The concept of “microfinance” has been around for decades, and saw major growth in the 1990’s and 2000’s.  It was touted as the way to alleviate poverty in those areas of the world with few opportunities.  As a way to create a movement of “Africa rising”, businesses were set up that would connect microlenders from all over the world to those individuals and businesses who could benefit significantly from loans as little as $250 to $500.  

It was a wonderful idea, but despite the hype and hope, it’s largely agreed that microfinance did not work.  While there are many complex reasons for this, a few rather obvious findings emerged.  First, unless someone has a strong plan to use a microloan for a productivity increase (eg., investing in material for a workable business, buying farming material with a good understanding of market pricing), there is a high risk that the microloan will not generate a return for the lendee, placing them in even further debt and exacerbating the cycle instead of solving it.  This same practice can be seen in the payday loan industry, where microloans are used not to invest in productivity, but as a bridge to the next payday (with high interest and a slippery slope ahead).

So why did so many people, including Dr. Muhammad Yunus (an economist and 2006 Nobel Peace Prize winner), see such value in the idea of microfinance?  Well, the answer might be that the idea of microfinance is actually outstanding, but only if it is executed right.  The 1990’s did not have the ability to set up planning, accountability, protection, and objective management of such contracts.  However, Web3 infrastructure is especially suited to facilitate business for strangers through smart contracts.  It can ensure people are who they say through KYC.  It can verify asset values.  And it can operate in an efficient, borderless manner.

Let’s dive into a renaissance of this idea as experienced through Web3.  While many Web3 firms have been involved in various pursuits, the infrastructure element has been led by AllianceBlock.  By partnering with various players, they’ve been able to expand a number of RWA (real-world asset) projects that have led to a matured and structured microfinance infrastructure that is, among other things, directed to bring accessible finance to smallholder farms in Nigeria.

Infrastructure Is The Answer

With many of these Web3 projects, the ideas pursued are non-traditional, which can often lead to higher risk.  Indeed, we’ve seen with many Web3 catastrophes that a good idea was either executed poorly (leading to hacking) or executed dishonestly (leading to scandal).  Strong and open infrastructure is absolutely key, and must be tied closely to regulatory bodies.  This is especially important when assets are converted to aid in financing.  AllianceBlock is no stranger to this, and continues to explore what can be possible with regulated Web3.  They’ve had several key projects that cover a wide range of asset types.  First , there is a partnership with ABO Digital to offer tokenized structured products.  It combines TradFi and DeFi by tokenizing traditional instruments, then wrapping them into Actively Managed Certificates (AMCs).  This allows both institutes and various crypto projects to have an alternative to both those who want to avoid holding digital assets, and those who want to pursue alternative funding sources.  The second recent project uses Arkefi, a specialized RWA platform, to create collective investments of collectibles, luxury items, and high value artwork.  This creates liquidity for owners and a solid portfolio expansion for investors.  The partial investment for physical assets is not new, but the underlying Web3 infrastructure creates a stability that other platforms have never had.  Smart contract management is the only way to manage this type of RWA business model.

Taking Infrastructure to The Fields

While there are challenges to any crypto project, and especially any RWA project, the AllianceBlock team up with TóróNet network, utilizing Voriancorelli as an intermediary, pushes the boundaries of the digital/physical platform.  The AgriFi project works to create financing for smallholder farms in Nigeria, avoiding the problems of 1990’s microfinance by addressing each one through Web3 and valued partners.  The farming industry is massively undervalued, while at the same time it is a linchpin for the sub-Saharan African economy.  A Mckinsey Report revealed a number of guiding facts for the project:  60% of sub-Saharan Africa’s population are smallholder farmers; nearly a quarter of the sub-Saharan Africa GDP comes from agriculture; and in 70% of these countries getting access to finance is considered one of the biggest obstacles.  This creates either a perfect storm or a tremendous opportunity, and the project is working hard to avoid repeating past mistakes.  

Discussing the project, AllianceBlock CEO Rachid Ajaja said

“In the heart of this financial revolution are farmers from emerging economies like Nigeria and Indonesia, where agricultural microfinance isn’t just a market segment; it’s a lifeline.  Enter  Allianceblock’s game-changing #RWA tokenization infrastructure. We’re not just at the cutting edge of #RWA; we’re crafting a future where technology meets impact, transforming the microfinance landscape and fueling real change where it’s needed most.”

KYC is a critical element to any successful finance project.  Nexera ID is used to create proper digital profiles for each farmer, creating necessary accountability and access to funds.  The use of smart contracts is critical to ensuring objective collection and disbursement of funds, transparency for all parties, and the ability for the program to comply with emerging regulations.  None of this matters without boots on the ground, and the project is working with the United States Agency for International Development (USAID) and the Foundation for Partnership Initiatives in the Niger Delta (PIND).  These partners are critical to ensure that RWA’s are correctly calculated and managed through farm monitoring and agricultural insurance activities.

The Road Ahead

Web3 and RWA’s have proven especially valuable when bringing together partners from across the globe, ensuring that a trustless environment can create new opportunities, and that some of the world’s most enduring problems have a chance at real resolution.  The building blocks are there, and the programs created by AllianceBlock and its growing community of partners shows that this isn’t just lightning in a bottle; these projects have the infrastructure in place to solve real world problems, serving areas that are as remote as it gets.  The strong record so far likely means that we can expect to see more RWA-driven projects from AllianceBlock and those wishing to expand finance through Web3.  There are countless other opportunities waiting for a solution like this, and it will be exciting to see what comes next.