Bringing DeFi Lending to the Real World

May 11, 2023

While DeFi, or decentralized finance, has seen a volatile rise in adoption within the crypto ecosystem, the big question in our context is to what extent this model and technology can be adopted and adapted for lending use cases across emerging markets, where there is an over $100 billion credit gap, according to the IFC. 

To explore that question further, we're joined in this episode by Cheng Cheng, co-founder of the DeFi protocol Jia, and George Mosomi, COO of the Safi Protocol, and a founding member of the Africa DeFi Alliance.

00:00 - Intro.
03:02 - Introducing Cheng Cheng, Co-founder of Jia.
05:32 - Introducing George Mosomi, Co-founder & COO, Safi Protocol, and founding member of the Africa DeFi Alliance.
08:19 - What does the credit landscape look like on the African continent?
17:57 - How does DeFi address Africa's lending challenges?
26:42 - How do traditional debt capital markets work versus DeFi?
34:21 - Who are the lenders and borrowers in DeFi?
40:05 - What are the challenges for DeFi protocols lending in the "real world"?
49:31 - What else needs to happen to see DeFi lending at scale?
56:35 - George's recommendations.
57:09 - Cheng's recommendations.

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George Mosomi: In 2013, 2014, I had an opportunity to live in the UK where my bank manager would give me a call every couple of weeks and ask me, "George, do you want to take 4% uncollateralized loan just based on the salary that you have?" And that was such a huge contrast to what I used to experience back in Kenya where the least lending interest rate I would get would be at 21%. And that was with collateral. And this has set me down a path of wondering what would that look like if we Africans had the same opportunities for borrowing at such low interest rates?
Justin Norman: Welcome to crypto@scale. My name is Justin Norman and in today's episode, my co-host Gwera Kiwana and I are joined by two entrepreneurs working to bring DeFi lending to the real world and more specifically, to African markets where there is an over $100 billion credit gap according to the IFC. While DeFi, or decentralized finance has seen a volatile rise in adoption within the crypto ecosystem, the big question in our context is to what extent this model and technology can be adopted and adapted for lending use cases across emerging markets. To explore that question further, we're joined in this episode by Cheng Cheng, co-founder of the DeFi Protocol, Jia and George Mosomi, COO of Safi Protocol, and a founding member of the Africa DeFi Alliance. If you're enjoying crypto@scale, we would really appreciate if you helped us grow the show by hitting subscribe on your favorite podcast app or on YouTube and sharing with a friend or a colleague who you think may enjoy it as well. crypto@scale is not investment advice and is for entertainment purposes only.
This episode of crypto@scale is brought to you by Ripple. Anyone who sent money across borders to or within Africa knows how cumbersome, expensive, and slow the process can be. When it comes to remittances, sub-Saharan Africa remains the most expensive region to send money to. And for businesses, trapped capital, slow settlements and high failure rates pose major challenges. The current financial infrastructure just doesn't work very well for the modern global economy. Ripple believes that crypto enabled payments can help. Ripple's payment solution, on demand liquidity, enables organizations to settle global payments in real time at a fraction of the cost and without tying up working capital and destination accounts. By leveraging the digital asset XRP as a bridge currency, funds can be sent and received in local currency on either side of a transaction. And across Africa, Ripple is partnering with local financial institutions and FinTechs to bring the benefits of better cross-border remits to the region. To learn more and get in contact with the Ripple team, head over to
Gwera Kiwana: So today we've got some amazing guests. We've got Cheng Cheng, the co-founder of Jia, and we've got George Mosomi, the COO of Safi Protocol and founding member of the Africa DeFi Alliance. So Cheng, thanks so much for joining us. Can you kick us off with a quick introduction to yourself and Jia please?
Cheng Cheng: Thank you, Gwera. Hi everyone. I'm Cheng. I'm one of the Jia co-founders. Short story about myself, I'm originally from China. I've spent most of my career in the last decade in kind of different efforts to try to solve the credit gap problem in emerging markets, kind of from the microfinance to FinTech lending, and now I'm at DeFi. So how did I really get started in this space? I worked in Kenya for a nonprofit back in 2011. Sort of fell in love with the country, with the culture. So when I moved to New York to do my grad school, I actually took two year Swahili lessons at school, was hoping that kind of the language will help me open the door to come back to East Africa. So actually I did. So I was hired by a nonprofit in helping building the community banks in rural parts of Tanzania. So I took the opportunity to practice my Swahili in the villages of Tanzania for about half a year.
And it's the same time I actually saw the massive demand for better forms of financing for the communities. So that's when I made the jump to FinTech and was looking for a more scalable solution to help with the problem. And I joined Tala, one of the leading emerging markets FinTech lender and I was the expansion lead for over six years, basically helping the company to expand from Kenya to other markets in the region and in Latin and Southeast Asia. That's where I actually met my co-founder Zach. We worked side by side at Tala for over six years and right now we are building Jia, which is a DeFi platform connecting capital to real yield opportunities from small businesses in emerging markets. And it's kind of built on the concept of ownership economy where when the investor supplies capital or small businesses pay a loan, we believe they are driving the value to the economy so they will be compensated as part of the owner of the Jia platform. So yeah, that's a nutshell of myself and what we do at Jia. Happy to dive in later.
