Blockchain Startup To Service The Unbanked In Papua New Guinea

25-year-old Papua New Guinean entrepreneur Shane Ninai has partnered with American venture capitalist Tim Draper to create the blockchain startup Day One Investments, which aims to foster financial inclusion in Papua New Guinea where it is estimated only 20 percent of the population has bank accounts, and alternative currencies such as shell money are still recognized.

Day One Investments is a venture capital and economic development consultancy firm that invests in blockchain solutions and works with central banks, regulators and international development firms in emerging markets on how to implement those solutions in local economies.

Though the blockchain is most known as the underlying technology of bitcoin, it has applications and uses in other scenarios such as allocating worth or value to resources and allowing financial resources and services to reach those in geographically remote locations.

Blockchain and Alternative Currencies

Speaking at the 2017 London Blockchain week where he gave the keynote opening address, Ninai explained why most of the population in Papua New Guinea, is unbanked and excluded from formal financial systems saying:

“While formal market systems may be a source of economic growth and individual enhancement, they are simultaneously the source of financial exclusion as we are competing with millennia of ingrained cultural tradition and competing norms of economic engagement. Instead of trying to fit the 85 percent of the unbanked into a narrow financial system; the real wonder of the blockchain is that it allows us to create and capture these alternative economic systems that bypass normal markets.”

He also spoke of the similarities between the blockchain and the economies in developing countries that are primarily based on trust, collaboration, and cooperation as opposed to the individual nature of formal financial systems. “In many developing nations like Papua New Guinea, the basis of economic life is mutual cooperation and solidarity, rather than individual competition for narrow success. These are systems of consensus and distributed trust that are consistent with the mechanics, vision, and value of the blockchain; and are often at odds with the ‘normal market’ we define financial inclusion by,” Ninai said.

The pilot province of the startup is in East New Britain, which is the second largest financial hub in the country. Since blockchain technology and the alternative economy of Papua New Guinea are based on the same tenets, microfinance institutions understand and are more willing to adopt the technology.

Explaining this, Ninai said they have explored the alternative economy and the use of shells as money. Microfinance institutions and savings and loans societies are willing to provide loans against this shell money because they recognize it as currency. Before any major decision is made in the community the families, the clans all meet and have a say and vote, analogous to consensus algorithms.

“The first day that we walked into the office of East New Britain Savings and Loans in Kokopo, we began to explain the blockchain to the staff. And something interesting happened, we would say something, they would ask questions, and before we could answer, the other staff members would be answering the questions. They knew the problems so well, they grasped what the technology could do, and they knew it was needed. We hardly did any talking. This was the overwhelming reaction from these smaller microfinance businesses who are tasked with serving the bottom of the pyramid.”

Why Regulation is Important

Although banks’ and microfinance institutions’ willingness to adopt the blockchain technology is important, Ninai stressed the need for regulation in order for things to proceed smoothly saying, “Despite all the hype, all the blockchain system does is enable digital tokens to be moved between participants. Whether such digital tokens are perceived to have value or not is a separate, and more complex issue. In emerging markets especially, a regulator led model is the only way to ensure that these systems have value and are transacted with at scale; the regulator’s appreciation of this innovation and a willingness to experiment is key.” 

He referenced the Financial Conduct Authority (FCA) and its FinTech sandbox, which allows new startups to function without excessive regulation so as not to stifle innovation while still ensuring correct regulatory oversight and the safeguarding of the consumer. He stated the need for “a strong partnership with a regulator in an emerging market who is willing to look at cross-border collaborations with regulators in developed markets like the FCA sandbox model. And then to additionally and most importantly contextualise it: Here it is important that the regulator explores these alternative economies with the Blockchain promoting an alternative business model that incentivizes solidarity and mutual aid over- the ‘normal market.’”

For the blockchain to become “real” for developing countries such as Papua New Guinea, regulators and the private sector will have to work together. “The real opportunity, though, is for a developing country to embrace this. Public and private partnerships are key for this to work. An informed regulator is more important than ever as the problem is in the irony that while developing nations are the ones that stand to benefit the most, they are also more often than not, not prepared to do so. And therein lies the challenge,” he said. Ninai, however, stated that the Bank of Papua New Guinea has been working in collaboration with his company to find solutions towards regulation.

Shane Ninai, who is the Managing Director of Day One Investments, says it is scheduled to close its fundraising within the next quarter, after strong commitments from local and international investors.

Ninai’s Day One Investments is creating an innovative way to look at alternative value systems, in Papua New Guinea and in other developing countries where economies are based on trust and consensus, and finding a way to include these populations in regulated systems without discarding their values and views of worth. This model has the potential for scalability and application in many of the world’s unbanked communities thus giving them access to financial services that they were previously excluded from and thereby giving their economies a much-needed boost.