Identity is a basic human right. For the 1.7 billion unbanked people globally, this requires direct subsidy of varying levels.

(By Matthew Davie) Globally, 1.7 billion adults around the world—that’s nearly one-third of all adults—are unbanked, meaning they do not have an account at a financial institution or via mobile money.

Think about the implications of that: Being invisible to formal financial services, unbanked people are forced to operate in a cash-only economy that does not offer the leverage of things like homeownership, education or even basic medical services. Because of this, it is difficult for unbanked populations to forge a path of growth and improve their lives.

Sierra Leone (photo by Kiva)

At Kiva, we’ve spent the past 13 years helping millions of people do just that—and find a renewed sense of pride in their own work and dreams —through ‘loans that change lives’ crowdfunded on Kiva.org. On the platform, anyone can help a borrower start or grow a business, go to school or realize their full potential. We’ve enabled $1.3 billion USD of capital to reach millions of unbanked and underbanked people around the world, some of whom were even seeking asylum and starting over, and most of whom live in areas where internet access, formal identity and verifiable credit history are widespread challenges. Through a famously high repayment rate on Kiva loans, we have shown that the un- and underbanked can be very credit-worthy.

The focus on individual, entrepreneurial stories has helped us to bust the persistent, stigmatizing myth that people living in poverty don’t want to work and to create a foundation of mutual dignity and respect between lenders, borrowers, their communities and our Field Partners who disseminate the loans. Now, in addition to this work at the individual and community level, Kiva is broadening its mission to address the systemic barriers that are keeping people from accessing the financial services they need.

No ID, No Bank Account

One root cause of widespread financial exclusion is something most of us take for granted: a lack of ID.

Opening a bank account requires documented, verifiable identity. Even if a bank opened a branch in a previously-unserved region of Sierra Leone, the unbanked would not be able to open a savings account without a government-issued identity card. For those living in most developing countries, obtaining an ID is expensive and, frankly, has minimal utility.

In developed countries like the United States, identification is inexpensive and accessible. For example, birth certificates and social security numbers are issued at birth, and can later be used to obtain driver’s licenses and passports. Identification has daily utility as well: to drive a car, verify your age, register to vote and open a bank account.

But imagine for a minute living in a rural region of Sub-Saharan Africa. Even if you have access to a birth certificate, the time, expense and distance you would have to cover to get an ID card is a barrier. Beyond that, there are no nearby banks, no need for a license to drive a scooter or car, and no need to verify age at the local market where the owner has known you for 20 years. This near-zero utility for identity makes the immense cost of obtaining it not worthwhile.

Sierra Leone (Photo by Kiva)

This creates a bit of a “chicken and egg” problem for bringing identity to the world’s unbanked. Formal identity is the key that unlocks so many services that can help the poor, but there is no current ecosystem to drive utility of obtaining and maintaining formal identity. This cycle must be broken in order to build a sustainable identity ecosystem for any population.

So — how are we going to break this cycle and provide the necessary identity to bring financial inclusion to the 1.7 billion adults who lack it?

Kiva Protocol and the UN

Kiva has partnered with the U.N. Capital Development Fund (UNCDF) and the U.N. Development Programme (UNDP) to pilot a bold, new initiative in the country of Sierra Leone called Kiva Protocol, which will create and establish a national digital identification system using distributed ledger technology (DLT) and ensure every citizen in Sierra Leone has secure and complete ownership of their personal data and information.

The new Kiva Protocol is designed to address these barriers by issuing digital identification to all citizens and enable formal and informal financial institutions to contribute to a person’s verifiable credit history. Currently, unbanked people cannot leverage financial transactions from the ‘informal economy,’ such as credit with a local shopkeeper, to build their credit history. The Kiva Protocol will capture a wide range of financial transactions— from bank loans to credit with a local shopkeeper—to help people access the financial services they need, including loans for businesses, education or basic medical services.

This makes us confident that a sustainable credit ecosystem can be developed to financially include the unbanked. After all, there is an incredibly vibrant and competitive ecosystem of mortgage providers in the U.S., where interest rates are relatively low and the default rate is higher than Kiva’s historical loans in 85 countries. If unbanked populations were able to affordably obtain the required verifiable ID, it would be possible for local, regional, national, and international banks to apply some portion of the capital they control to the world’s unbanked in a compliant, self-sustaining way. In short — financial inclusion would become a matter of price, not technical or regulatory feasibility.

Identity is a basic human right. For the 1.7 billion unbanked people globally, this requires direct subsidy of varying levels.

Kiva is working with organizations like ID2020, the Linux Foundation and the Hyperledger Project to build a roadmap for bringing verifiable identity to the unbanked. With the rapid penetration of internet and mobile devices, the geography challenge is becoming simpler, and over the next decade it may be possible to reach — and reliably identify — most of those who are currently unbanked. By bringing them formal identity, we hope to remove the final blocker to financial inclusion so that they have a chance to improve the lives of their families and communities.

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Matthew Davie is Managing Director at Kiva.org, where he oversees the company’s efforts to bring financial inclusion to the 3.5 billion unbanked and underbanked people around the world.