Gwera Kiwana: That's great. I'm sorry we won't be speaking Swahili today, but maybe next time I see you, Cheng, you can help me practice my Swahili.
Cheng Cheng: Sawa Sawa.
Gwera Kiwana: So George, really good to have you as well. We've got George here. Can you introduce yourself and the work you're doing in the DeFi lending space please?
George Mosomi: Absolutely. It's a pleasure to be here. First of all, just being in the presence of everyone in this space, it's such an honor. My name is George Mosomi. I'm the COO and co-founder for Safi Protocol, which is a DeFi lending platform that tries to bridge the liquidity gap in the energy sector in Africa and other emerging markets. And I also am one of the founding members of the DeFi Alliance, which I'll come to in a moment. But my journey in this space has been very similar to Cheng's. In 2013, 2014, I had an opportunity to live in the UK where my bank manager would give me a call every couple of weeks and ask me, "George, do you want to take 4% uncollateralized loan just based on the salary that you have?" And that was such a huge contrast to what I used to experience back in Kenya where the least lending interest rate I would get would be at 21%, and that was with collateral.
And this has set me down a path of wondering what would that look like if we Africans had the same opportunities for borrowing at such low interest rates. And in that journey or space, I had an opportunity to work in two very key organizations which led me down the path of where I am right now. One of them is GridX Africa, where I was the head of business development and we were basically doing commercial and industrial scale solar and we were providing long-term financing for assets in the energy sector. And then on the other side I had Pngme, which is where I was working as a head of director of operations for Africa and later on, head of developer relations. And basically we were trying to look at how can we provide more data in the space so that people who have the liquidity or the lending opportunities can have better information so that they can lower their interest rates. And I'll just speak about that a little bit later.
So right now I work at Safi. Safi is doing that bridging of it, that liquidity, making sure that people here have as much access to the energy sector as possible. And at the same time at the DeFi Alliance, we asked ourselves this general question, how do we get $100 billion to MSMEs who are trying to look for alternative financing, who would typically go to your bank and be given ridiculous interest rates or even in some situations not be able to get the access to capital? And that's what we're trying to solve for on the continent.
Justin Norman: So let's jump right into the weeds. I want to paint a little bit of a picture first about what the credit landscape looks like on the content. And I think you both talked about it a little bit in your past experiences, but both of you having come from sort of FinTechs trying to focus on this credit gap, I'd have to imagine those experiences led you both to DeFi and blockchain and we'll sort of get into what you're working on today. But before we do, let's talk a little bit more about the just sort of current landscape for traditional lending. George, you just told a story about 21% with collateral, but can we talk about what are some of the other challenges of what it looks like today, some of the challenges in terms of data credit, worthiness.
I know in your role at Pngme, you were focused a lot on the data element of it as well. And Cheng we'll ask you the same question I suppose from Tala and a data perspective. But can we talk about why this sort of problem exists and what are the challenges in terms of creating greater credit worthiness or better credit scoring, better access to data, greater credit infrastructure for the continent.
George Mosomi: Yeah, thank you, Justin. I think one of the things you've mentioned is one of the critical pieces and that was just the lack of access to data. So if you go to a financial institution, if you go to either a SACCO, and a SACCO is a savings and credit and cooperative society, or if you go to a microfinance institution, typically they would want to have at least six months of you interacting with them as an organization. And this is where the biggest gap happens in the continent where most people don't have your traditional bank account. I got my first bank account by good chance because I was in university and Barclay's bank approached us, we opened our student accounts, but the first time I actually put in money into that account was maybe six years later. And this is the scenario that you have with most people.
If they have a bank account, it's only when they got into formal employment. And so you have the question as to, are all these people who exist in this society, is it that they do not have money that they're interacting with on a day-to-day basis? But that's not the reality. The reality is that there's a layer of information that's not potentially being covered by the traditional lending data sets. And so when Pngme...
Actually Pngme had a very interesting start. It started as a microlending facility in Tanzania as well, probably around the same time Cheng was operating in that area. So our co-founders realized that they're able to give good credit because they cannot figure out the right credit scores based on the traditional information that they have. If you want to speak to a farmer, all that you have is maybe the farm inputs that they've been having over the last one year, but you are not necessarily seeing them debiting and crediting into their bank accounts. And so they set out to create an alternative credit scoring opportunity. And this just entailed looking at alternate data. And if you look at the East African landscape and even more so to the Southern African spaces, you have a lot of transactions which are carried out and captured by SMS data. There's a lot of information that's captured on social media which can potentially be used through machine learning models that can help you to have a better picture of who these people are. And so that is what we set out to do.
Justin Norman: And Cheng, I know from a B2B perspective, from your experience at Tala, I think the story was similar in terms of this big question about credit risk assessment and using alternative data sources. So can you speak a little bit to, again, in this context of this credit gap that you're trying to solve, what your experience was like in the sort of more traditional FinTech space before we then get into how DeFi addresses some of these challenges?
