The Stellar Development Foundation, developers of the Stellar network, launched a financial inclusion framework to judge the effectiveness of blockchain projects from emerging markets. The framework was developed in cooperation with consultants PricewaterhouseCoopers International (PwC) and was explained in a white paper published on September 25.
Using this framework, the teams concluded that blockchain payment solutions significantly increased access to financial products by reducing fees to 1% or less. They also found that blockchain products have increased the speed of payments and helped users avoid inflation.
Some blockchain developers claim their products can improve “financial inclusion.” In other words, they say their products can serve unbanked people living in the developing world. Making this statement has become an effective way for some Web3 projects to obtain funding. For example, the United Nations Children's Fund (UNICEF) has list eight blockchain projects he has helped fund so far based on this idea.
However, in their paper, Stellar and PwC argued that projects may not improve financial inclusion if they do not have a framework to assess what is needed to be successful. "As with any technological innovation, the need for strong governance and responsible design principles are key to successful implementation," they said.
To help foster this governance, the two teams proposed a framework for judging whether a project is likely to promote financial inclusion. The framework consists of four parameters: access, quality, trust and use. Each of these parameters is divided into more subparameters. For example, “access” is broken down into affordability, connectivity, and ease of getting started.
Each explanation of a subparameter includes a proposed way to measure it. For example, Stellar and PwC list “CICO # [cash in/cash out] locations within the relevant target population region” as a way to measure the “connectivity” metric. This is intended to help ensure that projects can scientifically measure their effectiveness rather than relying on guesswork.
The teams also suggested a four-phase evaluation process that projects should undergo to solve a financial inclusion problem. The project must identify a solution, the target population and the relevant jurisdiction in the first phase. In phase 2, they must identify the barriers that prevent the target population from receiving financial services. In Phase 3, they should use “level and guidance charts” to determine the biggest obstacles to user onboarding. And in the final phase, they should implement solutions that “prioritize key parameters” to make the most effective use of funds.
Using this framework, the teams identified at least two blockchain solutions that have proven effective in improving financial inclusion. The first is payments. The teams found that traditional financial apps charge an average of 2.7% to 3.5% to send money between the United States and the market studied, while blockchain-based solutions charge 1% or less, according to a 12-year study. applications that operate in Colombia. Argentina, Kenya and the Philippines. They found that these apps increased access by making electronic payments available to people who otherwise couldn't afford them.
The second effective solution they found was savings. The team claimed that a stablecoin app in Argentina allows users to invest in an inflation-resistant digital asset, helping them preserve their wealth when they would have otherwise lost it.
Related: Argentine presidential candidate wants CBDCs to 'solve' hyperinflation
Stellar Network has been at the forefront of including payments in underserved financial markets. In December, it announced a program to help charities distribute funds to Help Ukrainian refugees fleeing war. On September 26, announced a partnership with Moneygram to produce a non-custodial crypto wallet that can be used in over 180 countries. However, some financial and monetary experts have criticized the use of cryptocurrencies in emerging markets. For example, an article published by the Bank for International Settlements on August 22 argued that Cryptocurrency has "amplified financial risks" in emerging market economies.
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