Please describe your proposed solution.
Summary
The proposal seeks to provide identity and develop informal businesses in Africa by providing DApp solutions for simple accounting, marketing, management and tracking SMEs business progress with less documentation which would form the basis for creditworthiness, financial inclusion, and access to financing instruments tailored to the needs of the informal business (rural and urban) for growth and expansion.
Solution in Details
It has been said by Charles Hoskinson that, ‘Cardano is an open platform that seeks to provide economic identity to billions who lack it by providing decentralized applications to manage identity, value and governance’. With Cardano’s strategic plan for Africa, there is no greater way to help Africa without focusing on its traditional economy thus the informal sector. This sector is important because it sustains billions of livelihoods in Africa. According to Africa Development Bank (2013), the informal sector is a major source of employment which accounts for 70% of employment in Sub-Sahara Africa and 60% in North Africa. The World Bank (2020) has reiterated that the urban informal sector accounts for 80.8% of employment in Africa.
The informal economy in Africa is bigger and impacts most livelihoods in Africa. It is the very backbone of Africa’s economic activities. It includes the local corner shop, street vendor, and as high as manufacturing. They are full of creators and entrepreneurs and a unique space that is advancing decentralized solutions off-grid. The off-grid feature existing in their operation makes it difficult to identify and takes a longer time to build trust and mutual cooperation. A blockchain is a platform to integrate informal sector activities on the grid with a focus on reducing the risk associated with the informal sector and build dApp tool to provide identification and accounting and financial inclusion for the informal sector.
Our DApp would be built to develop a registry and accounting solutions for the informal sector businesses which would be the basis for financial inclusiveness.
Solution A - The Registry
The focus of the centralized government has priority in increasing taxes and formalizing businesses within the informal sector. The former has deepened the burden and increased production cost whereas the latter has not been effective at all.
The informal sector is rooted in traditional African origins hence, understanding the need for the sector to maintain its original form while undertaking initiatives to boost productivity levels among players in the sector is the way to go and blockchain technology would be effective in maintaining their original form whilst increasing productivity levels. Increasing productivity is the surest way to make the informal sector bridge the gap with the formal sector and progressively formalize and improve the livelihoods of their workforce. This would require a strategic partnership to provide financial inclusiveness and an identification system for players in the sector.
The Registry would function using smart contracts to provide a unique identity for individual businesses in the informal sector. The identification would function in three ways;
- Identity Verification: SMEs' identities would be established and verified via smart contracts. The required identity data may be saved on the blockchain using a smart contract when an SME registers on the dApp. This data may contain company specifics, owner details, and other pertinent information. By ensuring that the information given is true and unchangeable, smart contracts may improve trust and identity verification.
- Financial Transactions: On the blockchain, smart contracts allow for safe and open financial transactions. Smart contracts would be used by the dApp to provide credit, peer-to-peer payments, and trade finance for SMEs. Smart contracts would automate the transfer of payments, enforce previously agreed-upon payment terms and conditions, and increase transparency in business dealings. This makes financial services for SMEs more effective and affordable while reducing reliance on conventional financial intermediaries.
- Triple-Entry Accounting: Triple-entry accounting is a cutting-edge accounting system that blends blockchain technology and conventional double-entry accounting. The Cardano blockchain's smart contracts would capture and verify transactions, producing an auditable and immutable ledger. For SMEs, this triple-entry accounting system improves transparency, lowers the possibility of fraud, and gives a trustworthy and impenetrable record of financial activity.
- Access to Financing: Decentralized lending and crowdfunding platforms for SMEs can also be made possible via smart contracts. SMEs may obtain finance directly from lenders on the blockchain by developing smart contracts that specify loan terms, interest rates, and payback requirements. These smart contracts can manage loan repayments, automate loan disbursements, and give clear credit histories for SMEs.
The four functions would interplay to provide unique identities for informal businesses which would facilitate access to financial assistance which is absent in the operations of the sector. The quality of identification would be leveraged to provide credibility and reliability for strategic partnerships, reduce risk and increase productivity. For instance, the number of workforces employed by a particular informal business is a good indicator of accessing the strength, growth, and expansion of the business in Africa. It is trite that the private informal sector would not employ anyone unless you add value to their business operation (unlike the public/government sector).
