Blockchain and financial inclusion??

I have been interested in the concept of Blockchain technology ever since I was introduced to the concept, for the first time, during the World Scholars Cup (WSC) competition in Grade7.  After WSC I researched some more, in order to understand it better and was always intrigued by so many possible applications of blockchain in our daily life.   

In simple terms, Blockchain technology can be defined as a distributed ledger (an advanced database mechanism) that allows transparent sharing within a business network. A blockchain database stores data in blocks that are linked together in a chain.  It is perfect for applying in any situation where there is a lack of trust, where speed of transaction is important and where auditability/ traceability is essential.

Over the last couple of years, Financial Inclusion has been one of my key focus areas and my initiative MPower Yourself focuses on financial literacy training along with helping the underprivileged women with bank and insurance account opening and usage.  I very strongly believe that financial literacy and financial inclusion is a key step to economic development.  Just earning is not enough – together with it, women need to have the necessary knowledge and need to come under the formal financial sector.  Financial inclusion enables them to save, to invest, to accept credit and to transfer funds, which are all essential for economic development.  “Financial inclusion” is defined by the World Bank as “individuals and enterprises having access to usable and affordable financial goods and services that fit their needs,” including “transactions, payments, savings, credit, and insurance supplied responsibly and sustainably.” According to the United Nations, eight of the seventeen Sustainable Development Goals have recognized financial inclusion as a key facilitator for their achievement.  Every country, aspiring to develop, is focusing on financial inclusion, and looking for ways to fast-track the process.  Going the usual banking way, the process has been rather slow, in spite of tremendous focus in some countries and reasonable focus in others.

With the whole world going through a digital transformation, digital financial inclusion is the way to go.  More than 80 countries have now begun offering customers access to digital financial services, including mobile banking enabled through mobile phones.   Many African, South American and Asian countries have embraced digital banking or mobile banking to increase financial inclusion.  People there no longer need to have a regular bank account to save, invest, borrow or transfer funds.  While this is cheaper than normal banking, it’s not very cheap and thus the poorer population might stay away from this too.  Besides, there is a huge dependence on the organization enabling the same, which are typically little or not regulated at all, making it risk prone.  Given the situation,  application of Blockchain technology to enhance financial inclusion seems very appropriate to me.

Blockchain can address the trust issue because by definition Blockchain ensures trust, by removing dependence on one single authority.  Blockchain has the capability to connect many more people simultaneously, bringing them all under the net of financial inclusion.  It can manage account opening and transaction processing fast and in an efficient decentralized way.  It can reduce transaction cost because it removes the need for intermediary organizations, like Central Bank, Commercial Bank etc.  Based on theoretical and empirical research, Blockchain technology can be used for payment services, credit services, savings and insurance services, to bring more people within the banking sector.  

However Blockchain is not all perfect.  It has its own issues.  First and foremost there is very little understanding of blockchain, making it a very daunting subject for even the educated.  Secondly culturally all of us are used to a central institution enabling and regulating our financial transactions.  It’s hard to accept a situation where these institutions become redundant.  Finally there is lack of clarity on how these transactions will function alongside the regulated banking sector.  Given all these challenges and more, Blockchain adoption has been very slow in general.

But if adopted well by the government, Blockchain can be a tool or enabler to fast-track financial inclusion.  It can help include previously unbanked populations into the mainstream financial system.  Sustainable development can be ensured in many aspects, if blockchain technology can be successfully used to improve financial inclusion.