Crypto currencies are disrupting the financial services sector but can also present opportunities for financial inclusion and economic stimulus for the poorest.
According to research by the world bank, as many as 66% of sub-Saharan Africans are listed as “unbanked”. But new money technologies such as M-Pesa and other blockchain innovations are disrupting the issue of financial inclusion for many operating in informal economies. To deliver on WEFs targets for inclusive and sustainable growth in Africa, countries need to find ways to provide citizens with the opportunity for economic stimulus and financial inclusion.
Blockchain presents opportunities across the continent to tackle problems that traditional banks haven’t yet been able to solve, such as measuring the creditworthiness of traders in Kenya’s $20 billion informal economy. Access to which is getting easier with the introduction of Kenya’s first crypto-ATM in Nairobi.
South African blockchain innovations, such as Dala, the crypto-currency launch by South African, Tricia Martinez, on the Wala blockchain, as well as Centbee have enabled zero-fee borderless microtransactions, which are game-changers for many Africans living on less than $2 per day.
More importantly, the “leapfrog” affect may mean that many developing markets have citizens that may never own a traditional bank account yet, become key economic drivers in their markets by moving out of the informal economy.
IT News Africa, had the opportunity to chat with Serg Metelin, Head of Developer Relations at Block.One who gave insights on blockchain and financial inclusion in Africa.
What are some of the challenges that Africa may be facing when it comes to blockchain compared to that of traditional banking?
As with any digital solution, penetration of the technology is reliant on existing infrastructure capabilities such as mobile phones and internet. So blockchain needs this infrastructure to exist in order to grow successfully.
In its rapid adoption of mobile phones and internet, however, Africa has shown its ability to overcome potential infrastructure challenges.
An example of this is M-Pesa mobile phone payments in Kenya. Since the solution launched 10 years ago, it has registered 28 million phones and conducts 16m transactions every day.
Another challenge around blockchain that exists in Africa, and also in other geographies, is around emerging regulatory frameworks for the technology. As a growing economic region, however, Africa has the opportunity to create and embed appropriate regulatory frameworks as blockchain technology emerges here.
So really the technological and regulatory challenges described also represent an opportunity for Africa, because growth can be achieved using blockchain to bridge gaps.
How can blockchain enable financial inclusion in Africa?
Blockchain can create ‘hop-over’ opportunities in finance and banking – as mobile phones did with financial transactions – because it provides businesses and individuals with enhanced transparency and can operate without third party (e.g. traditional banks) involvement.
It can also provide some of the functions of traditional banks – store of value, exchanges, and trusted transactions, for example – without the difficulties associated with implementation that are part of the structure of traditional financial institutions.
The technology creates an opportunity for entirely new ecosystems of applications that address some of the pieces of the financial inclusion puzzle. This includes secure identity, innovative approaches to insurance and greater control over individual data, for example. As blockchain technology emerges and grows, these opportunities will become more apparent, and those who have prepared now will have the chance to seize them.
How can developing countries find ways to provide citizens with the opportunity for economic stimulus and financial inclusion?
In banking specifically, blockchain enables person-to-person direct transactions without an intermediary. Given the large unbanked population in Africa, blockchain may provide a solution to connect these communities with technologies that enable them to more easily transact and do business locally and globally.
So the challenge lies more with the banks and traditional institutions to recognize this and be agile enough to embed the technology into their models to reach existing and potential customers.
If banks fail to move quickly, they run the risk of a learner startup or entrepreneur capturing the market first.
How are blockchains going to change the way we buy, sell and track assets?
Full ownership of personal assets without intermediaries is extremely empowering for users and allows free trade between asset holders, and blockchain allows this. In a way, it has already changed the way we look at conducting transactions by providing a ‘trustless’ environment, which creates greater transparency and security. At this early stage, though, it is difficult to make conclusive predictions about the future. We do know that technologies such as EOSIO provide a platform on which the new wave of innovation in this sector can occur to drive an upgrade to existing digital commerce.
How safe is blockchain and how can we strengthen the safety around it?
Blockchain is fundamentally secure and creates an immutable ledger that can be used to securely transfer funds between parties. It also gives users control over their own identity and allows them to be confident of interacting and transacting in a digital environment in which their assets are not being put at risk or exploited.
While some of the challenges may seem daunting, the opportunity for Africa is truly unprecedented. This is because blockchain is a new and emerging technology where barriers to entry and adoption are lower than in previous technological revolutions in industry and commerce.