Blockchain, tokenization and financial inclusion

by James · August 18, 2022

I recently co-founded the Web3 Marketing Association. The aim is to inform, educate and inspire the marketing community about the possibilities of Web3 technology.

The potential for Web3 to enable financial inclusion in populations is enormous

I am constantly looking for examples that demonstrate the concrete benefits of Web3 to help in that mission. I am also interested in financial inclusion and was curious to understand what happens when Web3 and financial inclusion collide.

I recently had a fascinating conversation with Raymond Asfour, CEO and founder of Expectation State, about this topic. Expectation State works with governments, investors, donors, intermediaries, family offices, start-ups, multinationals and communities to deliver inclusive growth in the markets and regions in which they operate.

The aim is to support the growth of inclusive economies that are adapted to the needs of the population, by prioritizing approaches that pursue quality growth, not just growth for growth’s sake. In practical terms, this means challenging traditional narratives and approaches to growth and development and bringing different partners, actors and ideas together to change the status quo.

Raymond and the team at Expectation State believe that aspects of Web3 offer enormous opportunities for inclusion. One of the promises of Web3 is decentralized finance (DeFi), which Investopedia defines as:

“A new financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. The system removes the control banks and institutions have over money, financial products and financial services.”

Some of the benefits of DeFi include:

Elimination of fees charged by banks and other financial companies to use their services.
Access to everyone (as long as you have an internet connection).
Transfer of funds in seconds and minutes.

Another promise is tokenization and blockchain, which facilitate the sharing of assets in a way that was not previously achievable, and a ledger for ownership of those assets. With these promises, Expectation State has looked at frontier markets like Jordan and considered ways to engage the population in the alternative finance industry.

Jordan has a thriving startup community, but often a barrier to growth for many of these small companies is access to funding. Raymond and the team believe it is possible to use tokenization and blockchain to enable ordinary people to invest in local startups.

Tokenization of a startup involves creating and selling digital representations of ownership. The use of blockchain enables the automation of a large part of this process, reducing the costs associated with individual investments and making smaller investments viable. The mechanism commonly used is the Security Token Offering – essentially a regulated public offering of these assets – which has grown into a $20 billion industry in over a dozen mature economies worldwide.

Tokenization and digital trading platforms, or “virtual asset trading platforms”, go hand in hand. They complement existing funding options and expand those available to start-ups and SMEs. Often blockchain-based, a digital trading platform in a frontier economy will allow smartphone-wielding everyday citizens, both inside and outside a market, to access and invest in investments that would otherwise have been beyond their reach. At the same time, new and existing businesses can better access the capital they need to grow.

There’s an argument to be made that these kinds of innovative approaches are best left to more mature markets, but Expectation State argues otherwise. Markets like Jordan, with its burgeoning startup sector, need it more and need it faster to unlock the potential of Jordanian youth by freeing up capital.

The state of expectation is really onto something; Web3 “eats the world” and provides opportunities for inclusion for populations that have traditionally sat outside the financial system.

Recently, Nigeria has emerged as a Web3 superpower. According to the BBC, out of the top 10 countries for trade volume, Nigeria ranked third after the US and Russia in 2020. And according to a post by Kabir Abdulsalam, 60% of Nigerian start-ups are focused on blockchain.

Back to Jordan, it has the right ingredients to connect retail investors with startups through Web3. Jordan’s access to finance is more advanced than many of its neighbours; it hosts venture capital funds and crowdfunding platforms and is one of the first countries in the region to implement a regulatory sandbox to promote innovation in the alternative finance and fintech sector. Still, a bold step into blockchain-enabled retail investing is no small endeavor. Innovators must work alongside institutions that often move less quickly.

Regulators, central banks and authorities all play roles in creating healthy, safe and stable economies, but they must increasingly look towards innovation. In some countries it is happening right now.

Oman has launched a blockchain-based crowdfunding platform, and the government of Ethiopia is tracking the educational attainment of five million students using blockchain. Nigeria launched its e-Naira in late 2021, and Morocco, Tunisia, Ghana, Kenya, Uganda, Rwanda, Madagascar and Mauritius are all investigating the feasibility of digital currencies backed by their respective central banks.

The potential for Web3 to enable inclusion in populations is enormous. However, change involves risk, especially in countries where reform can be slow and contentious. Yet, by leveraging innovation and entrepreneurship, blockchain, tokenization and DeFi have the potential to change existing dynamics and paradigms, reduce inequalities and at the same time provide oxygen to the private sector in the countries that need it most.

About the author

Dave Wallace is a user experience and marketing expert who has spent the last 25 years helping financial services companies design, launch and develop digital customer experiences.