Banks have helped people all over the world get connected to a more formal financial system. The formal financial system in place has maintained asset building, makes day-to-day living more comfortable thanks to savings and even mitigate shocks related to critical emergencies.
However, not everyone has access to banks, even with the help of mobile banking. Many people don’t have any bank accounts due to restrictions either due to location or other factors are called the ‘unbanked.’
The latest Global Findex Database by the World Bank was released in 2015 and revealed that there are almost 2 billion people around the world who are classified as ‘unbanked.’
With the emergence of cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin the boundaries of financial inclusion are being pushed. The first sentiment would be ‘Mobile banking did not make a difference, how in the blue heavens would cryptocurrency make a change?’
Simple, these decentralized systems of cryptocurrencies do not need any middlemen, or in the case of banks a specific body to accept their transfers or savings. Cryptocurrencies are in the hold of the wallet owner, who can make a transfer how and when they wish to. Many a time banks ask for various documents which people belonging to rural communities don’t possess.
In countries like Asia and Africa where anything can get done with a slip of the note, the rural still cannot afford the bribery that comes into opening a bank account. However with cryptocurrencies with a simple push of the button they can save their fiat currencies into a currency which is increasing in value.
‘Why will the unbanked want to move to an unconventional method?’ The majority of the unbanked lie in the low-income level, and thus these low incomes tend not to increase much in savings through a bank’s interest.
However, with cryptocurrencies increasing in value the unbanked would rather keep their small income and get a better rate of return. In economic terms, the Return on Investment in cryptocurrencies is far more than the interest rate in global banks.
Many times these unbanked individuals, cannot receive payments either from companies, government subsidies or their children working abroad. Companies and governments tend to ask for primary banks account which if not enabled leads to the benefits being sucked into the system. While their children who work tirelessly in new lands cannot send a dime, other than through Western Union which charges a hefty transaction fee.
With the help of cryptocurrency, if there comes the need for an emergency the time spent on getting a transfer will take seconds. Time is essential when it comes to health and each passing second could be detrimental to a person’s health condition. On the plus side, the transactions made by the children will be far cheaper than the traditional methods.
An example of high transaction fees is witnessed in the continent of Africa. African banks tend to charge a transaction fee in the range of 10%. Plus African Banks which are set up in rural locations tend to steal away a hard working man’s money.
Cryptocurrency is a trustworthy source of not just money being safe in the wallet, but also not inflating away to a value like the Zimbabwean currency.
Another notable issue is the unbanked have no access to loans and other financial benefits which banks provide. Through Blockchain technology and cryptocurrencies, collateral through property rights can be organized by leveraging their property as collateral. It will help give the unbanked a facility of extra capital in case of an emergency or starting a business they always dreamed of running.
Cryptocurrency is the answer to the unbanking problem the world is facing, and if it does not implement cryptocurrency today, the growth of the unbanked will keep increasing with no real solutions to the 2 billion people being affected.
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Source: Toshi Times
Original Post: How Will Cryptocurrencies Benefit the Unbanked?