Africa represents the dark side of financial inclusion; digital transformation is piercing through the darkness on the emerging continent faster than anywhere else in the world. There is an urgent need for the growth of other financial services that can bridge the huge divide between the financially secure and the unbanked in Africa. NanoBNK is the creating the bridge the bridge through blockchain technology to be the building block of financial inclusion, by cutting costs and enabling mass connectivity.
The improvement in financial inclusion is due to the expansion of the traditional banking sector, the other half to that of mobile accounts. Thus, the mobile is already playing a huge role in the transformation of the financial inclusion landscape in Africa. Thus, it is evident that there is an urgent need for the growth of other financial services that can bridge the huge divide between the financially secure and the unbanked in Africa. It is here that blockchain might serve to be the building block of financial inclusion, by cutting costs and enabling mass connectivity.
What does blockchain have to do with financial inclusion?
First, it is important to outline the term unbanked — these are people who don’t have bank accounts. Consequently, they are cut off from vital financial services such as credit and money transfers. According to the World Bank’s financial inclusion database, in 2017 there were around 1.7 billion adults who are technically unbanked, which is roughly 30% of the global population. In the US alone, which is a developed country with robust economic infrastructure, there are about 9 million households who are unbanked.
Key application of blockchain in financial inclusion
Digital Identity management
Around 1.1 billion people around the world live without an officially recognised identity. Blockchain technology offers a tamper-proof mechanism to create digital identities for poor citizens who lack formal identification documentation. Technology firms and governments are exploring options such as using biometrics to create such a digital identity.
Alternative credit scoring
World Bank statistics show that public credit databases in many emerging market countries cover less than 10% of the population. If the microfinance sector in a country or region cooperated on a shared blockchain platform, it could build a decentralised alternative to the formal credit bureaus. Borrowers’ transactional history could be recorded on a shared ledger, giving credit officers insight into their borrowing and repayment histories, as well as the outstanding loans in their name.
Prevention of fraud
MFIs face a constant risk of fraud and excessive borrowing by a single individual, which often results in losses and bad debts. Once all MFIs and banks are able to aggregate their customer data in a blockchain network, instances of individuals borrowing excessively from multiple lenders or multiple borrowers pledging the same collateral could be prevented.
The blockchain could play a valuable role in the delivery of financial services to the financially excluded in the future. In the shorter term, however, the technology is not mature enough to address the challenges MFIs experience in enhancing operational efficiency, reducing bad debt and losses, making better credit decisions or cutting fraud.