A financial inclusion framework was released by the Stellar Development Foundation, developers of the Stellar network, in partnership with consultants PricewaterhouseCoopers International (PwC). The framework was developed and explained in a white paper published on Sept. 25, to judge the efficacy of emerging market blockchain projects. The development of the Web3 project has kickstarted its effectiveness in Colombia, Argentina, Kenya, the Philippines, and other developing markets.
The teams behind the creation of this framework concluded that by using it, blockchain payment solutions significantly increased access to financial products by lowering fees to 1% or less, and the speed of payments has been increased by blockchain products and also helped users to avoid inflation.
Some blockchain developers claim that their products can improve financial inclusion by providing services to the unbanked in developing countries. This claim has become a popular way for Web3 projects to attract funding. For instance, eight blockchain projects have been listed by the United Nations International Children’s Emergency Fund (UNICEF) which has helped fund so far based on this idea.
However, Stellar and PwC argued in their paper, that to enhance financial inclusion, other projects can fail if they don’t have a framework for evaluating what is needed for success. “As with any technological innovation, the need for robust governance and responsible design principles are key to successful implementation,” they said.
The two teams in partnership to help foster this governance, proposed a framework to judge whether a project will likely promote financial inclusion. The framework consists of four parameters: access, quality, trust, and usage, with each of these parameters broken down into further sub-parameters. For example, “access” is broken down further into affordability, connectivity, and ease of initiation.
A proposed way of measuring each sub-parameter is included in its explanations. For example, Stellar and PwC list “# of CICO [cash in/cash out] locations within relevant target population region” as a way of measuring the “connectivity” metric. The purpose of this is to ensure that projects can scientifically measure their effectiveness instead of relying on guesswork.
A four-phase assessment process was suggested by the teams which projects should undergo to solve a financial inclusion problem. Phase one and two stated that the project should identify a solution, target population, and relevant jurisdiction and that they should also identify barriers preventing the target population from receiving financial services. In phases three and four, they should use “level charts and guidance” to determine the biggest roadblocks to onboarding users, and they should implement solutions that “prioritize key parameters” to make the most effective use of funds.
The teams identified at least two blockchain solutions that have proven to be effective at enhancing financial inclusion by using this framework. The first solution they identified was payments, and the second effective solution they found was savings.
The Stellar network has been a leader in financial inclusion, particularly in underserved markets. In December 2022, it launched a program to help charity organizations support Ukrainian refugees, and in September 2022, it partnered with Moneygram to create a noncustodial crypto wallet that can be used in over 180 countries. However, there have been criticisms from some financial and monetary experts concerning the use of cryptocurrency in emerging markets. For instance, a paper published by the Bank of International Settlements on Aug. 22 argued that cryptocurrency has “amplified financial risks” in emerging market economies.
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