Blockchain will boost financial inclusion

Access to financial services has increased in recent years thanks to the eruption of mobile money. From its introduction in 2011 to date, more than 10 million accounts have been created far outstripping the banking sector’s numbers.

As a result, according to a survey by the Financial Sector Deepening (FSD), financial inclusion in Uganda has risen to 88 percent in 2023 compared to 77 percent five years ago.

While that is encouraging, it is also true that mobile money currently mostly serves as a conduit for the transfer of money -- people receive money and cash it out. So while they are now in the formal financial system, they are underbanked or unbanked, not taking advantage of the financial sector services beyond transferring and receiving money.

The reasons for these are many, not least of all that they have no history of trusting a third party with their money. We should not be surprised. For starters, not all districts in Uganda have a bank branch, so access to the formal financial sector was limited or none existent for the majority of Ugandans until the advent of mobile money.

Trust in the financial sector is critical to not only greater financial inclusion but onwards to the maximum exploitation of the benefits of this inclusion and with emerging technologies, the opportunities to leverage are immense.

Blockchain technologies promise a world where the cost of transactions will collapse, financial services will be available to even the most basic phones, all at the speed of light.

Think of blockchain as a distributed ledger, where transactions are recorded in real time and are immutable, unchangeable once all the parties have agreed to the transaction.

One of the challenges of ensuring widespread financial inclusion was the integrity of the data. For instance, transfers will be effected and the real beneficiaries will get the money wherever they are. The chances for this data being compromised either intentionally or not, are high, the more hands the data goes through.

Blockchain with one fell sweep removes all that friction and guarantees the integrity of the information. This is why blockchain technologies are tailor-made for the demanding needs for credibility and integrity the financial sector requires. 

To paint a picture of the financial industry of the future, riding on blockchain technologies; opening an account would be seamless, as all your Know Your Customer details will be available on the blockchain network the banks have access to. Your ability to credit will be much easier as your credit history will be available. This may go a long way to lowering lending rates as financial institutions would be able to customise products to clients.

Imagine the savings and the ability to reach more people wherever they are with the help of blockchain technologies?

Currently a blockchain committee has been constituted involving banks, fintech’s and telecommunication companies, spearheaded by the Bank of Uganda to look into the modalities of adoption and regulation. This of course ensures the public is protected from the risks of blockchain but more importantly to steer its adoption, leading to the exploitation of these technologies for Ugandans.

PostBank has invested in infrastructure and innovation like Wendi mobile wallet which is designed to offer seamless financial services to underserved and last-mile customers. Therefore, users can access, manage, and transact funds efficiently on both the smartphone and feature phone and this financial inclusion strategy perfectly aligns with the banks purpose of fostering prosperity.

Just as the mobile phone has liberated billions of shillings from under our mattresses and our socks, the increased trust that blockchain technologies introduce will see more money coming into the formal financial sector. Therefore, Blockchain technologies will be a real game changer for the personal finance and development of countries who tap into such new emerging technologies

The author, Francis Lutalo is the head of business technology at PostBank Uganda.