November 11, 2016
World Bank’s 2016 ID for Development (ID4D) report revealed that approximately 1.5 billion people around the world (over 21% of the world’s population!) cannot prove their identity. The majority of these people live in Asia and Africa and are cut off from accessing basic services and rights.
The presented data suggests that less than half of all adults in the poorest 40% of households have a bank account and ~375 million unbanked adults in developing countries (18%) are constrained by not having the necessary ID documentation.
For over a fifth of the world’s population, the inability to prove their identity means the inability to access financial services, the inability to go to school and receive education, the inability to access health and social welfare benefits among other hardships. Moreover, as the study emphasizes, these people are disenfranchised and unable to have their say in their country’s electoral process. Therefore, the recognition and authentication of an individual’s identity, together with associated rights, is becoming a priority for governments around the world and is included as a Sustainable Development Goal target.
The World Bank suggests that identification – whether through civil registries or other national identification systems – have three overarching outcome goals from a development perspective:
Despite existing initiatives, developing countries mostly struggle with nationwide digital ID systems due to a variety of reasons. In fact, the study suggests that half of all low- to middle-income countries lack functioning systems to register births and other life events, which is ideally the foundation for official identification. In South Asia and Sub-Saharan Africa respectively, only 39% and 44% of children have births registered. And in countries with identification programs in place, they are often found to be highly fragmented across institutions/agencies.
With vast population being invisible to any formal system and lack of appropriate programs in place in developing countries, the hope lies in modern technological solutions. Technology nowadays allows for efficient and scalable solutions to be deployed to connect participants of national and international ecosystems to collect available ID information and share across networks to create a robust digital ID.
Fortunately, a range of governments, technology companies and financial institutions are actively collaborating to build advanced ID solutions. The Institute of International Finance (IIF) in collaboration with the Center for Financial Inclusion (CFI) published a paper couple months ago called ‘The Business of Financial Inclusion: Insights from Banks in Emerging Markets,’ emphasizing the role of biometric-focused technology and initiatives in facilitating inclusion for people that cannot prove their identity.
Most banks that participated in the study were reported to be using tiered KYC for identification, though with strict limitations on the size and number of transactions. Banks stressed remote account opening as one of the greatest opportunities for serving unbanked customers profitably – particularly facilitated by growing networks of banking agents – due to the lower service costs and the ability to reach customers in remote areas and those with mobility constraints.
One of the examples brought up in the study is the State Bank of India, which relies on the Aadhaar ID system, a project of the Unique Identification Authority of India (UIDAI) that uses fingerprints and iris scans. Banco de Crédito del Perú is helping the government switch to a new chip-based ID system. Standard Bank uses remote account opening online and at places of employment in South Africa. For Itaú in Brazil, biometric technology enables clients to carry out transactions with fingerprint identification, without typing a password or using a card. Bancolombia’s Ahorro a la Mano savings account can be opened remotely on a mobile phone with just a few data entries.
Accessible, robust and verifiable ID systems are believed to be able to facilitate the KYC requirements of providers and expand the use of financial services. It is especially important for facilitating gender equality in households where women are dependent on financial decisions of men due to inability to open a bank account themselves. The World Bank study suggests that as women obtain a legal proof of identity and open an account, households spent more on nutrition and health. In Pakistan, for example, the computerized ID system provided direct access to cash transfers to women for the first time.
Not only do national digital ID systems facilitate financial inclusion for minorities and disadvantaged groups of population, as we have mentioned, but they also enable access to social benefits. Given that 870 million people around the world live in extreme poverty and still do not have access to any kind of social assistance program, digital IDs have a chance to help those people to lift their families from extreme poverty by accessing governmental social security net programs. Among the examples brought up in studies is India, where a fuel subsidy program provided cash transfers to Aadhaar-linked bank accounts for the purchase of liquefied petroleum gas cylinders, which saved about $1 billion per year.
National digital ID systems also benefit governments by increasing efficiency, reach and transparency. It is no secret that absence of proper governing structure and transparent system increases the risks of leakages, fraud and corruption. The Nigerian government was able to save $74 million in the first phase of deploying a system of biometric enrolment of civil servants and eliminating 43,000 ‘ghost workers’ and ‘double dippers’ through the Integrated Personnel and Payroll Information System. Argentina’s government was able to reduce leakages and tax evasion and save $104 million by linking 13 public databases and distinct ID registries.
While digital ID systems do have important advantages and can help 1.5 billion people to drastically improve the quality of their lives, there are also considerable challenges to overcome.
Close examination of the legal and regulatory enabling environment (both existing laws and any reforms needed to support ID) is needed focused on the types, extent, and use of information collected under an ID scheme; how to safeguard the privacy and security of personal data; and how to craft new primary legislation or rules to avoid unintended consequences such as inadvertent exclusions, onerous mandates that could deter individuals from accessing services, or increased rent seeking involving registration or certificates, the World Bank suggests.