Africa’s economy is inherently dependent on Agriculture. It is estimated to represent more than 35 percent of Africa’s total GDP and employs more than 60 percent of the labour force (NEPAD-OECD Africa Investment Institute, 2010). Africa is blessed with vast natural and mineral resources and the agricultural sector is considered to be the largest economic sector. Nevertheless, it is plagued with a number of challenges; from low access to funding faced by farmers, to high transaction costs caused by poor transportation costs and intermediaries. A fintech startup -Binkabi, focused on solving issues in commodity supply chain in developing markets, has come up with solutions through technology to address these challenges.
Binkabi is a London-based start-up founded by Quan Le. It is a decentralised commodity trading and tokenisation platform for emerging markets. This London based start-up plans to make use of the blockchain technology in tokenising agricultural commodities and eliminating intermediaries, by creating a direct, digital and secured link between emerging market farmers and consumers.
Commodity trade and supply chain in Africa has been characterized by a number of challenges over the years. Commodity trade in Africa is affected by low access and high cost of supply chain financing. Two major things small-scale farmers complain about in this part of the world is the lack of funding to assist their businesses and the high interests rates charged by financial institutions to access loans. The high documentation process and lack of collaterals in obtaining loans in Africa, is also discouraging for farmers. Small-scale farmers most often than not have a low level of formal education and are not familiar with the demands of managing complex documentation processes. A lot of small-scale farmers also possess little or no assets to back up loan agreements.
The issue of trust in cross-border trading and the high dependence on intermediaries is another key problem in commodity trade. Farmers do not get enough value for what they produce due to the high fees charged by these intermediaries who absorb most of the overall trade value. Farmers (commodity producers) in developing countries receive a tiny fraction (usually much less than 10%) of the price paid by consumers (Binkabi White Paper, 2018).
Another issue in commodity trade, is the heavy reliance on the US Dollars for trade settlements. About 75% of world trade is settled in either USD or EUR. 35%, or $6 trillion, is settled among emerging markets that have nothing to do with either the US or EU and trade settlement in USD among these emerging markets adds between 7 – 10% value of trade in terms of cost (Binkabi, 2018)This results in a loss in trade value, producers bearing cost due to commodity price shocks and decrease in profits for these small farmers in emerging markets.
Binkabi aims to solve the Inefficiencies in commodity supply chain; By changing the profit sharing rule along the agricultural supply chain, providing access to and reducing the cost of financing for farmers, eliminating the high fees charged by intermediaries and reducing the reliance on the US dollars, to create a cost effective way to trade.
To do this, Binkabi is introducing two phases. The first phase, is the physical commodity trade with the help of a system called “Barter block”. This barter block will transform physical commodity trade by providing a solution for direct, digital and secure trade with reduced reliance on the US Dollars. The Binkabi team is currently on the implementation and product testing stage in Vietnam and West Africa.
The second phase is the commodity tokenisation. Binkabi is launching a utility token- “BKB token” that will help in risk hedging through smart contract based forwards and option contracts without a central exchange. They also plan to make use of an AI- enabled marketplace connecting farmers to consumers through an exchange platform- DEX.
The Binkabi project is an interesting one. They have looked in depth into the problems of agriculture in Africa and have identified solutions through technology to improve the lives of farmers, allowing them receive more value for their produce, and increase the continent’s food supply.
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