Can blockchain promote financial inclusion?

Africa is seeing an increase in the use of Bitcoin. It is a fact. Moreover, the numerous events dedicated to blockchain on the continent demonstrate the general enthusiasm. Now, we are right to wonder to what extent this can promote access to finance in this continent, which suffers from low financial inclusion.

Let us once again see the enormous potential of digital currencies to change the financial landscape in Africa. Even more, let's look at how blockchain can broadly influence financial inclusion.

It indeed seems more and more obvious and clear that new financial technologies (fintech) associated with blockchain will be able to fill the flaws in the current system.

To make the article more fun to read, we decided to write it in question-and-answer format.

Hoping that this will be more relevant for understanding the text.

1) Are cryptocurrencies the ultimate solution for the unbanked in Africa?

Interest in digital currencies continues to gain traction – particularly blockchain technology which has the potential to revolutionize the world of finance. Likewise, financial innovations linked to blockchain can more easily reach unbanked people.

One of the main attractions of blockchain is its role as a tamper-proof ledger that can support decentralized applications that cut out middlemen. There is no individual, group or organization – such as a bank – that controls the digital currency or any other blockchain-enabled application. African countries are lagging behind in infrastructure, particularly because these same intermediaries are failing. They also rely excessively on humans, who are prone to corruption and poorly executed work.

With blockchain, it is computer language and programming that replaces humans. This gives unbeatable efficiency.

When it comes to corruption, everything is in the public domain. Everything is controlled by everyone participating in the network. Corruption is almost impossible at any level.

2) Cryptocurrencies are used to facilitate remittance payments abroad.

Send bitcoins to Africa has become cheaper and faster than doing it via traditional institutions such as WesternUnion or Moneygram. Commission rates of 20% are indeed prohibitive for many people wishing to send money to family (generally) remaining in Africa.

A large portion of the world's population is unbanked and cryptocurrencies can be easily deployed on mobile networks, enabling access to financial capital in the most remote communities.

In fact, for countries with a weak banking and financial infrastructure in general, cryptocurrencies appear to be an ultimate means of creating new ones.

Worldwide, there are 2,5 billion people who do not have access to banks or accounts and most of them live in economically and politically unstable countries.

By using bitcoins to store wealth, you eliminate the chances of a local government expropriating funds from a bank account. Likewise, if because of poor financial management, the country experiences devastating inflation (as in Argentina or in Ghana), it is also the right way to secure your capital.

These are ongoing corrupt activities that impact not only individuals but also organizations, such as well-funded charities that are active in developing countries. A study by the campaign group and ONE advocacy found that such corrupt practices led to an outflow of funds of £585 billion a year into developing countries.

3/ Cryptocurrencies can succeed where banks have failed

Bitcoin remittances could allow a small merchant in a remote region of a developing country to receive, send and store the capital needed to grow their business, for example.  

It can, without having to rely on a complex, more expensive and less efficient infrastructure, be paid by its customers. Remittances in Bitcoin (or another cryptocurrency) could pave the way for a more international and instantaneous market for commerce. .

Just imagine the different possibilities that cryptocurrencies bring to the trading landscape. The ability to send remittances means that an independent trader or trader in poorer parts of the world can grow a global business without having to rely on infrastructure paid for, approved and supported by the banking system and government.

Additionally, the increased ability to access money can have a direct impact on the wealth of an individual and their community. Rural Kenyan households that adopt M-Pesa can significantly increase their income just through this innovative payment system. There is no longer any need for cash to pay for this or that service.

Imagine what could happen if a currency as international as bitcoin were adopted instead: the potential would be enormous, indeed.

Furthermore, a transparent blockchain system that people choose to spend their money on – and which is the most important part of Bitcoin – will create the need for greater transparency in the political and economic system. Finally, this is what we have the right to think and imagine.

Ultimately, this will give more power and equality to people who are often suppressed by their economic means. For the first time in modern economic history, it would be the individual who would have full control of his finances. 

3) Assuming there is demand, what are the main challenges to successfully implementing these new financial technologies?

The main challenge will be connectivity; The internet connection in other words. Yes, the current and near-term problem with digital currency is that users of a transaction need to have access to a smartphone and a good internet connection. Inevitably, most unbanked people don’t have access….

Without these elements, it is even more restrictive to send or receive digital currency than other fund transfers like M-Pesa currently allows, when considering African countries.

And once connectivity is established, there is a need for a dedicated ecosystem of technologists and startups to serve the under-resourced market, designing user-friendly products for a market that does not have the advantage of being digitally native .

This is crucial to reach and help the unbanked population and promote ultimately financial inclusion.

Another major issue is local market acceptance and liquidity. In other words, the frictionless exchange between the new currency and the local currency. This is even the major challenge facing the use of cryptocurrencies.

Despite these challenges, progress is being made. There are some promising cryptocurrency sending and receiving services that could change things in the near future.

The launch of cheap and good quality smartphones could also reach the millions of people who need them. Additionally, UK-based Kipochi has launched an innovative solution that allows users to send or receive bitcoins and convert them to and from an M-Pesa balance. It's only a matter of time before we see greater adoption.

4) What services are most anticipated for unbanked people via virtual currencies?

Today there are incredible companies working hard to advance the adoption of cryptocurrency by the population. These companies are making strides to take advantage of the technology that will eventually flood many traditional industries.

Established banks and technology companies are also testing the potential of the technologies underlying digital currencies. IBM, for example, is exploring blockchain as a technological backbone for creating large-scale, low-cost networks – in high demand in emerging economies.

Major banks like RBS and Barclays are also experimenting with blockchain to develop blockchain-optimized banking systems.

Together, these types of forward-thinking companies are driving adoption and helping create a global marketplace that we can all participate in more universally and more democratically.