The Stellar Development Foundation, in collaboration with PricewaterhouseCoopers International (PwC), has released a financial inclusion framework to evaluate the effectiveness of blockchain projects in emerging markets. This framework aims to address the need for robust governance and responsible design principles in the implementation of blockchain technology to promote financial inclusion.
Blockchain developers often claim that their products can enhance financial inclusion by providing services to unbanked individuals in developing countries. This claim has become a popular way for Web3 projects to attract funding. The United Nations International Children’s Emergency Fund (UNICEF) has already funded several blockchain projects that align with this idea.
However, Stellar and PwC argue that these projects can fail to enhance financial inclusion if there is no proper framework to evaluate their impact. To address this issue, they propose a framework consisting of four key parameters: access, quality, trust, and usage. Each parameter is further broken down into sub-parameters, and measurement methods are suggested for each sub-parameter.
The teams also suggest a four-phase assessment process for projects to tackle financial inclusion challenges effectively. The process involves identifying a solution, target population, and relevant jurisdiction in the first phase. In the second phase, barriers preventing the target population from accessing financial services are identified. The third phase focuses on determining the major roadblocks to onboarding users, while the final phase emphasizes implementing solutions that prioritize key parameters for maximum impact.
Applying this framework, the teams identified two blockchain solutions that have proven effective in enhancing financial inclusion. The first is blockchain-based payment solutions, which significantly reduce fees to 1% or less compared to traditional financial apps that charge an average of 2.7-3.5%. These payment solutions have increased access to electronic payments for those who couldn’t afford them previously.
The second effective solution is blockchain-based savings applications. For example, a stablecoin application in Argentina allows users to invest in an inflation-resistant digital asset, thus preserving their wealth in a challenging economic environment.
The Stellar network has been at the forefront of promoting payment inclusion in underserved financial markets. Recently, it announced a program to help charity organizations distribute funds to Ukrainian refugees fleeing war. Additionally, Stellar partnered with Moneygram to develop a non-custodial crypto wallet usable in over 180 countries.
It’s worth noting that the use of cryptocurrency in emerging markets has faced criticism from financial and monetary experts. A recent paper published by the Bank of International Settlements argues that cryptocurrency has amplified financial risks in these economies. Despite this criticism, Stellar and PwC’s financial inclusion framework provides a valuable tool for evaluating the impact of blockchain projects on financial inclusion, ultimately helping to foster more responsible and effective implementations.