Cheng Cheng: Yeah, definitely. I think the way I would break down the spectrum of B2C landing is by looking at where the individual consumers or small business, who are our prime customer are getting credit today and how they're being assessed. I think George already kind of touched upon couple main sources. The traditional banks still are there and there are FinTech lenders and SACCO, which are the community financing is a huge component of that. And look at the banks, the player has always been there. I think these days more and more banks being forced to become more forward looking, start partnering with the FinTech lenders, leveraging some sort of alternative data to provide smaller ticket loans. But if you look at the overall activities, talking to the business owners, look at market data, they are still really, really conservative in terms of credit assessment. I guess that kind of speaks to the brick and mortar model they work.
For them to underwrite a loan, the cost is really high. They have to have in-person appraisal, all the processes. So for the banks to issue loans less than 10,000K USD, that is not economically viable to do smaller loans. And that's why most time they have to, in today's world, they still to ask for collaterals and only lend to established businesses. So the bank loan's not really accessible to the smaller businesses or consumers because of the way they underwrite. And then come to the world of the Tala, the FinTech lenders, that's where I personally saw how technology could digitalize underwriting and be able to scale in such a short span of time. When I joined Tala back in 2015, we have about couple thousand borrowers in Kenya and just over six, seven years, Tala has six million borrowers across three continents and anyone can reach the phone, could get a $20 loan in a few minutes.
And that's where the underwriting is kind of done by a mobile app where the lenders could collect alternative data that George mentioned. Popular signals by lenders for example, what the usage of your device, your GPS throughout the day, your repayment behavior is lit up with the system. But there's also fundamental challenges. It still exists with the digital lenders and they're taking huge risks. There's only so much data mobile could tell you about someone's willingness and ability to repay. So what happens with the FinTech lender, they have to bake the high risk into the interest recharge. So typical digital lender will charge somewhere 10 to 15% per month to cover the lending risks and acquisition costs. And because of the limited data, they could only land at very smaller amount. That's why you only see people get a $10 loans up to maybe 100, $200 and then which can lead to the borrowers, many of the small business borrow, they need a couple hundred dollars or even more to be able to make the money useful for their businesses.
So they end up doing loan stacking, taking multiple loans from multiple lenders and all the interest rate end up eating their business revenue. That's where kind of the virtuous circle become. And then they have no loyalty to any of the lender at all at the end of day. So that's kind of a lot were in the news in the last couple years across different markets. And before I finish, I think one thing George really mentioned is really important is the community banks as actually the most popular form of lending I've seen. Every Tala borrower actually has already been at least one or multiple members of the SACCOs and Chamas like the community organizations. And it's not just in East Africa.
If you look at LatAm it's called tandas and paluwagans in the Philippines and chit fund in India. So people love that because you as a group of friends or people who know each other, you put your money saved together and you borrow from the pool and in the end of the year you will share dividends. You have some sort of ownership to that compared to your banks or compared to your digital lenders. So yeah, that's actually what inspired Jia and to have our model. But I think that's kind in a nutshell of different players playing the space in solving the credit gap.
Gwera Kiwana: I think definitely solving the credit gap, it's a big tough problem to break down and understand. I think looking at it from the last mile perspective, so I think George, you've done a great job explaining a little bit more about assessing credit risk. Cheng, you've explained a little bit more about the struggles that borrowers face and also the lenders themselves are facing. But if we maybe zoom out a little bit and look at the beginning side of the credit story, which is where the loans originate, where the debt originates from, and you made a great point about how lenders will have to bake in that risk into the price. And that's why we see such high interest rates. Because the people that they're borrowing from to lend the money out are pricing that risk really high because they just don't understand the market, they don't understand the borrowers profiles.
So it's a lose situation from the origination. But let's go into a little bit more of a looking forward kind of perspective. So let's a ask the obvious question. How does DeFi address the challenges that you've both discussed? So I think there's a few dimensions to explore and think about them across a few vectors. So using stablecoins, the use of stablecoins, collateralization. So George, you've mentioned uncollateralized loans versus collateralized loans and the price of that. Interest rates and how those work, different borrower pools and how credit risk is assessed on lenders and their borrowers. So Cheng start with you, you've worked with Jia in with specific segments of borrowers in the healthcare and the education space. What about Jia's solution solves the unique challenges and can you explain a little bit more about why you targeted those two segments?
Cheng Cheng: Yeah, definitely. So Jia's mission is really trying to solve the problem, how to provide affordable, accessible business financing to smaller businesses like in the sectors of education or the medical field. Those are the two sectors we started with, but we're definitely expanding beyond that to serve business credit gaps. So overall, if you look at the global datas like [inaudible 00:19:17] trillion credit gap is there that has not been adequately addressed by existing institutions. But if you zoom in to the borrower level, what does it really mean when we talk about the credit gap? I think may be helpful to take example of one of our borrowers. The first borrower, her name's Diana. She runs a clinic called Haven Park, it's in Kasarani in Nairobi. She's very typical small business owner, often has liquidity crunch where she needs capital injection to keep her clinic stocked with medicine or every now and then she wants to introduce new testing equipments to meet the needs of the neighborhood.
