The Stellar Development Foundation, developer of the Stellar network, has released a financial inclusion framework to judge the effectiveness of blockchain projects in emerging markets. The framework was developed in partnership with international consultants PricewaterhouseCoopers (PwC), explained In the white paper released on September 25.
Using this framework, the team concluded that blockchain payment solutions significantly increase access to financial products by reducing fees to 1% or less. They also found that blockchain products increased payment speeds and helped users avoid inflation.
Some blockchain developers claim their products can enhance “financial inclusion.” In other words, they say their product can serve unbanked people living in developing countries. Making such claims has become an effective way for some Web3 projects to obtain funding. For example, the United Nations Children’s Fund (UNICEF) list To date, it has helped fund eight blockchain projects based on this idea.
However, Stellar and PwC argue in their paper that financial inclusion may not be enhanced if the project does not have a framework to assess what is needed to succeed. “As with any technological innovation, strong governance and responsible design principles are key to successful implementation,” they said.
To help facilitate this governance, the two teams proposed a framework to judge whether a project is likely to promote financial inclusion. The framework consists of four parameters: access, quality, trust and usage. Each of these parameters is broken down into further sub-parameters. For example, “access” is further broken down into affordability, connectivity, and ease of launch.
The explanation of each subparameter includes recommended measurement methods. For example, Stellar and PwC list the “number of CICO (cash in/cash out) locations within relevant target demographic areas” as a way to measure “connectivity” indicators. The purpose of this is to help ensure that projects can scientifically measure their effectiveness rather than relying on guesswork.
The team also recommended that projects should go through a four-stage evaluation process to address financial inclusion issues. The project should identify the solution, target groups and relevant jurisdictions in the first phase. In the second phase, they should identify barriers that prevent target groups from accessing financial services. In the third phase, they should use “Grade Charts and Guides” to identify the biggest barriers to onboarding users. In the final phase, they should implement solutions that “prioritize key parameters” to make the most efficient use of funds.
Using this framework, the team identified at least two blockchain solutions that have proven effective in increasing financial inclusion. The first is payment. The research team found that traditional financial apps charge an average of 2.7-3.5% when sending money between the United States and the markets studied, while blockchain-based solutions charge 1%, based on a study of 12 apps running in Colombia. or lower cost. Argentina, Kenya and the Philippines. They found that these apps increased access to electronic payments by making them available to those who could not afford them.
The second effective solution they discovered was savings. A stablecoin app in Argentina allows users to invest in inflation-resistant digital assets, helping them preserve wealth in situations where they might otherwise lose it, the team claims.
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Stellar Network has been at the forefront of payments inclusion in underserved financial markets. In December, it announced a plan to aid charities, distributing funds to help Ukrainian refugees fleeing the war. On September 26, they announced a partnership with Moneygram to produce a non-custodial crypto wallet available in more than 180 countries. However, some financial and monetary experts have criticized the use of cryptocurrencies in emerging markets. For example, a paper published by the Bank for International Settlements on August 22 argued that cryptocurrencies “amplify financial risks in emerging market economies.”
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