Blockchain technology is increasingly being seen as a potential solution for low rates of financial inclusion, especially in developing or undeveloped countries.
A low rate of financial inclusion means a small number of people that have their own bank accounts. The World Bank estimates that approximately 1.7 billion adults are “unbanked,” they do not have access to their own private bank account. Both China and India are each home to over 200 million unbanked individuals, and Pakistan has over 100 million adults without bank accounts.
The problem is even more pronounced in a number of central African and Sahel states – Niger, the Central African Republic, and South Sudan have rates of financial inclusion that are lower than 20%.
No access to a bank account is an extreme feature of deprivation. Without one, individuals cannot have any access to the world credit system nor can they receive international money transfers. The problem in many cases is that in an underdeveloped economy, many people simply do not have enough money to open a standard bank account.
How can blockchain help the “unbanked”?
This is where blockchain technology can be extremely useful. This was identified by Sierra Leone’s president Julius Maada Bio, who announced to the UN General Assembly on September 27th that his country had made it its goal to create a national, blockchain-based credit bureau, which he argues would radically change rates of financial inclusion in the country.
In a modern context, the introduction of traditional banking into newly developing countries may actually be shortsighted – new, decentralized methods may be significantly more cost-effective and long-term.
Those that aren’t used to dealing with such financial institutions have a fear of banks as an unreliable and even a dangerous way to store money. Storing wealth in cryptocurrency, no central authority controls the money, removes a lot of the fear that makes some hesitant to entrust their money in a financial institution.
A responsibly constructed, blockchain-based way for people in developing countries to store their money, receive international transfers, and have access to the global credit system, could serve to be very popular and effective regarding improving financial inclusion rates and remedying the issues created by large unbanked populations.