AidCoin: a revolution in humanitarian financing

Introduction

The World Humanitarian Summit has opened up a space for debate in the humanitarian sector. Questions about how humanitarian action is financed — where the money comes from, the channels through which it goes, and the way in which it is finally disbursed — have been the focus of much research and discussion, including by High Level Panels contributing to the WHS. We now have a much clearer picture of humanitarian financing, including the problems that it faces.1

A revolution is happening around the humanitarian sector, and our existing financing system is not fit for purpose. Many of the large number of recommendations about how to fix this system have been very good, but all have sought to tweak the existing system rather than accept that system is fundamentally flawed. This short paper outlines a speculative model through which new financial technology (fintech) might make possible a complete revision of humanitarian financing.

Why is this important?

Financing is a critical issue because to a large extent it determines incentives within the sector; and misaligned incentives are the primary reason why accountability in the sector remains a problem. It is important to note that this is a systemic and not an individual problem; many aid workers are committed to accountability, but operate in a system that works against this commitment. Accountability therefore is not merely a question of providing staff with more training and better resources to introduce accountability into their programmatic work — although obviously this will help, and should be encouraged.

While humanitarian organisations struggle to become more accountable to those they claim to serve, their actual obligations — financial and political — are to their donors, who tend to be institutional donors, rich publics, and (increasingly) private philanthropists. Needless to say, none of these three categories can claim to speak for disaster-affected communities.

The problem of accountability is deeply connected to another large problem: transparency. Attempts to track aid finance (such as OCHA’s Financial Tracking System, or FTS) have been frustrated by the complicated nature of aid flows, and the unwillingness of key players — particularly at the top end of the chain — to work towards increased transparency, mainly for political reasons. This has come at the same time as growing calls for increased transparency in a hyper-mediated world — which itself is one of the reasons why the WHS was convened, to address the systemic problems that are increasingly visible to both affected communities and giving publics.

In addition there are second-order questions of effectiveness — whether these funds produce the intended results — and efficiency — whether those results are achieved with a minimum of waste. It is impossible to adequately measure these two variables partly because of the first-order problems within the financing chain. Without being able to track funds from point to end point, it is very difficult to judge whether they have been effective or efficient, whether internally (according to the terms of contract between the donor and implementing agency) or externally (according to the understanding between the implementing agency and the affected community).

At the “bottom” end of the chain of humanitarian finance, cash distributions have become recognised as a legitimate form of relief assistance.2 This has opened up space for humanitarian actors to develop tools to assess local markets as a critical part of humanitarian needs assessment and programme development. Remittances have also now been recognised as a critical aid flow — primarily in terms of development, but also during times of crisis. In many of the countries in which we work, the financial sector is relatively under-developed; people rely on alternative channels such as hawala and innovative solutions such as mobile banking.

A SPECULATIVE MODEL: AIDCOIN

The humanitarian community (primarily the large institutional donors and large international organisations) establish a dedicated cryptocurrency, referred to for convenience here as AidCoin. All major funding is converted from its original currency into AidCoin at a pre-agreed rate of exchange and placed in escrow pooled funds: crisis-specific funds, regional response funds, and one global response fund. These pooled funds can be used to safely store funding and smooth out the response, thus enabling the system to respond more easily to “forgotten emergencies” — indeed it would be possible to earmark some funds for exactly that.

AidCoin ensures that every single unit of funding can be tracked from the point that it enters any given pooled fund, to the point at which it leaves. This can initially be as simple as funding going from e.g. DFID to Save the Children UK, and can leave the fund after SCUK transfers it to their country office. At this point the primary advantage is ease of disbursement: DFID places their money in the fund under a smart contract that enables them to release it immediately and with zero transaction costs when certain conditions are met regarding the situation on the ground and the capability of the agency.

