Financial Inclusion and the Promise of Blockchain


By Ruslan Mahhov, Ralf Kubli

Global capital flows increase from year to year, yet for too many people banking, remittances and payments remain cumbersome and expensive. We believe that cryptography and blockchain have the potential to free the millions of underserved in developed as well as developing countries from the constraints of systems based on fiat currency. We offer some auspicious examples, including Facebook’s Libra Project.


Financial Exclusion in Europe


Ruslan Mahhov and Ralf Kubli in Crypto Valley, Zug, Switzerland. Photo by Jakub Chlouba.

It all started in 2013 when Ruslan met Norris Koppel, the talented founder of Norris had a vision of starting a company in the UK that would provide bank accounts to immigrants in just two minutes. The problem Norris wanted to address resonated with Ruslan immediately: it had taken Ruslan several weeks to open a bank account in London in August 2012, when he moved to the UK to study Finance at the London Business School.

Also, Ruslan had just left a fintech startup providing consumer credit to young professionals and single mothers, and he decided to contribute to the vision of Monese.

Ruslan worked with Norris Koppel to support Monese with his financial and banking expertise. The problem of financial exclusion in Europe was a painful one: 90 million people did not have a bank account in 2013.

Today, the number of financially-excluded people in Europe is still around 60 million, highly concentrated in the Southeastern sector. Monese currently has more than one million customers across Europe, which shows that it takes time to solve this problem.

Ruslan’s interest to develop products for this underserved market segment led him to become a board member of a consumer finance company in 2017. With a small team, he developed a new type of consumer product for the European market. The company received a banking license in April 2019.


Financial Exclusion Globally

Financial exclusion is not only a European problem. Globally, 69% of adults had a bank account in 2017, up from 51% in 2011. Although this is an improvement, 1.7 billion adults in the world are still unbanked, meaning they do not have an account at a bank or a mobile money provider.

Financial inclusion is fundamental to increasing economic involvement and reducing poverty. It allows individuals to transfer money to each other, build savings to weather external shocks, get access to credit to start a business, and buy insurance products to hedge significant risks.

About half of unbanked people are women. There is a 9% gender gap of account ownership in developing countries, which does not exist at all in the developed world. This issue hinders many women from being able to control their financial lives effectively.

Surprisingly, booming telecommunication companies in emerging countries have not yet solved this problem: amounts are small, fees are high, and there is a huge market opportunity that can be captured with better technology.

Let’s have a look at one financial product: migrant workers sending money home. Remittances are an essential economic resource in emerging countries. According to the World Bank Group, payments represent 10.5% of GDP in the Philippines, 13.7% in Senegal, 28.3% in Nepal, and 29.3% in Haiti. Global remittance flow payments accounted for $650 Billion in 2018. It is a massive amount of capital when you consider that it is over four times the official global development assistance figure of $158 billion in the same year.

The global cost of remittance has slightly declined in the past years but still averaged 7% as of Q4 2018. What is even more interesting (and worrying) is that payments are the most expensive in places where the recipients are the most vulnerable. Sub-Saharan Africa remains the most expensive region, with 9% average cost of remittances.


The Global Banking System Is Inefficient In Moving Money

The primary reason for such huge remittance costs is the inefficiency of the global banking system. Different payment networks have different operating hours and funds need to be routed through several banks and intermediaries, resulting in high fees and slow settlement.


Blockchain Has Potential to Improve Financial Inclusion

In our view, the industry is ripe for disruption. Traditional B2B cross border payments are one of the most promising uses of DLT technology. Customers can benefit substantially from the increased efficiency and higher speed of moving payments. Savings can be passed to consumers, resulting in more disposable income in the most economically vulnerable countries.

There is also another benefit of DLT besides the cost of the settlement: a reduction in compliance costs, as by design DLT-based payment networks allow transparency and traceability of transfers.


Ralf Travelled to Nigeria to Support Domestic Blockchain Community

Ralf took away several impressions and lessons for crypto from a trip to Nigeria this year. The underinvestment in infrastructure in Africa’s largest economy was shocking. At the same time, the opportunity for investment in this country where the population will triple in the coming decades is incredible. Remittances amount to over $20 billion per annum, about equivalent to the oil revenues for the Nigerian government. (Source: Nigerian Finance Ministry)

Imagine, if instead of 5% or 7% cost for remittances of the migrant diaspora, this percentage would flow into revenue-generating infrastructure such as airports, trains, power generation. Such large scale systemic changes will be possible by the deployment of transparent, auditable secure data layers enabled by blockchain technology.

For example, we’ve heard that the Nigerian leadership is considering a project under which the diaspora can use remittance services at lower cost, with a condition of investing some part of the savings into an infrastructure fund that will generate profits in the future.


BHander Has Global Potential to Increase Inclusion

BHander, founded by Rostyslav Futalo and Victor Golub, is a company that has developed a low-cost wireless crypto wallet device. The BHander wallet device costs less than $30. Its cost and usability advantages mean it can be massively adopted in emerging countries. If you lose the device, your cryptocurrency balance remains intact.


Rostyslav Futalo is demonstrating the BHander Wireless Crypto Wallet. Photo by Jakub Chlouba.

The device has optical communication and can be used together with any device that has a screen such as a computer, smartphone, POS, or ATM display. The solution supports multiple cryptocurrencies and operates in fiat-to-crypto and crypto-to-fiat routes.


BHander Wireless Crypto Wallet. Photo by Jakub Chlouba.

