Are Emerging Markets Missing Out On DeFi Growth?

Emerging markets and emerging economies hold immense promise for the adoption of decentralized finance. Some barriers have arisen for emerging markets as DeFi has experienced rapid growth. It is key that DeFi overcomes these issues that stand in its way.

Ahamdi Abarikwu
April 11, 2021
Blockchain News


Before the advent of DeFi, many people found it difficult to access financial services. Some of the difficulties arose from the roles of centralized parties such as banks, government, and middlemen etc. These parties often insisted on meeting certain criteria before people can have the financial services they want. For example, banks require a good credit rating and/or collateral to give loans. Again, opening a bank account often requires you to give up your personal information in the form of KYC. The end result was that centralized finance became skewed in favor of few. Many people, especially in the developing world, had little or no access to the financial services they desired. This is further buttressed by a report from the World Bank that puts the number of people without a bank account at roughly 2 billion

The emergence of DeFi came with a promise to reduce economic inequality by removing bottlenecks like banks etc. This will go a long way in giving everyone open access to financial services. 

Decentralized Finance is currently going through a period of rapid expansion and development. DeFi will be of particular benefit to emerging markets where most of the world’s unbanked population are. While DeFi has been around for a few years, the benefits have been much more harnessed in developed economies than emerging markets. Why is it so? Let us dig a little deeper.

What Are Emerging Markets?

The term Emerging Market generally refers to the economy of a developing country. Such economies are typically perceived to be moving towards becoming a developed economy. When compared to developed nations like the USA, emerging markets have lower per capita income. They also typically have higher rates of economic growth than developed economies. Volatility is another notable characteristic of emerging markets. This is because many of them have unstable political systems, or are periodically affected by natural disasters. Some examples of emerging markets are Brazil, Russia, India, China, South Africa, Nigeria, Indonesia, the Philippines etc. 

Emerging markets are very critical to the stability of the world economy. They contribute about 80% of the Global GDP Growth. It, therefore, means that emerging markets hold the key to the growth of the world’s economy. When international organizations like the International Monetary Fund (IMF) talk about world economic growth,  a large focus is given to emerging markets. 

Features That Make Emerging Markets Fit For DeFi

Emerging markets tend to have economies with a wide inequality gap. The rich find it easier to meet the conditions set by banks and insurers. Thus, a large part of the lower-income population who cannot meet those conditions miss out. 

A recent report shows that a large percentage of the population of emerging markets are financially excluded. Conversely, the same report shows that these emerging markets have a high level of internet usage!

From the foregoing, we can see that financial exclusion is prevalent in emerging markets. They have wide inequality gap, with high levels of internet accessibility. DeFi seeks to improve financial inclusion by eroding bottlenecks that drive exclusion. On the other hand, perhaps the only requirement to access DeFi services is a device (smartphone etc) that has internet connectivity. We can therefore see that emerging markets are well suited for the adoption of decentralized finance.

Issues Hindering DeFi Adoption In Emerging Markets

We have established that emerging markets are perfect for implementing the ideals of DeFi. However, the recent rapid growth of DeFi is yet to penetrate emerging markets as much as one would expect. Let us now look at some of the factors that have made it so.

  1. High Collaterals For Loans

DeFi does not need personal information like KYC nor credit rating before availing a loan to an applicant. Since there is no way to identify a borrower, DeFi platforms require collateral more than the loan amount as a risk-mitigating requirement. Many people in emerging markets are low-income earners. This results in small loans due to the necessary undercollateralized positions. This hinders the adoption of DeFi lending in emerging markets.

  1. Negative Government Disposition Towards Crypto

Governments of some emerging markets like India and Nigeria have a negative policy disposition towards cryptocurrencies. Nigeria recently became second to the US in the total volume of Bitcoin transactions. In spite of that, the Nigerian Government through the Central Bank issued a directive that potentially obstructs the use of cryptocurrencies. India, as well, has shown intent to ban cryptocurrencies. The absence of government policies that promote crypto adoption also hinders DeFi penetration in such countries. 

  1. Lack Of Adequate Crypto Knowledge

Lots of people are yet to be knowledgeable enough about cryptos and how to safely use them. Crypto scams and frauds find easy targets in the low-income population of emerging markets. Sometimes, the entire industry is given a bad name when people fall victim to frauds. Such a poor reputation also rubs off on DeFi.


Emerging markets provide the ideal setting for the widespread adoption of decentralized finance. In reality, this expectation has not really been met. Issues such as unfavorable government policies have limited the progress of DeFi adoption. Unless these challenges are overcome, chances are that emerging markets may miss out on DeFi growth and its benefits. 

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Ahamdi Abarikwu

Ahamdi Abarikwu is an Electrical Engineer and a lover of anything crypto. He is also an avid writer, proofreader and editor. He loves to play Scrabble in his spare time.

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