DFID and SCUK agree with their major suppliers and logistics partners to use AidCoin for all transactions. These external actors accept AidCoin with the security that it is backed by actual money that can be seen within the fund, and can be redeemed in a currency of their choice. These contractual agreements are also supported by smart contracts that enable immediate release of funds when pre-agreed conditions are met. Once major private sector actors accept AidCoin under these conditions, smaller actors are also more likely to accept them — both horizontally (at the international and regional level) and vertically (in disaster-affected countries).

Implementing agencies are then be free to use AidCoin down the complete length of their logistics chain, to point of purchase, including national offices and partners. This cuts down transaction costs and removes exchange rate of losses while maintaining transparency, since (like Bitcoin) every AidCoin can be tracked in detail by everybody within the network while (unlike Bitcoin) everybody within the network is equally visible and the precise trail of funding is clear. The disadvantage at this stage is that it is hard to see how agencies can justify their complete set of overhead costs.

The final step extends AidCoin to disaster-affected communities. These communities benefit from the advantages of cash (flexibility and anonymity) with none of the disadvantages (insecurity associated with handling cash, protection from price volatility and exchange rate fluctuations). Recipient security could be ensured by using the same blockchain technology to generate unique IDs supported by biometric verification; this could be done without compromising recipient privacy.3 The danger of AidCoin versus hard currency is that AidCoin may limit the options for affected communities: for example it can not be easily transported across borders to a new country in which AidCoin has not yet been established.

While it may seem unlikely that these communities will adopt such a technology, it should be borne in mind that mobile banking is usually conducted without cash exchange, that voucher systems have been successfully implemented as part of wider cash programming, and ATMs have been successfully incorporated into relief distributions. All of these approachess can be incorporated into the AidCoin system without changing the processes behind them or the experience of the users. Once AidCoin is in use at community level, it enables a wide range of economic activities that might not be possible in a barter or cash economy. Entire economies — particularly within relatively bounded environments such as refugee camps — could be built on AidCoin.

It is possible to track AidCoins from the donor purse to the beneficiary purse, thus creating complete transparency without requiring any additional reporting. This transparency cuts both ways: donors are able to see exactly how their money was being used, but recipients are also able to see exactly where their products and services came from. It will also support coordination, since duplication will become much easier to identify’ and there will be an incentive for donors and agencies to fill gaps since this will also be much more visible.

AidCoins can be used by affected communities or individuals to purchase services and products from aid agencies, thus changing the incentive pattern and contributing to accountability. Since AidCoins are interchangeable between organisations, it is possible for affected communities to “vote with their wallets” in terms of who they purchase services from, thus encouraging improved service and competition within the aid effort. It is also possible to establish smart contracts between aid agencies and affected communities, so that agencies only receive funding if the community feels it has been well-served.

AidCoin also makes it easier for national partners or authorities to inherit these services as part of agency exit strategies. It is also possible to allocate AidCoins for specific activities — such as capacity building — that enable such strategies without fear that these funds would be misused. Legacy AidCoin could be integrated into national-level finance systems through standardised agreement between e.g. the UN and Ministry of Finance, although this will become complicated depending on local regulatory frameworks.

AidCoin could also be used to make earmarking funds far more effective, whether for geographic or thematic focus. Donors or agencies that want to promote e.g. gender-based violence as a critical issue could earmark their AidCoins, and subsequently see very clearly whether they were spent on relevant activities, and consequently how cost-effective those activities were. This would also identify areas which are currently not being paid enough attention, allowing donors and agencies to make more informed decisions about where to direct their funding in order to have most impact. Donor coordination would become much easier as a result.

AidCoin changes incentives around many aspects of the aid industry — for example, once the costs associated with e.g. a London headquarters become clear, it makes much more sense to locate more capacity in cheaper locations closer to disaster areas, thus contributing to decentralisation and capacity-building within the sector, which can be supported by decentralised decision-making processes made possible by blockchain technology.

What are the major challenges?

1. The entire humanitarian system cannot move to AidCoin in one go: the solution is to extend AidCoin in stages across the full extent of humanitarian action — wherever financing is required — until it spans the entire system.

