How Blockchain Can Keep Non-Profits And NGOs Honest And Fight Corruption

Blockchain is the great equalizer and it can maximize the effectiveness of non-profits, their accountability, and trust to build a brighter future.

Photo: Ivan Kot | Source: Courtesy Photo
Photo: Ivan Kot | Source: Courtesy Photo

Many of us have heard about the world’s worst charities and corrupt non-profits behaving badly. Charities and non-profits are conceived to bring good to society. When people donate to a non-profit, they do so because they believe in a cause the organization represents and expect funds will always go where they are needed most. Unfortunately, this is not always the case.

In recent years, an increasing sentiment of distrust has emerged amid public views of non-profits. This is due to financial fraud, corruption, ill-behaved charity workers and other scandals.

Before we get into the nitty-gritty details, first things first. Non-profits do provide vital services to society, and this article isn’t about hindering the good outcomes of non-profit work. It is, however, about maximizing the effectiveness of non-profits, their accountability, and trust to build a brighter future.


Playing devil’s advocate: The genesis of non-profit corruption

There are common driving factors of corruption in the non-profit world. Others include:

  • Corrupt environment–Working in lower economically developed countries where corruption and bribes are rife.
  • Lack of financial accountability–In certain countries, non-profits are not required to report extensively on funds used unless it is over a certain amount.
  • Non-profits are mission-driven to a fault–While doing good is… well… good, doing good at the expense of legality and morality to achieve a higher goal is on ethically shaky ground.
  • Authority without responsibility–Non-profits are in a position of power, and we’ve all heard the phrase absolute power corrupts absolutely.


Non-profit corruption by the numbers: How big is the problem really?

While no one can put an exact figure on the levels of corruptions within non-profits, these statistics can provide some idea as to the effect it has within the non-profit industry. The total amount of money donated to non-profits:

  • In America alone, $410 billion was given to non-profits in 2017.
  • Thirty-one percent (31%) of donations were given to foreign-working organizations, while 69% went to national organizations.

A closer look at levels of corruption reveals:

  • Transparency International UK estimates the cost of corruption on the UN water and sanitation development goal is $48 billion.
  • Also, as much as $1 billion of the $8 billion donated in 8 years for aid in Afghanistan was lost to corruption.
  • Meanwhile, Cancer Fund of America ships free goods to cancer patients. But in the last decade patients have received less than $1 million in direct cash aid out of $98 million raised.”

These are not small numbers, and they suggest that corruption is not only happening, but it occurs on an enormous scale.


Is blockchain the answer for non-profits behaving badly?

Technology has provided ample solutions for non-profit fundraising, including the popular JustGiving or GoFundMe platforms that allow people from all over the world to fundraise for a variety of causes. Similarly, the systems needed to target corruption should benefit from the latest advancements in technology.

Let’s examine one potential solution using blockchain technology. In 2006, researcher Benjamin A. Olken undertook a study to monitor corruption in Indonesia. Olken’s field experiment examined the government’s inability to distribute wealth and how corruption impairs this goal.

Photo: Aleksander Soroka, Unsplash
Photo: Aleksander Soroka, YFS Magazine

He discovered that an aid program in Indonesia tasked with the distribution of rice was deeply affected by corruption, with 18% of the rice going missing altogether, and much more not reaching its intended destination. This was especially prevalent in sparsely populated areas and areas who were ethnically heterogeneous.

Even at this level, corruption had a significant impact on the outcomes of the program, with Olken suggesting that “corruption may impose substantial limitations on developing countries’ redistributive efforts, and may help explain the low level of transfer programs in developing countries.”


Blockchain will become the new ‘enforcer’ of ethical business practices

That was in 2006, however, regarding in-country corruption, very little has evolved. Corruption still happens, and is often systematic, hard to detect, and even more difficult to correct. However, that could be changing in the years to come.

Blockchain technology is not just a cryptocurrency dream, it’s the newest digital solution that has the potential to revolutionize how non-profits conduct business.

Photo: Dazzle Jam, Pexels
Photo: D. Jam, YFS Magazine

By November 2017, the World Food Programme had used the Ethereum blockchain to deliver around $1.4 million in food vouchers to Syrian refugees in Jordan. How did they do this? Instead of sending aid directly to recipients, they distributed the vouchers to shops located within the camp. These supermarkets were equipped with iris (eye) scanners designed to identify the individual refugee and their entitlement, thus preventing aid fraud.

Each aid transaction was then stored on an individual blockchain within the Ethereum network, ensuring transparency and accountability for the UN.


Blockchain for Indonesian rice?

Bringing this back to Olken’s rice field experiment. Blockchain could improve the distribution of aid in two ways.

The first is a similar solution to the one provided by the UN, recording the receipt on the rice to the individual end-recipient using digital ID verification. So, the rice is tracked through its holders; the distributor, transporter, end-receiver. However, due to the broad area of distribution, this may prove complicated and necessitates the identification of a vast population, which at its best is a challenge using traditional methods.

Another solution is to focus on tracking the rice itself, with each stage of the rice’s transportation stored within the blockchain as a list of “transactions.” This would provide a more accurate timeline for the transport of the rice, including if it reached its destination, where it disappeared (if it did), and its current location.


The future of blockchain for non-profits

All of this being said, the use of blockchain in the non-profit space is still in its infancy. However, in recent years, non-profits are more and more keen to introduce technology into their operations.

Case studies and examples of blockchain use, help organizations generate ideas for how blockchain development services could work for them and address the concerns of accountability, transparency, and effectivity to re-focus on the primary aim of doing good, and doing it right.


Ivan Kot is a Senior Manager at Itransition, focusing on business development in verticals such as eCommerce, Business Automation, and cutting-edge tools such as Blockchain of Business. He began his career as a developer, taking different positions in both web and mobile development projects, and eventually shifted focus to project management and team coordination. Ivan’s everyday motto is: if something has to be done, it has to be done right.


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