Financial adjustment, accessible services and non-banking are standard topics in many cryptographic conversations. But the details may be rather vague – the people who talk about cryptocurrencies are generally what is already inside the financial system. These are people who are actively working to increase financial participation and access to services for the vast majority of people who are unbanked or poorly served.
CBDC for the people
The Digital Currency (CBDC) will serve different purposes in different locations. In economies where individuals have moved away from large amounts of money, such as the United States and the United Kingdom, there is relatively little retail demand for CBDC, but there are places where cash is scarce and CBDC can serve as additional basic opportunities for prosperity and growth.
nChain works with central banks to facilitate the use of CBDC through its Digital Cash product. nChain’s director of trade and policy, Simit Naik – who has experience working in West Africa – told the Cointelegraph that CBDCs in the region should “ensure continued access to the inclusive and stable form of central bank money for citizens, when physical cash use declines. ”
Having only access to physical cash limits people to the basic form of business. The CBDC would provide access to the digital economy and introduce new business models by supporting micro and nano payments. Access to broadband to participate in the digital economy would be rare, but the penetration and connectivity of mobile phones are “much greater” than might be expected, Naik assured. According to GMSA – the mobile phone association – there were 5.3 billion unique mobile phone subscribers in the world as of the second quarter of 2022.
The CBDC can save the central bank money and time by providing real-time access to data to inform monetary policy. A typical embodiment of the nChain Digital Cash product would be for the central bank to dedicate part of its reserves as collateral for digital cash. NChain would also support the central bank in depositing and distributing digital cash tokens on a one-to-one basis with guaranteed cash. It is important that the CBDC is not direct, as it could be used in places where there is no financial infrastructure.
The salaries of civil servants would be paid to the CBDC as a first step, then distributed to merchants. The Central Bank could also use it to make payments, such as welfare and harassment-related payments, directly to the public.
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Like Digital Cash, the purpose of the nChain Digital Money solution is to provide access to financial services to people who have not normally had access to those services. The Digital Money product, on the other hand, is accounted for, which allows it to create more traditional forms of money. Commercial banks and fintechs can use it to introduce new financial products. It can be used for loans and for the identification of assets and commodities, which allows people to become investors, as brokerage services are managed but do not necessarily need a broker.
Advantages of credit ratings
Another way to increase access to financial services is to create visibility for billions of people who lack creditworthiness. According to Brendan Playford, founder of Pngme and Masa Finance, 1.5 billion people worldwide have creditworthiness and 3.3 billion people have “invisible creditworthiness”. This means that they are creditworthy, but their credit history is not linked to them in a traditional banking system. Accessible credit is a prerequisite for many financial services, especially creditworthiness, and it can affect authentication and access to collateral.
By targeting one billion people, cost-effectiveness for mobile money and processing data from peer-to-peer payments made through reputable service providers, it can enable previously invisible people to be challenged. In Africa, only 20–30% of the population has creditworthiness. Pngme has partnered with the TransUnion credit rating service to use mobile money data to raise that level to 60-70%. According to GSMA, mobile phone business in sub-Saharan Africa was worth 697.7 billion dollars, out of a total of 1 trillion US dollars in the world, in 2021.
Banks in Africa “are struggling to serve underperforming markets, so Pngme is providing end-user infrastructure to build credit where they would not otherwise be able to do so,” Playford said.
Data captured by Pngme is one of the data sources used to enforce chain loans through Masa Finance. Masa Finance is a decentralized credit protocol that links out-of-chain credit data to distributed finance (DeFi), which creates a “psychological” credit rating (NFT). Masa uses mobile-friendly and scalable Celo blockchain to lend small amounts using anonymous data for underwriting and stablecoins as a settlement currency that can be converted into fiat or cryptocurrency. Playford told Cointelegraph:
“Intervention is really about choice. If you are undervalued and need financing, you may find it, but your terms are incredibly unfavorable. What this technology does is make ecosystems fairer, where more people can offer products in an open framework. “
Masa Finance recently announced that the pre-financing has been completed and expects it to be launched in three to six months. Testnet has been launched and its mobile application is in beta and has about 40,000 users. The program will cover 10,000 data providers in 78 countries when it launches in full in the coming weeks.
“The fact is that all the work I am doing is disrupting the way banks have a monopoly on lending. We are building an ecosystem that serves the top to bottom of the pyramid, “said Playford.
Accessible banking services
DeFi can be combined with traditional banking to offer the best of both worlds, provide non-bank services and improve the services available to those already in the system. EQIFI, a decentralized financial platform, is backed by EQIBank, a fully licensed digital bank licensed in Dominica. EQIFI provides a platform for DeFi products while operating with EQUIBank accounts, loan custody, OTC and asset management. It also offers peer-to-peer transfers and loans.
“Not everyone needs a loan that requires a credit rating,” Brad Yasar, founder and CEO of EQIFI, told Cointelegraph.
Cost savings related to decentralized financing enable EQIBank and EQIFIi to operate in parts of the world where large corporate banks would find it excessively expensive to conduct business. Yasar answered:
“We wanted to create a platform that brings decentralized finance with traditional finance in a way that opens doors for everyone.
Due to its affiliation with EQIBank, EQIFIi is also subject to regulatory requirements and is listed in the British Virgin Islands and Dubai. Yasar is a strong advocate for regulation and transparency in the cryptocurrency space.
EQIFI products also offer financial inclusion in the form of “such interest rates and returns that were previously only available to institutional investors and the wealthy upper class,” according to promotional material. Yasar described the platform’s yielding equipment as its “crown jewel”.
“Licensed and regulated projects such as EQIFIi are paving the way for the transition from anonymous risk factors to DeFi to safer, more transparent versions,” Yasar told Cointelegraph earlier. “With DeFi, we can offer a much larger part of the world’s population more products cheaper.
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