The First Step to Tracking UK Aid on the Blockchain
Do people really need this?
That’s the first question to ask when starting an innovation project. Sometimes you start because it’s something you need, but nobody else is doing it; sometimes you start because it’s something that everybody needs, but nobody has realised they need it. In our case it was both — and neither.
Everybody needs a better way to track aid distribution. Donors need it so they can ensure that funds arrive when and where they’re supposed to. Implementing organisations need it so they can plan and implement their activities appropriately. People affected by humanitarian crisis need it so that they can hold the aid industry accountable.
And everybody realises they need this, because the reality is that existing financial systems were not designed to meet the specific needs of the aid industry: our delivery chains are particularly complicated (as you can see in the figure below); financial transactions are slow, costly and opaque; and the way in which financial resources are mobilised creates obstacles for the localisation agenda and other reforms.
How to clear a way for change
Over the last decade, a revolution in financial technology has transformed other industries, but so far the impact of this revolution on the aid industry has been limited. So far technologies such as blockchain have been deployed to improve existing business processes incrementally, rather than to transform the way we do business.
We know the potential is there, but we don’t yet have the evidence to show it. This pilot will test the hypothesis that a blockchain-based platform can enhance transparency, increase the speed at which money flows to the end recipient, and reduce intermediary costs; and generate sufficient evidence that decision-makers can draw their own conclusions.
To achieve this, we will run a Simulation Exercise. We’ll gather historical data on a Delivery Chain, then develop a scenario based on that data with performance benchmarks. We can then recreate that Delivery Chain on our blockchain-based platform, compare its performance against the benchmarks, and thus measure the potential for improvements.
Sprint One: Just talk to people!
We’ve just completed our first Sprint, which was to research whether our idea was worth pursuing. With the cooperation of DFID and UN OCHA, we interviewed around 50 individuals — programme managers, finance officers, grant trackers, and others — across a range of organisations — donors, UN agencies and international and national NGOs — in order to understand their experiences and test our assumptions.
Everybody we spoke with could explain the challenges they were facing, and when we explained our approach to those challenges, our respondents generally responded positively. From their responses we were able to identify six main clusters of problems, which you can see in the figure below; the closer the cluster is to the centre of the figure, the more important it was to our respondents.
So what did you hear?
Broadly speaking our respondents identified a series of core challenges in the delivery chain, which confirmed our working assumption that financial transactions are currently:
- Opaque: once funds leave an organisation’s bank account, it is almost impossible to track them. This is a problem for external transparency — for reporting on the use of aid to beneficiaries, taxpayers, or other stakeholders — but also an operational challenge for control, audit and financial forecasting.
- Slow: each financial transfer in the delivery chain goes through a bank, and that can take anywhere from 3–15 days to go through. From an institutional donor it usually takes at least three such transactions before funds reach the implementation level — and since these processes are opaque, that also creates uncertainty.
- Costly: each transfer has costs — particularly bank charges and exchange rate losses — but there is also a wider class of risks around exchange rate fluctuations, where implementing organisations may find that the funding they are expecting has depreciated before it arrives with them.
The high level of engagement we experienced in Sprint One was because our respondents are searching for evidence to assess whether financial technology offers solutions to their problems. We’ll build their inputs into our scenario design — but most importantly we received confirmation that this Pilot is worth moving ahead with.
Where do we go from here?
With OCHA’s support, we have identified two Country Based Pooled Funds to work with: oPT and Iraq. In the next Sprint we’ll collect quantitative financial data from these two delivery chains from donor through to implementing partners (and possibly beyond!) to complement the qualitative information we gathered from the stakeholder interviews.
This will enable us to set the benchmarks that we need to measure how slow, costly and opaque current transactions actually are, and to test that against our hypothesis in the Simulation. More importantly it will enable DFID and other stakeholders to start a wider discussion, both internally and externally, about how we can change the way we do business — a discussion which has the potential to transform the entire aid industry.