Mobile Networks and the Potential for Decentralized Finance in the Developing World

In much of the developing world, banks and other entry points into the global financial system are scarce. Over 1.7 billion people worldwide lack access to any form of banking and hundreds of millions more lack access to the financial tools that would enable them to launch or scale their own businesses in today’s global market.

Much of the problem stems from the fact that banks and other traditional financial institutions rely overwhelmingly on physical branches. While many Western banks have outposts in the capital cities of developing nations, they rarely offer physical locations where the vast majority of people live.

In part, this is a logistical challenge. It took decades for financial firms to saturate towns and cities throughout the developed world. Even now, many populations in developed nations still lack access to physical banks. The geographical area in need of financial coverage across the developing world is simply enormous.

However, financial institutions have made the task of expanding across the developing world more intractable by largely refusing to facilitate online enrollment and putting up barriers to digital transactions. Even though online banking services are now widely available from major global firms, banks still rely heavily on in-person services and physical branches. Although this reluctance to move traditional banking into the digital sphere stems partly from regulations, it also signals a broader unwillingness by traditional financial institutions to open their arms to billions of people in the developing world who need banking to participate in the global economy.

The Mobile Opportunity

While physical banks are scarce throughout the developing world, mobile phones are abundant. According to the World Bank, more than 80% of people in the developing world own a mobile phone. Among the poorest 20% of households, more than 70% of adults own a mobile phone. In fact, in many countries, poor households are more likely to have access to mobile phones than to toilets or clean water.

This is staggering when compared against access to traditional banking systems. The unbanked number over 1.7 billion, yet only around 700 million people globally lack a mobile phone.

Importantly, mobile phone ownership is increasingly synonymous with Internet access. Mobile networks have spread rapidly throughout the developed world, and Internet coverage continues to expand at an unprecedented pace. That creates an opportunity to bring the developing world into the fold of the global economy over the Internet through decentralized finance.

Decentralized finance offers anyone with Internet access a chance to open checking and savings accounts, borrow money, and invest in global markets. Decentralized financial networks mimic many of the functions of traditional financial institutions, but they rely on blockchain technology instead of centralized gatekeepers. As a result, decentralized finance can operate on a global scale without being subject to government-imposed regulations or other constraints on the ability of people in the developing world to participate.

This has important, immediate implications for how capital can flow between the developed and developing worlds. As decentralized financial networks are established, any individual in the developed world can invest in businesses in the developing world through loans and equity offerings. In return, individuals and businesses in Africa, Southeast Asia, and South America can get access to the low-cost capital needed to scale up.

The penetration of mobile Internet and the growth of decentralized finance also dovetails with demographic trends in the developing world. Nearly 75% of the population of Africa is under the age of 35, meaning that nearly all of the people on the continent are at an age where gaining access to financial tools could enable them to launch businesses and begin saving for the future. By 2100, Africa will be home to more than one-third of the globe’s working-age population5.

Decentralized financial ecosystems have an opportunity to serve this population before it begins its exponential growth. Thanks to the penetration of Internet-enabled mobile devices, the majority of people in the developed world already have the necessary tools to access GLITCH and the decentralized financial applications running on our operating system. Decentralized finance can fuel capital growth in the developed world both now and as the global population expands dramatically in the years ahead.

Conclusion

Although billions of people in the developing world remain unbanked, widespread access to the Internet through mobile devices means that this need not be the case. The vast majority of the global population can access decentralized financial applications like those we anticipate being built on GLITCH the moment they become available.

The widespread adoption of decentralized finance now will help fuel economic growth across the developing world. Furthermore, decentralized finance can become the dominant mechanisms for capital flow around the globe as the working-age population of the developing world grows exponentially over the next several decades.

-Sean Ryan,

CEO, Glitch.

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References

1 The World Bank. 2017. The Global Findex Database. https://globalfindex.worldbank.org/.

2 Mas I. 2011. Why are Banks So Scarce in Developing Countries? A Regulatory and Infrastructure Perspective. Critical Review 23:1–2.

3 Anenberg E, Chang AC, Grundl S, Moore KB, and Windle R. 2018. The Branch Puzzle: Why Are there Still Bank Branches? FEDS Notes.

4 The World Bank. 2016. Digital Dividends. https://www.worldbank.org/en/publication/wdr2016.

5 Tanzi A. 2019. Africa’s Working-age Population to Top Asia’s by 2100. Bloomberg. https://www.bloombergquint.com/global-economics/africa-s-working-age-population-to-surpass-china-s-by-2100.