2. None of this will be possible unless AidCoin has real-world value. While it stays within the humanitarian financing chain, there are no problems: as soon as any actor wishes to exchange it for other kinds of value outside the chain — products, services or other currencies — the humanitarian community needs to work out how to address the following scenarios:

  • If an aid agency pays its staff, both international and national, in AidCoin, how do those staff redeem that currency for real-world expenditure?
  • If a logistics company receives AidCoin upon delivery of e.g. tarpaulins, how do they use those AidCoins to pay the initial manufacturer of those tarpaulins?
  • How does a merchant in e.g. Myanmar redeem the AidCoin she receives from a refugee to purchase a jerry-can?

These are not insurmountable problems. Most monetary transactions — especially at scale — are run as virtual through the international banking system. The first two problems could be addressed through co-operation with that system, either to provide points of interface for AidCoin users, or to establish a parallel system that moves money in and out of AidCoin. The third problem is more difficult: on the ground, many people operate in a cash or barter economy; however it has already been pointed out that non-cash economies have already been created in e.g. Kenya (for example, paying in mobile telephone credit), and AidCoin might be no different.

3. Interoperability with other parts of the international system — particularly development and peacekeeping budgets — will be problematic, particularly for those who believe that humanitarian relief needs to be programmed in coordination with those other resources. In one way AidCoin would make it much clearer what is being spent on relief vs development — in terms of being able to disaggregate overall funding — and thus how to use the two funding streams in a complementary way. However unless AidCoin (or a similar approach) was also adopted in these other sectors, there would need to be the same sort of interface as discussed in point 2 above.

4. AidCoin does not address the challenges facing core humanitarian principles such as neutrality and impartiality. At present, the massive technical problem of humanitarian financing is a distraction from the massive political problem of humanitarian financing. As a technical solution with political implications, implementation of AidCoin will enable the humanitarian community to stop worrying about the technical questions and focus on those principles more tightly.

5. The disincentives for this system are huge. They remove many of the opportunities for agencies to recover operating costs — a legitimate concern — as well eliminating less legitimate concerns such as corruption within the supply chain. Both of these can be flipped, however: less operating costs through project budgets would force donors to accept core costs as legitimate expenses that have been covered up for political reasons; and agencies would no longer need to turn a blind eye to corruption, since the opportunities for fraud would be greatly decreased. The political costs to this system would be high at every level: it would force many of the systemic problems fully into the light. At the moment they are half-concealed, however, which is the worst of both worlds.

Conclusion

AidCoin is not the answer for every problem faced by the humanitarian community — for example it does not address the ongoing global shortfall in humanitarian funding — but it does address many of the significant issues. It requires more research and development, but more importantly it requires pilot testing to begin as soon as possible in order to start learning. The technology that makes this type of approach possible will develop quickly and may move in unexpected directions: the only way to take advantage of it is to start moving quickly and keep momentum. The humanitarian community has historically not been good at adopting new technologies: and unlike previous technologies, this one represents a major shift in the system.

Note

This note is intended as a basis for discussion about the potential role of new fintech in the humanitarian sector. It does not provide a comprehensive analysis of financial flows in the sector, or a rigorous model for the application of fintech in disaster settings. Accordingly constructive comments are welcome to critique and improve both the analysis and the model — bearing in mind that papers in the humanitarian sector are usually far too long-winded!

1See, inter alia: Making financing work for crisis-affected people, Charlotte Latimer, July 2015; Looking Beyond the Crisis, Future Humanitarian Financing; Financing in Crisis?, Rachel Scott, June 2015.

2See the website of the Cash Learning Partnership for more resources; the ODI HPN paper “Cash transfer programming in emergencies” gives a good overview, although it is now 4 years old; DFID has convened a High Level Panel on Humanitarian Cash Transfers to contribute to the WHS.

3See specific proposal in “Distributed crypto identity as a mechanism for legal empowerment of the poor and stimulating local economic development”, Gavin Chait, 18 January 2015; and wider discussion in “Cheap ID”, Vinay Gupta, 2006

Time under water

You think of these migraines as something outside yourself.

