Blockchain has become one of those buzzwords that commands attention and carries a powerful social glow, yet in the likes of similar buzzwords that have attained such a prized status, it has lost much of its meaning. Blockchain has become a catchall term for just about any digital ledger system regardless of crucial variations in its design. With so many blockchain projects ranging from social impact initiatives to opportunistic marketing ploys, it can be difficult to discern which projects hold real potential. For this reason, here's a deep dive on blockchain applications in our niche: The real sharing economy.
From farmers in Nigeria to coffee producers in Peru, Kora, a startup with a global team, is already on the ground, working with groups across the globe to provide financial services, via the blockchain, to those who stand to benefit immensely from this technology. Approximately two billion adults are still unbanked and millions more pay high interest and fees to access basic financial services, but mobile technology and blockchain both offer a way to serve the unbanked and underbanked.
In order to maximize the ability for underserved populations to reap the benefits of blockchain, Kora enables users to interact with this technology using smartphones, basic cell phones and text messages — not just desktop computers. We spoke with Maomao Hu, co-founder and chief operating officer of Kora, who told us a little about the company's work and about how the blockchain can significantly increase rates of financial inclusion by lowering costs, providing better data, and increasing transparency and speed. Armed with a background that ranges from graphic design, finance, and artificial intelligence, and influenced by the Occupy Movement, Hu sees the co-op as a crucial organizational structure, and one that stands to benefit immensely from recent developments in blockchain technology.
I want to focus on how you're driving user adoption among those who might not be crypto-literate and also how using a blockchain addresses that last mile problem (getting technology down to the end user) for financial services. Can you talk a little bit about how Kora has focused on designing a platform that can be as accessible as possible?
I feel like that's an issue we get pretty often, about how to get more people on the blockchain. I mean, our philosophy is not thinking about blockchain. We just think about what users need and blockchain just happens to be a nice way to get there. Blockchains are pretty well designed for financial services. What we’re doing is just financial services for underserved areas.
One really important thing we are focusing on right now is payments. How do we take payments into places like Nigeria or Ghana or Bangladesh? Well, when we look at what people like — which is usually either cash or mobile wallets or bank accounts (if they have one) — then we figure, "okay, how do we get there?" We either partner with a bank, or with a mobile wallet provider, or figure out how to get to those last mile mom and pop shops and, basically we just work backwards — same as you would for any business.
Kora's Africa operations lead Gideon O'tega with farmers
In this particular case, blockchain happens to be quite useful because it's a very useful way of transferring money, especially in underserved corridors, we can get a better conversion rate a lot of the times than if you just went through traditional FX [foreign exchange] markets or a bank. Blockchains are also a nice way for us to verify identity.
In one of the podcasts that you spoke on, you mentioned that since the whole system that you're creating is open source, you're not trying to make any money by charging people fees for using the network. Instead, you're making money by offering money transfer services. And in a way, it made me think that you're almost building an open-access public utility and then using the audience that you gain from that to drive the real profitability of the company. Can you speak a little bit about how you thought this through and how you arrived at it?
Yeah, that's very perceptive, what you said. We totally saw the Kora Network as, basically, a utility. It's virtually impossible to make money off blockchains — the operation of blockchains as a protocol provider. For example, if you make it open source, someone can just copy it and take out the part where it says you have to pay any money. And if you don't make it open source, no one's going to trust that you're not just stealing all their money at any point in time.
So we thought about that for a really long time and eventually we settled on, "okay, fine guys, we're not going to make any money off the Kora Network, we're just going to use it as, essentially, a customer acquisition funnel." And use it as a utility which really just provides the foundational services — mostly identity, as well as access to everything else it's providing on the network.
There are a lot of financial services that have some level of fixed costs that they provide, as well as some level of liability. So creating software for identity is fine, but attesting to a regulator for that someone's KYC [know your client] information is correct — that makes you liable. And you can't do that as a decentralized network. It has to be some entity that has an office, a license, and has people connected to it that could be fined for that to happen in a regulated context. So we're essentially playing the role for that entity for a lot of services that you can't just do by just sticking it on the blockchain, such as money transfer. That's basically how we see our business: We profit off providing financial services and, of course, we're also incurring some level of cost and some level of risk for essentially taking on that liability.
As far as other startups in this space, it's not really common as a business model. I think the most common business model out there is, "I'm going to make a token, I'm going to build a business and that's going to make the token go up in price, and then we're all going to make money."
Can you talk a little bit about how you recently started a beta project in Nigeria with farmers?
Yeah, so that's a lot of fun. We're working with an aggregator that has about 25,000 farmers in all, but we're not working with all of them. So one client or our partner, is an aggregator called Thrive Agric. We work closely with them. The other group that we work closely with is called VTN. They're an agency bank out in Nigeria, and our end users are the farmers.
What we're doing there is simple. It's really just that Thrive Agric and their bank is in the city and the farmers are not, and it's like, "How do they get money out to the villages instead of having their clients drive in?" We're working with VTN. They have a USSD license and an agency banking license. They provide regulatory cover for us to move stuff around and cash out locally, in cash.
