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 credit worthiness, 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 vendors, 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 cooperation. Cardano 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 building a dApp tool to provide identification, 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 on 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 tooted 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 ATALA Prism to provide a unique identity for individual businesses in the informal sector. The identification would function in three ways;
1. Identification of Informal Business Owners
2. Identify various classifications of Informal business activities to the various economic sectors such as manufacturing, transportation, Retail & Whole Sales
3. Identification of workforce employed by the particular informal business.
The three 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 partnership, reduce risk and increase productivity. For instance, the number of workforces employed by a particular informal business is a good indicator for accessing the strength, growth, and expansion of the businesses 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 presents a niche for easy usage of 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 would be a hybrid of cost accounting and financial accounting systems with 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 that 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 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. 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 entering and verifying of transactions can be done by informal businesses without a central authority. The Cardano 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 as the suitable place for take-off.
According to the Ghana Living Standard Survey (2019), the informal sector employs 72% of economically activity 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 Biz Reg & Accounting DApp and would serve informal businesses.
<https://blogs.afdb.org/afdb-championing-inclusive-growth-across-africa/post/recognizing-africas-informal-sector-11645>
<https://blogs.worldbank.org/africacan/supporting-africas-urban-informal-sector-coordinated-policies-social-protection-core>
<https://www.brookings.edu/blog/africa-in-focus/2022/03/16/the-role-of-cryptocurrencies-in-sub-saharan-africa/>
Please describe how your proposed solution will address the Challenge that you have submitted it in.
How Integrated DApp Registry & Accounting on Blockchain Addresses the Challenge
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 enterprises (MSMEs), and big corporate firms. Hence expanding financial services to unbanked and underserved customer markets. Cardano blockchain is suitable for Ubuntu Origins Africa as an organization because it possesses unique governance and an evidence-based platform for change-makers.
The Ubuntu Informal Biz Reg & Accounting DApp also addresses the challenge by providing the informal sector community with an identity and financial inclusion that the existing centralized systems do not provide and this dApp provides a core solution to enhance the development of informal sector businesses in Africa. Thus, solving the problem of identity and financial inclusion, the informal sector would have reason to increase and interact with the Cardano blockchain.
The informal sector in Africa has real innovators, entrepreneurs, and creators that provide a decentralized solutions 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 percentage 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 an integrated blockchain registry and accounting solution, 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 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 a shared ledge with less time.
§ Accountant: Change the role of accountants from bookkeeping and reporting to becoming part of planners, decision-makers, advisors, and strategic partners for a successful business.
What are the main risks that could prevent you from delivering the project successfully and please explain how you will mitigate each risk?
The main challenge that the team foresees would be a level of education and internet connectivity to allow for optimum and easy use of the dApp. However, the data from International Labour Office (2018) reveals that the 90% informal sector is dominated by youths between the ages of 15-24, this presents a great opportunity for the future as more efforts are been made to increase internet connectivity and education in Africa. Also, the project would commence in Ghana, a country with free high school education, and improve the level of education of its youths. Also, internet connectivity is better in urban areas than in rural areas therefore, focusing on the urban informal sector would aid in overcoming connectivity issues in a short time while expanding to rural areas with time.
(Ref; Women and men in the informal economy: a statistical picture (third edition) / International Labour Office – Geneva: ILO, 2018)