Nigeria as a case study.
What is Decentralized Finance (DeFi)?
Decentralized finance (DeFi) is available to everyone and operates without any central authority. It is a move from the usual, generic and traditional financial system into a decentralized financial system with open-source applications without any need for central authorities to grant access for usage.
Think about DeFi as a way to ensure that communities manage their own banking and financial activities, instead of banks, governments or regulators.
In other words, DeFi can be referred to as a means of interacting with or using financial products and services on a publicly decentralized and transparent blockchain without the need for a middleman or institution.
Decentralized finance system in Nigeria (Africa)
Africa has a number of challenges in the banking sector that have negatively affected the system from thriving. Some of the major challenges are:
- Outdated Banking Systems: There are millions of people in Africa and specifically in Nigeria that are either under-banked or unbanked that is, the banks are unable to reach them with their financial services and products. One of the reasons for this is the underdeveloped state of the market. There are just a few physical bank branches in Nigeria and the accessibility to these people is a herculean task.
- Slow Innovation rate: Although internet banking has a long history in Nigeria, the use of Automated Teller Machines (ATM) and the introduction of plastic cards started in the 1990s. Over the past 30 years, while different innovations have been introduced, the current Nigerian financial system is moving at a snail speed in terms of growth and development.
- Economy: Most of the population earn low incomes and it is unstainable for banks to run in such locations. Financial education (and services such as loans and insurance) is nearly unavailable for the unbanked to improve their economic situations.
Why Decentralized finance will thrive In Nigeria
The more the challenges Africa face, the more the opportunities that also exist. Looking at some of the problems that the financial sector currently face in Nigeria, the steps to financial innovation can move its focus to DeFi rather than the outdated structures.
Decentralized finance applications have several advantages, such as high levels of trust, transparency, and accessibility for anyone in need of banking services.
With just a crypto wallet, a user can interact and engage in DeFi-related activities without the lengthy processes experienced in traditional banking.
These platforms help to do away with reckless charges, as third-party agents (for example banking institutions) are already out of the equation.
As long as DeFi continues to be innovative and poses as an alternative global finance system, it creates the freedom for Nigerians to have different options to save, invest, send and receive funds, seamlessly, removing the bottlenecks associated with transitional banking systems and services.
This alternative route will also create new forms of jobs for the teeming population, no matter the location, so far they have access to the internet (Nigeria has an internet penetration of 42% as at 2019).
The Nigerian economy has a lot of potential to grow, if the financial and political system is reworked with innovative solutions like we see in DeFi. This imagined revolution can not happen without implementing innovative features that makes banking easier for the masses.
The DeFi system is the right solution that will give even everyday citizens, investors, entrepreneurs and development agencies the trust and confidence to use new banking products which have been inaccessible and nonexistent for any of their financial activities and to get more users to be banked and be their own bank.
