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Interview: A taste of Freedium

Gulfbusiness.com logo Gulfbusiness.com 14/05/2018 Neil King
KEBA DEBOUT ROUGE © Motivate Publishing KEBA DEBOUT ROUGE

When the government of the UAE announced last month that it aims to use blockchain for half of its transactions by 2021, it was the latest in a long line of statements to confirm the growing importance and impact of the database technology – not just in the region, but across the world.

Since its invention by Sataoshi Nakamoto in 2008 to support cryptocurrency bitcoin, the incorruptible digital ledger of economic transactions has evolved to become a highly sought after technology for businesses – so much so that the Middle East and Africa spending on blockchain is expected to more than double this year, according to consultancy firm International Data Corporation.

In Dubai especially you don’t need to look far to appreciate the burgeoning influence of blockchain. The emirate established the Global Blockchain Council, intends to use the technology for all government documents by 2020, and plays host to two major events – the Future Blockchain Summit, taking place this month, and the World Blockchain Forum, which was held at Madinat Jumeirah in April.

It was during the latter event that a new product was officially launched that showcases the power and potential of blockchain technology – a digital currency that could change the lives of billions of people worldwide: Freedium.

Based in Dubai, Freedium is the first commodities-backed digital stable currency, using blockchain technology to provide financing to commodity owners in emerging markets – particularly in Africa, but also in Latin America, Asia and the Middle East.

With plans to be operational by the third quarter of this year, the firm expects to issue its first Freedium coin in Q4, and aims to free developing countries from constraints linked to volatile currencies, limited access to banking services and foreign exchange scarcity.

The currency is the brainchild of Keba Keinde, founder, chairman and CEO of Dubai-based investment bank Millennium Finance Corporation, and now founder and chairman of Freedium.

We meet a day before his launch announcement at the World Blockchain Forum, and as we talk his excitement for the potential of Freedium is palpable.

“In Africa, technology has shown that it can have a fantastic impact and allow the continent to leapfrog,” he says.

“The closest example of what we’re trying to do is with mobile telecommunications. Around 20 years ago in Africa only 1 per cent of people had access to a telephone. Can you imagine? Only 1 per cent could be connected to the rest of the world.

“With the introduction of mobile telecommunications today in Africa you have 50 per cent – in some countries 60 to 70 per cent – of the population that has access to the rest of the world on mobile phones.

“They have access to information, they know what is happening, they can be connected to the rest of the world. That has completely transformed Africa and it’s potential and we have seen Africa become the second fastest growing region after China for the last 10 years – to a large extent due to this new technology that allowed this vibrant population to finally get connected to the rest of the world.

“Because the African banking sector is extremely weak, Africa is the world leader in terms of mobile money. You have the largest amount of mobile wallets in Africa – twice as many as the United States and growing twice as fast. We went directly from no bank account to mobile banking. And that has had a tremendous impact on the continent.

“I believe that technology today, with the blockchain, can allow us to reach the next level of unleashing the potential of Africa – to be able to transact efficiently with the rest of the world and be connected with the global financial market.”

Freedium works by inviting customers to get liquidity from their commodities in Freedium coins, depositing their commodities in a warehouse as collateral.

“We take that commodity and we develop a hedging strategy that allows us to lock the value of this commodity,” says Keinde.

“We take that value, cut it into small pieces – the Freedium coin – and issue them to your digital wallet. It is issued with the full backing of your commodity and stable to the dollar, thanks to our stabilisation mechanism that allows us to track the dollar within plus or minus 5 per cent. It is globally accessible on any device, and you can use it to make international or national transactions without having to go through corresponding banks.

“It is also protected against Black Swan events because we have a basket of commodities backing the currency, so the probability that all of the commodities will drop at the same time is almost nil.”

Available to all developing and emerging economies, Freedium has the potential to reach 6 billion people, or 85 per cent of the world’s population. That represents some 60 per cent of global GDP.

Keinde says Africa will be the initial focus because “this is where the pain points are most acute”, and identifies four main challenges stifling the continent’s growth: Low banking penetration, weak and volatile currencies, the lack of access to dollars, and price exploitation by international commodity trading companies.

And he argues that Freedium can help overcome these challenges in a number of ways.

“Now that this currency exists you can do so many things,” he says.

