $3 million in loans were processed.
Grant Brooke, co-founder of Twiga Foods said, “Previously, we were focused on helping farmers distribute bananas, tomatoes, onions and potatoes to 2,600 kiosks across Kenya, but we soon realized that we could help them sell even more produce with access to working capital. It’s simple, if the food vendors can sell more, we can distribute more, growing both of our businesses.”Late last year, Twiga Foods and IBM tested the viability of their concept by running a pilot project with 220 Kenyan small food kiosks, referred to locally as “mom mbogas” in Swahili. The eight-week pilot involved over 220 loans issued to participants, with the average loan amount around $30 USD (3,020 KES). During the pilot project, participating retailers saw an increase in profits of approximately 6%, and orders increased by approximately 30%. The microloans were issued as 6 to 8 day advances, and participants were charged between 1% and 2% interest.
Using blockchain allows a level of transparency within the lending process for all parties, including the lender, the borrower, and their banks. Since no one party can unilaterally alter or add to the blockchain, it can be an effective way to reduce fraud and misrepresentation. Blockchain technology can also be a very efficient way of processing financial transactions, as it can execute a series of “smart contracts” simultaneously.
“We analyzed purchase records from a mobile device and then apply machine learning algorithms to predict creditworthiness, in turn giving lenders the confidence they need to provide microloans to small businesses. Once the credit score is determined, we used a blockchain, based on the Hyperledger Fabric, to manage the entire lending process from application to receiving offers to accepting the terms to repayment,” said Isaac Markus, a researcher on the inclusive financial services group at IBM Research in Kenya.
IBM and Twiga Foods hope to expand the project to include other vendors and suppliers, both within Kenya and in other countries, by the end of 2018.