Digital Finance | Policy/ Regulatory Reform
January 29, 2019

Unique, legal and digital: Three characteristics of ID crucial to financial inclusion

By ITU News

“There are still a billion people, half of them in Africa, without reliable means of proving their identity,” says Sharmista Appaya, Senior Financial Sector Specialist at the World Bank. “Millions more hold forms of ID that cannot be reliably verified or authenticated.”

Appaya co-chairs the FIGI Working Group studying the relationship between digital ID and financial inclusion to develop relevant policy recommendations.

FIGI – the Financial Inclusion Global Initiative – is a three-year programme of collective action led by ITU, the World Bank Group and the Committee on Payments and Market Infrastructures, with support from the Bill & Melinda Gates Foundation.

FIGI aims to advance research in digital finance and accelerate financial inclusion in developing countries. The initiative held its second symposium last week in Cairo, Egypt. Learn more…

“A lack of reliable, unique ID is a major barrier to inclusion in formal systems of all kinds, including the financial system,” says Appaya.

The World Bank’s 2017 Global Findex Survey found that lack of documentation was the primary barrier to access to financial services cited by 26 per cent of unbanked people in low-income countries.

ID as a foundation for development

ID is key to the pursuit of development goals across a wide range of sectors, with healthcare, education and financial services among the best-known examples.

The expansion of ID programs is a specific target of the UN Sustainable Development Goals (SDGs), calling for UN Member States to “provide legal identity for all, including birth registration” by 2030. Moreover, research from the Center for Global Development has found that at least 10 of the 17 SDGs will require an enabling foundation of coherent ID programs.

The World Bank’s ‘Identification for Development’ (ID4D) program plays a leading role in global efforts to stimulate the introduction of reliable, unique ID.

“The World Bank’s ID4D programme is trying to solve a universal problem, addressing the basic challenges surrounding ID,” says Appaya. “In FIGI, however, our focus is very much how ID relates to access to financial services.”

“ID has many characteristics,” highlights Appaya. “But what we are seeing is that three characteristics are crucial in enabling access to financial services: ID should have a legal basis, be unique, and have the ability to exist in a digital format.”

A unique ID identifies you and you alone. A legal ID is recognized by your government. And a digital ID, says Appaya, “provides higher levels of security and can allow the private sector ‘plug-in’ this ID to provide a platform for other services.”

How is FIGI addressing the challenge?

FIGI’s Working Group on digital ID runs three interdependent workstreams.

The first looks at policy considerations relevant to ID for financial inclusion.

This work began as a workstream under the Global Partnership for Financial Inclusion (GPFI) at the Argentine G20 in 2018. The World Bank coordinated the work that led to the publication of the G20 Digital Onboarding report, which identifies seven policy considerations relevant to digital ID.

The considerations address factors such as the importance of integrated ID frameworks; appropriate regulatory frameworks; risk-mitigating oversight models considering new players beyond traditionally regulated financial institutions; authentication and personal data protection; procedures for citizen redress in when the security of personal data is comprised; empowering the private sector to develop services drawing the legal ID infrastructure; and the close monitoring of emerging trends in ID.

“These seven policy considerations were endorsed by the G20 GPFI and have broad support,” says Appaya. “But how do we actually implement them at the national level; what do they actually mean in practice?”

This question is guiding the activities of this first workstream, explains Appaya – “we’re now going into detail of how these considerations could translate into national policy measures.”

The second workstream will make use of an ‘assessment questionnaire’ to facilitate international comparisons and understand country-specific regulatory frameworks, looking at issues including Customer Due Diligence requirements and e-KYC registries as well as emerging trends in ID such as blockchain and alternative data.

“We were originally mainly focused on understanding this from the perspective of financial regulators, but this FIGI Symposium in Cairo has encouraged us to open up our thinking to include to non-financial regulators as well, to support a more holistic look at the perceptions and challenges of all the authorities involved in ID generation, operation and implementation,” says Appaya.

The third workstream will run pilot implementations of the policy measures and guidelines distilled from the first workstream in individual country contexts, assisting the group in further refining these measures.

“We would not necessarily implement all proposed policy measures in a single country,” says Appaya. “We might implement just one, or two that complement one another well, to see whether or not they work in practice and how they might be fine-tuned.”

What form will the Working Group’s output take?

“We need to be careful about saying that one-size-fits-all,” says Appaya. “High-level policy considerations are fine, but every country is different, with different regulatory frameworks and different forces at play. Every country might choose to do things differently.”

For Appaya, “It will take a process of iteration, of doing the pilot projects and receiving the results of the assessment survey, to ensure that it’s fit for purpose – we envision a potential repository of information that governments can use, as opposed to a ‘how-to’ guide.”

Enter the ‘Mission Billion Challenge’

The World Bank’s ID4D team is launching a series of contests under the banner of the ‘Mission Billion Challenge’ to uncover new, innovative ways of tackling age-old challenges surrounding ID.  

The first such contest calls for new perspectives on how ID could adhere to the principle of ‘privacy by design’, the integration of privacy protections into an ID at the outset of its creation.

The contest launched in San Francisco on 23 January and will be followed by launches in Nairobi (29 January), Cape Town (31 January), and Mexico City (7 February).

To enter the Mission Billion Challenge, visit the challenge homepage…

Learn more about FIGI from the video playlist of the FIGI Symposium 2019 in Cairo.

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Unique, legal and digital: Three characteristics of ID crucial to financial inclusion

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