Achieving Financial Inclusion through Blockchain-Based Decentralized Finance and the Fintech Revolution

Abstract

People who lack a bank account or access to financial services are called “unbanked.” Adults who were not banked in 2021 numbered 1.4 billion. However, there has been tremendous progress in the financial inclusion rate (banking the unbanked), especially after the COVID-19 pandemic. Today, 71% of people in developing countries have a bank account, up from 42% a decade ago. Overall, 76% of adults worldwide have bank accounts currently, which was only up to 51% a decade ago. Digital payments have seen the highest rise in the last few years, which accelerated under COVID-19 mobility limitations and when people began to view paper currency as unhygienic. Two-thirds of adults in the modern world send or receive digital payments. In many developing countries, approximately 40% of people made their first digital payment from their account (to a merchant or for a utility service). Despite this, approximately 1.4 billion adults worldwide do not have a bank account. These are the most difficult people to approach because they are usually rural dwellers, poorer, and less educated women. Government and other payments should be digitalized, but much more is required. Governments, private businesses, and financial service providers like fintechs should collaborate to reduce banking access obstacles and enhance the financial, data, and physical infrastructure. A brand-new global business has emerged to integrate the unbanked population into the world economy. Fintech (financial technology) and blockchain-based decentralized finance (DeFi) are two burgeoning new industries that aim to improve traditional finance by providing lower costs, faster transactions, peer-to-peer (P2P) services, new asset classes, the elimination of minimum thresholds, and equal online admittance. The chapter examines the use of blockchain technology in financial inclusion and how developing economies can benefit from information democratization through DeFi.