Nigerian crypto startup, Kenza Finance has completed a $3.27 million seed round financing to provide crypto-based financial services to businesses in Nigeria.
Blockchain-focused venture firm Fenbushi Capital led the round with participation from Dominance Ventures, Hashkey Capital, Boxed Ventures, ConsenSys, Protocol Labs and others.
Founded by former AT&T employees Pascal Ntasama and Oyedeji Oluvole, Canza aims to become a crypto neobank that connects African businesses with the global economy. Its current offerings include cross-border settlement and treasury management. According to Natsama, who serves as the company’s CEO, the cross-border settlement is currently the company’s most advanced offering, with about $1 million being shipped weekly to Canada, China, Turkey, the United Arab Emirates and the United States. . The Treasury Management Service is due to launch later in the year.
By focusing on cross-border settlement and treasury management, Canza seeks to address some of the biggest challenges facing Nigerian enterprises that do business internationally.
Foreign exchange (foreign exchange) reserves in emerging market countries are increasing mainly because they are exporting more value and therefore earning more than other countries. This used to be the case in Nigeria until about 2008, when the country’s foreign reserves peaked at around $60 billion. Since then it has been oscillating between the $25 billion and $40 billion mark. This is largely a result of Nigeria’s excessive dependence on the volatile oil market for its foreign income.
The ensuing foreign exchange crisis has created several financial challenges, including currency devaluation and inflation (due to the country’s high dependence on imports). The Central Bank of Nigeria, in response, regularly introduces measures to preserve its foreign reserves. For one, the bank began discouraging the import of certain goods and services by disqualifying them from access to the Nigerian foreign exchange market.
It also introduced limits on the transfer of foreign currencies depending on the type of account. For example, Naira-sect account holders cannot make international payments of more than $50 in a month. Unlike funding by wire transfer, domiciliary account holders are not allowed to make transfers of more than $10,000 to accounts funded by cash deposits.
These measures make international payments difficult, leaving many Nigerian businesses requiring foreign exchange relying on informal agents who operate the hawala model. Hawala is an informal remittance system that runs parallel to the formal market. It originated in India before the introduction of Western banking.
Hawala runs through a network of partners (called hawaladars) who help each other in fulfilling payment requests. Here is an example of a simplified hawala arrangement:
Onome, an iPhone supplier in Computer Village, Lagos, wants to import iPhones worth $1 million from Jabri in Dubai. FX challenges in Nigeria make it difficult to wire $1 million directly to Jabri. So Onom agreed on an exchange rate to pay Jabari to Garba, a hawala in Lagos. With Onom’s transaction details, Garba initiates contact with his partner Aseem in Dubai. Asem proceeds to give $1 million to Jabari, who, upon receipt, ships Onom’s order.
One of the challenges here is that for large transactions, receiving foreign currency can take anywhere from 24 hours to a week because Asim may not always have $1 million idle.
Canza has established a crypto-based ledger, partnering with on-ramp/off-ramp companies in various countries to help Nigerian businesses and FX agents settle international transactions. In this case, an FX agent or trader goes with Naira, which is equal to the payment they want to meet. Canza then transfers the dollar equivalent to its on-ramp/off-ramp partner in the destination country using a stable currency such as USDT, who distributes the payment in FAT to the seller.
Canza wants to take things a step further by providing some type of Treasury management services to businesses to mitigate the effects of persistent devaluation.
“With Treasury, we are targeting B2B customers who ramp up a lot with us, and instead of keeping their crypto in a wallet, they can basically keep it in a DeFi staking pool where they can make a lot of money.” You can earn more interest than what your traditional banks will offer you for holding your assets,” Ntsama said.
DeFi, short for decentralized finance, refers to a new financial system that does not rely on central authorities to function. It uses blockchain-based programs called smart contracts to implement financial procedures, agreements and rules.
Many businesses in Nigeria have lost a lot of money to currency devaluation over the past ten years as they have kept their reserves in the naira. The Treasury offering provides a new way for businesses to manage liquidity and protect businesses from currency risk, Ntsama said, adding that his company has received interest from oil companies and asset managers in Nigeria who offer crypto services to their clients. want to start.
Canza is not the only Nigerian company leveraging crypto to solve these problems. Helicarrier, the parent company of local crypto exchange Buycoins, also offers cross-border payment services through a service called Desk,
In addition, an increasing number of FX agents operating in the informal market are learning about crypto and have begun to use it as a tool for cross-border settlement.
Canza plans to channel its new funding in three directions: hiring, compliance and working capital.
“We are investing heavily on legal, working a compliance manager, working with a combination of law firms in different sectors, and going after specific licenses, such as the PSSP license in Nigeria and Money in the US. transmitter license.” Ntsama said.