BlockchainSmart Contracts

The World Bank has explored the possibilities of smart contracts in the financial sector

world Bank

The World Bank has studied the benefits of smart contracts and concluded that blockchain solutions have limited capabilities as financial instruments.

In a blog post summarizing the results of a recent study, Smart Contract Technology and Enhancing Access to Financial Services, an international financial institution examined the role that smart contracts can play in improving access to financial services in the poorest countries.

The World Bank examined two main areas of financial services, including indexed insurance and short-term unsecured loans. Regarding insurance, the bank studied the ratio of insurance premiums guaranteed over a twelve-month period to the gross domestic product (GDP) of a particular country.

The study says that smart contracts will not help solve many common problems associated with this issue, but they can help determine whether an insurance product is suitable for a particular task, as well as increase trust among stakeholders.

During a study of short-term loans, the World Bank found that although smart contracts can increase efficiency at different stages of the loan cycle, these stages are already highly automated, and therefore, there is no need for new technology.

An article published by the World Bank states that the main factor in the cost of a consumer loan is risk, and that smart contracts will have “limited” opportunities to improve borrowers’ credit ratings.

Recall that in 2018, the World Bank entered into a partnership with the Commonwealth Bank of Australia (CBA), choosing it as the sole organizer of the initiative to issue bonds on the blockchain. The experiment allowed the bank to raise $ 81 million. 

In May 2019, organizations tested the blockchain for accounting for bond trading on the secondary market. Then in August last year, the World Bank sold a second batch of bonds on the blockchain in the amount of $ 33.8 million.

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