Blockchain for Poverty Alleviation

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By Dr Siti Hawa Yusof

In Malaysia, according to industry estimates, 55 percent of the adult population is unbanked or underbanked.
These unbanked and underbanked individuals, many of whom are already economically challenged, have few options to store money, send or receive remittances, obtain credit or insurance, and save for the future.
Without any financial buffer, emergencies and crises can be devastating.
The World Economic Forum has highlighted that blockchain has promising potential for increasing financial inclusion since blockchain is global, open-sourced, and accessible by anyone regardless of nationality, ethnicity, race, gender, and socioeconomic standing, as long as they have the Internet connection.
Traditionally, people rely on financial institutions to accumulate savings and investments.
For the unbanked and underbanked, saving for the future is challenging while alternative financial services tend to charge high fees.
The cost of opening and maintaining a bank account as a result of minimum account balance requirements, overdraft fees, a great distance between branches, and the proliferation of formal processes to open an account may be too high for poor households to manage.
Ownership of physical assets such as fishing boats, cattle, crops, or lands is difficult to liquidate for emergency needs while hoarding cash makes them more susceptible to inflation.
Using blockchain technology, alternative platforms can be created for individuals to save, invest, transfer money, build credit, and obtain insurance.
With cryptocurrencies such as stablecoins, any eligible individual can open an account by downloading the blockchain-based application and activating the digital wallet.
The peer-to-peer architecture of blockchain allows the execution of transactions without the need for any middleman or intermediaries, allowing financial transactions to be more secure, cheaper, and more efficient.
The first step to acquire the cryptocurrencies can be completed through transfer from another platform, or purchase through the participating physical stores in the solution network.
Once the screening process is completed, users may decide how much money they would like to save and invest in their wallets.
Total savings and performance of the investments can be monitored on the app, and users may choose to redeem the money anytime.
Blockchain allows applications such as Xcapit in Latin America to provide a simple, less intimidating, and secure investment and savings interface in less than three clicks with an average investment of $1,500 per user since 2021.
Blockchain-enabled solutions could also facilitate remittance services for the unbanked and underbanked by allowing individuals and micro or small businesses to send and receive money directly without requiring a smartphone.
The solutions connect feature phone users and low-end smartphones by dialing a short code to enable the users to get a menu that allows them to perform transactions.
Blockchain-based remittance solutions such as Ripple, Stellar, or Celo charge settlement costs that are nearly zero, and money can instantly and freely move between the chains, allowing users to take advantage of the global, borderless blockchain systems.
This also means that the only fees associated with international transfers are mostly the currency conversion to fiat money when necessary.
Establishing credit and obtaining insurance for the unbanked, underbanked, and poor households can be difficult given more than a third of the population has no credit history and therefore has no safety net in difficult times.
Blockchain solutions aiming to close the credit gap in low-income communities can be established by facilitating alternative concepts such as issuing tokens backed by all of the actual goods and services in specific communities, such as crops, cattle, the work of carpenters or artists, and inventories.
In times of crisis or emergency, low-income communities might not have a line of credit or insurance, so the tokens can be used to secure a line of credit backed by their own resources.
In addition, through the blockchain distributed ledger technology, micro and small business owners can maintain a record of their historical trade and tokenized assets that can be used to build their credit scores.
Successful blockchain projects such as the Grassroot Economics funded by UNICEF’s Innovation Fund have proven that such a solution is possible as almost half a million transactions have been executed using their token equivalent of $3 million since 2020.
A few years ago, most of these concepts and ideas about blockchain and financial inclusion were mostly theoretical.
Currently, new projects and initiatives are finally moving forward to benefit real individuals despite being in the inception stage. Blockchain can potentially increase financial inclusion and contribute to poverty alleviation, provided that the solutions are user-friendly and place the users at the epicenter. 
The adoption and implementation of blockchain require efforts from all stakeholders in the blockchain ecosystem to continue exploring, innovating, prototyping, investing, and supporting the applications.

About the author: Dr. Siti Hawa Yusof is a lecturer for the School of Accounting & Finance, Faculty of Business and Law, Taylor’s University. This is an opinion column. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of this publication.

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