In an exclusive Smart Money Show interview with the MD and President of ASA Bangladesh, a $4.64 billion microfinance NGO, we discussed what it really takes to bank the unbanked and how blockchain could play a part.
Crypto bros, degens and constant gambling on market volatility, Satoshi Nakamoto’s original message is often heavily diluted within the modern incarnation of blockchain. Nakamoto and his crypto disciples once said, “Don't trust your bank”, we need a banking system “that can't be controlled by governments or banks, that's immune to the rules of wider society”, and so in an attempt to offer more equitable banking, bitcoin on the blockchain was born.
However, fast-forward over a decade, and almost half the world remains unbanked. Could blockchain be the answer, and what really are the barriers to democratic and inclusive banking? Managing Director and President of the Association for Social Advancement Bangladesh, Md. Ariful Haque Choudhury sat down with me in Dhaka to discuss.
Banking is something we take for granted when, in fact, over 30% of the population does not have a bank account. Banking is a crucial element for those in developing countries to escape poverty, but in a world that is money-driven, little can be tangibly done. How does one provide financial services to the unbanked and those with no credit history? How can they also get access to stable and reliable financial services that are dependable and sustainable?
Here is where microfinance comes in.
Ariful’s father, Shafiqual Haque Choudhury, alongside current Bangladeshi Interim Prime Minister Dr Muhammad Yunus, helped to pioneer this concept in the late 70’s. A cost-effective and sustainable form of loan for those who do not have a credit history, Yunus went on to found the infamous Grameen Bank, and Choudhury went on to found the Association for Social Advancement, topping the Forbes top 100 Microfinance charities list in 2007. He went on to found its subsidiary ASA International, which operates in 13 countries across Asia and Africa. Ariful explained how “microfinance is an example of how banking has tried to become more equitable over the last several decades; it gives small, socially responsible loans to low-income entrepreneurs”.
When asked about the future of the industry, here is what Ariful went on to say:
“Microfinance still has residual inefficiencies, due to the use of slow peer-to-peer systems, especially given the sheer volume of loans. Digital banking solutions so far have not been effective as databases in the country are silos that don’t communicate with each other, National ID data cannot be effectively linked to wallets and banking rails. Thus, the issue of integrating a cost-effective, secure and fast digital system where the pros outweigh the cons, still remains.”
The above gaps could, in theory, be addressed using the blockchain, as the technology lends itself very well to microfinance. Bitcoin is built on a database (known as a blockchain), which acts as a distributed ledger which, as Sean Lawrence, head of Europe at Digital Assets broker LTP, put it to me last year at the FT’s Crypto and Digital Assets Summit, can be instantly reconciled, instantly settled, transparent, efficient, and removes a lot of operational and settlement risk, as well as lowering economic rents and transaction costs. These qualities that Nakamoto envisioned align almost perfectly with the ethical, social and responsible financing philosophy that micro credit is based on.
This allows microfinance institutions to track exactly how and where their loans are being used, catalysing the process, causing more efficient allocation of funds, and overall adding to the already incredible work this kind of banking does. Thus making microfinance much more accessible. A simple example of this was presented to me by Sean Lawrence at the FT’s Crypto and Digital Assets Summit last year, clients such as local farmers in rural areas could “run native blockchain networks on their phones, provided it is backed into Ethereum or used by smart contracts” running on a layer 2. It certainly has the POTENTIAL (although unproven on a large scale like microfinance) to help those in need.
Work is already underway to bridge the gap to the underbanked. Crypto banks such as The Kingdom Bank and Xapo Bank are trying to use the blockchain’s traceability, trackability and security to allow those in developing countries access to financial services they would not have otherwise had. For example, let’s imagine 2 scenarios:
The above example was presented to me by Manuela Alor, Chief of Staff to the CEO at Xapo Bank, last year at the FT’s Crypto and Digital Assets Summit. She believes crypto gives reliable access to those who would not otherwise have access to a stable currency. Protecting consumers in developing countries, via handling transactions in digital dollars.
This does not just apply to Bangladesh; crypto in general could help to decrease the percentage of underbanked people, for example, approximately 70% of the population in El Salvador does not have a bank account. Bitcoin has been a legal tender there for the last 3 years and allows a larger part of the population to have easier access to financial services. Bitcoin adoption also enables El Salvador to be more independent from American monetary policy.
Blockchain-based remittance systems also break down barriers, with crypto, all one needs is internet access and a phone, and you can send digital money instantaneously, with a final settlement, to your family back home at a ridiculously low fee.
Simply put, blockchain has the potential, at least, to change the way we think of banking and to bring the developing world up to speed.
When asked whether he was ready to adopt a blockchain system that was reliable, fast, cheap and secure, Ariful simply responded:
“Yes”
Blockchain for the better - goodbye crypto bros?