Nigerian fintech startup Xend Finance is applying decentralised finance (DeFi) to credit unions in a bid to optimise operations and provide better yields.
Xend Finance, which in 2019 took part in the Google Launchpad Africa accelerator and the Binance Incubation Programme, has developed a platform that gives everyone access to the global money market so members can save and invest in stable currencies.
The Xend Finance platform also allows users to create their own credit unions and cooperatives, eliminating traditional middle men, while earning up to 15 per cent annual percentage yield on their savings.
The startup launched its platform publicly late last year after raising US$1.5 million in funding from investors including Binance Labs, Google Developers Launchpad and AU21 Capital, a round it topped up to US$2 million in February.
Now it has publicly launched its platform, which allows credit unions to access DeFi for their members by using decentralised stablecoins. The effect is to decentralise and optimise a credit union’s operations, providing better yields for the unions and its members through lending protocol optimizations as well as asset security through decentralised insurance.
Aronu Ugochukwu, chief executive officer (CEO) of Xend Finance, said credit unions across Africa were plagued by various challenges, notably defaults in contribution payment.
“It is common for most members in an Esusu pool to default in payment for some reasons. When one person defaults it affects the contribution cycle and reduces the total amount paid out to the current member. This is a very difficult issue because unlike traditional financial systems, member’s data in Esusu is not collected, and therefore there is no easy way to give credit scores or demand collateral for default,” he said.
Small group sizes, locality restrictions, and lack of asset security are other issues, as is currency devaluation.
“Currency devaluation is a common economic nightmare faced in most African countries and other developing countries around the globe. The low export rate and high dependence of the economy on imports from other countries means that the value of money saved in traditional financial systems decreases,” Ugochukwu said.
Xend’s goal is to address all these issues, and the startup has built an ecosystem of over 55,000 users that it is now converting to DeFi.
“Our mission has always been to provide real-world solutions using emerging technologies. Unfortunately, a lot of blockchain projects have a vision that will take years to realise. Fortunately, we have an existing user base and deep connections in our communities that means we can make a difference immediately,” said Ugochukwu.
“DeFi is changing and improving the traditional financial system like never before and is expected to continue to improve as developers and entrepreneurs harness the potential of new technologies like blockchain for developing DeFi applications. Xend Finance is striving to solve all the shortcomings of the traditional Esusu system, credit unions, and cooperatives by building an accessible finance platform that can be accessed anywhere a user resides.”
Xend is currently only operating in Africa and will be expanding to other regions of the world in 2021. The startup makes money from fees paid by users of its protocol.