Cryptocurrency. Even the word sounds complicated, and media coverage does nothing to dispell that image. Those involved in the industry know that far from being a restricted and technical product, crypto can be an instrument of social change to combat poverty. Over 2 billion people are classified as unbanked or underbanked, which means they lack access to basic financial services. These people also tend to distrust financial institutions. Lack of access to checking accounts and emergency loans leaves them vulnerable to predatory lending practices. These practices include loan sharking, and often involve extortionate interest rates, condemning victims to further financial instability.
There are also large numbers of people who do not have an established identity in the form of a credit or banking history. This is often due to an absence of consistent employment, especially in countries where a cash-centric informal economy remains strong. In Brasil for example, roughly 51% of the population is part of the informal cash economy. While this may help them avoid taxes, it also means that decades of advances in the finance industry has excluded the impoverished. People have effectively been left behind by globalisation because of where they live.
The Poverty Leapfrog
In order to connect these people, one must first determine how to grant access to modern services using existing infrastructure. Computers and cellphones for personal use were widely available decades before the first smartphone was released. Compare this to developing nations, and you notice that there was no smooth transition. These communities may never have owned personal computers or cell phones, skipping them entirely and going directly to cheap smartphones.
Pre-2007, huge swathes of Kenya’s population were financially excluded due to low rural penetration. M-Pesa, a mobile payment system, saw an opportunity. Traditional banking is of little use to people who live day-to-day and mainly use cash for their expenses. Although most people in Kenya didn’t own a landline, the adoption of cheap Android smartphones allowed the proliferation of mobile payments. Users also did not have to carry cash on them, a relief in countries with high rates of violence or hyperinflationary currency. Circa 2016, 26.7 million had registered with mobile money transfer services (a whopping 61.3% of the entire population).
China’s population saw a similar boom in mobile payments due to the restrictive regulations of their government. Businesses forced to innovate to avoid constraints have turned the strictures into opportunities. Companies like WeChat and Alipay, now global names, entered the fintech space by creating closed e-payment systems. China now makes trillions of dollars in mobile payments every year, overshadowing countries with superior infrastructure. Users of mobile payments can do everything from making insurance payments to paying their restaurant bill using QR codes, much more advanced than mobile payment infrastructure in the U.S.
Blockchain: A Gateway Technology
Blockchain technology promises a similar leap in access to financial services. The same smartphones grant a gateway for mobile blockchain solutions. Banks can use handset data for credit scoring, and cryptocurrencies can enable direct payments without a third party.
Possibly one of the most important benefits of the blockchain is the potential to bolster transparency and contain corruption. The world loses an estimated 2 trillion dollars a year to corruption. Blockchain systems will introduce a secure record of financial transactions on a tamper-proof distributed ledger, thereby preventing fraud or theft. Japan and Sweden are already beginning test projects, the performance of which could spread the tech to other countries.
Finally, expect to see a huge proliferation of small and micro business loans. Helping small businesses grow is key to aiding and growing underserved, poverty-line areas. Not only do they provide an income stream for business owners, but they also provide services to the community. Money spent on these services also stays within the community, growing the local economy.
While blockchain is certainly making waves as an investment for huge businesses and wealthy investors, the number of use cases for global aid efforts continues to grow. From theft-proof donations to financial fraud prevention and transparency in kleptocratic governments, it’s clear that the biggest benefits will be seen in poverty-stricken developing countries. Ironically for an industry where the most outspoken names are mainly westerners, the dream of a national crypto-economy being espoused may first come to pass in Africa or South America.