“Take remittances. You have $50bn worth of remittance coming into Africa every year. Around 11 per cent of those go to the likes of Western Union and banks via transfer fees, and foreign exchange fees. We can do it for free with Freedium coin. It’s on your phone, so if I’m here in Dubai and I want to send it to my sister in Senegal, I press a button and she receives it without anyone else getting involved. It will cut down the cost of remittances to Africa from 11 per cent to less than 1 per cent.

“Take another example: trade. You have $1.5 trillion worth of trade each year in Africa, of which 70 per cent is not financed by banks – it is on a cash basis. It’s someone in Africa who has money and wants to go buy computers in China to come back and sell them at home.

“If, I am a trader let’s say in Nigeria, I would take my naira, go to the black market, change it into dollars, take a plane to China, change it into yuan, go to Guangzhou, buy my computers, fly back with them.

“Now I can sit in my living room and enter into a smart contract with the supplier. The supplier knows I have the money because it’s digital and the money is blocked. He knows that once he ships the goods and that a third party says the product is shipped, he’s going to get paid. He has zero risk. From the perspective of the Nigerian trader, he knows he’s going to pay only when the third party tells him his order is shipped. He doesn’t have to change money to dollars and to yuan, and he doesn’t have to travel.

“It’s a way to make these traders’ lives much easier. To make trade more efficient, less costly, faster, and transparent.”

Another big aspect of Freedium is financial inclusion, he says.

“Because we have a currency that is stable, that you can store value in, and that you can develop all kinds of products with, we’re going to help the larger population in Africa and other emerging economies to be able to bank in a currency that’s stable; to have a bank account on their phone, to increase the banking rate, and to develop microfinance.

“This will have a huge impact on the day to day life of the poorest people in emerging markets.”

The ambition of Freedium is reflected in the team Keinde has assembled. One of the most high profile names is Aron Dutta, the company’s chief strategy officer, who was the global head of blockchain at IBM, managing director or Cisco Systems, and chairman and co-founder of Diligent Solutions.

The company has also made strategic partnerships with leading global companies including Wanchain, Vaphr and Bitsapphire.

And the future certainly looks exciting, with the potential of Freedium extending into free zones, banks and other institutions around the world.

For example, says Keinde: “Banks can use our currency to make international payments without going through a corresponding bank, so there is a huge rational for them working with us. We’ve been getting some very good feedback from them at this stage.

“The banking industry is very strong, but this is an opportunity for them to provide better services to their clients. We’re an opportunity for the banking sector to help customers transact in a more efficient way.”

From Senegal to success

Keinde’s desire to initiate positive change and impact developing and emerging economies is nothing new, as a brief look over his career can tell you. His work with the World Bank, BNP Paribas and his own investment banking firm Millennium Finance Corporation is testament to that.

But a brief look doesn’t do justice to his story, which tells not only of great success, but also personal and professional challenges that threatened both his business and personal reputation.

Born and raised in Senegal, he was hand-picked at 13 years of age for a full scholarship to one of the most prestigious schools in France – Le Lycée Louis-le-Grand in Paris – before graduating to École Nationale Supérieure des Télécommunications – regarded as the best engineering school in France for computer science and telecommunications.

“At that time I wanted to be like my dad – I wanted to be an engineer,” he explains.

“So I joined IBM in France and worked for three years in their systems integration division; putting together information systems for large corporates in France.

“I did that for three years and realised that I’d done what my dad wanted me to do, but in fact I wanted a better understanding of how the world works, how companies work, how countries work. So I went to MIT to do an MBA in economics and finance.”

While at MIT – where his thesis presciently focused on how to change currencies in Francophone Africa – Keinde set his mind on joining the World Bank, which he considered the best path to contributing to the development of Africa. He eventually joined the organisation as part of the Young Professionals Programme.

Courted by numerous Wall Street players, he was later persuaded to take a sabbatical from the World Bank and joined the investment banking division of Lehman Brothers, where he stayed for four years before rejoining the World Bank as part

of its sister organisation, International Finance Corporation.

“I spent four years at the IFC, running public-private partnerships in Africa, helping governments in Africa with privatisations and PPPs, especially in infrastructure, electricity, water, telecommunications, and so forth,” says Keinde.

“It was a very interesting job because I was actually doing what I had wanted to do for a long time, which was contributing to the development of Africa by bringing strategic investors from around the world.”

He was then headhunted by French bank BNP Paribas to lead its Middle East and Africa, Turkey and Iran investment banking division as managing director.

