With the unbanked population in India reduced to more than half to 233 million since 2011, financial inclusion program has shown its importance in the Indian landscape. However, one needs to observe how much of this reduction is a result of contribution from emerging technologies. The reduction of unbanked population was a result of inclusion programs such as PMJDY (Prime Minister Jan Dhan Yojna) and some other private banks such as ICICI launching their own programs.
With 233 million people still unbanked, it is a potential opportunity to emerging technologies like Blockchain to bring its incentives to Indian inclusion programs. One must take examples from economies like Nigeria which saw this opportunity and implementing remittance systems in their country using Blockchain technologies by Stellar and Ordian. With these platforms built it will give 300,000 Nigerians to transfer money cheaply.
So why is blockchain the solution to emerging economies?
Blockchain because of its irrevocable nature of technology provides a strong control over not only remittance but also being a distributed database helps track these remittance. With a 1.5 billion population this will be a boon.
But what makes blockchain special is its decentralized nature. It enables avoiding the manipulation centrally. Most emerging economies do face the situation of corruption. Hence central banks having a control over the currency can lead to disastrous effect. We also have other parameters like inflation and instability of economies which can lead us to the conclusion that central control over currency is dangerous.
However, there seems to be a challenge here. Regulatory authorities of emerging economies sometimes do show a scepticism over such a control but over the period of time we have observed the regulators themselves coming up and the asking for help. A classic example is Indian regulators RBI (Reserve Bank of India), who recently asked help for the financial inclusion program in India.
Another reason that makes blockchain an ideal solution for emerging economies is its irrevocable nature. Once a record is created in a blockchain it is irrevocable. Why it’s a benefit? Money laundering is one of the major issues being faced by emerging economies. By making blockchain a mandate for payment or remittances will help track the fraudulent or laundered money. We have three steps in money laundering, placement, layering and integration. Blockchain will actually help in all three stages as each time money is laundered a record will be created for each stage.
Also, it provides an efficient infrastructure for financial system, as the network of nodes in interconnected even if one node goes down the other still continue to operate. Hence, it is an efficient way of doing availability management.
With all these advantages, there is still a debate going on as to how one can regulate blockchain in emerging economies financial system. We hope to see a solution coming through for regulators once some of the emerging economies begin to launch fintech laws. OJK (Otoritas Jasa Keuangan), the financial regulatory authority in Indonesia, is going to launch fintech laws by the end of this year. This will also be a first step to see what elements of finance technology are implemented in the fintech laws.
While this debate continues, blockchain still continues to remains an ideal solution for emerging economies for its transparent, irrevocable and efficient nature. It also has the ability to provide efficient infrastructure for financial systems in various emerging economies.