When you wake from that afternoon hibernation, you think to yourself: “Is it gone yet?” No, it hasn’t gone yet. It rides you like guilt, bearing you down. It throbs and writhes just beneath the skin of your scalp, leaning against your eyeballs with all its elbows. It makes you weep when you accidentally look out of the window into the bright sunlight. It’s a monster, announcing itself early in the morning with that faint ache around the eyes, that nausea on an empty stomach, that thirst that you feel too late and now cannot be quenched in time to stop it.

When it eventually hits you, you will lose the day. You can’t hope to beat it; you just have to survive. Survival means what survival has always meant; curled into the fetal position in warmth and darkness, reliving any memories that can take you away from that place, from that pain. The migraine turns you into a monster: the vampire, seeking the darkness, sleeping during the day; the zombie, shuffling around the house when you become desperate for food. It wants nothing more than to make you a monster like itself.

When it’s especially bad, you pray that you might die (and sometimes you even mean it), but always you survive. Your mind keeps working all the way through, running away at its pace until finally you fall asleep, but that sleep is not refreshing. You wake up with ashes in your mouth, feeling as if your skull has been hollowed out. You are light on your feet finally, after that zombie shuffle you had before, but only because your brain still reels from the impact.

It doesn’t kill you, but it doesn’t make you stronger either; it only reminds you that you are at the mercy of the monster. It wants nothing; it’s just a reflection of the brain misfiring, somehow, somewhere. The monster is your own mind, and the only lesson it has to teach is that you are at its mercy. You’ll forget that lesson, of course. You always forget that lesson, until the next time, when you wake up with that faint ache around your eyes; and the monster, eating the precious day straight from your table.

Es-Tu, Charlie?

Je-suis-CharlieI’m deeply sorry for those killed in the attack on Charlie Hebdo and its aftermath, and for the pain of their families and friends. I have to say these things in advance of anything else I write, because – well, because those are the things you’re supposed to say. But I didn’t know any of those people, or their family, or their friends. I didn’t read their magazine, and I probably wouldn’t have read it even if I’d been in Paris. My sympathy is strictly mediated, and for public consumption.

In all honesty, I’d rather save my sympathy. I’d rather ration my outrage. I’m worried by attacks on freedom of speech, but this wasn’t an attack on freedom of speech. Charlie Hebdo was completely free to publish what it wanted; the attack on freedom of speech comes now, in the aftermath, as those in power use it as an excuse to control us more deeply than ever, and people start to wonder if what they published was worth the risk.

Obviously the editor-in-chief thought so: he said so explicitly. Maybe the cleaner at his offices felt differently, or the policeman guarding him; both of them died as well. So far I’m still with Voltaire: I may not agree with what Charlie Hebdo said (or the way they said it), but I will defend to the death their right to say it. Yet I’m also with Holmes: Charlie Hebdo’s right to swing its fist ends where my nose begins – and I’m prepared to extend my Holmes a bit further.

You can swing your fist in whatever direction you want, but – for the purposes of satire, at least, for the purposes of ridicule – there’s a common expression in comedy circles: don’t punch down. Punch up, by all means: target the powerful, and the rich, and the famous; but don’t target those who don’t have the same cultural resources with which to defend themselves. I wouldn’t say this is an absolute rule, but it’s a useful rule of thumb.

So why did Charlie Hebdo punch down? Because Charlie Hebdo didn’t even realise they were punching down. They saw ISLAM in big block capitals, MILITANT ISLAM that went against the very grain of Charlie Hebdo’s secular origins in the republic; they saw the imminent threat that’s been painted by our governments and our media, the threat that is not just at our doorsteps, but cleaning our kitchens, or stirring in our banlieues.

From that perspective, ISLAM looks more powerful than it is (which is exactly what MILITANT ISLAM wants you to think) so you think you’re punching up: but of course context is everything. Context doesn’t excuse, but it does explain. Context is the detail of the picture, rather than the broad brush strokes. Context reaches into the past to pull out reasons by the root. Context spreads its arms to avoid arrogance and embrace ambiguity. Context forces us to think, and think again.

