With the arrival of the 4^th industrial revolution, new technologies will increasingly enable citizens to engage with governments, voice their opinions and coordinate their efforts. Because of the increasingly changing world of today, governments, citizens and development actors alike need to quickly adapt, get a better understanding of advanced technologies, and learn how they can best be used for the benefit of the society as a whole.

The new UNDP’s strategic approach is relying on innovation and experimentation to ensure that key development actors are able to use new technologies to drive the progress towards the achievement of the Agenda 2030 and the global Sustainable Development Goals. To be able to do so and help the governments of future, UNDP is now testing advanced technologies, such as blockchain, for development purposes. The blockchain digital assets translate to the real-world entitlements, such as utilities and merchandize items, while they can be easily created and their movement from one person to another made traceable. At the same time, blockchain transactions allow participating individuals to maintain their privacy. UNDP is currently carrying out one pilot project in the city of Nis, South of Serbia, that focuses on using blockchain to send remittances to the recipients in the country of origin.

How did this project start? Who asked for it and why?

Back in November 2016 UNDP Serbia was invited by the city of Nis to take part in the “Forum of Advanced Technologies in the City of Nis”. On that occasion discussions were held with diaspora individuals and representatives of private sector companies whose employees receive remittances from abroad. Forum participants indicated that having a transfer which is transparent, quick and costs less than 3% in average would be a response to their needs, having in mind the existing high cost (up to 10% of the overall money transfer, sometimes even higher) when the payments are made via traditional banking sector and/or using the financial service companies.

In general, when we talk about remittances we refer to financial contributions diaspora make to ensure the wellbeing of their families back home. This income also greatly contributes to the economic development of countries with large diaspora, such as Serbia, where almost 800,000 people receives money from abroad. The estimated value of remittances, sent every year via official and unofficial channels, is approximately €4.5 billion. Annually, remittances make up close to 9% of the GDP, compared, for example, to direct foreign investments, which were 5.4% of annual GDP in 2016.

Having all this in mind, and the expressed interest of local actors’, UNDP Serbia designed a project “Blockchain-based diaspora remittances in the city of Nis”, to test how this type of advanced technology can be of use to the government, while making the financial transfer services cheaper, more transparent and tailored to citizens’ needs. Most recently, the National bank of Serbia fully endorsed the test (pilot project) to be conducted by UNDP, since the Bank itself has been planning to also test and potentially introduce blockchain technologies for diaspora remittances.

What role have the diaspora and the city officials of Nis played in the design of the project?

The city of Nis was selected due to its close and extensive links with the diaspora, and the openness of the City administration to the application of new technologies (the City has a long technical and electro-engineering industry tradition, and most recently initiated the establishment of a regional blockchain center). From the very beginning, UNDP Serbia had established very close and open cooperation with the City administration, confirmed through a letter of support from the City to implement the project on blockchain-based remittances. During the project design stage, the City representatives were consulted and asked for comments, issues and concerns. The City assembly has created a special team, together with the Local Economic Development Office, to support the implementation of the joint project.

The City has, in parallel, initiated the process of establishing a blockchain regional center with the following interested parties:

-           City of Nis

-           Faculty of Electronic Engineering, University of Nis

-           Faculty of Economics, University of Nis

-           NiCat cluster of advanced technologies Nis

-           Young Ambassadors Nis

-           Cofound.it Serbia

-           Center for Innovative Youth Entrepreneurship Nis

Having in mind the potentials of blockchain technology, the above-mentioned organizations agreed on the following goals: a) Advocacy for regulations that will contribute to the development of blockchain technology and eco-system of digital entrepreneurship at the regional and national level; b) capacity building for the development of blockchain technology (Training and Education, Research and Innovation) and c) initiation of a project with a high social, economic and environmental impact at the regional level, d) providing knowledge and conditions to existing IT companies and potential startup companies for project development using existing Blockchain platform.

Moreover, the founders of the regional center have asked UNDP Serbia to co-sign the Letter of Intent and support additional blockchain initiatives.

Who has the UNDP partnered with to test the use of blockchain technology for transferring remittances to Serbia?

UNDP partnered with the AID:Tech Ltd., a private company from Ireland, well known and recognized for its innovative technological solutions for the humanitarian and development sector, and the U.S. company Stripe, specialized in safe online payments. Additionally, the national Komercijalna Bank is involved. All the partners ensure the controlled testing environment and adherence to strict UNDP’s rules and regulations governing financial transactions.

How does the testing look like in practice?

UNDP’s pilot involves participation of up to 200 recipients and senders of remittances, who have been selected through a public call to voluntarily take part in this initiative. The recipients will get digital voucher ID cards, and they will be able to use the funds that they receive to pay for utilities and purchase groceries in three transparently chosen local retail stores in Nis. The expected value of all the participant transactions is estimated at $20,000.

Why track and influence what the money will be used for?

Tracking what people buy is part of the testing, so that in the future potential senders could automate money transfers to pay for utilities and merchandize directly. All the data gathered for the purpose of testing will be used with the consent of the participants and with the consent of the city of Nis local authorities, while taking into consideration the Law on Personal Data Protection. The pilot anticipates that it would be possible to track the type of items purchased, but not by whom they were purchased. Administrators will be able to view the aggregated data showing where the funds are being directed via blockchain digital assets, e.g. 50% of all the funds sent to Nis will be used to pay for utilities and 50% for the merchandize.

What are the expected benefits?

The use of open-source blockchain platform, provided pro-bono by AID:Tech Ltd, is expected to bring several benefits, for a number of beneficiaries:

a)    Ensure traceability and transparency of the inflows of diaspora remittances into Serbia

b)    Channel diaspora remittances towards socially responsible purchases

c)    Enable easier and cheaper money transfer for the remittance senders, by avoiding the intermediaries. The goal is for the transaction costs to be less than 3% in average, compared to the existing, much higher costs paid via traditional banking sector and/or financial service companies

d)    Secure the privacy of individuals, since personally identifiable information is held off-chain in accordance with the GDPR, while individuals are identified on the blockchain through unique digital identifiers.

e)    Enable creation of digital IDs that can be used for other money transfers (such as, for example, social welfare) and other purposes

The Pilot project ends in October 2018, and UNDP, equipped with the knowledge gained through this innovative initiative, will further explore venues and mechanisms that can speed up the achievement of Sustainable Development Goals.