Financial Inclusion: Providing The World’s Unbanked Citizens With Access To Financial Services

5 min readJun 6, 2021

Financial Inclusion: Providing The World’s Unbanked Citizens With Access To Financial Services — VegaX Holdings

There are an estimated 1.7 billion people in the world who do not have access to financial services, making them “unbanked”. This is most often due to the fact that they do not have access to formal documentation. Although many unbanked individuals hold some form of identification, their documents lack the credit records that financial service providers require in order to assess creditworthiness and perform consumer due diligence.

The Relationship Between Financial Inclusion And Wealth Generation

Without being able to complete the required due diligence on potential customers and assess whether these potential customers are creditworthy, traditional financial service providers such as banks don’t feel comfortable providing financial services to these people, leaving them without access to the processes that could help them escape poverty. Imagine having to store all of your cash at home, or not being able to get a loan that you need to start a business, a necessity for many who live in countries with not enough formal employment opportunities.

Due to the positive financial impact that financial inclusion could provide to the world’s unbanked population, the World Bank considers financial inclusion to be a key catalyst to reducing poverty and boosting prosperity around the globe.

By now you might be wondering, if unbanked individuals don’t have access to the documentation they need in order to gain access to traditional financial services from a bank or other financial service provider, how will they ever gain access to financial services? How can this problem be solved?

The solution to this problem and the pathway to financial inclusion can be found through the adoption of blockchain technology and decentralized finance (DeFi).

Blockchain Technology And DeFi: A Path To Financial Inclusion

Blockchain technology enables direct peer-to-peer transactions of cryptocurrencies. Many cryptocurrency exchanges don’t require KYC documentation, allowing traders to remain anonymous. With blockchain technology, anyone can exchange digital currencies with just a cell phone and an internet connection. This means that immigrants can inexpensively send remittances overseas as well.

DeFi And Financial Inclusion

DeFi takes online currency transactions a step further. Decentralized finance provides access to all of the financial services offered by a bank or other financial institution. Cryptocurrency holders can now earn interest on crypto assets, often at a much higher rate than through a bank. They can also lend and borrow cryptocurrencies. By providing a way for people to gain access to financial services inexpensively through the internet, decentralized finance can offer banking services to people who have never had them and who do not qualify through traditional banks.

Benefits To Countries

Blockchain technology and DeFi don’t only benefit individuals. By creating a path to financial inclusion through convenient access to financial services for people who may not have previously had access to the financial system, countries can increase their gross domestic product (GDP) and stimulate their economies.

DeFi Solutions

DeFi solutions remove intermediaries and automate transactions using smart contracts. Financial institutions are completely removed from the process. The ability to access loans without having to go through a traditional financial institution is revolutionary and has the potential to give people the capital that they need through a loan to invest or start a business, helping to lift them out of poverty and create wealth they didn’t have the ability to generate before.

The Demand For Mobile Money Accounts

There is increasing demand for these types of services, specifically for enabling banking services through mobile devices. Other fintech solutions are being developed, but blockchain and DeFi offer the best chance at creating a system where financial inclusion is a possibility due to their anonymous, trustless, and secure nature.

In lower-middle and low-income countries, the number of active mobile money accounts almost tripled and the use of mobile phones for domestic remittances doubled between 2013 and 2017. The demand has only continued to grow over time, providing a need for blockchain and DeFi and the right opportunity for these technological innovations to lead the way in providing financial services to these people.

Thankfully, there are a number of companies that are working towards providing pathways to financial inclusion for the 1.7 billion people who currently don’t have access to financial services. Here are some of the innovative companies that are working on this issue.

EMTECH

Emtech is a Fintech company aiming to modernize central banking, safely deploying software services designed specifically for financial inclusion. Specifically, Emtech builds secure, cloud-based software that helps central banks become more innovative and be able to provide financial inclusion in the era of digital currency.

Emtech uses fintech innovation and blockchain technology to work with central banks to streamline regulatory reviews, collaborate on innovative technologies, and safely test Central Bank Digital Currencies (CBDCs). Rather than working on solutions that don’t involve central banks, Emtech is working to make central banks better and modernize the technology they use.

Stellar

Stellar is a decentralized open network for storing and moving money. Moving money has traditionally been slow and expensive. Businesses and individuals can use Stellar to move money across borders in seconds, regardless of the bank that the people or institutions taking part in the transaction use. Stellar is uniting the world’s infrastructure so money can flow quickly and inexpensively between banks, businesses, and people.

Stellar enables remittances to be sent across borders inexpensively, and in seconds via the blockchain. That way, immigrants can send money to their relatives back home quickly and cheaply, with more money reaching the people who it is intended for.

Crypto Lending: Aave, Compound, Celsius, and BlockFi

DeFi platforms like Aave, Compound, Celsius, and BlockFi offer crypto lending services, giving users access to loans without the need to involve a traditional financial institution. DeFi lending projects are organized depending on the level of decentralization that they use. Platforms like Celsius and BlockFi maintain some degree of centralization, requiring KYC protocols and facilitating interactions between platform users.

Compound and Aave are much more decentralized, using automation to facilitate loans. They don’t take custody of users’ funds, they don’t have KYC requirements, and they can be accessed by essentially anyone. Decentralized projects like Compound and Aave provide a solution to the problem of financial exclusion.

As always, please reach out to us with questions, comments, and suggestions! info@vegaxholdings.com

VegaX Holdings: https://vegaxholdings.com/

VegaX Holdings is the “BlackRock” of the Crypto Asset Industry. We provide investors globally with one-stop access to sophisticated and secure crypto asset management. The asset management industry is the largest in the world representing more than $80 trillion dollars in investments through investment products like ETFs, mutual funds, and indices that outperform investments in individual stocks. VegaX is the first to create similar investment products for Crypto providing investors outperformance versus buying individual cryptocurrencies. On average, investors buying VegaX products make 30% more profit versus just holding Bitcoin.