The Crying Need for a Resilient Identity for the Unbanked
As denizens of a world that is poised to enter the third decade of the 21st century, we are all witness to the progress we, as a global community, have made. However, not every individual in this world is an equal participant of this progress. There have always been two groups — the “haves” and the “have-nots” within the world population. In some cases the divide between these two groups has widened to alarming lengths.
Take, for instance, financial inclusion. According to the latest Global Findex, a study sponsored by the World Bank, there are over 2 billion “unbanked” adults in the world. This means that there are more than 2 billion adults worldwide who do not have a bank account and do not have access to basic financial services within the financial mainstream. This group represents around 25% of the global population, or in simpler terms, one in every four individuals.
That this gap is humongous is a gross understatement. When global financial institutions like the World Bank are calling for eradicating poverty from this world and bringing in financial prosperity, this is a shamefully glaring number that puts to naught the most ambitious financial plans of the World Bank and allied organisations to bring about prosperity in the world.
From the Global Findex map, it is obvious that the bulk of this unbanked population resides in the poorest of the world’s countries — those in Asia and Africa. Barely 20% of adult Africans have access to a financial account, compared to 30–50% in other developing regions. Lack of financial literacy, apprehension of banks and financial institutions to enter such “risky” markets, small size of markets, low income and political instability are some of the reasons why the majority of Africa is still deprived of financial inclusion.
Lack of financial inclusion has widespread effects on the economy of a nation, and the most disadvantaged are micro and small businesses. These MSMEs cannot get funding from banks and financial institutions and have to rely on unscrupulous lenders and intermediaries. The apprehension works both ways. As much as banks are wary of customers from these regions, so are people wary of banks and it is this distrust that does not allow business owners and entrepreneurs to effectively avail of financial product for the betterment of the economy.
In the wake of rise in fraudulent financial transactions and use of banking system for terrorist and other anti-social activities there was a need for customer identification compliance protocols. KYC (Know Your Customer) requirements became stringent. An already apprehensive banking system became more wary of its customers; their customers could end up being defaulters of loans, or worse, still use their system for criminal activities.
Poor communities and certain groups of people, such as migrant workers, faced the brunt of these newer, stricter rules of customer identification. Of the unbanked population, close to 1.5 billion of them do not have a valid identification document (birth certificate, passport, proof of residence, etc.), and thus are unable to provide a proof of their identity. These people are unable to fulfil conventional KYC requirements.
Both the United Nations and the World Bank have harped on the importance of a legal, global identity infrastructure for the entire world population by 2030 and the Identification for Development (ID4D) program of the World Bank is testament to this effort. However, there is still no consensus on how to achieve this, despite the United Nations having set Sustainable Development Goal 16.9 for this exact purpose.
And then came DLT…
With the introduction of Distributed Ledger Technology (DLT) in the form of the Bitcoin Blockchain in 2008, new vistas for solving many of the world’s problems suddenly opened. Due to the immutability and degree of security of data written to such distributed ledgers (of which the Bitcoin Blockchain is one of many), they have since become the basis for developing decentralised identity management tools that can be used to issue and verify claims on demand, without the need for carrying upon the person a physical document.
//Here, I should note that the Sovrin Network is an exception to the typical approach to distributed ledgers, as no private information of any kind (hashed or otherwise) is actually ever stored on the ledger. This is not only in that (1) distributed ledgers are still arguably the most inefficient databases around (despite being the most secure), but most importantly, because (2) this way, privacy can be ensured through non-correlation principles via pseudonymisation (which makes it GDPR compliant almost by default, a topic on which I will post another article soon).
Instead, the ledger is only used to store:
- Decentralised Identifiers (DIDs) and associated DID Descriptor Objects (DDOs) with verification keys and endpoints;
- Schemas;
- Credential definitions;
- Revocation registries, and:
- (ZK-)Proofs of consent for data sharing.
(See: Sovrin: What Goes on The Ledger?) //
Technology alone, however, cannot be expected to solve all of humanity’s problems. Borders, sovereign governments, global business, and trade are some of the real hurdles that need to be crossed if a real-world digital identity is to be created that is acceptable across the world. A consensus needs to be created as to how a digital identity is to be issued and registered, with a decentralised, or more so a ‘distributed’ approach, largely being considered as the best option, as citizens will be able to own their identifying documents and credentials, and to make changes and updates in a more self-sovereign manner.
Such globally interoperable and more resilient identities can help bring the 2 billion unbanked people under the global financial umbrella. With an ‘on-demand identity’, the KYC requirements of banking institutions can be satisfied and the newly included individuals can reap the benefits of the various schemes and products of financial institutions. And with the increased mobile phone penetration in Africa over the past decade (which, as of 2016, has reached to over 50% of the total population), a future of inclusion seems to be finally in sight.
An interoperable, resilient, digital identity is of far greater importance than just allowing financial inclusion. It can pave the path for people to access basic public services like education and health. It can help refugees secure their rights and live a life of dignity in a new country. It can also provide better gender equality in developing nations.
Tykn is at the forefront of using distributed ledger technology for creating a digital identity that is interoperable, distributed, and above all: resilient. As one of the Founding Stewards of the Sovrin Network, we are playing a vital role in providing distributed digital identities to millions of vulnerable people, including those who are considered to be “invisible people” (those who do not have any valid proof of birth registration and are thus “invisible” by all accounts), such as our own CEO Tey Al-Rjula. Digital identities within Tykn’s ANA Ecosystem are distributed and entirely owned by the individual, with the user deciding how much information they wish to share with another party and how and when to update the information given in the creation of the digital identity.
Distributed ledger technology certainly is an enabler for a decentralised, globally interoperable identity solution. People will own their identities which will not be governed by any authority. Such an identity will not only open the doors of the financial mainstream for them but have long lasting advantages for the future.