“It was a good continuation of what I’d done at IFC, and allowed me to bring different products – not just PPPs but also financing, IPOs and these things,” he says.

“It was during this time that I did a lot of transactions in the Middle East and Africa, and I got to know the Dubai story.

“We did transactions such as taking Etisalat to Saudi Arabia for the acquisition of Mobily – a $3bn transaction that was really the first expansion of Etisalat outside the UAE, apart from Sudan. We did the M&A, the financing, the IPO, and it was a landmark transaction.

“At that time the clients in the region were really becoming global – the likes of Dubai Ports, Emirates, Etisalat, and so forth. There were starting to compete with their European and US counterparts, and were getting a bit fed up with the suitcase banking approach that global investment banks had. I was based out of Paris, not based here, so couldn’t be available to them all the time.

“More importantly, the bank was a sort of matrix organisation, so if I saw a nice telecoms opportunity that I thought would be attractive for Etisalat, we would first have to go to our core clients with whom we had links on the balance sheet to see if they wanted the opportunity first – the likes of France Telecom, Telefonica and Vodafone.

“So the regional clients were getting a bit fed up, and I told my management that it was time to create a fully-fledged investment banking platform here. They were very interested, but the implementation got a bit slow. So I decided to create my own platform. That’s how I created Millennium Finance Corporation in 2005.”

Established in the DIFC, MFC was created in partnership with Dubai Islamic Bank and Kuwaiti holding company KIPCO, replicating the organisation, structure and governance of international investment banks.

“The only difference between us and the bulge bracket was that we were giving priority to the clients in the region,” says Keinde.

“We quickly became the most credible alternative to the bulge brackets and were very successful in supporting the expansion of large institutions from the region into Africa, Asia and other markets – as well as providing financing to them.

“For example, we were the lead manager and book runner for the IPO of DP World, which was at the time the largest IPO ever done in the region at $5bn.

“We also did a number of transactions for Etisalat, supporting them in all their expansion in Africa, and supported Batelco in their expansion in India.

“And we developed a private equity platform subsidiary, raising $500m; of which $166m was deployed in very sophisticated transactions. So things were going extremely well at that time.

“Then something called the worst global financial crisis since the great depression happened.”

With no toxic assets on its balance sheet the crisis did not have a direct impact on MFC, but Keinde explains that the company’s shareholders and limited partners were “very much affected”.

It was a scenario that had a deep impact on Keinde and MFC, specifically after an investment into a German technology company was agreed and approved by the LP-controlled investment committee.

“Our LPs who were affected by the crisis defaulted on the capital call,” explains Keinde.

“Not only defaulted, but informed us after the fact that they couldn’t do the investment. This put us in a difficult position with the counter party because it was a competitive process that we had won. They had an alternative to get capital, but had selected us and dropped the other side. Then all of a sudden we weren’t able to close the deal. So the counter party decided to sue us.

“That was a problem because first of all it had a reputational impact on our private equity subsidiary, but that reputational impact also spilled over to the mothership – Millennium Finance Corporation.”

Keinde and MFC decided to put the LPs in a ‘default process’, meaning MFC could take their assets and sell them to get the capital they were supposed to contribute, thus allowing the deal to go through.

“They didn’t like it,” says Keinde. “And as they were not only LPs in our private equity fund, but also shareholders in the mothership, they tried to take over the mothership. They tried to take control of Millennium Finance in a very aggressive way and nominated an interim management team to run it while we were fighting.

“For a full year the company was not operating because no decisions could be taken.”

Keinde raised the matter to financial regulator the DFSA (Dubai Financial Services Authority), and after a year-long legal batter was awarded a positive outcome.

“We received all of their (the LPs) shares for free into MFC, we received $8m in damages, and we kept our carried interest into the private equity platform,” he says.

“So it was a win in the end because we were taking control of our lives.”

He adds that his first business decision after the ruling was to fire the entire interim management team – a strong move that quickly had ramifications.

“That was at around 11am,” he explains. “At 1pm people were running into my office saying ‘have you seen what’s on Wikileaks?’

“The interim management team, which was very shocked to be axed, had decided to go on a smear campaign on Wikileaks. A ridiculous smear campaign that had no foundation whatsoever.

“We immediately informed the DIFC, we informed the other shareholders, and we ran an investigation. We followed suit again, not with the DFSA, but with the Dubai Courts as this was a criminal offence.”

