Blockchain Revolution and Financial Inclusion
How Fintechs are using Blockchain to accelerate Financial Inclusion globally?
Blockchain Revolution and Financial Inclusion
With recent technological advancements, DeFi and Fintech have emerged as a way to remove barriers and positively influence the world through digital financial inclusion. Financial inclusion is defined as the provision in a responsible and sustainable manner of useful and affordable financial products and services (transactions, payments, savings, credit, insurance) that meet the needs of companies and individuals.
Blockchain Technology and Financial Inclusion
The latest Findex figures show that 1.7 billion people, about one-third of adults, still have no bank accounts. People in developing countries with inadequate infrastructure and government regulations, poor women-led households in rural areas, and people who are separated from work account for about half of those who do not have bank accounts.
Blockchain technology has the potential to change this situation. By replacing trust, which has been a key component of the financial system for centuries, with transparency built into a distributed network, it becomes possible to provide financial services on the Internet. As a result, the blockchain can potentially empower people without bank accounts, to reduce transaction fees and become an alternative source of liquidity.
By providing a fairer and more transparent financial system, cryptocurrencies and blockchains offer alternatives to traditional financial services. Recognizing cryptocurrencies and blockchains for financial inclusion could be important to meet the needs of people to access affordable financial services. The user-friendly platform that Blockchain technology can provide has the potential to facilitate transactions between individuals and companies. Let’s see what it is like.
The World Economic Forum describes the technology as: “global, open source, and accessible to anyone with Internet access regardless of nationality, ethnicity, gender, or socioeconomic class.”
At the most basic level, Blockchain technology is essentially a decentralized method of organizing transactions into databases, or ledgers. It allows multiple parties to agree on the status of those transactions without intermediaries. All transactions are recorded in an unalterable, transparent, and encrypted format. In this way, blockchain is changing the role of banks, governments, and companies by enabling financial transactions that are safer, cheaper, and more efficient than traditional methods.
Four ways Blockchain Technology can be used to support Financial Inclusion
- Payment services: Blockchain applications that can hold multiple currencies on multiple domestic and international mobile networks and can quickly, cheaply, and traceable transactions are becoming an attractive technology, especially for small money transfers.
- Savings: Various apps and companies use blockchain as an alternative platform, making it easy (and not afraid) for people without a bank account, credit, or financial knowledge to save and invest.
- Credit: This area is more diverse, and there are many projects. One of the best examples is the Kenya-based blockchain project Grassroots Economics funded by UNICEF’s Innovation Fund. The project aims to bridge the credit gap among low-income people by building a Community Inclusion Currencies (CIC), which can issue tokens backed by all real goods and services in a particular community, such as water in towns, food, carpenters, and babysitters’ jobs.
- Insurance: Contracts tend to require identification, financial capacity, and additional documentation, which can be a barrier to enrollment. Blockchain insurance relies on other forms of securities, which can reduce barriers for individual investors.
Of course, this is just the beginning. In order to maximize the potential, it is necessary to spread blockchain technology. We need developers to make blockchain infrastructure more efficient and environmentally friendly. Governments to create appropriate laws to regulate and stabilize the market. Entrepreneurs to pilot and share blockchain solutions, and funders to provide capital to promising applications and drive the industry forward. However, it highlights the benefits of this technical tool.
Blockchain adoption and the Excessive Regulation
Unfortunately, on top of the potential benefits of blockchain technology, one danger remains – excessive regulation.
Over the past few years, many countries and regions have been investigating the regulation of cryptocurrency and blockchain-related businesses. We have seen regulators taking different approaches to how to apply regulations to blockchain-based technology, especially in the financial sector. As with all industries, there is a legitimate need for standards and regulations. The ideal path would be to make a reasonable legislative proposal for blockchain regulation to promote investment and protect consumers and investors. However, excessive regulation needs to be pointed out. Crypto assets, especially blockchain technology, have recently been consolidated as a secure platform for validating transactions in a decentralized economy. Regulations don’t change the nature of these technologies; they just make them safer for users.
Excessive regulation is generally the result of regulatory authorities’ efforts to address volatility and risk management, but these are intrinsic factors in all financial markets. Regulation of asset classes should focus on making them safer and more accessible rather than building barriers to safety. Basically, regulations should focus on reducing misuse, providing consumer protection to investors and stakeholders, and policing illegal activities.
Excessive regulation, in addition to the various other adverse effects, is likely to limit the ability of blockchain-based new technologies to help bring more people into the global financial system and to deny the associated benefits to billions of people in the global South, which many in the developed world already take for granted. In this respect alone, Western regulators should be intelligent and prudent in establishing regulatory frameworks that ensure safety without impeding innovation, creativity, and investment.
Final Thoughts
In conclusion, blockchain technology can potentially transform how we interact with the digital world. By providing a secure, transparent, and tamper-proof platform, it has the ability to change the way we store and share data. In addition, eliminating the need for intermediaries has the potential to reduce costs and speed up transactions.
However, excessive regulation could limit its potential. Therefore, it is important to strike a balance between regulation and innovation to maximize this transformative technology’s benefits.
Blockchain Financial Inclusion
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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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