Ahead of Traditional Banking: How Africa Employs Blockchain For Financial Inclusion

Sierra Leone is set to create a national, blockchain-based credit bureau.
On September 27, at the 73rd Session of the U.N. General Assembly (UNGA), Sierra Leone’s president Julius Maada Bio made an announcement where he declared that his country had set a new goal to create a national, blockchain-based credit bureau to “radically transform” the country’s financial inclusion landscape.  While the aim sounds ambitious, there’s some evidence that Africa’s population might never need traditional banks per se. Instead, they could start managing their money through newer, decentralized methods.What does blockchain have to do with financial inclusion?First, it is important to outline the term unbanked — these are people who don’t have bank accounts. Consequently, they are cut off from vital financial services such as credit and money transfers. According to the World Bank’s financial inclusion database, in 2017 there were around 1.7 billion adults who are technically unbanked, which is roughly 30% of the global population. In the US alone, which is a developed country with robust economic infrastructure, there are about 9 million households who are unbanked, as per the 2015 Federal Deposit Insurance Corporation’s report.There’s also people who are underbanked, a distinct group of the unbanked — they might have access to a bank account, but are nonetheless deprived of banking services such as credit cards or loans. The underbanked either don’t have literal access to regular banking (for instance, physically or due to the language barrier) or don’t meet conditions of a financial institution (for instance, they don’t have clear identifying information, and hence don’t qualify for “Know Your Customer” practices).Even if a bank decides to extend credit or provide other services to an underbanked person, most likely they’ll charge high interest rates to downplay the risk. For instance, in January 2018 Bank of America started charging its poorest customers 12$ per month just for the privilege of having a checking account. Moreover, in some developing countries, like Venezuela, having a bank account is useless because of the hyperinflation and overall economic situation.Blockchain has the potential to help the unbanked, serving as a more secure financial alternative. Namely, it deals with at least two major problems associated with people who are not overseen by traditional financial institutions.Problem one: IdentificationAs mentioned above, people might be unbanked due a number of reasons, but in developing countries they often lack simple identification due to the impoverished nature of local infrastructure. In 2017, the World Bank’s “Identification for Development” (ID4D) program revealed that more than 1.1 billion people worldwide exist without proof of identity, 500 million of whom are estimated to live in sub-Saharan Africa.Without IDs, people can’t participate in financial activities provided by banks (i.e. have a bank account, obtain credit, etc.). With blockchain, however, individuals can receive a digital identity for use in their banking — all they have to do is own a smartphone, while biometrics will do the rest.Blockchain-backed startups like London-based Humaniq, which introduced a facial and voice identification system as a method

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