Financial inclusion, accessible services and the unbanked are standard talking points in many conversations about crypto. But, the details may remain
Financial inclusion, accessible services and the unbanked are standard talking points in many conversations about crypto. But, the details may remain somewhat fuzzy — the people who talk about crypto are generally those already inside the financial system. There are people who are actively working to increase financial inclusion and access to services for the vast number of people who are unbanked or underserved.
CBDC for the people
Central bank digital currencies (CBDC) will serve different purposes in different places. In economies where individuals have moved away from high levels of cash usage, like those of the United States and the United Kingdom, there will be relatively little retail demand for CBDC, but there are places where cash is in short supply and CBDC can serve to increase basic opportunities for prosperity and economic growth.
nChain works with central banks to facilitate the use of CBDC through its Digital Cash product. nChain director of commercial and strategy, Simit Naik — who has experience working in West Africa — told Cointelegraph that CBDCs in that region should “ensure continued access to an inclusive and stable form of central bank money for citizens, when physical cash usage is declining.”
Having access only to physical cash limits people to the most basic forms of transaction. A CBDC would provide entry into the digital economy and introduce new business models by supporting micro- and nano-payments. Access to broadband to participate in the digital economy would be rare, but mobile phone penetration and connectivity are “far greater” than one might expect, Naik assured. According to the GMSA — a mobile communications association — there were 5.3 billion unique mobile subscribers in the world as of the second quarter of 2022.
A CBDC can save central banks money and time by providing real-time access to data to inform monetary policy. A typical implementation of the nChain Digital Cash product would be for the central bank to dedicate a portion of its reserves as collateral for digital cash. Then, 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. It is important that the CBDC be non-intermediated, as it may be used in places where no financial infrastructure exists.
Civil servants’ salaries would be paid in CBDC as a first step, then it would be distributed to merchants. The central bank could also use it to make payments, such as welfare and stimulus-related payments, directly to the public.
Related: Here’s what’s happening in Web3 across Africa
Like Digital Cash, the purpose of nChain’s Digital Money solution is to provide access to financial services to people who traditionally have not had access to those services. The Digital Money product is account-based, however, allowing it to model more traditional forms of money. Commercial banks and fintechs can use it to introduce new financial products. It can be used for microlending and for tokenization of assets and commodities, which allows people to become investors, as brokerage services are regulated but do not necessarily require a broker.
The advantages of a credit rating
Another approach to expanding access to financial services is to create visibility for the billions of people who lack credit scores. According to Brendan Playford, founder of Pngme and Masa Finance, 1.5 billion people worldwide have credit scores, and 3.3 billion people are “credit invisible.” That means that they are creditworthy, but their credit history is not associated with them in the traditional banking system. An accessible credit score is a prerequisite for many financial services, especially credit, and it may impact identity verification and access to insurance.
Targeting the one billion people, mobile money economy and processing the data from peer-to-peer micropayments made through established providers can enable the scoring of previously credit invisible people. In Africa, only 20–30% of the population has a credit score. Pngme has partnered with TransUnion credit scoring service to use mobile money data to raise that level to 60–70%. According to GSMA, mobile money transactions in Sub-Saharan Africa were worth $697.7 billion, out of a world total of $1 trillion, in 2021.
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,” Playford said.
Data captured by Pngme is one of the data sources used to drive on-chain lending through Masa Finance. Masa Finance is a decentralized credit protocol that connects off-chain credit data to decentralized finance (DeFi), creating a “soulbound” credit profile nonfungible token (NFT). Masa uses the mobile-friendly and scalable Celo blockchain to lend small sums using anonymized data for underwriting and stablecoins as a settlement…
cointelegraph.com