Even though, India’s central bank mulling action against crypto currency, decentralized finance (DeFi) in the next buzz words among Blockchain developers in the country.
DeFi is built on Ethereum blockchain and provides financial services through a decentralized network that interacts with smart contracts and dApps.
With India eyeing $5 trillion economy in the next few years, DeFi can play a very important role in achieving this target. India can also become a leader DeFi in Asia with huge work force in the information technology it offers.
Apart from this, there are millions of citizens without any access to financial services like credit & loans, and this gap be bridged by the usage of DeFi infrastructure.
Many experts believes that DeFi can provide low-cost alternatives for lending, obtaining credit and borrowing money.
With COVID period still looming large and not showing a sign of slowdown, DeFi may be more important than ever. With small and medium enterprises (SMEs) and startups, getting funds for operational has now become a challenge, which can be overcome by adopting DeFi that can provide easy access to capital.
DeFi enhance remittances
With billions of dollars pouring in India through cross-border remittances, DeFi can play an important role in cutting cost to Indian nationals which are paying high transactions fees while sending money back home.
According to the World Bank, the average transaction fee for cross border remittances is as much 7.45%, with traditional banks charging the highest rates. By removing this cost, DeFi may be able to help overseas Indian workers send money home more cheaply.
Looking at this challenge, even the United Nations has included remittance reform among its Sustainable Development Goals and wants to reduce remittance transaction costs to less than 3% by 2030.
DeFi to increase trade in securities
In order to trade on exchanges investors need to create a dematerialized account (demat). However, by using DeFi, millions of citizens can access traditional exchanges. As per an Securities and Exchange Board of India (SEBI) data, only 40 million people have demat account holders out of 1300 million citizens. In order to increase this numbers Blockchain technology can play a vital role.
RBI optimistic on Distributed Ledger Technology, Blockchain
In its bulletin, RBI said that distributed ledger technology (DLT) and Blockchain have developed considerably in features and complexity to offer solutions to various industries including the financial sector. Some central banks have undertaken pilot projects to study and understand DLT and explore the potential benefits for their operations and the financial systems.
So far most of these projects have been experimental in nature to explore the viability of conducting inter-bank settlements, settlement of digital assets and tokens and cross-border payments across DLT platforms with functionalities of the existing system.
In the Indian context, increasing support from the Reserve Bank of India and the Government of India for innovations and emerging technologies through regulatory sandbox and various other schemes would pave the way for the new economy, enriched with technology-centric growth momentum.