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Traditional Financial products are facing a threat from Defi and Crypto

Defi and Crypto

Is Defi and crypto, in Kenya a result of a lack of confidence in government processes and institutions or is it a result of innovation and progression within the financial sector? I believe that Defi and Crypto are a result of innovation and progression within Finance Kenya. In this article, we will seek to prove that instead of viewing Defi and Crypto as a threat, the government should embrace them by providing rules and regulations to protect its youthful population.
To better understand let’s start by first understanding the definition of the terms, Defi and Cryptocurrency. Defi- or decentralized finance is defined as financial products that are geared towards disrupting financial traditional intermediaries such as banks, brokerages, or insurance companies. While Cryptocurrency can be defined as a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
Kenya’s population is approximately 47.6 Million with 75% of the population being below the age of 35 years. This shows that the Kenyan population is youthful and cannot fit into the traditional financial products. The traditional financial products are “build” for the long-term, to access the products you are required to fill out a series of physical know your customer (KYC) documents, there are little or no online or physical products and there is a long process involved. Examples of traditional financial products include credit/debit cards, loans, bonds, shares, and long-term deposits. These products are issued by banks, financial institutions, governments, and companies. The traditional products are issued with a long-term savings nature in mind.
Having a youthful population means that products on offer in many financial institutions have to be tailor-made to fit their needs and their lifestyle. Looking at the age bracket of youth in Kenya, i.e. below the age of 35 years, the majority of them are students or at junior positions within the organization. Others are running small businesses and need quick capital and hence easy to repay loans.
The majority of the young people want products that are accessible via mobile phones and the internet, Secondly, they want to be in control of their money and be able to withdraw money without having to think about limits and the approval process. Thirdly, they want banks and financial institutions to offer a variety of products that are different and unique. Lastly, they want lower transaction costs. The above reasons clearly show why many young people are drawn to cryptocurrencies making Kenya the 1st country with a high volume in cryptocurrency trading and high traffic in crypto activity in the world.
When asked why he thinks Kenyans are drawn to Defi and Crypto Currency, the Central Bank Governor answered that lack of trust in the government system and process had most Kenyans engage in Cryptocurrency, disregarding the risks and challenges that are encountered.
What does Defi offer to Kenyans making it the most preferred compared to traditional finance? First, Defi eliminates the fees that other financial services charge for using their services. This means that there are no withdrawal and transactional charges. Secondly, money is held in a secure digital wallet unlike in traditional transactions where money was held in accounts. This brings that aspect of transparency. Thirdly, transactions are fast and can take less than 10 minutes depending on internet speeds. In comparison to traditional financial products, Defi offers reliability and transparency and makes the consumer in charge of their account.
With every good thing, there is a downside; Firstly, Defi requires the internet. This locks out a majority of Kenyans who live in rural areas and have no access to electricity and the internet. Secondly, Defi requires a level of literacy to be able to transact and even access the systems. Thirdly, emerging technology is dynamic and sometimes expensive, and sometimes very “experimental” i.e. it can work in one environment and not work in another environment. Lastly, security is an issue and most of the Defi products are prone to cybercriminals and hacking. Examples of Financial products in the Defi environment include P2P transactions that are recorded in the blockchain and cryptocurrencies.
In the current financial environment where most countries operate in open economies; innovation, flexibility, accuracy, and speed are the key requirements that are needed for any financial product or system to be popular. In an environment, where cross-border transactions are the order of the day. Both customers and consumers want their goods and services paid for and arrive within the shortest timelines.
Cryptocurrencies, on the other hand, are loved and opted for by many people as a result of their flexibility and high returns compared to trading in other currencies. Unlike the physical cash that is printed and circulated by the central bank, cryptocurrencies are generated by systems and hence are autonomous and cannot run out. In crypto, the user has full control of their wallets and can trade in, unlike the traditional system where the money is held in bank accounts and wallets. Crypto-currencies offer a variety of altcoins hence providing alternatives when investing.
The government should not, therefore, view Defi products and Cryptocurrencies as a threat to the traditional financial system but should view them as complementary to the existing financial system. As it offers alternative products that ensured that the youthful population is still able to save and invest. They should instead come up with policies and regulate the industries, license more internet providers and protect its citizens from cyber criminals who might target unsuspecting users.
Looking at the above reasons, Defi products and Cryptocurrency popularity then is not a result of losing patience with the available government process but it is a result of innovation and progression within the financial sector.
In the coming years, more and more Kenyans will venture into cryptocurrencies as a result of efficiency and speed. To ensure that the traditional financial products continue to exist, governments and organizations should try and innovate products that are easy to use, require little human intervention are reliable, and offer transparency.

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