Reflection Paper: Money Flows and Blockchains in Aid

As part of our contract with Dorcas, Disberse agreed to write a reflection paper concerning two key questions at the heart of the 121 Project funded by the Dutch Innovation Fund. This paper is based on our involvement in 121, but also on four years of experience working on these issues with a range of stakeholders. Dorcas have kindly agreed that we can publish the reflection paper here; it relates closely to our previous article on practical trust in blockchain implementation.

1. What are the main challenges of international money flows from donors to beneficiaries?

Disberse was originally founded to address four key challenges in the flow of money from donors to beneficiaries:

  1. Efficiency: bank charges, poor exchange rates and currency fluctuations raise costs, reducing the amount that reaches those in need.
  2. Transparency: funds cannot be traced from end-to-end, creating potential for mismanagement, and decreasing accountability.
  3. Mismanagement: the three problems above increase the likelihood of waste, including potential for fraud and corruption.

2. How can blockchain technology contribute to solving these challenges?

The section above sets out the logic for the potential for an institutional approach to address those challenges, while the second part of the equation concerned the technological approach that might establish a new type of financial infrastructure. Some of our early thoughts explored the possibilities of cryptocurrency, described in the early days in the AidCoin paper published in 2015 by Paul Currion, but it was clear from early on that the problems involved in implementing cryptocurrency in an aid context (and potentially most contexts) outweighed any possible benefits.

What is the added value of the technology itself?

The only justification for an organisation to adopt a new technology is if it can improve existing processes in some way, or if it has the potential to develop new processes. Demonstrating the first of these was the goal of both the DIF-funded and DFID-funded pilots, and is summed up in the question that DFID asked: “Can distributed ledger technology (DLT) enhance transparency, increase the speed at which money flows to the end recipient, and reduce intermediary costs?”

What role does the technology play in mediating trust?

Although setting up new financial infrastructure is necessary for localisation, it is not sufficient. One of the major obstacles to localisation is lack of trust between stakeholders in the delivery chain, which then shapes institutions and processes; localisation therefore needs to be based in trust relationships that can form the basis for new institutional norms within the aid industry. Blockchain advocates claim that the technology can replace such trust relationships, but what it really does is shift the trust burden from individuals and institutions to hardware and software; and this may not be a desirable outcome for aid organisations.

I live in the city because I got tired of living up the mountain.