Did you know that over one billion people in the world still don’t have access to financial services? In Africa, for example, a large percentage of its population still lacks access to basic financial services. In spite of this disturbing exclusion in vast sections across the continent, Africa’s population is increasing at a geometric rate. In Sub-Saharan Africa alone, it is estimated that by 2050, the population would be doubled.
The rapid population growth on the continent, has however, not translated into an improved economy for the people. The economies of African countries, still lag far behind, when compared to those of other countries of the world. Access to improved livelihood for many people still remains nothing but a dream.
Crypto and its underlying blockchain technology, come at a time where this long-standing challenge persists. As such, it holds potentials of constituting a viable tool to help achieve full financial inclusion on the African continent.
Following this backdrop, this article analyses how cryptocurrency can help reduce financial exclusion in Africa, amidst the ravaging population explosion and deeply-rooted poverty on the continent.
The constraint to financial inclusion
As a developing continent, Africa has enjoyed massive development in recent decades. The adoption of web and mobile technology has greatly transformed the continent. For example, the emergence of mobile money has further broadened improved access to financial services.
While these come as an improvement on the outdated infrastructure, this development, however, masks a stark reality: that a sizeable number of Africans, still lack access to basic financial services.
The current financial system in the continent, is largely under-developed and limited in reaching extremely remote areas. Similarly, opening and managing a bank account in Africa is still expensive. As a result, many African adults still use informal means to save and borrow money.
Financial institutions still make use of some hectic processes—such as strict account opening processes and opening fees— which often reduce the thirst for the adoption of ultramodern financial services. Owning a cryptocurrency, however, does not require all these.
A 2014 Global Findex survey, highlighted four common barriers as to why people do not have a bank account. These barriers are:
- Lack of money.
- Account opening being too expensive.
- Financial institutions being too far way.
- Lack of necessary documentation.
These barriers are particularly toxic to the health of the African economy, as they hinder access to credit. Getting financial support has always been a major obstacle for individuals and Small and Medium Enterprises (SMEs) across the continent. Compared to developed countries, African entities often find it difficult to get loans or adequate access to other sources of funding.
As such, there is an urgent need for more financial innovations in Africa.
The path to inclusion
Financial inclusion removes the barriers to cheap and quality financial services, and also broadens access to services ranging from credits to cross-border payments.
In order to achieve financial inclusion, financial products/services need to remove the constraints that restrict people from participating in the financial sector. This way, more individuals and businesses—like the Somalian teacher and the small scale Zambian Cement Company—would be allowed to thrive in a financial environment that encourages them to engage actively in the economy.
Furthermore, a study carried out by GSMA, shows increasing smartphone and mobile usage in Africa. With such an improving connectivity profile, this scenario could provide an ample opportunity for mobile-based financial products to change the narrative of financial exclusion in Africa. This is where cryptocurrency comes in.
Whilst there are divided opinions and mixed perceptions on whether cryptocurrency is needed in our society, a close scrutiny of cryptocurrency, would immediately give away the endless potentials it holds to address critical issues such as financial inclusion in developing locations like Africa.
Blockchain-based products like cryptocurrencies, have an open financial system which allows anyone to participate. Essentially, there are little or no costs involved in holding or getting access to cryptocurrencies. The ripple effect of this is that most barriers attached to banking with traditional financial institutions, are bypassed. This would, in turn, considerably boost financial inclusion.
Similarly, all it takes for one to be jolted to the harsh reality of the deep financial exclusion that exists in Africa, is a trip to North-Central Nigeria. There, in areas like the Maikunkele–Zungeru Road in Minna, Niger state, one would have to travel for at least, 30 minutes in order to gain access to an Automated Teller Machine (ATM). The availability and reliability of financial services, still pose a huge threat to financial inclusion on the continent; notwithstanding the continuous efforts of governments and private organizations. On the contrary, cryptocurrency transactions can easily be conducted within seconds, and with a mobile device. This eliminates inadequacies triggered by limited availability. In turn, largely available and cost-effective financial services would be provided to the millions of Africans who are currently unbanked; thereby, boosting the economies of countries on the continent.
In conclusion, evidently, cryptocurrency is a viable tool for the promotion of financial inclusion in Africa. However, African governments still need to discard their suspicion and lack of support for cryptocurrency. Should this be achieved, Africa would be well on its way towards becoming a global economic giant.