DeFi for development: Achieving the SDGs using blockchain technology
Decentralized finance (DeFi) is one of the most important branches in the blockchain ecosystem as it provides an alternative financial approach. Despite being in the early stages of development, DeFi is bringing much-needed financial solutions outsides the traditional financial system. Its many use cases have made this fintech indispensable in the global financial industry and in achieving the SDGs.
Sustainable development Goals (SDGs)
The United Nations General Assembly set up the Sustainable Development Goals (SDGs) in 2015 to address global issues ranging from poverty, equality, education, climate change, infrastructure, land and water, and production/consumption, before 2030. To achieve this, the UN together with key stakeholders has used global partnership and a multi-sectoral approach to deliver on the objectives.
Technology plays a crucial role in achieving the 17 SDGs and one of the emerging technologies cutting across industries is blockchain. When analyzing the role of this technology in achieving the SDGs, the United Nations through International Telecommunications Union (ITU) discovered that blockchain is the fastest, most economical, resilient, and fair technological alternative for all the actors involved in each of the SDGs. This is mainly because, blockchain technology is a big proponent of openness, transparency, accountability, immutability, and traceability all while being fast, secure, and decentralized; all guiding features in ensuring management and monitoring of finance disbursed to facilitate achieving these goals.
Why is blockchain so important?
Blockchain in its short time has brought the world together into one big community with no central authority but with order. Through cryptography, peer-to-peer networks, smart contracts, nodes, and wallets, transactions can be conveniently done anywhere in the world at any time without the need for a middle person. Its transparency and immutability encourage global users to transact with strangers without the fear of losing their assets. In some way, blockchain technology has made the world into one village that is borderless, permissionless, and uses a globally accessible digital currency; cryptocurrency.
As blockchain develops, emerging technology such as DeFi keeps growing and expanding to serve several use cases. DeFi brings the traditional services in a decentralized way to its users. That means services such as lending, borrowing, saving, investing and storage are available to anyone in the network. This technology is giving marginalized groups the ability to tap into this global liquidity pool and empower themselves.
Kotani Pay being a DeFi fintech in collaboration with its partners has helped in achieving five out of the 17 SDGs. By facilitating cross-border transactions using blockchain to people without access to the internet, we have helped reach over 13,000 beneficiaries across Africa. Some of the SDGs that we have facilitated either directly or indirectly include;
SDG 1: No poverty
This SDG aims at ending poverty in all its forms everywhere. Poverty in this case is defined as people living under $1.25 a day. One of the targets for this goal is to ensure that the poor and the vulnerable have equal rights to economic resources as well as access to basic services. This can be achieved using Universal Basic Income (UBI) which aims at reducing absolute poverty. UBI not only gives its beneficiaries economic relief but also helps its beneficiaries invest and improve their standards of living.
DeFi has helped in achieving this by facilitating a faster and cheaper transaction of funds from donors to beneficiaries. The use of blockchain for transactions has encouraged more accountability of resources and openness, ensuring that the funds are received by the beneficiaries. Kotani Pay has helped organizations such as Impact Market offer UBI in Africa and provides an offramp solution to its beneficiaries. By providing an easier way to withdraw funds using the USSD code, Kotani Pay is facilitating the UBI payment of thousands of beneficiaries across Africa.
SDG 8: Decent work and economic growth
Promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all means creating decent jobs while not harming the environment. This SDG aims at ensuring that we promote job creation with expanded access to banking and financial services. The rise of gig workers has created job opportunities for millions of people around the world. The gig work includes online jobs, freelance jobs, and contracts that provide decent employment for people and contribute to achieving SDG 8.
The majority of gig workers work across borders hence the payment of services is also done digitally. Just like how transactions are done in the bank, DeFi is enabling gig workers to receive money anywhere and at any time. What makes this ideal for transactions is its convenience to reach anyone across the border and its immutability to ensure that figures cannot be changed. Transactions also are secure giving users the confidence to transact with strangers.
In a three-month microwork pilot project done by Mercy Corps Venture, Celo foundation, Corsali, Appen, and Kotani Pay it was discovered that blockchain and cryptocurrency have the potential to drive financial inclusion by creating digital employment opportunities. It was also discovered that blockchain helped in reducing the cost of cross-border micropayments and encouraged saving among low-income youth. By providing an easy-to-use offramp platform through Kotani Pay, the micro workers were able to save more on transactions.
SDG 10: Reduced inequalities
One key target in efforts to achieve SDG 10 before 2030, is to empower and promote the social, economic, and political inclusion of all irrespective of age, sex, race, ethnicity, or any other status. This SDG seeks to create opportunities for all equally despite differences in age and social status and economically empower them all.
Africa is a largely unequal continent with the majority of its population lacking bank accounts and with the majority of its women suffering from the highest levels of discriminatory practices in the world. DeFi has bridged this gap by providing a platform where anyone can access financial services despite their gender or credit background. This financial service is a big advocate for financial inclusion with its decentralized nature.
DeFi contributes to reduced inequality by providing financial services to women and marginalized groups across groups as with the digital cash-for-work pilot in Laikipia by Celo foundation, Polish Humanitarian Action(PAH), and Kotani Pay. The pilot used stablecoin to deliver donor-recipient direct cash transfers to women-led Maasai community groups in Kenya for jointly building sand dams together with their donors. Through blockchain, each user was directly paid 22.48 cUSD which is equivalent to $22.48 per week. By using Kotani Pay, all users were able to access their funds through a simple off-ramping process. The pilot showed how blockchain can facilitate financial inclusion all while economically empowering women in marginalized communities.
SDG 13: Climate action
In efforts to combat climate change, SDG 13 seeks urgent actions that need to be taken to control climate change and its impacts. Climate change is a result of increased Carbon dioxide (CO2) levels and greenhouse gas emissions to the atmosphere. To combat this, one of the strategies put in place is to strengthen resilience and adaptive capacity to climate-related hazards.
So how does DeFi enable this? Through partnerships such as one between Treejer and Kotani Pay, farmers are provided incentives in the form of stablecoins to plant more trees that will trap CO2 in the atmosphere. Treejer is an open protocol that connects funders to rural planters and tracks community-based tree plantation and forest conservation. Through Kotani pay, these farmers the majority have no internet connection can access these funds in form of stablecoins and convert them to their local currency that can be used for their daily activities. By planting these trees, these farmers are contributing to SDG 13 of climate action.
SDG 17: Partnership for the goals
SDG17 seeks to strengthen the means of implementation and revitalize the global partnership for sustainable development. For this, there is a need for international investment and support for innovative technological development, fair trade, and market access. One of the technological development leading to the attainment of the SDGs is blockchain and its decentralized application (dAPPS).
DeFi provides financial inclusion, transparency, immutability, and fast and borderless transaction. These DeFi features make disbursement and monitoring of donations easier thus facilitating the attainment of the SDGs. This can be seen through pilots such as the Cinch employer-based lending where farmers were able to access DeFi microloans through their employers. Through the pilot done in partnership with Mercy Corps Venture, Cinch Markets, Moolah Market, and Kotani pay, these farmers are economically empowered and enabled to access financial services that will improve their lives. In doing so, the pilot was able to help in achieving SDG 8.
As the blockchain use case increases, it is important to note the significance of this technology in humanitarian aid and development in Africa. DeFi ensures that more Africans can access financial services without the need for a credit score or bank account anywhere in the world. It also means less money will be spent on transactions and fraud and more will be saved to better help in attaining these SDGs.
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