During a trip to Bangalore, India, in the year 2000, the American journalist Thomas Friedman had the epiphany that globalization was flattening the world. It's been almost two decades since the three-time Pulitzer Prize winner collected his thoughts on how the internet and technology promised to connect the world in a global knowledge network in his book “The World is Flat.” But there remain huge, uneven contours on the map.
Today, more than 2 billion people across the world have no access to any type of financial service, according to World Bank data. Each year, more than 100 million are banked for the first time (some 700 million between 2011 and 2014). But the problem persists in alarming proportions in vast regions of the world, especially in Africa. Countries such as the Central African Republic have a banking penetration rate of as low as 3.3 percent and the average for sub-Saharan Africa barely passes 30 percent.
Africa has 10 of the 15 countries with the least access to financial services in the world, making it “the unbanked continent.” The reasons are historical, multiple and complex: small economies with lack of infrastructure, high illiteracy rates and low wages, political instability and weak judicial systems. The long-term bureaucratic plans that need to be implemented by stagnant power structures with few incentives are failing many millions.
For Africa, it's not the moment to catch-up, it’s leapfrog time.
Leapfrogging is a concept where emerging economies adopt modern systems without trudging through intermediary steps that ensure they always lag behind developed countries. Clear examples exist, such as the widespread adoption in poor countries of 4G networks, skipping 3G and end even 2G systems to jump from desktops to smartphones directly. And leapfrogging allows countries to sprint ahead of their developed counterparts, such as when Brazil promoted ethanol as a fuel in the 1960s instead of gasoline or more recently how WeChat/Alipay use QR codes for payments.
The good news is, Africa itself has already hinted at how to leapfrog. A decade ago, Kenya was in the same complicated situation as its neighbors and the number of Kenyans in the banking system was under 30 percent. What happened in the interim that it today tops the continent’s list of financial inclusion, with rates of 70 percent? How did 18 million people gain to access financial services for the first time in less than a generation?
Brian Ochieng waits for M-Pesa customers at his second hand clothing shop in Kibera in Kenya's capital Nairobi, Dec. 31, 2014. Photo: Reuters/Noor Khamis
In March 2007, Safaricom, a subsidiary of Vodafone, launched the modest M-Pesa service (pesa means money in Swahili) to make simple payments through text messages. That effectively converted each cell phone in the country into a small banking agency. Ten years later, M-Pesa has processed over 6 billion transactions and serves 30 million customers in 10 countries. The service is not only a commercial success, but also a social one and has been applauded for offering opportunities to millions of families and small businesses in the region. This deceptively simple idea brought 2 percent of Kenyan households out of extreme poverty between 2008 and 2016, according to an MIT study. Its success provides a glimpse into a future that can bypass current conditions. And no future technology has as much current potential in Africa as blockchain.
According to a World Bank survey, some of the main reasons that African citizens cite for not having bank accounts are cost, distance, bureaucracy and lack of trust. Changing the entire infrastructure, mentality and operations system in the opaque financial ecosystems of developing countries is a titanic task that will still take years. But, what if there was a technological solution that would allow the system to navigate to make it immediately more accessible, cheaper, efficient and faster?
Blockchain is the technology that allows the creation of shared, immutable, transparent, fast, decentralized and encrypted databases that can convert every smartphone on the planet into an accessible and secure financial platform. Its potential to democratize financial services, turn international aid more efficient and make political processes more transparent is not just a promise, but a reality. There are already companies working on applications to make immediate money transfers for a fraction of the current fees; to provide access to financing to small businesses historically excluded from global markets; to create digital identities and to safeguard electoral processes.
The possibilities of the blockchain are, without a doubt, enormous. Still, although this technology offers solutions to reduce systemic inefficiencies, it will only be as effective as the people who apply it. For the system to take off, all those operating along the chain must cooperate to achieve the desired results: a fairer financial system, more efficient and full of opportunities for all.
Dickson Nsofor is the co-founder and CEO of Kora Network, www.kora.network, a blockchain infrastructure for inclusive financial systems in emerging markets.
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