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[Opinion] Crypto and blockchain can drive financial inclusion
Crypto and blockchain solutions can be tailored to meet the specific needs of the world’s underbanked, and enable an inclusive and equitable global financial system. This is the view of Scott Onder, senior managing director at Mercy Corps Ventures, a venture capital fund focused on crypto, financial inclusion, and climate resilience.
Today, some 1.7 billion people around the world lack access to one of the most basic building blocks of prosperity: a bank account. As the use of crypto and blockchain technologies expands globally, there’s an opportunity to drive financial inclusion and climate resilience by transforming the core infrastructure that affects how financial products and services are delivered.
For people without access to any form of financial services, the inability to save money safely or trade beyond cash in hand can leave them caught in a poverty trap that’s almost impossible to escape. Meanwhile, the World Bank predicts that by 2030, climate change will push 100 million more people into poverty, with low-income countries bearing 75%-80% of climate impact costs.This is where crypto and blockchain come in.
A more financially secure individual is better equipped to withstand climate disruption. Through mobile-based fintech innovation, people displaced by climate change can access financial services on the move. Through blockchain applications, smart contracts can automatically trigger insurance payouts when a hurricane or other extreme weather event occurs. Through digital assets and crypto, people can quickly and easily store, save, and transfer value when climate shocks hit.
So, what does this look like in reality? In Kenya, where 68% of the population is below the age of 35 and most young people are left out of the formal economy, digital microwork offers new opportunities for people to earn additional income by completing tasks via their smartphones. However, slow payments and high transaction costs can take up to 30% of an individual’s earnings.
Mercy Corps Ventures partnered with the Celo Foundation, Appen, Kotani Pay, Nairobits, and others, to test the application of cross-border stablecoin payments in Kenya. Those participating in the pilot were trained to access digital microwork from global platforms using an app and integrated Valora digital wallet.
Once a task was completed, they were paid within seconds with transfer fees at approximately $0.01 using Celo dollars – a stablecoin pegged to the U.S. dollar – and were able to cash out anytime to Kenya’s ubiquitous mobile money platform, M-Pesa.
Users also had the option of keeping the money in their wallet and leveraging a promotion within the Valora app that rewarded savings with Celo rewards, further boosting their income. The pilot enabled a 93% reduction in transaction fees – from $1.44 to $0.10 – thus boosting participants’ earnings.
Blockchain-based smart contracts
Farmers in emerging economies are already struggling with impacts of climate change such as prolonged drought and increasingly unpredictable flooding. Yet, in sub-Saharan Africa, only 3% of smallholder farmers are accessing crop insurance, with barriers to adoption including high premium costs and complex claim settlement processes. This leaves farmers extremely vulnerable to climate shocks.
Utilising blockchain-based smart contracts can streamline crop microinsurance so that during an extreme weather event like flooding, policies are automatically triggered. Through a pilot in partnership with Etherisc, Chainlink Foundation, Ethereum Foundation, and ACRE Africa, we integrated an Ethereum-based smart contract platform into ACRE Africa’s existing weather index insurance product to reduce operational costs, streamline payouts, and automate claim inquiries.
Smart contracts significantly improved operational efficiencies, with payouts made within an average of five days compared to 14 days in ACRE Africa’s previous season, and an industry standard of 30-45 days.
Crypto and blockchain solutions can be tailored to meet specific needs of the world’s underbanked. Blockchain has the potential to create new pathways for people to spend, save, and send money, and there are many emerging crypto startups and protocols addressing financial exclusion and the climate crisis. The tools to enable an inclusive and equitable global financial system are within reach.
- Scott Onder is the senior managing director at Mercy Corps Ventures, a venture capital fund focused on crypto, financial inclusion, and climate resilience.
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