Solution B - Triple-Entry Accounting
Businesses in the informal sector do not have the requisite capital to hire professionals to handle certain aspects of their businesses. The informal sector is common among the youth (95.8% ages 15-24) in Africa. The World Bank (2020) has estimated that the size of the working-age population would increase to 224.0 million by 2030 and 730.4 million by 2050. This present and niche easy usage for dApp tools that respond to the needs of the informal sector. The triple-entry accounting is a basic accounting tool tailored to the needs of informal businesses in Africa.
Triple-entry accounting is a hybrid of cost accounting and financial accounting systems with entry-selected entry components suitable to the needs of businesses uniquely identified and classified in the DApp Registry. Double entry cannot be omitted in accounting with associated debit and credit accounts, the addition here, is the third component which is the Cardano blockchain hence making it a triple-entry accounting dApp solution that is secured, opened, and transparent.
For instance, traditional double-entry accounting system, each business has its own debit and credit accounts. A transaction of $10,000 between Company A (Buyer) and Company B (Seller) can be recorded differently in the respective books of the company. Company A would not know how Company B recorded the transaction. There can be errors, omissions, or fraud associated with traditional double-entry accounting systems.
Positively, blockchain is the third component that would provide more transparency in accounting. The Triple-Entry Accounting would simultaneously add a third entry and post the third entry in a shared ledger that can be seen by all participants. The posting and verifying transactions can be done by informal businesses without a central authority. The Blockchain would be used to create a unique cryptographically sealed receipt with a unique digital signature for each entry.
Final Step - Starting Point
The combination of the Registry and Triple-Entry Accounting would commence in Ghana. The proposal seeks to commence in Ghana as a focus region for the project. Ghana is among the countries in Africa with cryptocurrency usage and exchanges operate with no stringent blockchain/cryptocurrency regulations. Hence providing a good environment that is a suitable place for take-off.
According to the Ghana Living Standard Survey (2019), the informal sector employs 72% of the economically active population whereas the formal sector employs 28%. The informal sector plays a major role in private activities that boost the economy of Ghana. Ghana’s private sector employs 92% of the economically active population.
This provides a great need for the Ubuntu Informal Business Registry & Accounting dApp and would serve informal businesses.
Collaboration
This project has collaboration with Inversion and their team of developers to provide technical expertise specifically for the development of the dApp. (See https://inversion.dev)
How does your proposed solution address the challenge and what benefits will this bring to the Cardano ecosystem?
How Integrated DApp Registry & Accounting on Blockchain Addresses the Challenge
The Blockchain technology provides a platform that requires less documentation and bypasses traditional banking services, therefore leveling the economic playing field between informal businesses, Micro, Small, Medium size enterprise (MSMEs), and big corporate firms. Hence expanding financial services to unbanked and underserved customer markets. Cardano blockchain is suitable because it possesses a unique governance and evidence-based platform for change makers and the dApp value of scaling the ecosystem and adoption in Africa through developing traditional systems that impact livelihoods in Africa.
The Cardano Ubuntu Informal Business Registry & Accounting DApp also addresses the challenge by providing the informal sector community with identity and financial inclusion that the existing centralized systems do not provide and this dApp provides a core solution to advance the development of informal sector businesses in Africa. It provides an improved and decentralized solution to the existing centralized financial sector that has isolated SMEs to the marginal. Thus, in solving the problem of identity and financial inclusion, the informal sector would have reason to increase and interact with Cardano blockchain.
The informal sector in Africa has real innovators, entrepreneurs, and creators that provide a decentralized solution in the real world. Chinalysis has estimated that Africa received $105.6 billion worth of cryptocurrency payments between July 2020 and June 2021, a 1200 percent increment. It is noted that Peer-to-peer transaction was dominant in Africa. This provides proven evidence or proof of concept that the demonstration of decentralized finance is known to the informal sector in Africa.
With integrated blockchain registry and accounting solutions, businesses in the informal sector would evolve the following in Africa
§ Management: Update on a shared ledge provides real-time information to informal business owners, problem-solving, and time to formulate strategies that address the current and future problems of businesses.
§ Auditing: Some audit procedures would not be necessary with the Cardano blockchain such as bank confirmation, verifying balances between buyer and seller, and inter-business transactions verification. Sampling is not needed because auditors can see and verify all transactions on the shared ledge with less time.
