cryptovibes.com
Millions of people in different parts of the world lead limited economic lives, but opportunities to enter the digital economy are now coming to most of them. Accessible services, financial inclusion, and the unbanked are major talking points in most conversations about crypto. However, the details may remain somehow unclear – the people who talk about cryptocurrency are mostly those already within the financial system.
Some individuals are actively working to expand financial inclusion and access to services for most people that are underserved and unbanked.
CBDC for the people
Central bank digital currencies (CBDC) will serve several purposes in various places. In the world of economics where people have moved away from the high levels of cash usage, like those in the UK and the US, there will be little retail demand for CBDC. But, there are places where cash is in short supply and CBDC can serve to increase the basic opportunities for economic growth and prosperity.
Notably, nChain works with central banks to support the use of CBDC via its Digital Cash product. Simit Naik, nChain director of commercial and strategy, who has a lot of experience working in West Africa, said that CBDCs in this area should:
“Ensure continued access to an inclusive and stable form of central bank money for citizens, when physical cash usage is declining.”
Having access to physical cash only limits many people to the most basic forms of transaction. A CBDC would offer entry into the digital economy and come up with new business models by supporting nano- and micro-payments.
Broadband access to participate in the digital economy would be quite rare. However, mobile phone penetration and connectivity are “far greater” than one might expect, as highlighted by Naik. Based on information acquired from the GMSA, a mobile communications association, there were 5.3 billion unique mobile subscribers in the world as of Q2 2022.
A CBDC can save the central banks time and money by offering real-time access to data to inform monetary policy. Normal implementations of the nChain Digital Cash product would be for the central bank to aim to dedicate a segment of its reserves as collateral for digital cash. Later, nChain would support the central bank as it minted and distributed digital cash tokens on a one-to-one basis with the collateralized reserve money.
The CBDC must be non-intermediated, as it may be utilized in places where no financial network exists. The civil servants’ salaries would be paid in CBDC as a first step. Then, it would be distributed to merchants. The central bank can also use it to make payments, including welfare and stimulus-related payments, directly to the public.
Just like Digital Cash, the primary purpose of nChain’s Digital Money solution is to offer access to various financial services to people that have traditionally not had enough access to these services. The Digital Money product is account-based, but, enables it to model more traditional forms of money.
Commercial banks and fintechs can utilize it to introduce new financial products. It can also be used for micro-lending and for the tokenization of assets and commodities that enable people to become investors, as brokerage services are regulated and do not mostly need a broker.
Benefits Of A Credit Rating
Another strategy that can be used to expand access to financial services is to develop visibility for the billions of people that have no credit scores. Based on the founder of Pngme and Masa Finance, Brendan Playford, up to 1.5 billion people globally have credit scores, and 3.3 billion people are ‘credit invisible.’
It means that such people may be creditworthy but their credit history is not associated with them in the traditional banking network. An accessible credit score is a major prerequisite for most financial services, mostly credit, and it might affect identity validation and access to insurance.
Targeting the one billion people, the mobile money economy, and even processing the data from peer-to-peer micropayments made via established providers can enable the scoring of previously credit invisible people.
In Africa, just 20-30% of the population has a credit score. Pgnme has now partnered with TransUnion credit scoring service to utilize mobile money data to raise the level to around 60-70%. Based on GSMA data, mobile money transactions in Sub-Saharan Africa were worth $697.7 billion, out of a world cumulative total of $1 trillion, last year.
Playford said:
“Banks in Africa struggle to serve underserved markets, so Pngme is privately providing infrastructure for an end-user to create a credit score where they otherwise wouldn’t be able to do it.”
Data acquired from Pngme is one of the data sources used to drive on-chain lending via Masa Finance. Masa Finance is a decentralized credit protocol that integrates off-chain credit data to decentralized finance (DeFi) developing a “soulbound” credit profile nonfungible token (NFT).
Masa utilizes the mobile-friendly Celo blockchain to lend small amounts using anonymized data for underwriting and stablecoins as a settlement currency that can be changed into fiat or crypto. Playford said:
“Inclusion is really about choice. If you’re underserved and you need to get financed, you can find it, but your terms are incredibly unfavorable. What this technology does is it makes a fairer ecosystem, where more people can offer products in an open framework.”
Masa Finance recently confirmed the completion of pre-seed funding and expects a full-scale launch within three to six months. A testnet has been launched and its mobile application is already in beta and has around 40,000 users. The app will feature 10,000 data sources in 78 nations when it begins full operations in the coming weeks.
Playford commented:
“The reality is all of the work that I’m doing is disrupting the way in which banks have a monopoly in lending. We are building an ecosystem that serves the top to the bottom of the pyramid.”
Accessible Banking Services
Decentralized finance can integrate with traditional banking to provide the best of both, offering services to the unbanked and enhancing the services available to those who are already within the system.
One decentralized finance platform, EQIFi, is backed by EQIBank, a fully regulated digital bank wholly licensed in Dominica. EQIFi offers a platform for DeFi products while operating with EQUIBank accounts, loans custody, over-the-counter and wealth management. It also provides peer-to-peer transfers and micro-lending.
EQIFi founder and CEO Brad Yasar said:
“Not everyone needs a loan that requires a credit rating.”
The cost savings that is associated with decentralized finance enables EQIBank and EQIFi to operate in parts of the world where a huge corporate bank would find it quite expensive to do business. Yasar stated:
“We wanted to create a platform that brings decentralized finance with traditional finance in a way that opens doors to all people.”
Due to its link to EQIBank, EQIFi is also subject to regulatory needs and is registered in Dubai and the British Virgin Islands. Yasar is a vocal proponent of regulation and transparency within the crypto space.
EQIFi products also provide financial inclusivity in the form of “the kind of rates and returns which were previously only available to institutional investors and the wealthy elite,” based on the promotional material. Yasar described the platform’s yield aggregator as its ‘crown jewel.’
Yasar concluding:
“Licensed and regulated projects like EQIFi are paving the way for a transition from anonymous high-risk DeFi platforms to safer, more transparent versions. With DeFi, we can offer more products cheaper to a much larger portion of the world population.”