Despite clearing his name of the corruption allegations, the details remain on Wikileaks – meaning Keinde is repeatedly required to address the allegations in a business setting.

“It has been something I’ve had to explain every time I meet investors and so forth,” he says.

“It’s amazing how nowadays the internet – if not controlled – can have a dramatic impact on people’s reputation. We’ve had to live with that since 2009. It’s all unfounded, but it still has a reputational impact.”

Rebuilding MFC in the aftermath of the global financial crisis, Keinde admits that business was relatively slow, but success gradually arrived – particular in Africa.

“Because of our track record there, where we had done transactions in about 75 per cent of the countries throughout my career, we were able to get good privatisation transactions, PPPs and advisory business.

“Which took me to the next chapter in my life.”

Presidential ambitions

In 2011 Keinde decided to run for the presidency of Senegal. With an incumbent president who had served the maximum two terms, but had found a way to run for a third through constitutional changes, Keinde believes the majority of people were ready for a new direction for the country. And he saw the opportunity to help develop Senegal from the inside.

“Having been trying to contribute to the development of Africa and emerging economies for my entire career, and having seen what could be done with the right leadership, my plan was to transform Senegal and make it the success story of all 55 countries in the continent. To make it the bridge between Africa and the rest of the world using proper governance, using technology as an opportunity to leapfrog, and using our unique geographic position.

“We have a stable country, we have no wars, a relatively advanced democratic system, and I could have been a wonderful success story if we had taken the right decisions at that time.”

Keinde reveals that his pre-campaign was very successful, being a non-political candidate with a good track record. The country’s youth in particular, he says, were galvanised by his candidacy.

“We had tremendous success. Too much success, it turned out. One month before the elections, the incumbent declared my candidacy non-receivable. So I was not able to run in the elections,” he says.

“It was really a set-back. We’d spent a full year travelling through the country, forming a base and putting a lot of time, money and emotional capital into this. But in every set-back there is a good thing as well. The incumbent didn’t get more than 50 per cent of the vote in the first round, and the second best was at around 25 per cent. So in the second round we all supported the second placed candidate, and he won with a landslide of 67 per cent, making him the current president of Senegal. So it was not in vain.”

The story, however, did not end there for Keinde:

“I also came to realise that politics is really dangerous,” he says.

“The politicians who were supposed to be friends inside the coalition that won ran the most horrendous smear campaign against me so that I wouldn’t become part of the current administration.

“The people I had allied with were suddenly my worst enemies.”

Again, allegations of corruption were levelled at Keinde, associating him with a transaction that happened with the country’s former administration.

“It was a transaction where our investment banks had advised one of our core clients – Zain – to go and acquire a license in Senegal. We didn’t win – another company won – and supposedly there was some alleged corruption scandal into that deal. They tried to associate me, even though I was advising the competing bidder that lost.”

He describes the episode as a “very difficult time”, made all the worse by the fact he had been trying to make a positive change in his home country.

“Can you imagine, you decide to stop your career to help your country, to fight against corruption, to improve governance, to make the country a modern and developed country. Not only are you prevented from running in the end, but also you are accused of crazy allegations that in today’s age go around the internet very quickly.

“So I decided to fully clear this before I do anything else. This was serious – I could not let this one go”

The resulting legal proceedings lasted for two and a half years.

“Every time I won there was an appeal, so I won five times all the way to the supreme court, and the supreme court said that not only did I not have anything to do with this, but that the alleged case didn’t even exist. Nothing had been stolen.

“Between the opposing bidder winning the bid and making the payment, there

was a gap in the exchange rate because they bid in dollars. That’s all. There was nothing wrong – nobody had stolen anything from that transaction.

“I got the supreme court to write and publish the ruling and completely clear me, which was the best day of my life. You don’t spend 40 years working hard, going from Senegal to the best schools in Europe and the US, working in the best institutions, establishing your own firm and making it successful, for some politician to come and destroy the whole thing.

“And especially if you’re running a financial institution, you cannot let this happen.

“I came back to my business and restarted my journey as a banker and entrepreneur, doing what we do best – focusing on emerging economies, mobilising investment, providing funds to governments, and trying to have a positive impact.”

With the launch of Freedium, Keinde is certain that he is now in a position to be able to do good work across the globe.

“This is not about making money with a new product, it’s about having a positive impact,” he says.

“It’s about allowing the prospect of 6 billion people to be part of the global financial market. That’s really the ultimate goal. And I believe we can do it.”

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