Most people live in countries and regions where access to bank accounts is pretty straightforward. However, many in the African continent don't have such easy access.
In populations like these, people miss out on the necessity that is financial inclusion – an opportunity to be part of the financial ecosystem and possibly make money. Without bank accounts, people rely more on fiat currencies. However, in a world where physical currencies are reducing in demand and efficiency, these unbanked regions are incredibly vulnerable.
This piece examines the unbanked problem on the African continent and how cryptocurrencies can possibly solve them.
Cryptocurrencies Enhancing Financial Inclusion in Africa
Currently, the African continent has some of the most unbanked and underbanked people in the entire world. Data from the World Bank alone shows that sub-Saharan Africa has about 350 million people without access to banking services. That number makes up about 17 percent of the global total.
However, while the unbanked population continues to soar, there is a significant hope that could revolutionize the entire continent and bring about a new age of financial inclusion – cryptocurrencies.
Bringing Basic Bank Account Functionalities
Consider the discussion this way; one of bank accounts' primary functions is to allow holders to store and transact with money. While cryptocurrencies are volatile, the truth is that they can fulfill this same function.
If you have a smartphone, it is easy for you to make value storage and also transact. In fact, cryptocurrencies have been known to be able to facilitate quick and cost-effective cross-border transactions. So, it goes without saying that cryptocurrencies allow people to function as their personal banks.
Many people have also complained about making money transfers to Africa through payment processors and banks. Transaction fees can cost as much as ten percent, and intra-African money transfers could see prices go as high as 17 percent. On the flip side, an average Bitcoin transaction costs only a few cents to go through.
Thanks to the growth of cryptocurrency and blockchain technologies, transaction costs can be lower, with cryptocurrencies serving as a primary remittance medium.
More Than Just Transactions
When cryptocurrencies came into the mainstream limelight, most people saw them as speculative investments at works and just another way to make transactions at best. However, the assets have matured over time, with more people adopting them and companies stepping in to provide broader solutions.
This maturity has brought about different novel applications for cryptocurrencies. Today, there are cryptocurrency loans and credit services, and companies now allow people to make utility payments with cryptocurrencies directly.
Apart from just allowing people to participate in online transactions, cryptocurrencies also allow Africans to bypass some traditional payment systems – which have been known to be tedious and painstaking. Cryptocurrency handling and holding is also much cheaper, with costs a mere fraction of what people would ideally be on traditional systems.
So, with transactions already much cheaper than traditional systems, cryptocurrencies provide the full suite of banking services.
One of the best parts about cryptocurrencies is that they are borderless. Internet penetration is growing in Africa, with data showing that the region is seeing more access. So, people can easily get on the internet and use cryptocurrencies instead of traditional banks, which would need to set up physical locations.
Africans merely need a stable internet connection to create digital wallets and make international transactions with cryptocurrencies. They enjoy lower fees, faster transactions, and relatively comparable security for their funds.
No Need to Worry About Volatility
It's easy to question the viability of cryptocurrencies if they're so volatile. Over the past month, Bitcoin rose by 100 percent. Then, in a day, it lost almost 25 percent of its value again.
So, how do inherently volatile assets become viable solutions for financial inclusion in Africa?
Generally, there's not much need to worry. Cryptocurrencies have been notoriously volatile over the years, but this is also one of their most desirable characteristics – especially to investors. While the volatility question is pertinent, it doesn't necessarily prevent cryptocurrencies from serving as a solution to inadequate financial inclusion.
For one, it's worth noting that not every cryptocurrency is exceptionally volatile. There are stablecoins (digital assets whose values are pegged to fiat currencies or alternative assets like gold and precious metals). These assets provide incredible stability, while also offering all the benefits of owning cryptocurrencies.
It is also worth noting that some fiat currencies have even been more volatile than cryptocurrencies. On the African continent, most cryptocurrencies swing based on the values of single exports – for instance, a drop in the price of oil will affect the Nigerian Naira since oil contributes significantly to the country's economy. Calls have come to diversify, but the government has done little in that regard.
With several other major African economies acutely vulnerable, cryptocurrencies can help protect citizens' purchasing power over time.
The Bottom Line
All in all, cryptocurrencies can combine with smartphones to become the ideal way for Africans to access financial inclusion and banking services. Crypto wallets allow people to get digital identities, which they can use to access banking services. Also, by making transactions quick and seamless, cryptocurrencies can enable people in low-income areas of the African content to lend and save easily.
It is also worth noting that cryptocurrencies are scalable and secure – essentially allowing them to onboard more people without the fear of security threats or any other operational problems. In a world where credit and savings are the fundamentals for financial growth and development, cryptocurrencies provide a reliable opportunity for Africans to do much better.