World Bank Investigates Smart Contracts as Financial Tools, With Mixed Results
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The World Bank has looked into the benefits of smart contracts and found the blockchain instruments to be a “limited” financial tool.
- In a July 8 blog post summarizing a recent report called “Smart Contract Technology and Financial Inclusion” the international financial institution looked at the role smart contracts could play in improving financial services in poorer nations.
- Smart contracts are pieces of code that automatically execute the terms of a contract based on a specific set of rules.
- The World Bank looked at two main areas of financial services including index-linked insurance and short-term unsecured loans.
- On the insurance side, the institution looked at penetration, or the ratio of policy premiums underwritten over a 12-month period against the gross domestic product (GDP) of a given nation.
- The post stated that smart contracts would not help fix many common issues with insurance penetration, but could assist in determining whether a particular insurance product was suitable as well as increasing trust in the product amongst stakeholders.
- Examining short-term loans, the World Bank found that while smart contracts could increase efficiency with the different phases of a loan cycle, those phases are already highly automated and therefore the new technology would be redundant.
- The post’s authors said a major factor in the costs of consumer credit was based on consumer risk and that smart contracts would be of “limited” benefit in improving borrowers’ credit ratings.
- The World Bank was founded in 1944 for the purpose of providing loans to governments of developing nations in order to tackle poverty.
- The institution has been involved in a number of blockchain projects, including raising over $100 million through the issuance of bonds on the Ethereum network.
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