§ Accountant: Change the role of accountants from bookkeeping and reporting to become part of planners, decision-makers, advisors, and strategic partners for a successful business.
The Cardano Ubuntu Informal Business Registry and Accounting dApp would improve and provide more use cases to the Cardano Ecosystem. This includes;
- Wallets - SMEs would scale the use of Hardware and software wallets
- Tokenised Cardano's ADA - SMEs adopt ADA
- IOT - Connecting data management devices to Cardano ecosystem
- Borrowing and Lending - ADA facilitates lending and credit rating
- Marketplace
- Business Solution - Data management
How do you intend to measure the success of your project?
The team defines success by the impact we create for businesses in the informal sector, giving them an identity and imprint through a dApp with triple-entry accounting on the Cardano Blockchain that can be relied on for their financial inclusion in Ghana and Africa at large. Specifically, the following metrics define our success:
- Adoption and Usage: The degree of dApp usage and acceptance by informal companies is critical to our success. How much SMEs would use the platform to conduct financial transactions, confirm their identities, and access other services, therefore, the number of active users, transaction volume, and user engagement are key indicators for success.
- Financial Inclusion: The main objective is to increase SME financial inclusion. The number of formerly financially excluded enterprises/ SMEs that have obtained access to financial services through the dApp would be used to gauge success. Financial inclusion development would be monitored by keeping tabs on the rise in the proportion of SMEs having access to loans, credit score, payment services, and other financial instruments.
- Stakeholder Engagement: It's critical to collaborate with stakeholders including SMEs, financial institutions, regulators, and community organizations. The degree of cooperation, collaboration, and support gathered from different stakeholders may be utilized to measure success.
- Long-Term Sustainability: Long-term insights on the dApp's capacity to continue supporting SMEs may be gained by analyzing the dApp's financial sustainability, scalability, and flexibility. The success of the project may be determined in part by tracking its development, funding, and potential for growth.
Key Performance Indicators
- Number of Registered & Active Users
- Number of Businesses using accounting tool
- Number of Credit Ratings Issued
- Number of Downloads
Key Indicators for Success
- Completion of dApp
- Reach 200 businesses through educational outreach
- At least 100 businesses registered
- At least 30 businesses using the Accounting tool for a month
Auditability
The project team behind the project welcomes openness to catalyst community members and businesses in the informal sector as well. and has integrated progress reports that would be published monthly on the website. Also, DApp development would be documented in Github. The project team is committed to providing funding updates, impact, and progress reports on Discord.
Please describe your plans to share the outputs and results of your project?
Our dApp uses triple-entry accounting on the Cardano Blockchain to enable identification and financial inclusion for informal businesses in Africa and has a number of shared outputs and results:
A. Increased Access to Financial Services
Output - Developing dApp to provide previously unbanked informal companies access to financial services including savings accounts, loans, and payment options.
Results - This may lead to greater financial inclusion, allowing SMEs to expand their operations, make investments in assets, and handle their money more skillfully.
B. Enhanced Identity Verification
Output - Set up a safe and unchangeable identity verification system for SMEs on dApp.
Results - This can facilitate easier transactions and lower the risk of identity fraud by increasing confidence between businesses, clients, and financial institutions.
C. Improved Transparency and Accountability
Output - Use of triple-entry accounting on the blockchain to improve financial transaction transparency, secured business records, and accountability.
Results - Small and medium-sized businesses (SMEs) can keep an auditable, tamper-proof record of their financial transactions, which fosters more confidence and makes it simpler to obtain financial services, financing, and investments and provide credit scores.
D. Cost Reduction and Efficiency Gains
Output - The dApp would expedite financial operations, lowering transaction costs and increasing efficiency, by utilizing blockchain technology and smart contracts.
Results - This can save costs for SMEs and make financial transactions faster and more secure.
E. Strengthened Economic Growth
Output - Providing SMEs with financial services and greater financial management skills to help Africa's economy expand.
Results - The expansion of these companies may result in the creation of jobs, a rise in productivity, and general economic growth.
F. Advancing Cardano Blockchain Ecosystem
Output - Utilization of the dApp would help to advance Cardano's blockchain ecosystem in Africa and facilitate expansion.
Results - The utility would encourage cooperation among small and medium-sized enterprises (SMEs), developers, financial institutions, and regulators, fostering an atmosphere that is favorable to innovation, entrepreneurship, and technical improvements.