World Bank Investigates Smart Contracts as Financial Tools, With Mixed Results

Jul 13, 2020 at 15:12 UTCUpdated Jul 13, 2020 at 15:13 UTC

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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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