Image source: CNBC Africa
However we look at it, it is clear that the current economic reality is challenging given the soaring inflation in emerging markets, particularly in Africa. Inflation is at 26.72% in Nigeria, a whopping 40.1% in Ghana and as high as 63.30% in Sudan. Average annual inflation in Sub-Saharan Africa (SSA) is 12.5% in 2023, the second highest in any other region in the world after the Middle East and North Africa region.
The rising cost of living caused by various factors has left many struggling with declining purchasing power. This makes saving for financial purposes more daunting than ever. The challenge has become increasingly urgent and requires innovative solutions to strengthen the financial resilience of individuals and economies.
In recent years, innovators have leveraged financial technology with its innovative tools to help individuals budget, save and invest wisely, mitigating the impact of inflation on their livelihoods.
The proliferation of DeFi using blockchain technology offers a range of solutions to reshape the economic future of Africans. Innovations like blockchain technology provide transparency and security in financial transactions and reduce corruption and fraudulent practices that can exacerbate inflation. This not only reduces corruption and fraud, but also creates trust in financial processes, which is crucial for combating inflation.
Furthermore, the importance of inflation-resistant investments in dealing with inflation cannot be overstated. DeFi solutions often include stablecoins, which are digital currencies pegged to real-world assets or fiat currencies. These stablecoins can provide a reliable store of value through high fixed returns and are immune to the erosive effects of inflation.
According to Seçkin Çağlın, co-founder of Cenoa, on a recent edition of TechCabal Live on October 27: “To fight inflation, you need to make sure your money grows faster than inflation so you don’t lose money.”
The growth of peer-to-peer lending and transfer platforms enabled by DeFi also creates alternative sources of funding and easily facilitates cross-border transactions, reducing the risks associated with currency devaluation and exchange rate fluctuations. In this way, Africans can raise funds and also protect their wealth from the damaging effects of inflation by diversifying into other assets that can also thrive in inflationary environments.
Commenting on the credit and lending solutions provided by fintechs, Yasmine Mohamed Henna, co-founder of Sympl, said: “When it comes to inflation, it is important for fintechs not to overburden people with loans that they cannot pay.” The solutions must consistent with the reality of the country, which is negatively affected by inflation.”
DeFi platforms offer the opportunity to explore a wide range of investment opportunities, from yield farming to liquidity provision. These investments can be strategically chosen to counteract the effects of inflation.
However, despite the various solutions that fintech offers, including decentralized finance and blockchain technology, there is still a knowledge and trust gap that is a problem and leads to distrust and resistance to change among potential and existing DeFi users. This also includes the existing regulatory bottlenecks.
While there is still a lot of work to be done in terms of regulation and education, the mistrust is not unfounded, as the increase in cyberattacks on fintechs and privacy concerns are issues that need to be addressed to strengthen the reliability of fintechs.
On building trust, Emre Ertan, co-founder of Cenoa, advised: “Fintechs need to be extremely transparent to build trust with users. They need to give control back to users so they can be sure they are using the right platform.”
Peter Onu, Manager of Remittance Architecture and Strategy at MTN Group Fintech, also mentioned that a good way to build trust is to give people what they need.
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This article is part of the TechCabal Live series, brought to you by TechCabal in collaboration with Cenoa. Cenoa is a borderless super wallet that increases access to dollar-based products
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