In emerging economies such as in the African continent, financial inclusion can take many forms such as educational initiatives and basic wealth-building opportunities. Unlike some other types of financial services in Africa, microcredit services are specifically designed to empower the financially excluded among underserved populations. Generally speaking, microcredit solutions (sometimes also known as microloans) come in the form of small loans to individuals or, in some cases, to start-up businesses.

A recent Ethereum Foundation funded study conducted in October 2024 examined the potential of using blockchain-based microcredit in Kenya. The research highlighted the fact that blockchain can drive financial inclusion by providing secure, transparent and cost-effective peer-to-peer transactions. The study also identified challenges such as low financial literacy, security concerns and the need for education on digital financial services. These concerns would need to be addressed to fully realize the benefits of blockchain being used for microcredit programs.

Closing the Banking Gap

To be sure, the roadblocks to capital and credit access aren’t limited to developing economies like Africa. For instance, US banks reportedly began charging their poorest customers just to hold a checking account.

Amid such a challenging and imbalanced financial landscape, cryptocurrency and the blockchain offer hope for reform and greater inclusion. Fortunately, the crypto wave has rapidly swept over the African continent in the 2020s, with firms like Binance promoting reform and inclusion through education, training, and essential cryptocurrency-focused tech tools. At a recent World Economic Forum event in Davos, Binance CEO Richard Teng discussed digital assets’ role in financial inclusion, “Digital assets, conceived as tools to democratize financial access, offer a lifeline for the 1.4 billion unbanked and billions more around the globe underserved by the incumbent systems. In a world where basic financial services are still a privilege, crypto offers a practical alternative to systemic exclusion.”

Teng continued, “Furthermore, in the world’s most inflation-riddled nations, digital assets like Bitcoin and stablecoins – tokens designed to track the value of other assets such as the U.S. dollar – provide a stable store of value in the face of currency devaluation. For families reliant on remittances, crypto slashes fees and speeds up transfers. Meanwhile, decentralized finance (DeFi) tools are enabling loans and savings where traditional banking fails to reach.”

While cryptocurrency can facilitate cheap and efficient remittances along with otherwise inaccessible investment opportunities, crypto-based microlending is another promising use case for the blockchain in Africa. This is particularly crucial in a region where the World Bank sees financial inclusion improving but still lagging behind the global average in Sub-Saharan African nations.

This is where cryptocurrency can help to close the banking gap among disadvantaged populations. Shazmin Khalid and Andrei Kwok of Monash University’s Malaysia School of Business, noting that Ethereum “is used as microcredit to offer low-cost and financial access to individuals who lack access to traditional financial services, especially in developing countries such as Kenya,” studied the experiences of individuals in these regions who “use Ethereum as a microcredit.”

The good news is that Khalid and Kwok found that blockchain-based microcredit can, indeed, “transform financial inclusion in Kenya.” On the other hand, the researchers determined that achieving this will require strategic implementation with a particular emphasis on advancing educational initiatives.

In other words, closing the banking cap and extending access to credit throughout Africa won’t be quick or easy. For one thing, blockchain education isn’t one-size-fits-all; it must be localized while fitting into the existing cultural context. Moreover, it will take time to guide potential participants through the processes of obtaining microcredit.

Additionally, Khalid and Kwok stress that educational efforts should focus on real-world use cases instead of getting bogged down in technical minutiae. That might sound intuitive enough, but it’s easier said than done when the blockchain can be rife with tech-centric details, some of which may need to be understood on a fundamental level before further progress can be made.

A Blockchain Business Steps Up to the Plate

Let’s not get the wrong impression here: lending firms in Africa and elsewhere, even when they seek to transform the economic landscape through financial inclusion, will typically seek to profit from their endeavors. To quote Wiehann Olivier, audit partner and digital asset lead at Mazars in South Africa, decentralized finance (DeFi) “can bring in a new band of borrowers” while offering “offer massive interest rewards to lenders,” with some blockchain-enabled loans bearing annual interest rates of 10% to 12%.

But for Africa’s unbanked and underbanked, a loan with a rate of 10% or 12% can be infinitely better than no loan at all. Besides, these loans can provide the building blocks of creditworthiness; the blockchain can publicly and permanently record a new borrower’s successful repayments and, in so doing, build trust.

Already, there is at least one business stepping up and facilitating loans to certain segments of small-scale borrowers in Africa. Jia, a blockchain-enabled financing technology firm, is only one example but represents the potential for growth in this segment.

By February of last year, Jia reportedly surpassed $2 million in microloan originations; the company claimed that over 2,000 small business owners used Jia’s platform in the Philippines and Kenya. Granted, these were loans to what Jia CEO Zach Marks called “small businesses and microenterprises” and not to individuals.

Nonetheless, $2 million worth of extended microcredit could make a profound impact on local economies as well as on the stakeholders in the “microenterprises.” At the same time, Marks knows full well that Jia’s work is far from finished; “We have a long way to go to close the $5 trillion credit gap for small businesses and microenterprises in emerging markets who are held back from growing and serving their communities because of a lack of fair financing options,” he acknowledged.

What Jia and others can do to assist small businesses, other firms could do for African individuals and families in need of credit. As blockchain-powered microcredit provides access to loans and avenues to inclusion that may be small in size, the transformative effects can truly be enormous.