It's coming along nicely, and it's a really good partnership because Thrive Agric wants to be an agricultural startup. They don't want to be a financial services startup. But they started scaling really quickly, and they were like, "Oh crap, now I'm managing a general ledger for 25,000 people and, there's [pressure] for getting that money on time so they can produce crops for me, and I don't want to do this anymore." So that’s where this partnership started. It's been a really great learning experience for us and it's been a lot of fun working with Thrive and VTN, and hopefully the first of many.
What region of Nigeria is it in?
It's around the village of Kaduna, the farmers are there. Thrive is around Abuja (the capital).
What other projects are you involved in? It seems like you were in Colombia, Bangladesh, and other places as well. Are those active or future plans?
We didn't end up in Colombia. We actually ended up in Peru. But that whole space is everything that we're doing around coffee and so we might actually end up in Ghana as well, doing a similar project. That's working with coffee exporters, also around payments.
In this this case, it's two payments: One from the buyer to the exporter and one from the exporter to the farmer. And obviously from the farmer to the picker as well. You see the money kind of flowing down through the ecosystem. ... In Bangladesh, it's also very different because we're also working with a co-op there. In Nigeria, it's more an aggregator, which I guess is also kind of a co-op, but they're only domestic. In Peru, it's an exporter so it's only cross-border. ... Thrive (our partner in Nigeria) has been around for like nine months. Our partner in Bangladesh has been around for 17 years. They started with just someone keeping a notebook of who has how much money, and now they have 35,000 people and they’re still keeping notebooks of who has how much money.
So we're moving their core systems to the blockchain, as well as doing all kinds of crazy stuff with them there. They've really embraced the things you can do with technology and financial services, in general. ... It's also important to remember that financial services is actually, if used the right way, you can actually help people. It feels weird to say. It's that investment banking is useful for raising money, and it's useful for price discovery. Those are the kinds of services, where if you apply them in the right way, they really have a close focus on where the value is coming from. You can unlock lots of illiquid value and scale. So we're doing stuff like that in Bangladesh.
What kind of co-op is it?
It's everything. Cheese, rice, chicken. They actually run their own soup markets, which is super cool. We're probably going to do a blockchain-based voucher system for the supermarkets.
That's really cool. If I missed anything else, especially regarding innovative stuff that you're doing around driving adoption, tell me more about that.
I'll say that the co-op is really becoming the main thing — even if you read our whitepaper, it all leads up to these things called CVNs (Community Value Networks) and everywhere we go, the co-op has become a centerpiece. You can't even avoid them if you want to. They're really powerful. That's a really powerful structure for reaching economies of scale locally. And if you read a lot of the more academic work that's been done on co-ops, because you've always had the shadow of the tragedy of the commons hanging out when you're in a co-op. Or just plain old corruption or embezzlement where it's like, "Here’s a everyone's money in cash. I'm going to take a few dollars to use it to go buy, you know, whatever." The blockchain is actually this really powerful tool that almost overlaps, word for word, with some of the research that's been done on co-ops.
If you've read "Governing the Commons" by Elinor Ostrom, you probably know that some of the principles for effectively governing the commons come down to transparency and consent. Consent about simple rules — transparency about who's breaking those rules, and then being able to enforce them. The blockchain is this incredibly powerful tool for that. The blockchain itself, and the fact that it runs at all, means that a bunch of people agreed on a protocol and if you violate a protocol, you get penalized very quickly. Blockchain itself is based on the commons that Ostrom set down, and so the same deal: In the co-ops that we're building, there's complete transparency about the funds that are being spent. In a digital currency context, we can do things where if people don't agree on a potential payment, they can say, "No, you can't make this payment. You can't take this money out."
Now in a cash system, it's a bit trickier. What are you going to do, put like 15 locks on it? But in a digital currency system, it's easy. If we haven't reached this threshold, "I'm not going to dispense the money." That's what it says in the system. Financial services in emerging markets is incredibly competitive. … I think the blockchain, for co-ops is really unlocking value in a way that has never been done before. I think it's really cool what we're doing there. It's becoming the centerpiece for trust on either end. We can make systems where if people trust that if I put the money in, I can't take it out unless X happens, or if I say something is true that no one can disprove that, which is a kind of trust. But with co-ops it's stuff like "How do I know that you know how to farm? What do you know about farming in Bangladesh?" Those are the trust problems that co-ops solve. The trust problems we solve for co-ops are like basic coordination problems — like here's how we can prevent people from improperly using shared resources. So I think that's a really cool piece.
That would be a real focus on the transparency side of the blockchain, but is it also the potential for governance and cost reduction of operation? What would you really ascribe that the blockchain really is doing that specifically benefits the co-op?
All three. It's getting to transparency in how to use funds. It's giving the ability for people, at scale, to control and govern how those funds are being used. It's a lot cheaper. Like, who makes software for co-ops? Who makes banking software for co-ops? No one does. So it's like providing tools, at all. The alternative to using the blockchain is not to just not use the blockchain, it's what they're doing in Bangladesh: Let's write everything down in [massive] notebooks and spend three months or longer every year just trying to audit all of them. Because they have basically a quasi-financial services group — they have files they have to send up to the government as well. It's also a huge reduction in cost increase in convenience for them as well. So it's everything, really.
Header image of Maomao Hu, and all photos in the piece, courtesy of Kora