Blockchain for Decentralized Identity — Social Impact

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9 Jul 2022

According to Doc Searls, “Identity isn’t about who you are. It’s about what others might want or need to know about you and how you let them know”. The opportunities for improvement are broad for humanitarian causes and climate impact. Identity is a fundamental human right and is necessary to access essential human and social services. It provides a gateway to economic opportunities and allows individuals to participate in the modern economy. It can enable global development vital for political, economic, and social opportunities. Privacy, trust, and security build more economic value.

An estimated 1.1 billion people worldwide cannot officially prove their identity, according to the 2017 update of the World Bank’s identification for development global dataset1. According to the UNHCR (United Nations Refugee Agency)2, at least 82.4 million people worldwide have forcibly fled their homes. In addition, there are nearly 26.4 million refugees, around half of whom are under 18. Furthermore, millions of stateless people don’t have a nationality and lack access to fundamental rights such as education, health care, employment, and freedom of movement. 1 in every 95 people on earth has fled their home due to conflict or persecution. Recently due to the war in Ukraine, millions have fled their homes.

Decentralized Identity can be a mechanism to provide identification for refugees, stateless individuals, internally displaced persons, and those seeking asylum. They can be empowered with their human and legal rights to take their identity when they move from one place to another across borders. Today there is no global list to track the movement of this vulnerable population. We need to identify the individuals eligible for humanitarian aid and track aid handed out to those most in need. This solution can ease the lifecycle from registration, verification, authentication, authorization, and ongoing vigil for fraud. The business processes for cash transfers to people, including security and audit ability, are challenges. Decentralized Identity can help with security. At the same time, they are tracking the delivery of aid to beneficiaries.

However, the challenges addressed in an earlier post apply. Everyone in this population segment may not have access to smartphones, the internet, or be digitally savvy. Therefore, they would need guardianship services from trustworthy providers.
Decentralized identity can make an impact on Financial Inclusion given the opportunities below:

1. Approximately 5% of households (about 12 million adults) are unbanked in the US, and almost 11% of US households (about 24 million adults) are underbanked. An unbanked person spends $40,000 over a lifetime on alternative financial services while earning less than $30,000 annually. (see Glossary for definitions)

2. 68% of women’s businesses in emerging economies have unmet credit needs. (Source: International Finance Corporation).

3. The global opportunity for banking unbanked individual women is greater than $24 billion (Source: McKinsey).

4. 1.7 billion adults worldwide have no access to financial services.

There are various causes for the above, ranging from processes and systems in institutions not set up to analyze information on their clients to ineffective policies.

1. Financial service providers cannot develop an accurate picture of the market for women and minorities, cannot build a business case for it, assess market opportunity (for revenue, profit, market share) by segment, or monitor their performance in making a difference.

2. Regulators and Policy Makers do not have enough data to identify who has/has no access to financial services, who use financial products, and why. As a result, it constrains their ability to develop and monitor effective financial inclusion policies.

With government assistance, the implementation of SSI (self-sovereign identity) enabled some of this data to be collected and used for the public good. For example, with Kiva, the government helped in Sierra Leone6. Kiva’s platform enables small loans in rural markets to an underserved population with a blockchain-based solution. The Kiva community spans 90+ countries, and 1.9 million lenders have funded $1.6 billion in loans with a 96% repayment rate. In addition, the Sierra Leone government made it easy for the unbanked to get a digital ID. As a result, Kiva simplified and enabled the process for the unbanked to open bank accounts and get loans13.

Another effort by Bonifii8 is delivering a peer-to-peer network to exchange verifiable credentials for financial cooperatives. It represents 85,000 credit unions from 118 countries with 274 million members. Finally, Memberpass7 is an offering by Bonifii helping Credit Unions solve friction in the member’s experiences while building trust in managing their identity.

I will cover Digital Commerce in the next post. To reference previous posts refer to this link. Again, I would suggest reading the posts in succession.

Glossary

Financial Inclusion — The Center for Financial Inclusion defines financial inclusion as “a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, convenient, and with dignity for clients.”

Alternative Financial Services (AFS) are financial transactions performed by non-banks, typically payday lenders, check cashiers, and pawnshops that provide loans at very high costs. They provide quick cash to desperate and helpless people who need to pay for food or medical assistance. It is expensive to be poor.

Unbanked — No access or use of a recognized financial institution for financial services. Those who are unbanked typically lack financial knowledge.

Underbanked — These people use financial services but from alternative financial service providers. Some financial knowledge but helplessness drives them to use high-cost services. Due to unstable or income variability, they could be forced to use these services.

References

1. https://blogs.worldbank.org/digital-development/counting-uncounted-11-billion-people-without-ids
2. United Nations Refugee Agency — https://www.unhcr.org/en-us/figures-at-a-glance.html
3. SSIMeetup.org: Blockcerts: The Open Standard for Blockchain Credentials by Daniel Paramo and Anthony Ronning
4. May 2019, Slavin, Aiden: Distributed ledger identification in the humanitarian sector, Sovrin.org
5. SSIMeetup.org: Building the Credit Bureau of the Future using SSI, Alan Krassowski
6. www.kiva.org
7. https://www.memberpass.com/
8. https://bonifii.com/
9. Measuring Women’s Financial Inclusion — The value of sex-disaggregated data; Global Banking Alliance for Women in Partnership with Data 2x, the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IDB)
10. Reeves, Kedra Newsom; Hauptman, Mindy; Hartman, Caitlin Guzman; Curley, Ryan; Marcus, Mike; O’Malley, Brian; Racial Equity in Banking Starts with Busting the Myths; February 2021.
11. www.data2x.org
12. Mc Kinsey Study of Women in the Workplace — https://www.mckinsey.com/featured-insights/diversity-and-inclusion/women-in-the-workplace
13. https://www.hyperledger.org/learn/publications/kiva-case-study