So she go, has gone to banks a number of times who requires collaterals and it's very lengthy processes so she wasn't easily to get a loan there. So that's where Jia kind of comes in. I think in the end of day it's less about... We think of DeFi and crypto as a tool to solve the problem, but in the of day we have to meet customers where they are and the banks could not serve Diana because a lot problem we mentioned, the underwriting procedures not meeting them where they are. So that's why Jia, our approach is partnering with company like Ilara Health who is providing inventory management services to clinics like Diana, where Ilara has a good amount of data about Diana's clinic, her transaction history, how often she purchase medicine equipment, how much she sells and to whom. And those are the data that could help us to underwrite Diana and then provide a supply chain financing to her.
That means we open a line of credit for Diana to get medicine on credit via Ilara Health. And when Diana takes out Jia credit and repay on time, Diana will be rewarded with something called Jia points for her good on time repayment. And she may not know Jia points is actually fact Jia token representing the Jia ownership, but she know having Jia Point could enable her to get higher credit line, lower interest rate, and in the future she can use it as a collateral to unlock higher credit amount or potentially bring other people into the Jia network to borrow where she could earn actual extra income.
So for her, the idea is for Jia is no longer just typical lender, but someone solve her credit card problem, but becomes along the long run develop a mutual relationship where whenever she contributes she can also earn more income or more benefits. So that's the approach we're taking as you're seeing here is number one, Jia is partnering with organizations who might have alternative data first to underwrite and then leveraging the token to incentivizing the point system behavior for our borrowers. And the third piece I actually haven't mentioned, basically that's where we source capital globally via the on-chain pools. So that's pretty much breakdown in terms of how Jia is solving this problem.
Gwera Kiwana: I think that's really fascinating, especially going after that specific segment. You know that these kinds of borrower profiles, they need that capital and they're going to get it in one way or another. And it's maybe just a matter of giving them an opportunity that makes it easy for them to acquire it but also incentivizes good behavior, the behavior that they're going to have anyway because she runs a clinic which she can't really close. So incentivizing that behavior, rewarding them with ownership as well of Jia. That's an interesting model. George, we're going to come to you a little bit to tell us a little bit more about the work you do with the DeFi Alliance in Africa, the Africa DeFi Alliance. So yeah, your goal with the Africa DeFi Alliance is to move $100 billion of working capital into the continent's MSMEs, so those are micro SMEs. It's a really ambitious goal. Can you walk us through the approach you have to serving this traditionally underserved borrower profile?
George Mosomi: Yeah, yep, absolutely. So one of the things we realized is that the many companies like Jia and even Safi where I'm a co-founder have this liquidity problem and at the same time they have an infrastructure problem. It takes so much time before you build out your liquidity pools, even both in the real world and both on the smart contracts world. And so we came together as some of the founding members and then created an open community where all these people can come in and join as we build up infrastructure that's scalable and can be built up in a composable or basically reusable modules that can allow people to come in, plug in for the financing on one side, plug in a bunch of borrowers on this other side, at the same time have all the potential players who are doing the liquidity confirmation, who are doing the Oracle and inventory plus credit scoring in the middle, such that you have a full ecosystem of people who are actively working to create a virtuous circle.
And just for the listeners and for the viewers, a virtuous circle is whereby the more people interact within this ecosystem that we're trying to create, the more stability or the more confirmations of transactions that happen, the more you have a trust enabled system within this Africa DeFi Alliance. And so basically the goal was to make sure that everyone who can becomes a potential member or everyone who's a member, how can we get them to benefit from this infrastructure that we're building from all the potential liquidity providers that we're putting together? How do we make sure that we are all learning and moving at the same pace?
And therefore we structured what is called the Africa DeFi Alliance Labs on one side. And that basically goes into the innovation and allows for the pool of people who are potentially contributing to the labs to have a say into what governance structures look like in terms of how do we approve who gets loan, what modules do we need to increase, what kind of credit scoring do we need to provide, what kind of liquidity sanctions or punishments do we need to put in place for the people who are misbehaving within this ecosystem? And that's where we are today.
Gwera Kiwana: That's really cool. I want to maybe switch a little bit to look at the traditional debt capital markets landscape and I'll come back to you George. You've identified how, and Cheng we'll come to you as well, how you both, the work that you do utilizes these DeFi liquidity pools. Can you explain a little bit about what the... The liquidity pools that are used in DeFi right now is maybe the new iteration of how debt is sourced, can you explain how traditional debt capital markets work right now with the context of Africa?
Cheng Cheng: Yeah, I wouldn't pretend I'm a capital market expert, but how it typically works is that it's actually really hard as a lender if you don't have really strong portfolio or track record and the cost of capital can go up really high to respond. Mostly institutions in the beginning and many institutions are unwilling even to land at a smaller ticket sets because the underwriting for them is really hard. They will not lend below five million dollars facility. And if you were lucky enough, you got so much track record, you can already secure a debt and the cost of capital typical goes up to somewhere 15% to 25% even for some established digital lenders in the space are facing that high of cost capital. So I would say traditionally most lenders kind of go to institutions and going through very lengthy underwriting processes where a lot of the very high cost of capital.
Gwera Kiwana: So this 15% plus cost of capital, if you can give us what is the equivalent of cost of capital for a DeFi example?
