Can blockchain transform foreign aid?

By Jesse Hope

The UK’s foreign aid budget continues to improve millions of people’s lives around the world.  Over the past year funding has helped tackle modern slavery in Nigeria and vaccinate over half a million people in Yemen.  However, the Oxfam scandal reignited claims that aid easily falls into the wrong hands and mounted renewed pressure on the government to abandon the UK’s ‘0.7 commitment’.  With reports of mismanagement undermining these achievements, the digital tool blockchain may be the solution.

For those who are new to blockchain, it is essentially a platform that distributes information across multiple computer networks, rather than storing data in one place.  Imagine a spreadsheet that is saved across five different computers.  Users can simultaneously make changes to the same spreadsheet, instead of each waiting their turn to use a single computer where the spreadsheet is saved.  These new entries are cryptographically linked with previous ones and can be immediately seen by every other user.  So, what does this have to do with foreign aid?

Blockchain – A Word Cloud | Kevin Smith

Governments and aid agencies lose millions of pounds each year transferring funds to developing nations, due to banking commission and unfavourable exchange rates.  Just as blockchain cuts out the need for a centralised computer to update a database, it can allow transactions to take place without a bank.  In 2017, the World Food Programme created a blockchain platform, ‘Building Blocks’, to transfer cash payments to vulnerable women in Pakistan.  According to the agency’s innovation chief Bernhard Kowatsch, the scheme eliminated a staggering 98% of bank-related transfer fees.

Smart contracts based on blockchain technology can enhance aid delivery further by only releasing payments if certain conditions are met.  Three years ago Aid:Tech distributed 100 e-vouchers to refugees in Lebanon, which could be redeemed and spent using a smartphone.  Each e-voucher was pre-programmed to only be used by registered individuals, buying permitted supplies, at selected outlets.  Not only do such schemes ensure that aid is spent efficiently, they reduce the risk of theft and voucher-trading as payments are linked to specific individuals.  At the same time, recipients are free to spend their stipend as they wish and can receive financial support wherever there is phone signal.

While direct payments can streamline aid distribution and empower individuals, coordination with overseas governments is still necessary to construct hospitals, modernise agriculture and invest in education. Yet with many developing countries marred by corruption, blockchain’s immutable record can help track how every penny is spent.  Just as the technology has successfully revealed conflict diamonds, any funds which are not spent on engineers or irrigation systems will be permanently flagged.  This transparent record can also help scrutinise decisions back at home.  As the UK’s post-Brexit aid strategy shifts towards foreign investment and trade, blockchain can highlight any money that is being used for short-term political gain.

An RAF C17 aircraft is loaded with aid from the British people, headed for people affected by the earthquake in Nepal | DfID

Using blockchain to transfer funds, pre-programme payments and monitor spending will not be without its challenges.  Critics argue that corrupt officials could still award contracts to engineering companies run by their cronies, while others point to expensive implementation costs.  Paradoxically, while blockchain has the potential to deliver substantial savings, some economists may argue that targeted payments will only lead to greater reliance on external donors.  With people preferring to turn to their smartphones rather than their own government, judiciary, or bank in times of need, the technology could stifle the emergence of local institutions which are central for economic development.

The blockchain-based currency Hull Coin may be able to address this concern by reversing aid’s top-down approach.  Like Aid:Tech’s e-voucher system, individuals can use Hull Coins to securely purchase goods – but with the added benefit of being able to generate their own Hull Coins by performing beneficial community acts.  Rather than waiting for governments or aid agencies to transfer funds, Somalis, for example, could earn their own ‘Somali Coins’ by repairing fishing nets or depositing plastic bottles.  This income could then be spent at local retailers, which would stimulate the economy and strengthen local governance.

In a sector that is often slow to adopt the latest technologies, blockchain’s potential to transform foreign aid can no longer be ignored.  It can provide payments to those without governments to turn to – reaching Rohingya refugees on the move or persecuted gay men in Uganda – while also holding dubious regimes to account.  As well making payments more secure and efficient, the concept behind Hull Coin has the potential to stem aid dependency and help build economies and institutions from the bottom up.  In other words, not only can blockchain help reaffirm the UK’s proud history of giving, it can also play a role in making foreign aid a thing of the past.

The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.


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