DeFi and Its Assistance to Rural Poor

Key points

  • Government Aid and Charitable Institutions
  • Financial Services Would be Easily Accessible
  • Economic Stability Will Be Improved
  • Removing the Current Credit Rating System

Recently, DeFi (Decentralized Finance) popularity has been on the rise, it is mainly due to the popularity of crypto and more precisely because of the blockchains offering smart contracts. DeFi is considered to be the tomorrow of the fintech industry. DeFi is also being regarded as the one that will be of great assistance to the rural poor.

Government Aid and Charitable Institutions

In the past few years, it has been observed that many charitable institutes are being set up by organizations and individuals, to get tax exemptions, to acquire required permissions to receive foreign aid, and money laundering, etc. Even when governments are involved or there is aid of any kind, instances have occurred of misuse of money and corruption. The primary reason for this is lack of accountability and tracing of such accounts. 

DeFi will help in addressing these issues; DeFi via blockchain will provide transparency about the source and distribution of funds. It will establish a system of accountability for almost each penny spent. This will result in proper allocation and utilization of funds without any delays and unnecessary intermediaries. 

Financial Services Would be Easily Accessible

DeFi will help in eliminating the middleman entirely for most financial services. In most cases the intermediary is the bank which receives money in the form of deposits, from people who want to save and would lend the money in the form of loans to people who need them. In making such transactions the bank will take cuts, for facilitating such transactions. DeFi via blockchain will be able to create a direct link between the ‘savers’ and ‘spenders’. Smart contracts will be used, to execute financial arrangements, between the saver and spender, completely eliminating the need for any intermediary and making the whole process faster. It will also increase transparency and would reduce frauds related to loans.

Economic Stability Will Be Improved

In unstable economies, DeFi could be of great assistance, especially for the poor. In unstable economies, poor decision making can have a devastating effect over the economy.  In these economies, it is not wise to leave all the decision making, related to the economic policies of the country, solely in the hands of the Finance Ministry or the Central Bank. The wise decision will be to place some control in the form of smart contracts that will help in regulating the economy autonomously. 

Removing the Current Credit Rating System

The current rating system provides assurance to the lenders that the borrower’s financial habits are good and will be able to return the money on time. However with blockchain, smart contracts will maintain an accurate record of the timing of returns of borrowing and will assign a new credit rating to the borrower independent of current credit ratings.     

Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.

Photo by – cryptomessias