KfW tests blockchain software to track funding in Africa

27th July 2017 Jack Aldane

Germany’s development bank KfW is piloting the use of blockchain technology to record how public funding in developing countries is spent.

TruBudget is a software that uses a distributed ledger to give donors and governments access to records of budgetary spending on schools and hospitals from the point of disbursement to subsequent transactions, such as procurement, contracting and implementation of a given project.

“One of the biggest obstacles to economic development is the mismanagement of public funding. It also jeopardises the effectiveness of financial cooperation on a regular basis,” said Dr Norbert Kloppenburg, member of the executive board of KfW.

As well as holding officials to higher standards of accountability, the platform also responds to the high transaction costs associated with tackling the misappropriation of funds, which often fall to both international donors and their partner countries.

Blockchain prevents retroactive changes to transactions and provides visibility of unauthorised transactions to all stakeholders, giving users of TruBudget the ability to monitor public funds in countries where kleptocratic leadership or state corruption threatens development.

Dr Jure Zakotnik of KfW’s innovation lab told Development Finance: “Blockchain increases transparency of data and processes for all partners, both donors and developing countries. The technology enables everyone to validate and trace the way funds are being used for their intended purpose.”

The pilot programme has received €1 million from the Federal Ministry for Economic Cooperation and Development (BMZ), the German ministry that oversees KfW. The development bank’s digital department is responsible for developing the underlying software meanwhile, which is expected to be tested again after an initial six-to-eight month trial in Zambia.

Dr Zakotnik said TruBudget could be used to address the loss of billions each year from African economies due to mismanaged tax revenues, though the software would be used primarily to protect public sector investment in development projects.

“There are numerous use-cases for the blockchain technology, and tax revenue collection may well be one of them,” he said.

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