Building credit with blockchain at the base of the economic pyramid

ImpactAlpha, August 21 – Credit systems in mature markets are imperfect. In many developing economies they don’t exist at all, keeping billions of people from participating in the formal financial system.

Much like with off-grid energy and mobile phones, low-income countries have the opportunity to leapfrog decades-old credit systems originally built for brick and mortar banks. Rather than centralized and vulnerable to data breaches, new credit infrastructure can be decentralized and resilient to privacy breaches.

To test the approach, crowdlending platform Kiva and the government of Sierra Leone on Wednesday launched Sierra Leone’s National Digital Identity Platform, which allows individuals to link their national identity numbers to digital transactions, including healthcare, social and financial services. The platform will enable all 5.3 million adults in the country to build a digital financial footprint by recording financial transactions that otherwise happen informally and offline.

“You have rich financial lives way down in the economic pyramid. It’s just not being recorded anywhere,” Kiva CEO Nevill Crawley told ImpactAlpha (see, “Q&A: CEO Neville Crawley wants Kiva to change systems as well as lives”). “We’re not trying to make an alternative system, we’re trying to improve The System.”

• Financial footprints. The platform is built on Kiva Protocol, Kiva’s new decentralized, blockchain-based financial data recording initiative intended to expand the nonprofit’s role in boosting financial inclusion. That data will eventually feed into a formal credit system, making it easier for financial institutions to underwrite products and extend services. By the end of the year, Kiva says all financial institutions in Sierra Leone will be linked, enabling them to electronically verify customers. 
• Consumer control. Transactions can be recorded and safely stored online and offline, ensuring the platform reaches individuals in remote areas. Kiva’s Matthew Davie says the platform gives consumers complete control over their data. And because it’s built on blockchain, it’s effectively hack proof. “The data is not warehoused on some server, so if I wanted to hack one million people, I have to do a million hacks,” Davie told ImpactAlpha. “If you’re building [financial infrastructure] today, you should build it in a resilient way.”
• Impact philanthropy. Rippleworks, which provides capacity support to social enterprises, committed $5 million to help build the Kiva Protocol platform. “It’s not worthwhile for most organizations to do this. It’s not profitable and it’s too hard,” Davie says. Kiva’s trying to help end financial exclusion, he says ”We can use grants to put these solutions in place to do that.”