One third of the global population has no access to credit and therefore no means to spend money on the future. This is a major barrier to the development of low- and middle-income nations. While technology has progressively been bringing more and more transaction accounts to the unbanked, with 178 billion app downloads every year and emerging markets predicted to lead further growth, there is still some distance to travel towards the goal of financial inclusion. When this happens, everybody will have opportunities to borrow, invest, save, and protect themselves from economic shocks so that they can plan a better life.
There has undoubtedly been massive growth in mobile money accounts to date. However, this is from a standing start, and the World Bank has highlighted that only 12 percent of Africans have a mobile transacting account. There are still 2.5 billion people on earth who are shut out of traditional financial services and excluded from the 21st-century economy’s opportunities to grow their incomes.
What could change the take-up rate of transacting accounts? Blockchain-based, decentralized apps that cut out the middleman can be deployed at a much lower cost. This could be crucial to the long-held global aim of the World Bank and others for full financial inclusion. What would be game-changing, though, is giving the unbanked more than the ability to make cashless-transactions. They need to gain the ability to apply for credit so they no longer have to live day-to-day, but can plan for the future.
The McKinsey Global Institute noted that lending through digital platforms is only a tiny fraction of global financial flows today. However, in a respected market analysis, it advised that given the costs involved in traditional lending, the potential for an expansion in digital lending “is enormous.” We have already seen in mature markets, fintech companies — such as Zopa in the U.K. and LendingClub in the U.S. — establish transaction platforms for peer-to-peer investment and borrowing. Meanwhile, mobile lending in developing countries relies on the foundation of mobile money solutions, according to another piece of market insight.
Pure mobile loans deploy mobile technology throughout the entire loan process. This allows the loan process to become paperless and cashless, entirely replacing lengthy documentation, long queues at the branches, and prolonged approval times. However, the most transformative aspect for developing economy markets is how such mobile-delivered loans draw on social and transactional data for the credit assessment.
Platforms that provide verified and trusted identities, through biometric identification and new electronic transaction histories, can now make lending widely available for the global unbanked for the first time. All that is needed is basic smartphones, and apps that act as service-hubs that allow new users to quickly establish an online identity and history.
One case study of a startup that is working to realize this enormous potential in smartphone-enabled lending is the startup Humaniq. This ‘Blockchain for Good,’ London-based fintech company is reinvigorating financial inclusion efforts by offering more for transactions in one downloaded app than in a wallet. The Humaniq app initially launched to speed the take-up of accounts for online transactions that have yet to reach the majority of populations in Sub-Saharan Africa. It achieved this with a hybrid blockchain solution that significantly reduces the costs of implementation of transactions with close-to-zero fees at scale.
Previously, mobile money accounts for transactions have not always proved useful. Only a third of digital accounts opened by those without banking are still in use, according to estimates. While this is still well over 100 million active accounts, there remains an urgent need to fill the large imbalance between the need and supply for financial services in developing markets such as Africa. And this disproportionately affects groups such as rural dwellers, smallholder farmers, and women.
For example, female-headed households produce substantially less farm output than male-headed ones as they have lower access to both capital and markets. These entrepreneurs need a new solution to make lending available to them if they are to make as much use of the land they own as men. The idea behind the Humaniq app, in contrast to some mobile money solutions, is to respond to this real need. It can provide an entire ecosystem of financial services in one app to meet the needs of those left behind in their economies. At the centre of this is a messenger service where money can be transferred.
Typical microfinance clients have low incomes and are often employed in the informal sector — circumstances which tend to deny them access to traditional banking institutions’ products. Local providers such as Village Community Banks, VICOBA, Savings and Credit Cooperatives, and microfinance organizations try to plug the gaps. However, institutions wishing to provide loans must first verify land ownership registration — something that can only be achieved by landowners paying a prohibitive fee, which according to VICOBA, can be as much as $100 to $250.
Such fees are simply out of reach to those on low incomes which are as little as $1.25 a day for the majority of citizens in many African nations. This opens up an important opportunity for an alternative. The Humaniq app allows partners to offer credit to its 500,000-strong community — a significant opportunity — particularly as the number of downloads continues to expand. The number of nations that the app operates in doubled over the last month alone, to 46 countries, and now includes Southeast Asia and Latin America. This opportunity is also made more considerable as the existing community members continue to develop their transaction histories, providing the data on income and money management that can inform lending decisions.
The Humaniq app also unlocks peer-to-peer lending as agreements made on the blockchain do not require expensive intermediaries in order to confirm them and make them possible. Financial providers are no longer required to scale up to meet the massive untapped demand for credit, and at a stroke, the reliance on fee-charging field representatives of large lenders is ended.
The business case for an app that allows the expansion of credit and the channelling of capital into entrepreneurial activity and the productive economy is overwhelming, and the possibilities this will unlock, manifold. In short, people can finally spend money on a better tomorrow.
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