Cheng Cheng: I wouldn't say DeFi. If you look at existing a lot the real world asset lending, I would say somewhat, it depends. It is a senior pool or junior pool is for retail investors or they're still a junior pool for big institution backers where I wouldn't say it going to break down the cost significantly, but I would say the major difference, especially in today's world where the saving industry rate is really high, it's very competitive for where the investors wants to put money. But the major difference is we've changed actually the bring more channels for lender like us able to access. For these digital lender like Tala, we only go to institution for bigger ticket size, but for company like Jia, leveraging the liquidity pool, anyone in the world, they could potentially contribute or invest in smaller ticket size. That can open up a lot of potential in terms of where we source liquidity. I feel at least in today's market, that's the major differences.
Gwera Kiwana: So basically to boil that down, previously for Jia to access debt capital markets to access debt that they would on lend, they would have to really struggle to access that debt going to traditional lenders who would price that risk really, really high. Mostly because they don't really understand it and because ticket sizes are small, whereas DeFi, it opens you up to a much larger debt capital market, like a much larger pool of investors who understand the risk, who understand, who are able to price that differently and just basically opens you up to a lot more capital than you would've had otherwise. Am I correct?
Cheng Cheng: I think you're correct for the most part I guess, sorry to correct. The part is, do they really understand the risk part? I'm not so sure because global investor anywhere, they wouldn't probably know how to underwrite a small business like a Dooka owner in Kenya. I think that's where the responsibilities is on the platform like us, like Jia and Safi to be able to provide that transparency and to provide a track record to provide a comfort level to the investor so that they can trust us in the long run.
Justin Norman: And then just to complete the loop, just talking about then the downstream impact. So can you compare what interest rates look like in the traditional sense versus, again, with cheaper cost of capital, what interest rates you're passing on then to your borrowers?
Cheng Cheng: So as I mentioned, traditional in comparison, the banks giving loans at the annual rate around 25 to 36% with collateral, that's kind how market rate works in this market. And where digital lenders is charging depends, I would say averagely 10% per month we've seen. And Jia currently, we are looking at somewhere four to 6% per month. And that's also depends on which segments we're serving. Some segments we have more data and maybe it's an invoice that is expected so we can charge lower, but on average we're able to bring it down. But I think cost of capital is just part of that, make economics viable a little bit better, but more about what data we can unlock via our partners in our health to give us the confidence we can actually land profitably at that reach. So that's kind of where we stand today.
George Mosomi: And just to add on that, yes, so at Safi, if you look at the traditional commercial and industrial scaled solar, first of all, just exactly what Cheng mentioned, there's almost like a minimum cap below which lenders are not even looking at. So for example, in the CNI sector, most lenders would be doing upwards of $200,000 a minimum pub institution or pub borrower. And therefore no one was meeting this larger, the 85 to 90% of people who are actual business owners who would love to have some of the renewable energy resources installed on their rooftops so that they can earn savings and earn carbon credits. And that's why Safi came in and said, look, if we put together all these different potential users who would like our solar system, how can we reduce the risk for the investor who doesn't want to look at anything below $100,000?
How do we bring 10 of these users whose total capital amounts to that $100,000 and more and at the same time reduce the risk of each individual potentially delaying a payment here and there. And this is the beauty about DeFi, but it's first of all, there's a triangle that I look at and I share with everyone, which is can you reduce the cost of service and how do you reduce the cost of a service by either taking longer? But in this case with DeFi, you're reducing the time to action by using smart contracts and being able to deploy capital really quickly and the quality is higher because you are able to, which is a third metric, the quality is higher because you're able to have realtime views of these real world assets operating on these businesses.
Even as the users pay back, I'm able to quickly, if I'm a lender and I go onto Jia platform or into a Safi platform, I'm able to quickly see that this pool of borrowers has been consistent in repaying their debt over the last six months, so if they ask for an extension or if they ask for even more capital to be deployed to them, I have the confidence to give it to them. And that's the beauty about DeFi and why it's critical in making such a big impact on this continent.
Justin Norman: Just a follow up question then, I mean it sounds very important I suppose looking upstream at the cost of capital, the sort of downstream impact for the borrowers. So can we talk a little bit, maybe George if you can address first what the sort of profile of the actual lenders in DeFi protocols, in the context of real world assets look like? Who are they and why are they lending to these protocols and is it just sort of yields or are they particularly interested in the fact that this money is also going towards, in the case of Safi Protocol, energy projects or in the case of Jia, SMEs in East Africa? I mean what does that sort of lender profile look like in this context?
George Mosomi: Yeah, that's a really good question. In our sector, in the energy space, you have two typical investors. One is who's looking for yield and then you have one who's looking for yield plus impact. I think everyone is looking at how can we create a positive impact in the society, especially in these emerging economies and how do we do it sustainably? And this is your typical profile of one of the investors. And the second one is the one who's purely impact led. They've seen where there's an opportunity for creating sustainable development. How do we make sure that if a farmer is trying to expand his daily business, does he have the opportunity to do that say by adding cooling and storage or adding a processing facility? And these are some of the biggest motivations for the people who are on the impact side. And that's why I believe that there's such a big opportunity because each sector is quite specific in its needs and if more people can address very sector specific outcomes, then we'll be able to serve these sectors very, very well.
