Financial Inclusion and Cryptocurrency: What is Financial Inclusion and Why Is It Important?
Financial inclusion is a critical issue affecting millions of people worldwide, particularly those living in developing nations. Many people in these countries lack access to traditional financial services, such as banks and credit cards, which can limit their ability to participate fully in the economy. However, with the rise of cryptocurrencies, there is the potential for greater financial inclusion for people previously excluded from the financial system.
Cryptocurrencies have the potential to provide affordable and accessible financial services to people who are unable to access traditional banking services. They can also help promote economic growth and improve people’s lives. In this article, we will explore the concept of financial inclusion, the problem of financial exclusion in developing nations, and how cryptocurrencies can help to address this issue.
What is financial inclusion?
Financial inclusion is the idea that everyone should have access to financial services that can help them manage their money effectively. These services include bank accounts, credit, insurance, and other financial products. Financial inclusion aims to provide everyone with the tools they need to participate fully in the economy and achieve financial stability.
The lack of financial inclusion is a significant problem in many parts of the world, particularly in developing nations. The most recent Global Findex shows that the number of people with bank accounts has grown around the world. Approximately 1.4 billion adults don’t have bank accounts.
The problem of financial inclusion in developing nations
One of the main reasons for the lack of financial inclusion in developing nations is the limited physical infrastructure for financial services. Banks and financial institutions are often located far away, making it difficult for people to access their services, particularly in rural areas. The cost of opening a physical bank branch in remote areas is often prohibitively high, which makes it unviable for traditional financial institutions to provide services in these areas.
Another issue is the lack of financial literacy and education. Many people in developing nations do not have the knowledge or skills to manage their money effectively, which can lead to financial difficulties. This can include things like not knowing how to create a budget, save money, or make informed financial decisions. Without access to financial education, people may struggle to navigate the complex financial world.
In many countries, banks require a minimum balance or credit score to open an account, which can exclude people who do not meet these requirements. Additionally, legal and regulatory barriers may prevent people from accessing financial services. For example, some countries have strict requirements for opening a bank account, which can exclude people who do not have the necessary documentation.
Without access to formal financial services, people may struggle to start businesses, invest in their education or health, and manage their day-to-day expenses. This can limit opportunities for social and economic mobility and perpetuate a cycle of poverty.
How lack of financial inclusion affects an economy
The lack of financial inclusion can have significant economic consequences for a country. Without access to formal financial services, people may struggle to participate in the formal economy, limiting their ability to invest in their education, start a business, or take advantage of employment opportunities. This can lead to reduced economic growth and perpetuate a cycle of poverty.
The lack of access to financial services can also lead to reduced productivity. Without access to financial tools like credit, people may struggle to invest in their businesses and develop their skills, leading to reduced output and lower incomes. This can have a knock-on effect on the wider economy, reducing the overall level of economic growth.
Moreover, financial exclusion can also have implications for public finances. When people are excluded from the formal economy, they may be more likely to engage in informal economic activities or work in the informal sector, which can lead to reduced tax revenues for the government. This, in turn, can limit the government’s ability to invest in public services like healthcare, education, and infrastructure, further perpetuating the cycle of poverty.
In addition, financial exclusion can also have social consequences. It can lead to a sense of exclusion and marginalization among those unable to access financial services, which can knock on social cohesion and stability. It can also limit social and economic mobility opportunities, leading to a more unequal society.
How cryptocurrencies come into play
Cryptocurrencies have the potential to play a significant role in promoting financial inclusion. Cryptocurrencies are digital assets that are secured using cryptography and can be used as a medium of exchange. It is based on a decentralized system, meaning any central authority or government does not control it. This makes it more accessible to people who live in countries with restrictive financial systems or who do not trust traditional financial institutions.
Cryptocurrencies are accessible to anyone with an internet connection and a device capable of accessing the internet, such as a smartphone or computer. This means that people who lack access to traditional banking services can still participate in the global economy.
In addition to traditional banking, cryptocurrencies can offer various other financial services. For instance, immigrant workers sending money home to their families may find cryptocurrencies a convenient and secure means of doing so. Per data from the World Bank, remittances to low- and middle-income countries totaled $626 billion in 2022. With no intermediaries, cryptocurrencies can help reduce remittance costs significantly.
