Problem Statement
In her book, “It’s Expensive to Be Poor”, award-winning columnist Barbara Ehrenreich claims that people in poverty are not in that situation because of self habits but because they simply do not have money at the moment. Indeed, research on this issue has repeatedly highlighted the most persistent obstacles to overcome for smallholders in need of financial resources, ranging from excessive documentation requirements to high account fees and limited access to bank branches.
Originally, the current financial system was designed to facilitate international flow of financial capital for purposes of investment and trade financing. Yet, it failed to fully deliver on that promise for all. Sadly, the majority of the people excluded from the financial system are those who need it the most, the poorest. According to the World Bank (2021), they account for almost 2 Billions people around the world or about ¼ of the global population. According to the Rural and Agricultural Finance report of 2019, this exclusion cuts across all geographic regions and financing types, but is particularly concentrated in long-term agricultural finance, for which 98% of global demand remains unmet (ISF Advisors, 2019).
Securing loans for smallholder farmers at affordable interest rates is short of impossible as they do not have eligible collateral to access formal credits. As such this population is considered a high risk investment by local banks and similar actors. Consequently, their only source of financing are shark cash loans that normally start at 100% interest rate and above.
The majority of the unbanked are smallholder farmers. They are the cornerstone of our economy and produce more than ⅓ of the global goods and services. Excluding them out of the financial system is not only immoral, it is also unfair as modern technology can mitigate the risk associated with lending them capital: DeFi and blockchain technology enable people around the world to take part in solving this problem.
12 years on from the invention of blockchain technology, DeFi has emerged as its most important and revolutionary use. The ability to securely manage financial assets of real value on a decentralized network means nothing less than the first steps toward replacing a financial system that is inherently monopolistic with a better one that is open, democratic, and ceaselessly innovative.
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