So now for example, in the energy sector, you need someone who, if you are a platform like Safi, you need to understand what your typical customer looks like. So your customer is someone who maybe has a small business that they want to expand into or they have a residential home or maybe it's a larger business which wants to have a small extension or some battery operating system. And if they want to do that with outright capital, it would create a disbalance within the balance sheets. So we are coming in to provide longer term asset purchase, asset finance agreements, which can potentially help them to just cover their month to month power needs without necessarily destroying the way that they operate their businesses.
And so if you look at this and think about every single sector which has these specific capital needs, you need to have investors who, when they come onto the platform they kind of understand what is the business, what is the lady in the Dooka who wants to sell, who needs a capital outlay for sale, let's say the goods that she wants to sell for this week. And therefore you have the comfort of giving that specific credit at a percentage that is amenable to them.
Justin Norman: And I'd have to imagine also, and perhaps this is obvious, but in the context of DeFi and sourcing lenders, the other opportunities just that the capital source is global, whereas I suppose in the traditional financial services sector to get lenders into Kenya, even if they're from abroad has a whole range of four X considerations and all of the rest. And perhaps that's the beauty of stablecoins, which is perhaps why we talked about it episode one. Cheng, I'm curious to know if in Jia's context that's what you're seeing, that the source of capital is coming from anywhere and everywhere and certainly making it easier to then source capital for these downstream borrowers as opposed to again, the TradFi experience.
Cheng Cheng: Yeah, I think what we have seen are I think two segments of lenders. One is definitely we're still speaking and trying to acquire liquidity from the traditional funds because in the end of day they are the largest source of capital, especially as Jia grows where we do need the big backers to be able to provide long-term sustainable funds. So we are definitely speaking to many of them and the way they're providing is still the traditional way going through the underwriting processes, really understanding the long book of the returns and risks. That's what we really look at. And then what actually DeFi opens up is the retail. Even you look at the retail investor, I would say there at least we've seen two different profiles. One is more of the retail who are more looking at the speculative set of the things where they want to be early part of the platform they invest so they can look at potentially gain the Jia tokens, to have some upside in the future.
There are definitely a lot of that we have seen. And then there's also interesting segment that who are more conservative on the crypto side, but they're interested in, like George said, they're more believe in the mission impact side. They still of course look at overall returns, but they are interested in exploring this investment opportunity that might not be available through other traditional institutions that they actually can invest a couple thousand dollars into a smaller businesses in Kenya. That's something pretty new to them and we've definitely seen people who are coming from that mentality. So yeah, I think from the retail side, those are the two that used not to be open to us now we have seen people express interest in and investing into Jia.
Justin Norman: Let's move on now to maybe the bearish section of this conversation and just look at some challenges as well as perhaps some opportunities in light of those challenges. I think we collectively are all very excited about the opportunity for DeFi, but we called this podcast crypto@scale. We're interested in what it means to scale these crypto enabled use cases. I think with DeFi in particular, there's big questions about collateralization and the sort of initial DeFi platforms. Were over collateralized and we're here talking about non-collateralized lending in the real world. I think there's a lot of issues or questions about credit worthiness and maybe regulation as well. And I'm curious to know how you guys think about these sorts of challenges and opportunities that you are needing to overcome to really see again, crypto at scale. And George, you talked about this $100 billion dollar goal for MSMEs, you're also doing lending in the "real world" in the energy space. So can you speak to how you think about these challenges and what it means to work through them for greater adoption of DeFi lending?
George Mosomi: Thank you, Justin. I think one of the biggest things we're addressing, at least if I may start from Safi, before coming into the DeFi alliance. At Safi, we realized we are backing people. We're providing a platform whereby you as Justin can go in, request for a solar system from a solar developer who knows these systems in and out, then they potentially have the chance to build that system on your rooftop and then you [inaudible 00:41:54] benefits of the solar and then you pay back the investors over X, let's say one or two years.
Now the good thing is that when you have this ecosystem of experts, say for example the solar developers, you have also the opportunity for them to be responsible, create a responsibility ecosystem whereby if this developer builds a shitty system, sorry for my language, it means that he will not have an opportunity to either get a loan to build another system and this is written on-chain and thus you incentivize this solar developer to create a good system because the customer can say that I am getting the electricity that I'm paying for or I have paid for.
And this virtuous circle, which I mentioned earlier, is just a critical element as to how do we make sure that as you connect either uncollateralized ecosystems or even with some form of collateral, say for example the real world assets that are written on-chain, as you tokenize them, how do you make sure that you putting them on-chain books and removing them from off on-chain books when they have completely been paid for. It just creates a whole larger ecosystem of accountability. And we are looking at the same thing when you go into the Africa DeFi Alliance, whereby we are seeing more and more of the participants who are coming in making sure that as you create more ecosystem players, you have people whose new roles coming up which are assisting with the fluidity of the liquidity moving from point A to point B.