What else happened on the day that Charlie Hebdo was murdered? Well, we don’t know the exact demographics of French prisons, because the French government doesn’t keep those statistics; but if they’re the same as they were in 2008, then the prison population in France is about 60-70% Muslim. That doesn’t excuse Charlie Hebdo’s murderers; but if you don’t think it’s relevant, then you’re going to be continually surprised by the real world.

headlineImage.adapt.1460.high.1420993506639What else happened on the day that Charlie Hebdo was murdered? In Nigeria, Boko Haram finished its battle for the town of Baga: the town was burnt to the ground hundreds, maybe thousands, of its in residents killed, and the rest fled. Nobody will commemorate them outside French embassies across Europe. That doesn’t make the murder of Charlie Hebdo any less shocking; but if you aren’t equally moved by Nigerian deaths, perhaps you should ask why.

What else happened on the day that Charlie Hebdo was murdered? In 1957, the French Army took over the Battle of Algiers from the civilian police force. The battle eventually cost the lives of up to 3000 Algerians, with another 3000 missing, and the date marked the point at which torture became institutionalised in that early war on terror. That has nothing to do with the muder of Charlie Hebdo, of course, unless you think that the history of French colonialism has no relevance to power and powerlessness.

battle-of-algiers

Was it MUSLIMS who killed those people in Paris? Are such broad brushstrokes very useful in understanding the situation, or remedying the problem? Or are they a convenient way of avoiding looking at the context, of wondering whether this is an imperial hangover for which there may be no cure? Invisible Arabs, like those in French prisons; invisible Muslims, like those who disappeared during the Algerian war of independence; invisible Others, like the Nigerian dead of Baga.

In some small way, I’m more afraid of publishing this than I am of criticising Islam. The Empire doesn’t treat its dissidents well, but it does it quietly; at least Al-Qaeda makes it abundantly clear what your punishment will be. If I don’t express enough solidarity, then the internet will be outraged, because context-free outrage is the currency of the internet. Still: I went to the demonstration last night in my city, stood by the signs that said Je Suis Charlie, and worried about freedom of speech.

Nothing excuses these murders. No reason is good enough for these murders. No history justifies these murders. No religion justifies these murders. No politics justifies these murders. Yet the murders had their reasons, their histories, their religion, their politics. It’s too easy to dismiss them, and it’s too easy to turn on ourselves, and we need to avoid taking those easy routes. Maybe Je Suis Charlie, but Nous Sommes Pas Charlie; and that’s our political problem, not theirs.

978-0-226-29427-8-frontcover

Sounds of Savamala cover art

What Savamala Sounds

I drove overnight from Belgrade to Herceg Novi, and then I fell off the map for about two weeks. Before we started driving, I went to the launch of the Savamala Soundwalk, the project put together by Kolektiv ImproveE2.0 and Zvučna mapa Beograda. Yeah, yeah, street team Belgrade, keeping it real, etc, etc.

The team had so much interesting material this year, they decided to release two Soundwalks. Broadly speaking, the artists on “Sounds of” focused on the field recordings themselves, twisting and turning the cityscape; meanwhile the artists on “Sounds for” used thosee recordings as inspirations for a range of compositions.

If I had to pick some favourites, I’d go for Andagainandagain’s Walking to Geozavod building, and Igor Miskovic’s Dockyard Echoes on Sounds of; and Zartzinfekt’s Route 2, and Jasna Jovićević’s Route 5 on Sounds for. (Jay Zr’s Bridge Over Tromboned Water wins best title, obviously.) But I change my opinion on a daily basis, so my opinion is worth nothing.

Both sets are fantastic, and I’m not just saying that because my track Sedmina was included on “Sounds of” under my pointless pseudonym of The Black Mountain Installation. The ideal way to experience these is to listen while walking along the actual routes recorded, since each track is the same duration as the walk it was inspired by. IT’S MAGIC.