Crypto or not, Successful Financial Inclusion Projects Share These Two Factors

By Tricia Wang, Lauren Serota

Key Points

• Crypto companies are rallying around Financial Inclusion as a prime example of how crypto financial services and products have a positive social impact.
• The effectiveness of past Financial Inclusion efforts is poorly understood and requires more systematic analysis to provide guidance on new Web 3.0 financial products and services.
• CRADL’s first research report suggests that Financial Inclusion projects — crypto and non-crypto — are more likely to have a positive impact when they work within established infrastructure and track the long-term financial health of community members.

When cryptocurrency companies are asked about the social value of crypto products and services, promoting financial inclusion is often a leading argument. Its decentralized nature, they argue, makes crypto finance especially well-suited to bringing financial services to those overlooked by traditional providers. Policymakers and investors, they suggest, would do well to support its expansion.

There’s plenty to be excited about. Kotani Pay, built on the Celo protocol, has reduced cross-border transfer fees by 93%, to give one example. Case studies published by crypto investment funds from Mercy Corp, UNICEF, and Stanford feature success stories about inclusion efforts that arose organically from communities in Nigeria and Argentina, during currency instability.

But despite these examples, crypto’s adoption as a financial inclusion tool remains limited, and its credibility is hampered by scant supporting evidence. For all the publicity and promise about their potential for social good, crypto-based inclusion efforts have received little analysis as to their actual impact in communities where they’ve been piloted.

For all the publicity and promise about their potential for social good, crypto-based inclusion efforts have received little analysis as to their actual impact in communities where they’ve been piloted

Part of the problem lies with a tech-focused mindset common among supporters. Crypto provides an entirely new foundation for financial inclusion, so it’s possible to argue that this alone is enough to make it effective. But such inclusion is also a human, social, and policy issue, and the success of a program that seeks to improve it depends on details beyond technology.

Non-crypto inclusion efforts have a lot to teach crypto-based financial inclusion programs — they are, after all, targeting the same people and trying to solve the same problems. Companies, NGOs, and governments have been developing such programs for decades, with a wide range of successes or failures.

Non-crypto inclusion efforts have a lot to teach crypto-based financial inclusion programs

The Crypto Research and Design Lab (CRADL) has examined more than 47 different financial inclusion programs, with a focus on non-crypto products. One conclusion is that almost any crypto-based financial inclusion program being proposed today has an analog in the non-crypto sector that’s already been tried out. By systematically analyzing a wide range of established programs, we’ve identified two key factors that correlate with improved financial health for participants — regardless of the financial system on which it’s based.

First: Is it sustainable?

The first factor, simply put, is that the program must work within the structure of the business or organization deploying it.

Many financial inclusion programs work by enhancing or adjusting an existing core service, usually to expand the range of customers able to access it. We call this a Sustained Financing Model because such programs can be supported long-term by the organization with minimal changes to strategy or infrastructure. These kinds of programs can start out as “R&D” projects, designed to deepen the organization’s customer focus or grow its product offering.

If a program doesn’t fit the Sustained Financing Model, it’s what we’d call a One-off project. This means it’s unaligned with the organization’s core strategy, and often requires the creation of new infrastructure, resources, or operating patterns. Aid programs often fit the One-off Model, since many are designed to address urgent needs, for example in the wake of a natural disaster. And while effective, they don’t typically deploy capital with the intent of creating a value cycle.

Second: Is it measuring social impact?

Many financial inclusion programs — and financial offerings in general — measure their success primarily through usage and engagement numbers. These metrics are immediately available and easy to gather but don’t necessarily correlate with what matters in this kind of program: whether it improves someone’s financial health.

For that, we need to use Social Impact Metrics, which directly measure the impact a program has on an individual or community. This could mean measuring reductions in debt or debt timeline, accrued savings, or lower barriers to sending cross-border payments. Favoring metrics like these is not a new idea, and has been written about by the WEF leadership for years. The recent WEF Edison Alliance report Shared Principles for an Inclusive Financial System aligns with this practice in its principle of “Inclusive by Design”.

Proof of Impact

The Proof of Impact Map created by CRADL shows how these two factors correlate with the success of selected inclusion efforts. Two well-established non-crypto programs — M-Pesa, a mobile phone-based financial services offering, and Heifer International, a livestock and crop program — offer a good example. Both have had well-documented success in improving financial inclusion over the course of several decades. Both offer their services as part of their core business. And both track impact metrics in addition to usage metrics: Heifer tracks living income increases, and M-Pesa tracks job creation.

There are two broad lessons to take from this exercise. The first — long understood in global development circles — is that starting a development or inclusion project is nearly always less of a challenge than sustaining it long term and refining it through feedback. This is why it’s critical to begin a project with a long view of the organization’s ability to support it and the program’s ability to respond to relevant metrics.

The second lesson is simply that the financial inclusion sector, and especially the crypto-based arm of it, needs additional depth and nuance if it’s to be effective. As crypto matures as a platform, we must adopt a more mature approach to self-assessment, or risk missing an enormous opportunity to transform the way the world thinks about and advances financial inclusion.

As crypto matures as a platform, we must adopt a more mature approach to self-assessment, or risk missing an enormous opportunity to transform the way the world thinks about and advances financial inclusion.

Our goal with the Proof of Impact Map is to add this kind of depth and nuance to the evaluation of financial inclusion projects. We hope this encourages organizations initiating such projects to explicitly define success relative to improved financial health for the community and sustainability (or appropriateness) for the business.

Before we publish our next report, we want to gather feedback from the community. We will work directly with crypto companies to get their feedback, and also want yours. Please help us stress-test the PoI Map with your feedback and project examples. We look forward to expanding the use of evidence-based research to accelerate financial health through crypto products.