The Role Of Blockchain In Democratizing Access To Financial Services

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INTRODUCTION

Financial services are key to economic development and individual empowerment. More than 2 billion people in the world, however, do not have access to any form of bank services, such as saving and borrowing accounts or insurance. Often, traditional financial systems excluded individuals as they could not satisfy high costs, lack of connectivity, or eligibility regulations, thus preventing people in the underserved regions from improving their financial situations.

Emergence of blockchain technology brings transformation to resolve this problem. Its decentralized networks, blockchain providers cut intermediary market transactions, thus reducing fees and enabling people to access financial services directly. Its transparent, trust, and security surround transactions and kindle efficiency and inclusivity in financial systems. Real-time peer-to-peer transactions are performed through cryptocurrencies enabled by blockchains, and also, the blockchain facilitates automated processes through smart contracts.

In this article, we examine the contributions that blockchain can make toward democratizing financial services. It discusses four main themes of impact that stem from the inclusion of banking for the unbanked, decentralized lending and borrowing, international remittances, and financial access through micro-transactions. The use cases were analyzed by the article to establish that blockchain will disrupt the global financial architecture.

• BANKING SOLUTION TO UNBANKED

One very important and concrete space that blockchain addresses towards financial inclusion, in fact, is through banking solutions to the unbanked.. Conventional banks need extensive documentation, many physical branches, and high charges within which a lot of people living in rural areas or with low income find hard to cope. With blockchain, however, anyone with network access can create a digital wallet and enter the finance ecosystem.

Blockchain allows digital wallets to store and move cryptocurrency securely. And necessarily, these wallets are decentralized; users have total control over their funds and do not need to depend on traditional financial institutions. For example, persons with wallets in Bitcoin can send money from anywhere in the world, and almost every country can be reached this way using Ethereum. This opens a gap for countries that have unstable financial systems or a very thick banking infrastructure.

Celo or Stellar create platforms for easily accessible financial tools for the unbanked, enabling them to store value, make payments, and access financial services without barriers. Blockchain cuts through traditional barriers, it brings millions of people into the global financial system. There are also blockchain-based stablecoins, which are cryptocurrencies pegged to stable assets, the US dollar etc., because they could actually be a way whereby people could be keeping their savings or liquidity and move between extremely volatile currencies.

• ENABLING DECENTRALIZED LENDING AND BORROWING

It brought much-needed change in lending and borrowing for a decentralized finance (DeFi) platform. Traditional lending is all about banks acting as the intermediaries and can charge interest, as well as set rigid levels of eligibility criteria. This barrier keeps away humans, usually small businesses, from a greater share of the pie from banks. Defi with its blockchain thus enables interactions between individuals and individuals with no intermediaries in the lending process.

In DeFi, lending would include the ability to deposit assets with other individuals and earn interest while using collateral to borrow from such an entity. And also do those much needed executions through smart contracts. Their transparency and reduced costs will also lend a hand to the growth of the users . For example users such as Aave, Compound as well as MakerDAO eliminate the need of credit histories and documentation required to access loans or even just provide liquidity in a matter of seconds through the ownership of cryptocurrencies.

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This decentralized approach is worth everything, especially for small entrepreneurs in developing countries who could really benefit from financing from traditional banks but cannot easily get access to loans. With the transparent and borderless nature of blockchain, it creates a borderless access point for funds worldwide that borrowers can take advantage of into their businesses, educational endeavors, or other opportunities. Blockchain creates an equitable and open lending system and thus brings about economic empowerment.

• STREAMLINING INTERNATIONAL REMITTANCES

International remittances are life-support systems for millions of households globally, especially in developing parts of the world. Unfortunately, most traditional routes of sending and receiving remittances are costly, delayed and inefficient with high amounts being consumed by exorbitant charges. Blockchain technology addresses such drawbacks by having international remittances fast, low-cost, and secure across borders.

Individuals may send money without the intermediation of banks or other money transfer operators through cryptocurrencies like Bitcoin, Ripple (XRP), and Stellar Lumens. Because of its decentralized nature, all transactions take place between the sender and recipient directly without a third party in the system, thus reducing the fees and time delays. For example, a worker in Europe can send money into Africa even through a blockchain-supported remittance service, where the recipient receives the money almost right away.

Remittance platforms powered by blockchain, like BitPesa and SendFriend, show that costs can be reduced and accessibility can be made much easier. These platforms are operating on the assumption that more than 90% of money transactions can be transferred between people without having to go through financial intermediaries for achieving successful transactions. Doing this raises the amount of money transferred to these households; it is not only the transactions made to these families, but it strengthens entire economies, making remittances one of the greatest tools available for financial inclusion.

• PROMOTING FINANCIAL INCLUSION THROUGH MICROTRANSACTIONS

Microtransactions also bridge gaps toward financial inclusion in situations where persons with low incomes have to transact small amounts more frequently. Their use of traditional financial systems will tend to charge a transaction fee that increases such payments and renders them impractical for use. However, the use of blockchain allows for low-cost, secure transactions even for amounts limited to just a few cents.

This processing ability for micropayments opens up vast opportunities for e-commerce, education, healthcare, and many more sectors. For instance, one can purchase parts of services online or educational content with very small stops using cryptocurrencies. Microinsurance models by health are other innovations which permit the individual to come in for very small premiums for specific coverage such as treatment for a particular illness.

Platforms like Lightning Network and Nano are intended exclusively for instant, low-cost microtransactions on the blockchain. They also bring great new possibilities to the doorsteps of participants who are not currently connected to purchasing goods and services or interacting in some economy and financially building a name for themselves. By making financial transactions cheaper, they also empower personal financial life management for the people concerned.

CONCLUSION

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Blockchain technology is transforming the way people can live. It is helping democratize access to financial services, thereby overcoming the inadequacies of traditional systems. It is creating a more equitable financial landscape with regards to banking for the unbanked; through decentralized borrowing and lending; international remittances; and creating pathways for economic inclusion with microtransactions, very small amounts of money would be moved using blockchain for financial transactions.

In other words, this decentralized, visible, and efficient characteristic of blockchain technology is likely to reach scarcely covered populations at crucial points at which they should be able to access certain financial tools that could help them better their economic status. Despite the obstacles that exist, such as regulatory challenges and adoption of technology, increased integration of blockchain technology in financial services is a clear pointer to having a bright future with financial inclusion for all.