These Crypto Companies Are Laying The Foundations Of Financial Inclusion In The Developing World
Hundreds of millions of people around the world lack access to a basic bank savings account, and this exclusion from the world's financial system undermines both those individuals' quality of life and also holds their nation's economies back.
According to the World Bank, around 1.7 billion people around the world are currently "unbanked", meaning they live without the ability to open a bank account and access basic financial services. This means they're unable to securely save, borrow or invest money, closing them off from the dream of financial empowerment.
The curse of being unbanked
The issue with the unbanked is that low-income individuals in developing countries face insurmountable barriers to accessing financial services. Banks, with their high costs of doing business and the heavy regulations they're subject to, cannot provide affordable services to the poorest individuals.
One of the problems is the lack of basic infrastructure. In many rural parts of the world, there are no banking services, and traveling to a bank is both inconvenient and expensive. Moreover, many people lack the formal identification required to open a bank account, and they're uneducated in terms of financial literacy.
But not having a bank account means being totally reliant on physical cash, which they cannot store securely or manage easily. The unbanked cannot transact online, they cannot invest, and they cannot build up a credit history, which means no loans or insurance, making it all the more difficult for them to escape poverty. They cannot easily start a business, and buying a home is far beyond their means.
How blockchain breaks the curse
Cryptocurrency, which has given birth to the concept of decentralized finance, is often held up as a solution for these people, but even then, it's not as simple as just getting everyone to download a wallet and giving them some Bitcoin to get started. Fortunately, there are numerous projects working to make the crypto world's dream of banking the unbanked become a reality.
Crypto is a viable solution for the unbanked because, while these people may not have an ID, they do possess a smartphone and the ability to get online, thanks to the deep penetration of mobile networks across developing countries.
Bitcoin, which burst onto the scene in 2009, changed the rules of the game. Traditional banks are no longer the only game in town, as crypto has given birth to an entirely new, digital asset class. Crypto assets are easier to store and manage, there's no need for a bank account and you don't even need ID if you go through peer-to-peer services like Paxful, Bisq, LocalCoinSwap and HodlHodl to buy and sell crypto directly with cash.
So long as they have a smartphone and they can get online, anyone who is unbanked can access crypto by downloading and setting up a wallet. There are no costs involved with holding crypto, and there's no approval process. What's more, the supporting infrastructure is always online, 24/7, and there's no need to travel to a physical "branch" as crypto simply doesn't have these.
Crypto promises to be a game-changer in countries where millions are unbanked, as well as in those that are experiencing significant hyperinflation and volatility. For instance, countries like Venezuela and Zimbabwe have seen a big increase in crypto usage as a result of their currencies effectively becoming worthless. For Venezuelans, digital assets like Bitcoin and Dash have become a popular alternative medium for everyday transactions, preferable to weighing bags of bank notes.
Who's working to bank the unbanked?
The traditional financial trading services entity Exinity Group has spotted a market opportunity to onboard millions of unbanked. That's the focus of its upcoming cryptocurrency exchange platform, Boxwind, which is targeting users in developing nations and aims to provide them with the tools and resources required to succeed in digital assets.
Boxwind's pitch is that it's the platform of choice for new users who lack familiarity with crypto and don't know how or where to buy it. It's targeting emerging markets in Sub-Saharan Africa, Southeast Asia and South America, where Exinity itself has a long history of involvement. Boxwind intends to leverage this experience to reach these markets and cater to the population's unique needs.
To that end, it strives to be much more than just an exchange. It's aiming to educate users about financial literacy and give them the tools they need to invest and grow their wealth. It will provide secure asset storage, easy onboarding and, most importantly, ensure users have the knowledge required to trade digital assets successfully.
Building wealth is one thing, but what about actually using that wealth? This is where nChain is playing a vital role, working with central banks in developing nations to facilitate the adoption of CBDCs that can provide an easy entrance into the digital economy and support micro- and nano-payments.
Using nChain's Digital Cash product, central banks can allocate a portion of their currency reserves as collateral to create a CBDC, which can then be distributed to the population. For example, the salaries of civil servants can be paid in CBDCs as a first step, before the assets are distributed to merchants. The central bank will then launch an app that makes it possible to use the CBDC for payments directly to citizens.
Another important initiative comes from Pngme and Masa Finance, which are partnering to build a credit scoring system for millions of people who don't have any credit rating and cannot obtain a loan. In most African countries, studies show that just 20% to 30% of the population has a credit score, which means the vast majority are unable to access any kind of credit system.
Pngme is building the infrastructure required to support an alternative credit system, collecting data from mobile payments and on-chain activity that can help to build blockchain user's credit histories. Masa Finance is a decentralized credit protocol that links off-chain credit data to the blockchain. It utilizes "soulbound" tokens, which are NFTs that cannot be traded, as the basis of its credit profiles, which are hosted on the Celo blockchain. It supports a system through which unbanked individuals can lend and borrow small sums of money, leveraging anonymized data for underwriting and stablecoins for transactions.
As for financial services, this is where DeFi itself comes in. EQIFI, which is backed by EQIBank in the Dominican Republic, has built a platform that offers DeFi products to both the unbanked, and also those who are already in the traditional banking system, including savings accounts, microlending, peer-to-peer payments, investing and wealth management tools.
EQIFI describes its yield aggregator DeFi tool as the "crown jewel" of its services, enabling anyone to access investment opportunities that were previously only available to the wealthy elite.
A more inclusive financial world
When it comes to banking the unbanked, crypto and DeFi are the most promising solutions for overcoming the barriers that exist with traditional finance, providing an opportunity for everyone to interact with the global financial system. These solutions eschew the limitations of conventional banking systems, leveraging decentralized networks and peer-to-peer transactions to create a financial system that's no longer exclusive, but instead gives everyone a chance to build their wealth and escape from poverty.