Cool payments

Common book keeping for payments of installments to third parties in the supply chain

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Inspiration

The challenge for millions of African farmers to use solar energy is how to pay for the high upfront investment that ultimately will save them money in the long run. Interviews in Eastern Uganda by Solarpipo have shown that paying in installments can best be realized, when the installments are directly deducted from the sales price that farmers receive for their products.

What it does

The product offers a common transparent book keeping system that none of the parties can manipulate - which helps to build a trustful relation between the three parties: the borrower - the collector of installments - and the lender (the company selling equipment).

How we built it

The system still has to be built

Challenges we ran into

The challenge is to explore how blockchain can provide a transparent book keeping system easy enough to be handled in Sub-Sahara Africa - and to compare blockchain solutions with alternatives.

Accomplishments that we are proud of

Solarpipo has interviewed hundreds of SMEs in Uganda and can judge how payment systems would work in this context.

What I learned

Blockchain transactions might solve the trust problem when three parties have to keep identical records of financial transactions.

What's next for Cool payments

Participation in the Decentralized Social Impact Accelerator will serve to provide more clarity on the feasibility of a blockchain approach to the trust problem.

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Updates

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The specific problem we are addressing is an increase of productivity of African agriculture through supplier credits that allow investment in better equipment. We focus on “value chain financing”, especially the alignment of accounts of all parties involved in the repayment of supplier credits in installments paid to third parties (such as repaying a credit by a solar equipment seller to a milk farmer in installments deducted from payments from the dairy company which buys the milk from the farmer).

Blockchain transactions would provide verified accounts for transactions which cannot be manipulated by any of the parties involved. They would create ledgers that can be consulted by all contract parties (and relevant third parties), but not manipulated by any of the parties.

[Source: Michiel van Doeveren – Digital innovation, governance and accessibility in retail payments. Second DNB Seminar on Financial Inclusion, 21 September 2017, Slide 16 & 17]

The potential size of the market is quite large: About 1.5 billion people live in smallholder households worldwide, and each smallholder household is – again potentially - involved in several different value chains. The actual size is much smaller. In our concrete example, 700 SMEs in Eastern Uganda have been interviewed with questions regarding their credit needs and repayment preferences.

Alternative solutions (to blockchain applications) are for example

  • XBLR, a company that assures a good data flow - also between buyers and sellers, which seems too complicated for smallholders in Africa.

  • a more suitable solution could be the MOBIS Core Banking software from Ensibuuko in Uganda,

Farmers could become members of the MOBIS scheme, which would cost them $ 0,08 cent per month.

  • another alternative could be the payment transfer via a mobile payment provider (like MTN). These payments would leave an undisputable record, but the payments for the products and the payments of the installments would involve considerable costs, since M-Pesa, for example, demands a percentage (7 %) of the amount that is sent.

Who are the clients/users?

The users will be the different transaction partners along the value chain of food production, such as the milk farmer, the dairy company, and the solar equipment seller in this example:

This implies that the system should be easily accessible on an old-fashioned mobile phone at low costs. That probably excludes blockchain applications in the short run – which would probably be complex, clumsy, and costly. [In the future, this might change.] For the local acceptance, it would also be better to use an existant local platform and to accumulate experience with its use - and to explore which role blockchain technology could play (in the back office) in the future. In the meantime, the project could concentrate on the development of a suitable interface. Given the fact that further interviews are planned with a large number of farmers, these interviews could also be used to test different possible interfaces and to develop them further.

What are the pain points?

The pain points for our users are that the present form of bookkeeping at all sides is often still very traditional (handwritten on paper), with the risk that entries are changed, handwriting is difficult to read, records get lost, and mistakes are made in calculations. This could give rise to mis-interpretation and conflict, especially in a trust-poor environment (as in most post-conflict societies)

Our value proposition

Our value proposition is an easy to understand “multilateral” accounting system via mobile phones (not smart phones), which create undisputable records at low costs to keep track with sales, credits, and withheld installments in a way that continuously provides up to date overviews of installments paid and remaining debt.

Distribution and go-to-market strategy

At this moment we tend to team up with Ensibuuko and perhaps assist them in further improving their interface for situations as described above. More members of the Mobis scheme could be recruited together with the efforts to find leads for the sales of solar equipment.

Risks involved

Risks could be a reluctance of farmers to switch to other payment methods than cash, a reluctance of Ensibuuko (or competing schemes) to expand their services, negative reactions by farmers and their partners to the interface, and costs for such a system. These risks seem lower than the risks involved with a blockchain application, because the chance of its acceptance would be lower, already because of

  • the long rows of letters and figures for Blockchain addresses and keys,
  • the present costs of the system,
  • difficulties to explain the system to participants with low literacy.

Expected impact

The impact of a more secure repayment system for credits is increased investment in productivity enhancing agricultural equipment, due to improved transparency of the credit related financial flows, and fewer conflicts about remaining balances. It can be measured by the borrowing and purchasing behavior of the farmers that are linked to the scheme.

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