Justin Norman: And Cheng, I think I want to ask you sort of the same question about the challenges and I think in your context or in Jia's context in particular, you talked about the ownership economy and this idea about incentivizing repayment and I know repayment has been a really difficult thing for the consumer lending apps like your former employer as well. So I'm curious just from a challenges perspective, is the repayment maybe one of the biggest ones that you guys are thinking about and how you incentivize for that through the rewards program? And what does it even mean to convince your borrowers to see value in the rewards and to change this behavior? And are there any other challenges as opposed beyond that as well that you're thinking about in terms of adoption at scale?
Cheng Cheng: Yeah, I think looking at adoption at scale, it's very simple, it's a landing activity. We talk about would you be able to lend? DIs do you have sufficient data or do you have good quality of collateral? And then coming back to think about scaling DeFi, basically two things need to happen. One is not very specific to DeFi, it's just specific to lending, how do you underwrite and how do you solve the problem of data or collateral? And then the second step is if you could actually underwrite and solve that and then how do you actually leverage DeFi to scale that so that you can potentially bring these activities on-chain and then unlock more options to borrowers and more investment opportunities for investors on-chain. So on the first problem I think you mentioned that where the underwriting is like, we're not innovating per se in terms of compared to anyone else, we're just combining the wisdom of what is already available in terms of underwriting. Looking for more data through the partners, looking for more social proof data from the borrowers themselves, leveraging the model of the SACCO and show that we can potentially underwrite.
And then when it comes to the second step, I think you mentioned that if you can potentially underwrite, people can repay, how do you leverage the DeFi framework to actually scale it? And a couple things we're doing is when people borrow and repay, we start creating on-chain footprints for them of their borrowing histories. This is actually become, you can think in the future where someone has a good reputation with Jia, we can issue NFT that's representing their on chain identity that they can use it to go to other lenders, other services to unlock more opportunities. And then we can also in the process, as some of the small business, they do have invoices, we can start tokenizing those receivables invoices so that put them on-chain to unlock more liquidity and capital.
And then you mentioned about the Jia token as a reward, which could have a lot of utility. And for the borrowers they don't care, either it's a crypto or anything, they only care about where do I get cheaper loans? So that's why we are really tying the token rewards to their behaviors. If you're repaying on time, you are getting the Jia Points and what Jia Points give you is bigger loans and cheaper rate and the opportunity for you to bring other quality borrowers and you can get additional income over that. So something tied into the things they already didn't understand. So hopefully that will encourage the behavioral change to help them become a long-term relationship with Jia instead of a transactional relationship that they have today with other digital lenders.
Justin Norman: And just one quick follow up on that point, I think you talked a little bit about just borrowing activity on chain. I think that is an important thing to double click on in the context of lack of credit bureaus and you talked about loan stacking and there was a lot of talk in the FinTech space about sharing data amongst different apps to be able to more easily weed out bad actors. So it's been a lot of you go to one app, then you go to default, you go to the next app. So I'd have to imagine that bringing all of this activity on chain is a really important part of the equation as well.
Cheng Cheng: Yeah, and definitely I think that's where having their credit history on-chain that they can also have full ownership over that can give them autonomy to be able to access more different potential products, financial product, not just limited to lending. But I really think it's very gradual process. That's why first needs to happen, lenders like us can underwrite them and then think of way that we can bring that data on chain with their consent and a good way to protect their privacy and how do you validate the source of truth of data? Because data coming from on-chain, there's a problems like a truth of Oracle. And I do think a lot of steps need to happen in the future where I envision a lot of lending activity could actually happen on-chain, but we're taking step at a time.
Gwera Kiwana: I think that's a gradual approach to that kind of development. Sounds about right, and I think let's move on to looking at the future. So we've laid out the challenges and I think Cheng, you've done a really great job of explaining a little bit more about a tiny glimpse into the future opportunities that exist here. Let's look forward and we call this show crypto@scale, so we want to understand both your opinions regarding what you want to see with regards to DeFi adoption, especially with DeFi lending adoption at scale. What does that look like? What will this take? Obviously there's things like education, regulation, looking at that, progressive decentralization innovation that's happening. What else do you think is it's going to take, and Cheng we'll come back to you, what is it going to take Jia to take it to the next step and other players in the space who are serving the same markets that you're serving?
Cheng Cheng: Okay, great. Yeah, I think, yeah, totally true. I think as you mentioned, there are so many moving pieces to be able... Things need to hold true to scale DeFi and to have it widely adopted. Personally, I can lean towards the opinion that with massive adoption of this type of new technology is not a linear progress. I know I just mentioned, things will take a gradual step, but sometimes it's reality, there's some core infrastructure gradually become ready that make adoption possible and then a killer app will show up to educate market while the rest of things can gradually catch up. We have seen that, especially previously with the social media FinTechs, that's what we've seen. And then the regulations gradually catch up. But where the world is, you can never be so sure, especially for like a crypto, the regulations already jumping ahead in many markets to [inaudible 00:51:10] it's one of thing you have to consider as you scale DeFi.
