According to a 2017 World Bank study, nearly 3 billion people worldwide are considered unbanked or underbanked. In fact, of this total, 2 billion have no bank account or even access to a financial institution via phone or internet. While there has been a decline in this number since the World Bank conducted a similar study in 2011, this figure still represents almost 40 percent of the world’s population. So what does this all mean and what are the implications of having such a sizable number of people with limited financial access?
First of all, it’s important to understand the distinctions between underbanked and unbanked. The underbanked, according the FDIC are households that have “a checking or savings account but also obtained financial products and services outside of the banking system.” The financial products these people often rely on include things like cash advances, payday loans or similar costly services that require limited or no credit qualifiers. The unbanked, on the other hand, are simply those households that don’t have a checking or savings account at all. The implications of having such large numbers of people outside of the traditional banking system are widespread. It makes it harder for those people to develop equity and escape the cycle of poverty. It also stands to follow that because it’s harder for these people to advance their financial position, the economies of the regions in which they live are likely to be slowed.
In the 2017 report “Financial Exclusion: Why it is More Expensive to be Poor” from the Wharton School of Business, researchers found “there’s a great economic burden on unbanked individuals to complete even the most basic financial transactions.” In the U.S., it estimates that check cashing alone could cost an unbanked person with a full time job upwards of $40,000 over the course of their life. So it’s not difficult to imagine the effect being underbanked or unbanked could have on a regional or national economy. It impacts their ability to buy a home, expand a business, pay for education and even purchase household goods and services.
In addition to the calculable financial implications of the unbanked/underbanked, there are broader societal implications of inclusion in the financial system. The World Bank states that access to credit and payment systems “empower[s] women…boosts productive investment and consumption.” The organization goes on to note that it can reduce income inequality, positively impact economic growth and even help improve mental health. So the benefits are clear.
While governmental policies can have a significant impact on changing this current situation, the World Bank notes in a 2015 study that private companies can also play a “pivotal role” in making thing better for these communities. One such company that’s focused on improving access to credit for the underbanked and unbanked around the globe is Colendi.
Colendi’s mission is to democratize credit scoring and make participation in banking systems possible for everybody. Leveraging blockchain technology, Colendi aims to empower the unbanked or underbanked, giving them a financial identity and equal financial access to banking systems while keeping their personal information under their control. It does so while looking at information like social media accounts, smartphone usage, shopping preferences, bill payment history and hundreds more categories. Many people and companies are already behind the project in the global network including signed financial service and retail partners including Limak , Ininal and Koçtaş. It makes microcredit, peer-to-peer lending and installment shopping a reality for traditionally underserved populations.