The Stellar Development Foundation, in collaboration with PricewaterhouseCoopers International (PwC), has released a financial inclusion framework aimed at assessing the effectiveness of blockchain projects in emerging markets. The framework, outlined in a white paper published on September 25, provides insights into how blockchain payment solutions can significantly improve access to financial products by reducing fees to 1% or less. The research also revealed that blockchain technology has sped up payment processes and offered protection against inflation.
Many blockchain developers argue that their products can enhance financial inclusion, allowing them to extend services to people without access to traditional banking systems in developing countries. This claim has become a strategic tool for fundraising within Web3 projects. As an example, the United Nations International Children’s Emergency Fund (UNICEF) has supported eight blockchain projects based on their potential to boost financial inclusion.
However, Stellar and PwC emphasized the importance of having a framework to evaluate the success and impact of such projects. They highlighted that robust governance and responsible design principles are crucial for successful implementation of technological innovations. In response, they developed a framework with four key parameters: access, quality, trust, and usage. Each parameter was further dissected into sub-parameters, with specific measurement methods proposed for each. The aim is to enable projects to quantitatively measure their effectiveness rather than relying on subjective estimations.
To foster effective governance, the teams recommended a four-phase assessment process for projects seeking to tackle financial inclusion challenges. The first phase involves identifying the target population, relevant jurisdiction, and a solution to the problem. In phase two, projects should identify barriers preventing the target population from accessing financial services. Phase three involves using level charts and guidance to determine the main obstacles to user adoption. Finally, in phase four, projects should prioritize key parameters to optimize the use of available funds and implement solutions accordingly.
Through this framework, the teams identified at least two blockchain solutions that have effectively enhanced financial inclusion. The first solution pertains to payments, where blockchain-based platforms charged 1% or less in fees compared to the average 2.7-3.5% charged by traditional financial apps for money transfers between the US and the target markets. A study of 12 applications in Colombia, Argentina, Kenya, and the Philippines demonstrated that blockchain solutions increased access to electronic payments for individuals who would otherwise be unable to afford them.
The second effective solution focused on savings. The teams advocated for a stablecoin application in Argentina that enables users to invest in a digital asset resistant to inflation, thereby preserving their wealth in times of economic instability.
Stellar network has long been at the forefront of promoting payment inclusion in underserved financial markets. It previously launched a program to assist charitable organizations in distributing funds to Ukrainian refugees affected by the war. Additionally, it recently partnered with Moneygram to develop a non-custodial crypto wallet accessible in over 180 countries.
It is worth noting that not all financial and monetary experts are fully supportive of the use of cryptocurrencies in emerging markets. Some argue that cryptocurrencies have amplified financial risks in these economies. A paper published by the Bank of International Settlements in August highlighted these concerns.
In conclusion, the financial inclusion framework released by the Stellar Development Foundation and PwC provides valuable insights into the impact and effectiveness of blockchain projects in emerging markets. By encouraging robust governance and responsible design principles, the framework aims to improve access to financial products and services for underserved populations. Through the evaluation process outlined in the framework, the teams identified effective blockchain solutions that have successfully increased access to payments and savings, thus boosting financial inclusion. Nonetheless, not all experts are convinced of the benefits of cryptocurrencies in emerging markets, highlighting the need to carefully consider potential risks and challenges.
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