Financial Inclusion and why it is Important
While the World Bank agrees that financial inclusion is a key enabler in reducing poverty and boosting prosperity, it is ironic that still more than half of the world’s adult population do not have access to basic financial services. Surprising still are many countries in Asia and Africa where less than 15% of the population has a bank account.
Financial inclusion refers to the ability of individuals to access financial products and services in order to meet their needs. The needs that should be met include saving, transacting, making and receiving payments, receiving credit, and insurance. The products and services have to be affordable and useful to the target population so that the desired goals can be met.
Negative Consequences of Poor Financial Inclusion
The financially underserved population largely consists of people in the developing or underdeveloped regions of the world who operate in the informal economy. This lack of access to financial services has had significant negative effects on their lives and the economy in general.
To begin with, the world’s poor population have no reliable means of making and receiving daily payments. This inability to transact reliably on a daily basis hinders their upward mobility. It sets them on a path to failure and keeps them in a vicious cycle of dependency where their only access to finances is through unscrupulous means.
Secondly, lack of access to financial products and services means limited access to credit. A majority of the world’s poor population work in the informal sector. They grow crops on a small scale and keep animals. Others are artisans who sell wares to the population while others are small-scale vendors who sell basic items such as food and vegetables. However, despite their ability to make further investments in their little enterprises and improve their lives, they lack access to credit which would have helped them achieve such a goal.
For instance, it has been shown that owners of small enterprises in most parts of the world have the ability to make further investment into their assets if they had access to credit facilities. The investment would lead to more profitable businesses. Stall owners can also increase their existing stock and product range if they had access to credit. Farmers can invest in more livestock and generate animal products which are a raw material for essential food products, such as meat and milk, worldwide. Artisans can also buy more raw materials and make more products if they had access to credit. Therefore, poor financial inclusion has prevented the growth of businesses and enterprises by people from the informal sector.
Thirdly, the world’s poor population are unable to make savings which can go a long way towards improving their lives. Savings help people build up financial resources that can be used to grow an enterprise or improve life in general. For instance, a farmer can save to acquire more livestock in the future so as to increase his produce and income. Savings also shield people from failure during uncertain times.
In a scenario where a deadly disease afflict a farmer’s livestock killing half of the population, a farmer with considerable savings can tide over this situation. The farmer can use the cash to restore his heard and avoid failure. He can maintain his production and income despite the calamity. Therefore, poor access to financial products has limited the ability of the poor people to save and have the opportunity to improve their lives.
Lastly, the lack of financial inclusion prevents the world’s poor population from accessing insurance. Risks and financial shocks are part and parcel of any business. Insurance helps individuals to cope with the vulnerabilities associated with risks and financial shocks. For instance, livestock farmers can insure their animals against disease and natural calamities. By being insured these farmers are protected from falling into poverty because the continuity of their income stream through production is guaranteed.
Why Financial Inclusion is Important
Financial inclusion is needed for all and sundry, and especially the world’s poor population working in the informal sector. The inclusion helps individuals to make daily payments reliably. It helps them to access credit which can be invested in their small-scale income-generating activities. It also helps people save their cash so that they can make future investments or respond to unforeseeable risks.
Financial inclusion improves access to insurance products and services which are critical towards addressing vulnerabilities in any type of business.
Financial Inclusion Efforts
There have been efforts by different stakeholders to bring financial products and services to the poor population in rural areas. In Bangladesh, two financial technology companies (CloudWell and Green Delta Insurance) have collaborated to offer payment and insurance services to farmers in rural areas. Governments in developing countries such as Zimbabwe have enacted laws that allow farmers to use their livestock as collateral to obtain credit. Despite the efforts, issues of trust and transparency have prevented such projects from achieving their full potential.
Sentinel Chain
Sentinel Chain is a project created to help rural farmers access financial products and services, thereby, improving their lives. The project solves the issue of trust and transparency by utilizing blockchain technology to identify, quantify, and verify asset ownership.
The world’s poor population are often richer than they are portrayed to be. Take for instance, the 5.3 billion poor people who do not have full rights to the property they live in and the land they farm. It has been estimated that if these people were given titles for their lands, it would unlock around $9.3 trillion in assets. Poor people are often seen engaged in traditional activities and have livestock and other animals which are the foundation for their lives. However, such assets are considered “dead capital” because they are not recognized by financial institutions. The institutions face challenges in establishing and verifying ownership, and quantifying the assets. As a result, farmers cannot use their livestock nor their land to access financial products such as credit and insurance.
Sentinel Chain addresses the problem by using blockchain technology to quantify, identify, and verify ownership of livestock. A system of tamper-proof and theft-proof RFID tags are used to label all the livestock. There also exist a smartphone application used to read the tags and store the information regarding the identity and ownership of each livestock on a blockchain. The whole ecosystem enforces trust and transparency which is an incentive for financial provides to start offering their products and services to the farmers.
Sentinel Chain enables farmers to monetize their livestock. The information stored on the blockchain gives farmers the opportunity to offer their animals as collateral in exchange for credit from a financial institution. Additionally, the blockchain technology uses its own form of cryptocurrency known as the Sentinel Chain-Token (SENC). With its value tied to local currencies, it will help farmers make fast and easy transactions. Sentinel Chain will revolutionize the lives of rural farmers by enabling them to access capital and markets that they can use to improve their lives.
Into a Hopeful Future
Financial inclusion is probably the biggest hurdle in the global path towards prosperity. We live in complex times and our activities throughout human history have created a complex ecosystem on this planet we call home. Natural calamities and climate change compound an already complex global economy. In such times, access to financial services and the ability to save, invest and hedge risks is important for every individual. It is not just the obligation of governments to help bring about financial inclusion, the participation of every entrepreneur wishing to effect a lasting change is important. Sentinel Chain’s effort to help improve financial inclusion is a fine amalgam of using cutting edge technology and the social obligation of creating a prosperous world.
To support the Sentinel Chain or to simply know more about its activities, please follow it on Twitter or join its Telegram group.
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