Blockchain as an engine for inclusion

November 4, 2021
Financial inclusion

There is a positive and significant correlation between financial inclusion and poverty reduction; Financial services allow to expand the capacities and opportunities of individuals by allowing them to participate in the financial, labor and exchange markets at the domestic and international level. Through the use of financial services, people can access tools that allow them to get out of the poverty trap, by providing them with additional resources such as access to credit, cashless payments and platforms to send and receive money.There are multiple barriers that affect the penetration of financial inclusion ranging from issues of physical access (distance from financial institutions), monetary and transaction costs (bank fees for opening and operating an account and / or required documentation), to lack of education financial (sometimes people have a bank account, but do not use it regularly or do not take advantage of financial services). In this sense, technology has played an essential role in reducing transaction costs and penetrating remote markets through the use of digital platforms. Financial technology (Fintech) has expanded microfinance, mobile payments and crowdfunding among others. According to financial inclusion data from Findex Global, 69 percent of adults in 2017 had a bank account . In this regard, the penetration of mobile devices and the internet has played an essential role as an alternative means to carry out financial transactions. Only between 2014 and 2017, the proportion of individuals who sent or received payments through digital platforms increased by more than 10 percentage points, going from 57 percent to 70 percent.

High levels of mobile penetration play an essential role in reducing the gap in access to financial markets. Consequently, blockchain technology can function as one of the main engines for the base of the pyramid to access financial products and services, potentiating its growth and economic development. Through this system, trust between the actors participating in an exchange is guaranteed and, in turn, transaction costs are reduced by not requiring intermediaries in the process. The use of blockchain guarantees the protection and security of information, as well as transparency and veracity in transactions by using encryption protocols that create a single, unalterable and unbreakable version of the truth. Nakamoto was the first to use it through Bitcoin (2008), making it the Pandora's box that opens a world for all kinds of applications, financial inclusion being one of them. The lack of financial inclusion is affected by multiple aspects that can be differentiate into three major challenges (1) access, (2) costs, (3) inappropriate products. It is in this sense that blockchain technology can function as a solution to eliminate these barriers in a cost-efficient way. In general, the unbanked population has to opt for risky alternatives to save their money (keep it under the mattress), or else by informal credit markets that are often insufficient (family or friends) or with extremely high interest rates. Access to global financial markets can provide them with affordable credit, as well as remittances, insurance, and protected savings accounts.

In terms of access, financial inclusion is highly related to geographical factors. It is in rural areas where the highest levels of poverty are concentrated, distance and infrastructure play a key role in penetrating the financial supply. In India, only 5 percent of the rural population has a commercial bank within their reach (Varghese & Viswanathan, 2018) and only 23 percent of the rural population makes regular use of ATMs (NAFIS, 2017). Through mobile banking, blockchain technology can provide solutions that allow transactions to be carried out using mobile phones without the need for the physical infrastructure of a financial institution. In the second challenge, blockchain allows to reduce costs by not requiring intermediaries in the process. The technology allows transactions to be validated through a protocol agreed upon by the same system, reducing not only transaction costs, but also process time. Many times, transactions made through traditional commercial banks can take days. The blockchain system allows these processes to be done in a few minutes. As was the case with Noah Coin in Japan that allowed Filipino workers to send remittances to their countries at a lower cost and much faster than other traditional financial means. Related to suitable products and services, by digitizing financial services the target population is more clearly defined and thus products based on their profiles and appropriate to their needs are offered. In general, people who are excluded from the financial markets are considered agents with a very high risk since they do not have a banking or credit history, or guarantees to support them in case of default. Through a blockchain platform, the institutions or individuals that provide credit can access a truthful transaction history and thus can define the credit quality of economic agents and customize services according to their needs. This in turn allows for more competitive interest rates and more flexible payment schemes.

Finally, blockchain technology allows smart contracts functioning as guarantees to support the transaction within a legal framework, and in this way will allow the financial institution to have the money when there are funds available. Success stories such as that of Kiva in Africa that through this technology have financially included the excluded.

Cassandra Cázares

Cassandra serves as a leader in coordinating communities interested in DICIO products, as well as being responsible for the management of public relations, social media, strategy and marketing execution. Its functions include the analysis and democratization of the information generated by digital channels, together with the internal and external communication of the company. Before joining Dicio, Cassandra Cázares held executive positions in companies such as LIVE 13.5 ° Experts in Organizational Happiness where she held the position of Business Development Manager, in which she was responsible for the Happy Talks program, where she interviewed managers from different sectors to share Your message. She also collaborated in Caldwell Partners, a boutique for the search for executive talent and for the retail sector in the company Tiendas Tres B. Along with her work in Dicio, Cassandra Cázares, carries out social responsibility activities in organizations such as Laboratorio Social MX, implementing community intervention models, mainly in marginalized areas of Mexico City and Monterrey, she also collaborated in the ENFANCE association, as public relations coordinator. Cassandra studied theater at UTPA and Casa Azul, which helped her in the development of the Happy Talks program, giving her the necessary tools to enhance interviews and messages from managers. She is a graduate of the Bachelor of Marketing from the London Center for University Studies.

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