Even after decades of monopoly over the economies, the traditional financial system failed to serve the 1.75 billion unbanked people globally. The world has progressed significantly on the economic front, but we are still lagging on the dimension of financial inclusion. The majority of the low-income population has little or no access to quality financial services due to strict requirements of traditional financial institutions such as high credit scores, high income or steep lending rates, etc. The hindered access to financial services often pushes the excluded community into the vicious cycle of poverty. Economic prosperity is deeply linked to the financial accessibility of the community. Emerging technologies should be incorporated to overcome the predicament of hindered financial inclusion.
The advent of cutting-edge technologies like DeFi & Web 3.0 is reshaping the financial services sector with the power of decentralization. Decentralized finance(DeFi) & Web 3.0 viz., powered by artificial intelligence, machine learning, edge computing & blockchain technology, together have enormous potential to serve the unbanked excluded communities and drive greater financial inclusion globally. Let’s find out how can DeFi and Web 3.0 help in providing more inclusive financial services & enhance economic equality worldwide.
Eliminating intermediaries & reducing the cost of financial services
DeFi & Web 3.0 can enable financial services to run on the decentralized blockchain network. Its implementation can potentially eliminate the need for intermediaries like brokers, etc. It also reduces the cost of financial service delivery as individuals do not have to pay fees/ commissions to third parties to facilitate the services. The reduced cost of financial services will certainly make it more affordable for the low-income population.
Equal & easily accessible to everyone
Unlike traditional financial institutions, decentralized finance will not require individuals to fulfil certain eligibility criteria. It will not require any government-issued identity card or social security number like Aadhar number etc to access the financial services. It is easily and equally accessible to everyone globally. The ease of access is a crucial factor in facilitating financial services to unbanked & underbanked communities.
Creating new forms of collateral & wealth generation
Defi & Web 3.0 have immense potential to generate new forms of collateral, which will gradually help the low-income population to get access to borrowing & wealth generation opportunities. Globally the real estate industry has a market size of approx $228T, but the market is significantly dominated by the elites or individuals from higher income groups worldwide. The high capital cost, along with restricted deals and complex transaction processes, has made it more inaccessible for unbanked individuals & low-income communities. For example, digitalizing the property titles and tokenisation of real estate property help allocate fractional ownership to individuals. This in turn, can open avenues for wealth generation & also empowers them to borrow against their fractional ownership as collateral if required.
Fair money lending policy with AI
Web 3.0 can make lending more inclusive with the help of artificial intelligence. By analysing the earning patterns as well as spending behaviours of users with the help of AI, financial institutions or fintech platforms can bring a fair and inclusive lending policy for users with low income or no credit history. The data-driven policy will also help to eradicate or prevent all the social & economic biases.
Facilitating diverse investment opportunities uniformly
Unlike traditional finance, with the Defi & Web 3.0, people from every social stratum can have access to diverse investment opportunities globally. Many infrastructure, real estate, tech, or climate-related projects often opt for funding via tokens & smart contracts. The decentralized investment process will open new investment opportunities for everyone equally, irrespective of their economic status. NFT marketplaces powered by Defi, such as Open Sea, BAYC, etc, are good examples of uniform access to investment opportunities.
Community-driven inclusive business models
Web 3.0 will boost the growth of community-driven businesses over the corporate monopoly. The business models will be encouraged to incorporate the revenue-sharing model across the complete chain of value generation. One such example is Helium viz. Web 3.0-based decentralized wireless network provider. It rewards the users with its HNT (native token) for contributing extra bandwidth of their wifi. The revenue will be shared across the entire network of contributors. The community-driven business models will contribute significantly to financial inclusion.
Web 3.0 is not just another iteration of the internet but, indeed a powerful movement leading to a more economically & socially inclusive world. Together Web 3.0 & DeFi have immense potential to revolutionize the financial landscape and make it more accessible & inclusive.