So a few pieces really matters to Jia if we want to scale our solution across emerging markets. One is on-ramp, off-ramp infrastructure to really stream line the lending, smaller ticket size lending, let's say $1,000 that borrowers can borrow directly from the pool. And then to be able to use the money. Today to do that, you have to go through regulations, on-ramp, off-ramp and then think about FX. We talk about how to turn that into the cache link so that they can use the money and for them to repay, you have to go through the on-ramp. The cost doesn't really make sense. Many cases the technology infrastructure is not there. So that's one piece that's very important. Jia's not solving that, but I know so many good players are really working on that.
And then second piece is really important for us, more use cases beyond just speculative purposes. Today we cannot really do that, but if you imagine a borrower is like they can borrow from crypto directly, then they can use the money directly to pay for services in their supply chain. That kind of can make whole service more efficient and more streamlined. So that's where I really love to think the future would look like. And then the education borrowing, it's a definitely challenge for us. So that's why we took the approach not to just trying to make people to adopt crypto, but really trying to figure out let's solve a problem for them and leveraging the tools we have. Some of tool, in the traditional form, some of the tool actually is leveraging DeFi. So I think that's kind the approach we're taking and definitely curious about what Safi is doing, and the rest of the world is really innovating now.
George Mosomi: On our side, for the Africa DeFi Alliance, one of the things we're working on is the progressive decentralization. And when I say progressive decentralization, it means more people who are giving the liquidity and more people who are taking part in the liquidity are getting a say in how that liquidity is being actioned. And that will take a lot of time. But we want to build this large ecosystem of players, the Jia's, the Safi's, the teams that Gwera and Justin are working on, making sure that as more people are learning and getting educated on DeFi, they can actually take an active stance and be stakeholders and decision makers and governance participants. Because at the end of the day, if you look at the traditional, all these SACCOs and the similar impacts of SACCOs around the world is that we've created traditionally small ecosystems which work because people within those tiny ecosystems can understand who I'm lending to within this space.
I have requests to default and they generally have low default risks because people know each other within those ecosystems. And if we continue to leverage and contribute as communities within our respective protocols and the Africa DeFi Alliance, we will benefit from this. And I mentioned working with institutions. As much as I hate it, we'd still have to partner with our traditional financing institutions. I think that's the quickest way to potentially leverage the maximum capability of DeFi. And that means working with banks to help them discover, you can also leverage some of this technology to make sure that you have access to these pools and you can also use it so that you can create lower barriers to entry for people who want to get credit from your specific facilities.
And then the last point I would say is probably around interoperability. I think Cheng mentioned how many people are working on different solutions, it'll be nice to have a super app. You can come into the super app, potentially get as quickly as possible without going through many loops and hoops of jumping through fire and quickly take out a loan. Your credit score has already been pre-checked and pre-approved and you can borrow in whatever cryptocurrency, you can borrow in whatever liquidity pool in and pay it back within those liquidity pools. And it takes a lot of work and a lot of action from each of us as individuals as we build out these different technology platforms.
Gwera Kiwana: Cool. Thank you so much. So we're coming to the end of our discussion and each week we ask our guests for one or two recommendations for sources or really things that they recommend to the crypto@scale community that gets them excited about crypto. So we'd love to hear your recommendations. If there's any new protocol or a place to learn about crypto or even a blog or whatever, we'd love to hear your recommendations. So we'll start with you, George.
George Mosomi: Oh, awesome, awesome. Well, my friend and I, Daniel Akpobare run a podcast called How We Build Web3 in Africa. So we talk about really cool stuff most of the time. It's also just stories about people who've been in the space and I think one of the most important things is to not only know the success stories, but also understand their failures and learn from those failures. So we try and address those things on that podcast.
Gwera Kiwana: We'll drop the link. Cheng, anything from you?
Cheng Cheng: Yeah, actually I might be the least crypto-ish guest on the show. A lot of times I'm joking, "I'm like not building Web3 yet, I'm building Web1." I'm spending a lot of times in the Dookas interviewing customers listings. But one I would recommend is, I don't know if you guys know Packy McCormick, he has a Not Boring newsletter. He's one of our Jia investors, had been really, really helpful for our journey. So he writes biweekly newsletters and talk about tech, strategy, part of that is also crypto. I use that a lot to keep me updated on where things are in the industry.
Gwera Kiwana: That's great. I think we-
Justin Norman: I'm a big Not Boring fan.
Gwera Kiwana: Same. Also, I think we need more people who claim that they're not crypto in crypto because you're the ones, well, we are all the ones who are driving each other to learn more and not gate keep the ecosystem. So thank you. Justin?
Justin Norman: Cool. Yeah, I think that wraps up our discussion. So thank you both of us for joining us today. This was a very fun conversation. I know I learned a lot. I'm excited to see all the work that you guys are doing come to fruition in the near future. So where can people find out more about you and your companies, George?
George Mosomi: Come to And then from there you'll see all our cool docs, our communities on Discord. You'll get all the links. Yeah,
Cheng Cheng: You'll find the latest about us.
Justin Norman: Great. And you can find more about us on Twitter, @crypto@scale. And if you enjoyed this episode, please do hit that follow button on your favorite podcast app or YouTube and share with a friend or colleague who you think may enjoy it as well. Cheng and George, thanks so much for joining us.