Hello! My name is Rudy Subramanian, a Cloud Platform Solution Engineer at SAP, and also a public sector blockchain SME and emerging technology enthusiast. Prior to joining SAP, I worked in investment banking and held finance roles in the healthcare and utilities industries.
In this document, we will understand how blockchain can help provide better services to refugees and internally displaced people by digitizing what has traditionally been an analog process, resulting in potentially better services, reduced overhead, and improved transparency for monitoring and evaluation activities.
Resuscitating a local economy after a time of crisis is more sustainable than providing aid through goods delivery over a long timeframe. 60% of refugees and 80% of internally displaced people (IDP) live in urban environments, as opposed to camps (UNHCR). As such, many NGOs implement either voucher or unconditional cash transfer systems, so refugees can purchase goods from the local economy, rather than relying upon goods shipped across borders and delivered to them. A sample process in Jordan is illustrated below:
In this process:
- The refugee trades a voucher with a preapproved shop in return for goods.
- The shop trades these vouchers for local currency with an NGO volunteer.
- An NGO volunteer makes irregular visits to the bank to withdraw cash and to shops to exchange vouchers for local currency.
- An NGO maintains relationships with local banks to provide forex and other services.
There are some disadvantages to this process:
- Shop Compliance: Because many of the shops’ customers are refugees, their cash is tied up in vouchers until the NGO volunteer comes to trade local currency for vouchers. Because their working capital becomes illiquid, shops may refuse service.
- Personnel Risk: The NGO volunteer carries large sums of cash when making her rounds, visiting shops to trade vouchers for cash, increasing risk of assault or theft.
- High Capital Requirements and Forex Risk: NGOs often have to maintain large cash reserves in local banks to ensure shops are paid, because exchange rates are volatile and exchange timelines are too long.
- Audit Risk: Records are often manually maintained, increasing risk of fraud.
- High Overhead: Manual processes have high overhead, and volunteers’ time can be better utilized.
- Relationship Risk: When providing services to refugees, banks can’t establish identity and credit worthiness, and thus creating and maintaining relationships between local banks and NGOs is difficult.
Some of these issues are mitigated when adopting an unconditional cash transfer model, where refugees are given debit cards with monthly stipends, but others are exacerbated. For example, shop compliance and personnel risk may decrease, but risk of theft and audit risk are greatly increased, when compared with a voucher system.
Many countries have been able to bypass the traditional telecom infrastructure and have leap-frogged directly to mobile devices, opening new possibilities for innovation. By digitizing and automating many of the steps in this process by implementing a blockchain network, we can address most of the concerns with the current system:
In essence, we are creating a private economy between all involved parties with a private digital currency. In this process:
- The refugee trades a digital version of the voucher (private currency) with a shop for goods.
- The shop then immediately trades that digital currency for local currency directly with the NGO at a pre-established exchange rate. There is no need to wait for an NGO volunteer to physically visit the shop to make the exchange.
Advantages to each party in the ecosystem:
- Refugee: The refugee is more likely to receive goods in exchange for vouchers due to increased shop compliance.
- Shop: The shop expands its customer base to include refugees without risk of tying up working capital in illiquid vouchers.
- NGO Volunteer: The volunteer no longer needs to carry large sums of cash between the bank and shops and greatly reduces her documentation burden, allowing her to focus her time on higher impact tasks.
- NGO: The NGO can exchange currencies on forex markets, rather than relying upon local banks, reducing transaction time and cost, forex risk and capital requirements.
- Local Bank: The local bank only needs to provide bank accounts to shopkeepers, increasing its capital reserves. Having access to a record of refugee transactions will also allow them to better establish identity, mitigating risk when doing business with refugees.
Advantages to donors:
- Improved auditability: Donors can better track their dollars by analyzing the transactions recorded in the blockchain.
- Reduced Overhead: By automating many of the manual processes, a greater part of donations can be allocated towards impactful operations in the field.
This document is simply one example how blockchain technology can be implemented to achieve dramatic process improvements in a cost effective manner. People around the world are suffering today, and we should continue to develop new ideas around how emerging technologies can help humanitarian efforts.
I will continue to stay up-to-date on the state of blockchain, both in general and specifically in public sector, and you can expect future blog posts from me regarding new developments within this space, both from a technical and business perspective. Please reach out to me with any questions or new ideas!