Haraka is leading an innovation in the financial landscape of Kenya with a proprietary stablecoin based product that can improve access and efficiency for micro finance. Haraka (“swift” in Swahili) hopes to bring a new type of decentralized financial infrastructure that works outside the traditional banking and credit systems which often leave out underserved communities. This aligns with the mandate of Laboremus Uganda, which is to bring blockchain powered financial inclusion, even on the grassroots.
Target Audience
Haraka specifically targets its product at micro-entrepreneurs, small business owners and individuals from low-income communities who have no access to traditional financial institutions. Haraka targets inclusion by targeting the unbanked, underbanked communities by democratizing access to credit and foster economic growth at the grassroots level.
The Microfinance Issues in Kenya
Background
Issues facing the Kenya’s microfinance sector include high interest rates, lack of access to capital, and lack of trust between lenders. To do this the Haraka pilot project experiment included a reputation based layer built atop its stablecoin credit system. Utilizing a digital reputation (built on social, and financial behaviors) to create an alternative credit assessment which potentially decreased the risk for lenders and ensure repayment by borrowers.
Global credit gap illustration: Source- Haraka
How It Worked
Participants in the pilot were judged according to their digital reputation, something that was based on their participation in numerous economic and community events. Haraka based their reputation metrics on the blockchain tracking and validation to insure transparency and security. Participants could then take out stablecoin loans so they didn’t have to borrow and repay in more unstable cryptocurrencies.
It started with the recruitment of individuals who were then taught about creating and keeping a good digital profile. Then they all get access to stablecoin credit that can be spent on things like buying inventory and running the business.
Haraka users operating at their business locations in Kenya. Source: Haraka
Results: What Worked and What Didn’t
The experiment offers a mixed bag of some success and some difficulties. A better part of the participants responded having access to increased credit which enhanced revenue generation and improved living standards. This trust created a more personal credit assessment lent on the reputation-based model.
But the initiative also faced challenges. A few participants experienced difficulty with the technology and were unsure of how to understand it, and thus were not empowered enough to fully engage in the system. Furthermore, volatility of stablecoins, despite being more stable than traditional cryptocurrencies, still posed challenges in terms of maintaining a reliable financial ecosystem.
Project Impact
The impact of the Haraka pilot project was astonishing. This initiative has shown that it is possible to integrate blockchain technology with microfinance, bettering financial literacy among the participants. In fact, with access to funds that would hitherto seem unreachable, they professed to feel a greater sense of empowerment. The proposed model also encouraged community engagement, in that borrowers were motivated to protect their reputations not only for themselves but also for the group.
Haraka User Feedback: Source Haraka
Key Learnings for Using Stablecoins in Kenya
The pilot did allow certain lessons to emerge with regard to the use of stablecoins in the microfinance landscape in Kenya:
Education is Important: Education surrounding blockchain and stablecoins is much needed to foster users’ adoption; without knowledge of the underlying technology, the participants are less likely to join in.
Community Recognition Matters: Creating a reputation-based system allows trust to be built among participants, thus increasing the likelihood that they will repay loans and participate in the community-building ethos.
Agility is Important: The model must adopt an open flexible space according to the level of digital literacy and economic conditions.
Technology and Access: Participants must have access to the right technology, which would be either smartphones or internet access, for any digital financial initiative to succeed.
Next Steps to Enhance Stablecoin Use in Microfinance
In the near term, a number of steps can be taken to enhance the application of stablecoins in the microfinance sector in Kenya:
Educate: By conducting continuous education initiatives that make blockchain technology and stablecoins less intimidating, it would see increased and broader participation in the financial ecosystem.
Establish Partnerships: The involvement of NGOs, community organizations, and later with financial institutions can increase the observability of the platform and build up trust to stablecoin systems.
Iterate and Improve: Based on the feedback that randomized pilots have generated, Haraka should routinely try out improvements to its product with focus on user friction and overall user experience.
Data Analytics for Insight Generation: Using data analytics to assess the behavior of users and performance would provide valuable insights that would serve to shape future iterations of the platform.
My Takeaways
Haraka has demonstrated that new-age innovation has entered into microfinance space. The initiative not only demonstrates the capacity of blockchain technology to improve financial access for the unbanked but also underlines the essence of community engagement and education to drive the uptake of stablecoin. With the growing popularity of stablecoins may symbolize the turning point of financial services, which compose an inclusive financial ecosystem in Kenya, and externally. By virtue of stablecoin proliferation, equity in the value chain could spawn new opportunities for large and small businesses to enable individuals to thrive. Essentially, the rise of stablecoin could possibly transform the servicing microfinance landscape, allowing many to prosper in a more fair economy.
