Cryptocurrency (Crypto) refers to a digital or virtual payment system that relies not on banks but on verified records utilized over the Internet. Crypto was initially introduced in 2008 by Satoshi Nakamoto, and it is based on blockchain technology. It is a peer-to-peer system that can enable anyone anywhere to send and receive payments. Over the years, cryptocurrency has gained a lot of approval from different nations globally, but in most African countries, the opportunity still exists to harness its possibilities.
African Micro, Small, and Medium-sized Enterprises (MSMEs) could discover what cryptocurrency payment entails, its advantages, and how to use it. Blockchain technology provides an opportunity for MSMEs to gain.
Entrepreneurs and small businesses should consider crypto payments because of the improved speed, reduced transaction costs, and advanced security. Cryptocurrency is fast and highly efficient as it provides improved payment processing. Using cryptocurrency, small and medium-scale entrepreneurs do not have to rely on financial institutions before they can carry out transactions within a country or across borders. With mobile devices and a good Internet connection, small business owners can purchase products or receive payments without unnecessary delay or transaction charges.
African entrepreneurs and small business owners sometimes avoid purchasing specific goods or carrying out some transactions online because they are concerned that they might encounter banking issues, fraud, or high transaction costs. With the usage of crypto, MSMEs can avoid banking and fraud issues, make business transactions fast, expand to new markets and grow their enterprises. There are a few benefits attached to utilizing cryptocurrency for transactions.
Benefits cryptocurrency could provide for MSMEs include:
Support Trade Facilitation
Crypto is proficient and can be used the same way as mobile money. Unlike the traditional means of transaction, cryptocurrency has minimum errors and transfer inaccuracies. With the African Continental Free Trade Agreement in operation, crypto can offer lower transaction costs and more inclusive growth. Improved trade facilitation can boost sales and income of small business owners, including women and young people.
Security
Because cryptography secures crypto, it makes it almost impossible to counterfeit or double spend. For this reason, cryptocurrency is a guaranteed means of transaction. Regarding regional or intra-African transactions, small business owners have to worry about currency exchange with the over forty-one currencies in Africa, but crypto bypasses this issue. Hacking and stealing of account information are common among traditional banking methods, and utilizing crypto can help reduce these risks for entrepreneurs and small business owners. Entrepreneurs still have to be careful while using cryptocurrency because crypto fraud and scams are on the rise.
Counter Foreign Exchange Volatility
Crypto can counter the currency volatility of African currencies. The COVID-19 pandemic exacerbated most African countries’ economic volatility, led to inflation, and reduced the value of most currencies on the continent. MSMEs need a secured, non-volatile payment option to protect them from the danger of investing or operating with unstable currencies. The rate at which the currency of most African countries keeps dropping is alarming and relatively unimpressive. Countries like Uganda, Nigeria, Guinea, and Sierra Leone have a low value to the dollar, are highly unstable, and fluctuate often.
Instead of carrying on transactions with fluctuating currency, MSMEs can opt for blockchain technology. Crypto is a stable currency accepted worldwide, and it is also not subject to unnecessary exchange and interest rates.
Assist with Crowdfunding
Adding a new revenue source can have a major impact on a business’s bottom line. Micro, Small and Medium-sized enterprises should consider crypto as it allows an improved scheme for crowdfunding. There are more than 220 million crypto users worldwide, and the number is growing fast. Crowdfunding enables entrepreneurs to raise money to fund a project or start a venture. Businesses in Africa, especially the small-scale ones, can benefit from crowdfunding since access to funding is a significant obstacle. Small enterprises can use crowdfunding to raise funds for particular projects they want to execute.
With the help of crowdfunding, MSMEs and entrepreneurs can easily create a vibrant for their brand, which can help them generate additional income and maintain customer relationships. By utilizing crypto, small businesses and startups will be able to use transparent, secure, and well-accounted crowdfunds.
Although some SMEs in Africa use various crowdfunding platforms, most of these platforms have tons of disadvantages. Most crowdfunding platforms face a high risk of fraud attacks resulting from low-security setups and measures put in place by these platforms. The usage of crypto promotes transparency and provides a more robust security setup. Additionally, these platforms come with excessive fees.
Entrepreneurs and small business owners can efficiently utilize Cryptocurrency because of its decentralized nature- reducing crowdfunding creation fees. Some of the most popular crypto crowdfunding types are Initial Coin Offering (ICO), Initial Exchange Offering (IEO), and Security Token Offerings (STO).