Furthermore, cryptocurrencies can help businesses in developing nations go global. Usually, businesses struggle to participate in global commerce because they lack access to foreign exchange markets that would allow them to convert their local currency into a more generally accepted currency cost-effectively. That’s changing with emerging cryptocurrency alternatives.
Cryptocurrencies can also enable alternative financial services, such as peer-to-peer lending, that do not necessarily adhere to the same standards as traditional financial institutions. This can extend financial services for the underbanked, reducing poverty and increasing economic opportunity.
Cryptocurrencies allow for microtransactions, which are small transactions of very low value. This can be useful for people who want to make small purchases or send small amounts of money, which may not be possible with traditional payment methods.
Finally, the technology’s decentralized and auditable ledger also has the potential to reduce corruption and improve the credibility of the global financial system. Financial agreements may be automatically executed through the use of smart contracts.
Cryptocurrency projects working to promote financial inclusion
Many cryptocurrency projects are actively promoting financial inclusion, providing people with access to affordable and secure financial services. Here are a few notable examples:
OmiseGO: OmiseGO is a blockchain-based platform that aims to promote financial inclusion and interoperability by allowing users to make instant, low-cost, and secure transactions across different payment systems and currencies.
BitPesa: BitPesa is a cryptocurrency platform that enables cross-border payments and money transfers between Kenya and Tanzania, two countries with large unbanked populations. BitPesa allows users to purchase Bitcoin using local currencies and then send those funds to a recipient who can receive the funds in their local currency.
Stellar: Stellar is a blockchain-based payment network that enables fast and affordable cross-border transactions. The platform provides a low-cost alternative to traditional remittance services, making it easier for people to send and receive money across borders.
Dash: Dash is a cryptocurrency that focuses on increasing accessibility and usability for everyday transactions. It has implemented features such as InstantSend, which allows for near-instantaneous transactions, and PrivateSend, which adds an additional layer of privacy to transactions.
Electroneum: Electroneum is a mobile-based cryptocurrency that aims to make digital payments accessible to people who lack access to traditional banking services. It can be mined using a mobile app, and its blockchain is designed to be lightweight and scalable, making it accessible to users with low-end devices.
Kora: Kora is a blockchain-based platform that aims to provide financial services to underserved communities in emerging economies. It offers a range of financial services, including loans, savings accounts, and insurance products, that can be accessed using a mobile app.
Airtm: Airtm is a digital wallet that allows users to access and manage their money in a variety of currencies, including cryptocurrencies. The platform provides a low-cost alternative to traditional banking services, making it accessible to people who were previously excluded from the formal economy.
Financial inclusion is a critical issue affecting millions of people worldwide, particularly in developing nations. The lack of financial inclusion can limit economic growth and prevent people from participating fully in the economy. However, cryptocurrencies have the potential to play a significant role in promoting financial inclusion.
Cryptocurrencies are an alternative to conventional banking that can give people better access to the resources they need to take control of their financial lives. Whether through remittances, microfinance, or financial literacy, cryptocurrencies can help promote economic growth and improve people’s lives in developing nations and beyond.
Certain statements in this document might be forward-looking statements, including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, “target”, “seek”, “will” and similar expressions to the extent they relate to the material produced by Bytex staff member. Forward-looking statements are not historical facts but reflect the current expectations regarding future results or events. Such forward-looking statements reflect current beliefs and are based on information currently available to them. Forward-looking statements are made with assumptions and involve significant risks and uncertainties. Although the forward-looking statements contained in this document are based upon assumptions the author of the material believes to be reasonable, none of Bytex’s staff can assure potential participants and investors that actual results will be consistent with these forward-looking statements. As a result, readers are cautioned not to place undue reliance on these statements as a number of factors could cause actual results or events to differ materially from current expectations
The commentaries contained herein are provided as a general source of information based on information available as of MMMM DD, 2022. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or relevance of the information contained here. ByteX. makes no representation or warranty to any participant regarding the legality of any investment, the income or tax consequences, or the suitability of an investment for such investor. Prospective participants must not rely on this document as part of any assessment of any potential participation in buying and selling of virtual currency assets and should not treat the contents of this document as advice relating to legal, taxation, financial, or investment matters. Participants are strongly advised to make their own inquiries and consult their own professional advisers as to the legal, tax, accounting, and related matters concerning the acquisition, holding, or disposal of a virtual currency. All content is original and has been researched and produced by ByteX.