Source: https://www.pexels.com/photo/u-s-dollar-bills-pin-down-on-the-ground-164474/
The current population of the world has surpassed the 7 billion touchstone. At the same time, infrastructure needed to sustain the population is not progressing at a similar rate. In fact, it is stagnant! Even today about 2 billion people live bereft of financial services- they do not have any bank account. Women alone make up 55% of this unbanked population. In my country India, about 21% of the population (total population of India at the moment is 1.2 billion) is unbanked. Some of them say that they do not have a bank account because they earn too less or because they are denied to do so by the financial institutions.
Let’s articulate what happens if an individual does not have a bank account:
- One would have to rely on informal institutions to get loans. These institutions (the middlemen) exploit the borrower by demanding very very high rate of interests. They take advantage of the borrower’s desperateness and helplessness.
- One would be totally excluded from the economy. Even if one has decent income, it can not be added to nation’s growth because one does not have any record whatsoever.
- Without a bank account, identity of a person is incomplete. Other institutions like telecom, education require a person to have some kind of proof of income which can not be proven without an official bank account.
- A person without a bank account would not have access to legacy digital financial systems. They would have to manage pure liquid currency.
- They would not be able to enjoy the interest banks give on their account savings.
Today, top 1 percent of the world owns half of the wealth while remaining 99% earns fewer than 2 dollars a day. We cannot blame a person who earns that low to think it is pragmatic to not have a bank account because they would not be able to maintain the minimum balance in their account! Why is that most citizens of this world want to contribute to the community yet are not able to do so? The unemployment rate of the world is stagnant at about 30%. A person without a job not only loses part of their self-esteem but also their mental and physical well-being. Even if this person has talents like tailoring, cooking, singing, he/she is somehow not being included in the economy.
Source: canaleenergia.com
Before leapfrogging towards the solution, let’s take some time to realise what is the prosperity paradox.
The pace at which the world today is innovating is mind-boggling! Yet very less percentage of the population is benefitting. Digital conglomerates are ballooning and still there is a significant percentage of population without a job. This implies that those with power are progressing and those without are regressing. The rich are getting richer not because they are working harder but because their money is getting better (because their economy is booming). Which is why we see more number of millionaires and billionaires these days. Which is also why we see more number of poor people these days. This is what is the paradox!
Blockchain to the rescue!
(This post will not define what blockchain is and how it works.)
Let’s keep in mind that more than 65% of the world owns a mobile phone and 51% of the world uses internet. We know that because of blockchain technology, we can establish a peer-to-peer (P2P) communication. Imagine a world where a regular person uses his/her mobile phone to connect to a network where he/she can lobby with other persons directly without any middleman. For example, a poor unbanked farmer needs a micro-loan of 10,000 INR. If the farmer connects himself/herself to the blockchain network, he/she can interact with micro-financing lenders. The farmer can choose the one lending at lowest rate of interest. This will not only create a healthy competition among lenders, but also create farmer’s track record which can be used to get loans of higher amounts later. In financial jargon, “credit score” of the farmer would be calculated depending upon how efficiently the farmer repays the loan.
If we look from a bird’s eye view, this solution not only solves an individual’s problem from the root but also addresses a macro-economic problem. A person would now have their own created, sovereign, digital identity. This implies that problem of identity crisis would be resolved to some extent. A financial institution would not deny its services because they do not have “official” ID. The other problem blockchain resolves is that of micro-financing. Micro-financing, as a concept, empowers small businesses and individuals to lead a life of dignity.
People and companies who have power and wealth should be obliged to empower those in need. A similar noble initiative had been taken up by the company XinFin by using their platform TradeFinex. They approached remote areas of India and connected jobless people to potential lenders who could lend them some money so that these people can achieve their dreams. Some women had a talent of embroidery, so they got sewing machines. These women can now take tailoring orders and can kick start their life with grace. Some students wanted to take computer classes but the institution did not have computers, those schools got computers.
Source: https://www.youtube.com/watch?v=bYIJETgOY_g
Looking from a business point of view, this is a great opportunity. The customer base would expand to about 2 billion people and the nobility of such an idea has the potential to transform lives for generations!
The above mentioned solution indicates that anyone with any talent can infuse themselves with global economy and live a decent life. In today’s age, financial service is not a luxury. Rather, it should be a fundamental right. The economy truly flourishes only when people are empowered and included.