How Emerging Markets And Blockchain Can Bring An End To Poverty

Nikolai Kuznetsov , CONTRIBUTOR

Back in 2015, Forbes featured an interview with William Blair partner Brian Singer on how bitcoin will end world poverty. According to Singer, the growing access to the internet through affordable devices could enable particularly those from emerging markets to use a cheaper payment system with a transparent means of recording transactions.

Many scoffed at the idea back then. Indeed, cryptocurrencies and blockchain had yet to reach the same level of popularity they enjoy today. But what a difference a couple of years make.

Despite some recent shakiness, cryptocurrencies have increased ten times in value since. We’re also seeing more organizations and governments recognize the value in blockchain as a transactional platform and new platforms such as Ethereum can now even facilitate smart contracts using the technology.

But how does blockchain shape up in relation to Singer’s thesis today? Can blockchain and cryptocurrencies now become the technology that truly levels the playing field for humanity and help continue the reduction of poverty?

 

However, as with most efforts with the best intentions, we have to witness widespread adoption and successful case studies before a definitive verdict can be given. The increasing amount of blockchain projects by groups and governments is definitely a positive sign on the way to transform grandiose ideas into reality.

Financial inclusion

According to the World Bank, in 2013, 10.7 percent of the global population lived on less than $1.90 a day. While these figures have been in decline over the last few years, that percentage still equates to around 750 million people. Financial inclusion is considered a key factor to poverty reduction. It refers to the access of people to a formal financial system. In the status quo, it’s the access to financial services such as banking that accounts for financial inclusion. Unfortunately, over 2 billion adults remain unbanked. In many of these developing regions, mobile money has taken the place of most financial services.

Blockchain’s disruption of the financial services sector supposedly changes this. Blockchain overcomes many of banking’s current limitations. Unlike banks, no physical branch presence is needed for blockchain to work. Since blockchain operates on a distributed network, there’s no need for a complex and expensive private infrastructure to run. This saves on the costs that banks and telecom companies pass on to users through fees and other charges when using bank accounts or performing mobile transactions.

Blockchain startup Everex , which launched its ICO only a few hours ago and has already raised over 6 million USD (Roughly 27,000 Ethereum), considers financial inclusion as part of its mission. The company seeks to provide remittance services, microfinance, and fiat currency conversion through blockchain to the world’s unbanked population.

“The lesson learned from the previous decade, however, is that the real needs of the world’s unbanked population comprise inclusion, empowerment and easy access to the same financial instruments that allow industrial nations to provide their denizens with the social mobility they enjoy”, a recent Everex blog post said.

Transparency means less corruption

Another way blockchain can help combat poverty is by limiting corruption. Automation and digitization minimize the avenues for corruption as most robust systems would have a record and a footprint of all transactions. Unfortunately, if held privately, these systems are still subject to manipulation.

The nature of blockchain as a distributed ledger now provides unprecedented transparency. Blockchain is built to be tamper proof. The introduction of smart contracts also makes blockchain even more powerful. Payments aren’t the only transactions that can be kept in the transparent ledger. Proof of property such as land titles and other asset certificates can now be stored in the blockchain as well.

Land grabbing continues to be a problem in the world today with the poor being at most risk. Corruption allows unscrupulous groups to take advantage of paper documentation through fraudulent and manipulative practices. Small scale farmers can be driven out of their agricultural lands. It isn’t rare for some groups to acquire lands through rigged titles or falsified documents. A number of these lands are now converted in favor of urban development.

With the help of blockchain, ownership would be impossible to manipulate as records may not be changed retroactively and any attempts at tampering will be seen by everyone on the network. Sweden is currently testing the use of blockchain for land registry. Japan is also trying the technology out to facilitate government contracts. Governments of developing countries would do well exploring blockchain to provide transparent means of recordkeeping.

Developing countries stand to benefit most from ways that could combat corruption as it remains to be a key problem for these markets, contributing to continued poverty and stymied progress.

Microfinance enables growth

The boom of microfinance more than a decade ago was met with much hope in easing poverty in emerging markets. Today, the industry is met with criticism in its actual contribution to its benevolent goals with some even arguing that there is no clear evidence of positive impact.

Those closer to the ground would disagree claiming that microfinance has become a lifeline for many poor people. Like businesses in the formal sector, informal trade also benefits from influx of funding. The money could be used as capital to secure goods for peddling or fund a backyard business. However, unlike formal businesses, it is even more difficult for the poor to get access to funds. Without assets and a stable income, most poor people are often denied by traditional lenders.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. I have no positions in any of the securities mentioned above.

Blockchain offers an improved mechanism for microfinance to happen. The payments and recordkeeping mechanisms are already available in blockchain. Since an account holder’s transactional history is available in the ledger, credit and income histories need not come from an external audit or documentation.

In addition, the blockchain in itself becomes a data source for analytics to develop more transparent and better algorithms to determine loan amounts, terms, and interest rates. These mechanisms have to be optimized to create a sustainable microfinance ecosystem fit for these emerging markets.

Moving towards ending poverty

Blockchain is truly shaping up to be the technology that could be the vehicle for social change. However, it’s still a bit of a reach to claim that blockchain will be the end of poverty. Besides, poverty is a multifaceted problem that needs a holistic solution. What’s exciting about blockchain is that it can influence several of the factors causing poverty.

Theoretically at least, an affordable, fast, and transparent means of transacting holds much promise to benefit the poor. The technology has also developed significantly beyond the payments advantage that Singer initially pointed out in the aforementioned interview. The introduction of smart contracts has made blockchain platforms more comprehensive and versatile to deliver financial services.

However, as with most efforts with the best intentions, we have to witness widespread adoption and successful case studies before a definitive verdict can be given. The increasing amount of blockchain projects by groups and governments is definitely a positive sign on the way to transform grandiose ideas into reality.