Challenges Facing Cryptocurrency Usage by MSMEs in Africa
Although business owners can derive many benefits by using Cryptocurrency, there are still certain impediments hindering the full maximization of crypto power in Africa. Over recent years, SMEs in countries like Nigeria, South Africa, Kenya, and Tanzania have been exhibiting excellent crypto usage. Moreover, there are a lot of problems that need to be solved for African entrepreneurs to generate substantial profit from utilizing crypto.
Some of the obstacles affecting the entrepreneurs’ and MSMEs’ usage of cryptocurrency as a payment solution include the following:
Trust
Trust is a significant setback affecting the growth of cryptocurrency in Africa. Most local business owners lack an understanding of crypto technology and believe that the means of cryptocurrency are fraudulent. They assume that if they carry out transactions with crypto, it will fail because it is being operated online or because of its complex procedures. A solution to tackling this problem is to provide adequate training programs for entrepreneurs and MSMEs on how to use crypto.
Also, educating them on the benefits of crypto and the best methods will be vital for increased usage among small business owners. Governments’ technology agencies can play a huge role in raising crypto awareness in African countries.
Weak Digital Infrastructure
Another challenge that hinders the promotion of cryptocurrency usage among African entrepreneurs and small businesses is poor digital infrastructure. Infrastructures that support high Internet speed and electricity are essential to promote increased crypto usage. In addition, since crypto operates via the Internet, without a suitable device (smartphone or PC) and stable data connection, it is challenging to utilize crypto for consistent payment transactions. Some entrepreneurs, especially the owners of informal and micro-businesses in Africa, find it difficult to afford the newest phone devices because new phones are expensive. Internet data packages also are not cheap.
Offering MSMEs reliable access to electricity, affordable Internet data packages, and inexpensive devices will help encourage their use of blockchain technology.
Government Restrictions
Government regulations and restrictions also impact why crypto is not being considered and utilized fully by MSMEs. Despite the success and immense usefulness of cryptocurrency, many African nations still place some sort of restrictions on its usage. In Nigeria, for example, the government blocked crypto usage. Other African countries that have implemented bans on crypto include Algeria, Egypt, and many others have an implicit ban.
More than half of African countries have not yet clarified their stance on whether cryptocurrency is legal or not. MSMEs willing to use crypto cannot do so because of the uncertainty of their governments, this further reduces the level of enthusiasm or interest local entrepreneurs have. Countries like Zambia, Morocco, Libya, and Algeria have banned crypto usage.
Government restrictions will continue to affect the growth of cryptocurrency in Africa. For small businesses to accept blockchain, governments must take a solid stance. It’s the technology age, so review new technologies early and release the government’s view early. There can not be an issue where we have an unsure government or an undecided one about whether a new technology is good or not. This uncertainty affects the adoption and utilization of new technology.
Cryptocurrency usage should be encouraged amongst African small businesses because payment transactions are easily accessible. Traditional banks are not usually available during the weekends, and therefore, most entrepreneurs who want to deposit or make payment for their goods can’t. Blockchain technology can enable smooth custom operations, assisting in implementing the African Continental Fre Trade Agreement (AfCFTA).
Even if financial institutions are ready to work on weekends, business owners will still have to fill out tons of paperwork and go through stress before finishing transactions. There are indeed bank applications available now to complete transactions online; moreover, economic activities involving large amounts will require a physical appearance at the bank. MSMEs can avoid the hassles of inaccessibility attributed to traditional banks, and transactions can go on 24/7.
Conclusion
Technology is revolutionizing the globe by providing various methods to conduct business and facilitate trade. Cryptocurrency is a great and proficient tool MSMEs can exploit to reach new customers and grow their enterprises. African entrepreneurs can perform various transactions with crypto or other blockchain methods. Small businesses can complete financial transactions across borders, participate in crowdfunding to raise funds, and counter foreign exchange volatility with digital money.
Could cryptocurrency benefit MSMEs? Yes, but only if the obstacles presented are addressed. Governments must tackle the impediments that limit the adoption of crypto by small businesses to encourage the use of blockchain among MSMEs. These impediments include poor infrastructures, government restrictions, and trust. If these challenges are addressed, cryptocurrency payments could benefit African Micro, Small, and Medium-sized Enterprises.
