The fractionalized government bonds will be tokenized and sold as savings plans for low-income individuals in 1000 CFA (~$1.53 USD) denominations via the Ejara app.
On Tuesday, Ejara and Mercy Corps Ventures announced the launch of a pilot program to offer tokenized government bonds to low-income individuals in Cameroon. The goal of the program is to improve access to low-risk savings products that also offer a high yield.
According to the announcement, Ejara will acquire an asset manager license from the Bank of Central African States (Banque des États de l’Afrique Centrale or “BEAC”) which will allow it to buy and sell government bonds.
The BEAC is the central bank that issues the Central African CFA franc. It serves six African countries, namely, Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon and Congo-Brazzaville.
How It Will Work
The BEAC issues government bonds in denominations of 1,000,000 CFA. Ejara will buy such bonds and fractionalise them into 1,000 CFA (~$1.53 USD) denominations which are then represented by tokens that are issued on the Tezos blockchain (i.e., tokenized).
Tokenization in this context means the conversion of the rights and benefits to a particular unit of value into a digital token. Here, the unit of value represented by each token is a 1,000 CFA chunk of a larger 1,000,000 CFA government bond.
This means the holder of each token is entitled to 1/1000 of the benefits that come from each bond, which, in this case, will be interest payments.
Once in their Ejara account, a user will be able to select a savings plan and assign a certain amount (i.e., a principal) to that savings plan for a set period.
After this, the user will earn daily interest and receive their principal amount at the end of the set period (i.e., bond maturity).
Users are free to withdraw their full principal amount before the bond matures, however, if they do this, there will be a deduction on the interest they earned. The available percentage yield will vary based on the term to maturity for the bonds, which ranges from 26 weeks to many years.
Expanding Access
The pilot announcement outlines some of the hurdles that low-income individuals face when trying to access savings products at traditional financial institutions. These include travel, management fees and minimum deposit amounts that are too high.
In contrast, Ejara users will be able to access the savings product through the Ejara app. There will also be an agent network deployed across Cameroon to help onboard users into the pilot.
Additionally, the low price point of 1,000 CFA means the savings product will be accessible to a much wider section of society. The model should also prove popular with authorities since it widens the pool of capital willing to buy government bonds.
On the question of why blockchain technology is being used, the pilot announcement identifies two advantages. The first is transparency and traceability for both users and regulators. The second is efficiency, in that managing fractional asset ownership, pay-outs and settlement is easier and cheaper to administrate via smart contracts which allow for automation.
If the pilot proves to be successful, Ejara and Mercy Corps intend to bring the savings product to other African markets. Specifically, the announcement identifies Burkina Faso, Côte D’Ivoire, the Democratic Republic of Congo and Ghana as “priority markets”.
Ejara describes itself as a decentralized investment and savings platform. It was founded by Nelly Chatue-Diop in Cameroon and became more widely known last October after raising a $2 million seed round. It is a portfolio company of Mercy Corps Ventures.
Once the pilot is complete, an update will be published by Ejara and Mercy Corps. In the meantime, you can find all the details about the pilot program here.
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