The device is safe and substantially better protected technologically as compared to existing solutions. It needs no physical connection to any device. It is protected with a PIN code and a fingerprint scanner. The private key is kept in a protected area of the device’s memory. It has mobile internet access to the blockchain, and there is no operating system to hack — it is a microcontroller. And, most importantly, any person with or without formal education can use it.

BHander is incubated by CV VC.


Financial Inclusion in Uganda with Dala/Wala

Wala is a cryptocurrency driving adoption from the grassroots, developing a user base by starting in one country, Uganda. The country is economically connected to neighbouring economies, and mobile adoption is exceptionally high. Wala enables its users to pay utility charges with digital currency, dramatically reducing friction in the local economy. The key to its success in Uganda is the no-fee transactions between peers and consumers to businesses.

Next development steps are features to pay for specific clean energy development (solar) in public/private partnerships and most importantly, credit products. Dala, which is the protocol layer for Wala (the currency) already enables microloans in agriculture and will provide a dApp called Kopa to all users.

With applications for small businesses and micro jobs, this startup is providing one of the most exciting ecosystems for the decentralized digital economy.


Capital Provider: Brightmore Capital Investment Strategy

Success is not always about building a solution, but also about providing capital to supporters of financial inclusion. One of Ruslan’s school colleagues at LBS — Dmitry Fotiyev — moved to Senegal from the USA in 2015 and founded Brightmore Capital.

Dmitry sees a young and rapidly-growing consumer class across the African continent. The consumer class desires the same quality of services and products that their peers have in OECD countries. There is, therefore, a growing need for low-cost financial solutions for the ever-increasing low- to middle-income population, especially for the unbanked and population categories facing structural barriers.

Examples of structural barriers include:

● Rural areas where there is simply no bank nearby;

● Since local banks are still quite bureaucratic and paper-based, people who do not speak good French or English have difficulties. Some countries (like Cote d’Ivoire) have many local languages, so it may be hard for a customer and a banker to understand each other, not to mention deal with the paperwork;

● There are many cases where gender norms make it socially difficult for women to be financially independent, or to even have their own bank account. Some women have to hide that they have a bank account, or just don’t have one at all.

Innovative technology-based solutions for payment systems, financial security and education, enhanced access to essential financial services, and mobile banking are some of the areas Brightmore is targeting within this sector as potential areas of opportunity and impact.


Facebook Libra: Financial Liberty Through Cryptography

A current Facebook project is shrouded in secrecy, but several leaks give clues to its nature. It appears to include a stable currency tied to a range of assets to deliver on the promise of blockchain enabling value transfers on a massive scale.

With over 2 billion users on Instagram, Facebook Messenger and Whatsapp, it is not difficult to imagine what kind of advantage Facebook would have in driving widespread adoption of its solution.

Speculation on the nature of the chain and how it is governed remains high. Switzerland, home to many international organizations, and thanks to its regulatory landscape, appears to be playing an important role. (And, David Marcus, the Head of Facebook Blockchain, grew up in Geneva and still has strong ties to Switzerland.)

It is rumoured that on 18 June 2019, Facebook will reveal details of its Libra project.

Although Libra specifics remain to be seen, we applaud the company’s move into blockchain and crypto coin space and believe that it will become a successful project with lasting global impact.

We would like to be part of Libra and other promising crypto-enabled financial inclusion projects.


Opportunity Is There, But Much More Effort Is Needed

Financial services for underserved segments are an area of significant opportunity and need to ensure economic growth. Essential services like bank accounts, currency conversion, credit and insurance products are either too expensive or not available to billions of people. This problem not only affects developing economies but also developed ones, preventing capital from flowing efficiently and thus reducing growth. We reviewed a few promising projects, but much remains to be done, and the blockchain developer community needs to meet the challenge by providing dApps and decentralized finance solutions with UI/UX which enable faster and easier adoption.


Ruslan Mahhov, Head of Advisory at CV VC

Ruslan’s background is in technology entrepreneurship, banking, and private equity. For the past 16 years, he has been building companies, teams and raised capital in FinTech, Financial Services, Industry 4.0 and SaaS in the roles of co-founder, investor, executive and creditor. At CV VC, he is working with startups, corporations and investors to accelerate the commercial application of the distributed ledger technology by defining winning strategies and matching startups with capital.


Ralf Kubli, Director of CV VC

Ralf Kubli is focusing on investment opportunities and advisory in the Blockchain space and is engaged in tokenizing assets, securities and ICO structuring. Ralf’s goal is to enable easy-to-use technology delivering on the promise of decentralization on a global scale. Before joining Lakeside Partners (later CV VC), Ralf built the business of an artificial intelligence startup in the USA. In the legacy world, Ralf spent 18 years in the automotive, aerospace, and speciality chemicals in senior management positions. Since 2015, when he discovered blockchain and crypto through angel investment, he cannot ‘unsee’ the potential of Distributed Ledger Technologies. After browsing with Gopher and coding HTML in the early days of the web, he returned to tech with AI and Blockchain.


About CV VC

CV VC has unparalleled visibility in the blockchain space across corporate initiatives and viable startup companies. Due to our significant experience in building businesses with startups and advisory with corporates, we can identify the most critical use cases and value-adding strategies for your business.

Business strategies will be dramatically impacted by emerging business models built on this new technology stack. The time to engage with entrepreneurs enabling new business models, or start blockchain units in a corporation is now.

We will gladly assist you in this journey.