Within the context of the 2019 OECD Anti-Corruption & Integrity Forum, which will explore how governments, organisations, and citizens can leverage new technologies to foster trust and enhance transparency and accountability, the New Development Bank is looking at fintech applications for promoting integrity in public finance. Blog by the New Development Bank’s Chief of Compliance, Dr Srinivas Yanamandra.
Transparency and integrity challenges in public finance typically occur when:
- There is an absence of adequate information available to the public concerning the various aspects of public finance (for instance regarding availability/eligibility of public procurement contracts).
- Channels for reaching out to public finance authorities to report misconduct are inaccessible.
- Manual investigative processes cannot handle complex financial misconduct investigations.
Fintech applications in recent times are aiming at addressing these challenges in a cost-effective manner. Applications such as smart contracting trade finance applications are providing theoretical justifications for promoting integrity of public finances for large infrastructure projects. Rapid proliferation of fintech applications in smart urban infrastructure, smart energy distribution and digital urban mobility solutions, are making it easier to provide practical solutions in this direction. In particular, fintech applications are being developed for:
- Enhancing the availability and efficient processing of information regarding public finance/ procurement. These ProcTech solutions provide integrity checks during project procurement and improved e-auction facilities facilitating monetisation of government assets.
- Providing on-tap tools to deal with project monitoring and reporting through tokenised lending/ distributed ledgers and mobile applications aiming at greater citizen involvement in public finance deployment in relatively smaller catchment areas (such as municipalities and cities).
- Facilitating anti-corruption investigations through mechanisms such as artificial intelligence using big data, advanced analytics, and machine learning for dealing with unstructured data/information.
Even in BRICS countries, fintech applications for enhancing integrity are receiving wider attention. Some of the recent case studies that involve pilot testing of block-chain technology for this purpose are outlined below:
- Use of digital tokens in lending processes: The use case in this regard is piloted by the Brazilian National Development Bank (BNDES) with BNDES Token used for loan disbursement purposes. The Token, operating on a distributed ledger platform, aims at enhancing process efficiency in loan disbursements/monitoring and facilitate anti-corruption initiatives in project lending. The project further claims to increase transparency of public money allocation, simplify manual activities, reduce operational costs and produce data to support aggregate analysis of the benefits arising from the bank’s loans.
- Issuance of immutable tax invoices (fapiaos) using block-chain technology: The use case in this regard is piloted in Shenzhen, China for reducing the scope for corruption in the tax claim reimbursement process. In order to address concerns emerging from the process of issuance of tax invoices, a fintech application (riding on block-chain technology) has been pilot-tested by Shenzhen Provincial Government through the digital application developed by Tencent Technologies (WeChat). The technology is aimed at ensuring that each invoice can be traced back, information cannot be tampered with, and data cannot be lost. The whole process can be monitored in real time and promote transparency in operation of the tax regime in the country.
- Automated land records on block-chain platform: This use case is piloted by the provincial government in India (Andhra Pradesh) for automating the documentation process involved in the land pooling exercise undertaken for building up the new provincial capital city. The entire process – allocating plots, registration, storing the data – is automated through decentralized distributed ledger system for creating foolproof digitized land registries of the residential and commercial plots allotted to farmers. The project attempts to serve as a book-keeping tool that can be accessed by all but is owned by none in a tamper-proof and secure network mode, reducing human interventions, mitigating property fraud and adding more transparency.
While deployment of fintech solutions promise operational advantages, it is important to underscore the pre-requisites (technology, institutional and legal) to ensure that these advantages are realized in a sustainable manner, as follows:
- Technological deployment of fintech solutions calls for capacity building across technology service providers on nuances of public finance, scalability of solutions in a reliable manner when operated at a wider scale, and efficient mechanisms to deal with privacy, security and confidentiality aspects while dealing with sensitive data.
- Institutional deployment of successful fintech solutions often pre-suppose well-designed digital processes and payment solutions across wide-range of activities as well as quality control mechanisms for ensuring completeness, accuracy, quality and consistency of underlying data.
- Legal pre-requisites for enhancing fintech solutions for promoting integrity include legal sand-boxing and safe-harbouring treatment for new technology applications (for instance, legal soft-coding of digitally enabled smart contracts).
Fintech solutions, particularly block-chain technology, thus can offer operational advantages for enhancing transparency and integrity in public finance processes. The New Development Bank will address the successful technological deployment of these solutions while looking at the required adequate institutional mechanisms and legally binding frameworks for enhancing their utility in the long-run.
Join the New Development Bank (NDB) session ‘Fintecgrity – Leveraging fintech to enhance integrity in public finance’ on 20 March. The agenda is available here.