“Innovation means the ability to see the potential in change and not as a threat,” is a well-known saying that explains why innovation is essential for our better lives. This is evident in the potential growth and scope of digital assets. Companies are moving away from the traditional exchange of securities for cash and into a digital environment.

Many of us consider access to bank accounts, ATMs and fund transfer services as a given, thanks to the many financial tools at our disposal. Unfortunately, this is not true for a large portion of India’s population.

According to World Bank data, India is the second largest country in terms of unbanked people. This is a significant barrier to financial inclusion because these people don’t have access to all the services they need to protect, transact, and grow their wealth.

Although schemes such as the PMJDY are moderately successful in achieving their objective of providing every Indian adult with a bank account and have had some success, large portions of these accounts remain unutilized. This is a clear indicator that the vast majority of India’s population is not fully integrated into the banking system.

The RBI announced in April 2021 that it had created an annual composite Financial Inclusion Index to measure the country’s financial inclusion. It refers to widespread access and use of a variety of financial services, including insurance and credit. This index is an indicator of inclusive economic development. The Indian FI-Index Annual for March 2021 was 53.9, compared to 43.4 for March 2017.

We have made great strides on our path to financial inclusion, thanks to the rapid growth of high-speed internet and digital payment systems. We cannot ignore the fact that the digital divide exists and there are still barriers to financial literacy among different income groups. Most common obstacles include lengthy documentation and complicated enrolment processes, misinformation about financial services due lack of awareness, as well as infrastructure issues that prevent users from taking full advantage of digital financial services.

Many financial institutions are afraid of providing financial infrastructure for the underbanked or unbanked. It is not economically feasible to maintain and operate zero balance or inactive accounts long-term. There is also no guarantee of a return on your investment. Contrarily, although a large number of rural and low-income consumers are interested in financial services, they are excluded from it because they do not have the documentation, savings or credit history.

Managing the challenges of blockchain and crypto

Blockchain technology and crypto assets have tremendous potential to foster financial inclusion, particularly for developing countries. This alternative financing infrastructure is open-source, secure and global. It allows everyone to have access to financial services. India’s mobile phone penetration is expected to increase, and financial services can now be offered to the unbanked via their mobile phones, without needing to be linked to any financial institution or bank.

Blockchain is a decentralized ledger that eliminates the need for central authority. Transactions are verified by multiple participants and create an unalterable transaction log. This one attribute, immutability has the potential to revolutionize financial services. It offers greater transparency, increased security, and lower transfer fees.

Lack of proof of identity is another major barrier to low-income individuals from accessing financial services. Blockchain allows consumers to bypass some of the challenges that come with account opening, maintenance, and documentation.

Although there are many benefits for developing countries, we have yet to fully tap into the potential of crypto assets due to misinformation, lacks of regulation, and scepticism about them. Although many first-time investors in crypto have jumped into the space to avoid missing out on the opportunity to make quick money, it is encouraging that once they become part of the ecosystem, they will be able to see and reap the benefits of this disruptive technology.

Although we are only scratching the surface in terms of leveraging digital assets for financial inclusion, crypto assets and the applications blockchain technology will have a profound effect on how we conduct business, manage wealth, and restructure society. It has been proven that it takes time for paradigm shifts like these to become mainstream.

The second order impact that crypto assets and blockchain may have on the world over the next few years is the decentralization and greater autonomy of consumers. To get there, however, many challenges must be overcome, including greater internet accessibility and financial literacy as well as heated debates about wealth concentration, government oversight, data privacy and the impact crypto mining has on the environment.

It may not seem unreasonable to consider blockchain our best hope of accelerating financial inclusion in countries where it seems impossible.

By Manali