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Blockchain offers an improved mechanism for microfinance to happen. The payments and recordkeeping mechanisms are already available in blockchain. Since an account holder’s transactional history is available in the ledger, credit and income histories need not come from an external audit or documentation.
In addition, the blockchain in itself becomes a data source for analytics to develop more transparent and better algorithms to determine loan amounts, terms, and interest rates. These mechanisms have to be optimized to create a sustainable microfinance ecosystem fit for these emerging markets.
Moving towards ending poverty
Blockchain is truly shaping up to be the technology that could be the vehicle for social change. However, it’s still a bit of a reach to claim that blockchain will be the end of poverty. Besides, poverty is a multifaceted problem that needs a holistic solution. What’s exciting about blockchain is that it can influence several of the factors causing poverty.
Theoretically at least, an affordable, fast, and transparent means of transacting holds much promise to benefit the poor. The technology has also developed significantly beyond the payments advantage that Singer initially pointed out in the aforementioned interview. The introduction of smart contracts has made blockchain platforms more comprehensive and versatile to deliver financial services.
However, as with most efforts with the best intentions, we have to witness widespread adoption and successful case studies before a definitive verdict can be given. The increasing amount of blockchain projects by groups and governments is definitely a positive sign on the way to transform grandiose ideas into reality.
This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. I have no positions in any of the securities mentioned above.