Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

November 2020
Outcome Report
Exploring
FOR DISBURSEMENT TRACEABILITY
Blockchain
 Abstract
The World Bank Finance and Accounting
(WFA) VPU and the World Bank Technology
and Innovation lab (ITSTI) embarked on
journey to learn how Blockchain could
enhance the loan disbursement traceability
process. This outcome report shares the key
learnings and insights as a part of the internal
and external exploration.

WBG ITS Technology & Innovation Lab

Acknowledgements
This initiative was made possible by the collective effort of World Bank Group staff from
the World Bank Finance and Accounting and Information and Technology departments,
and the participation and guidance received from colleagues in the Legal and Corporate
Procurement. The key learnings outlined in this report were prepared by the Blockchain For
Loan Disbursement Traceability project team.

World Bank Finance and Accounting (WFA)

Michael Ochieng, Junxue Chu, Jayavishnu Babu Nattanmai Subburamiyer Jayaraman,
David Liow, Victor Ordonez

Information Technology Solution, Technology and Innovation Lab (ITSTI)

Yusuf Karacaoglu, Stela Mocan, Mahesh Chandrahas Karajgi, Raunak Mittal,
Emmanuel Crown, Rachel Alexandra Halsema, Mora Farhad

Information Technology Solutions, Finance (ITSFI)

Valentin Prudius, Pascal Platteborse, Ramraj Rangarajan and Atul Gupte

Information Technology Solutions, Risk and Compliance (ITSSR)

Zhijun William Zhang
3
Legal Counsel (LEG)
David Satola, Patricia Miranda

Corporate Procurement (SPACP)

Sanjay Colaco, Shweta Mesipam

Exploring Blockchain For Disbursement Traceability Acknowledgements

Contents
Executive Summary 6
Introduction 7
Background 7
1.1 Project Background 7
1.2 Loan Disbursement and Traceability Challenge 9

Blockchain Exploration 9
2.1 Exploration with Blockchain and DLT 9
2.2 Blockchain For Disbursement and Traceability Challenge 9
2.3 Business Challenge Scope 12
2.4 Business Process and Disbursement Scenarios 13
2.5 Phase A: Internal Lab Prototype and Outcome 14
2.6 Phase B: Learning Objectives and Scope of Proof of Concept (PoC) 14
2.7 Phase B: About the Technology Partners 15

Outcome and Learnings 19

3.1 World Bank Loan Disbursement Traceability Key Learnings 19
3.2 Solution Design Architecture Learnings 19
KYC/AML 19
Data Privacy and Security 21
Identity and Access Management 21
Moving to a Distributed System: Security and Risk Implications 22
3.3 Feasibility, Interoperability, Maturity, and Scalability 22
3.4 Public vs Private Blockchain Model 24
3.5 Tokenization for Traceability 24
3.6 Forward Looking: Innovation Opportunities 25
Executive Summary
The effective monitoring and evaluation of projects funded by the World Bank (WB)
funded is a challenging and time-consuming process. Currently, stakeholders involved
in World Bank funded projects use separate financial management systems to trace
payments and keep records, meeting stakeholders’ requests for records can be a diffi-
cult process. The work involved in coordinating the activities of several teams within the
World Bank and Project Implementation Units (PIUs) is a labor-intensive task. The World
Bank Finance & Accounting (WFA) in collaboration with the World Bank Group/ITS
Technology Innovation Lab (the project team) worked on a challenge framing exercise
to prototype a solution that addresses these challenges. The project team, in its jour-
ney to identify the best suitable technology, explored the use of blockchain as a poten-
tial technology solution. Transactions, records and digital assets stored on a blockchain
platform are immutable, permanent, secured, and shareable; these key blockchain func-
tionalities will enable the World Bank, its member countries, and its Borrowers to have
“one version of truth” during the lifecycle of World Bank funded development projects.

In looking for a solution to the disbursement traceability challenge, the World Bank aimed to
acquire a technology that can be scaled easily to accommodate over 3,000 active projects,
as well as to enable multiple external parties to participate, and ensure that the many exist-
ing World Bank systems could potentially be integrated into the solution. As an emerging
technology, blockchain is undergoing constant change; the World Bank is interested in a 5
solution that could survive any major changes within the blockchain ecosystem within the
next few years and be interoperable to allow flexibility.

The World Bank project team developed an in-house prototype and validated the suitability of
blockchain technology for the disbursement traceability challenge, and assessed the viability of
building a blockchain platform that is agnostic to WB-funded development projects. The trans-
formative potential of Distributed Ledger Technology (DLT) and Blockchain has generated in-
terest to better understand what is currently available in the commercial marketplace. As a re-
sult, the project team launched a request for an expression of interest (REOI) in February 2020.
The external exploration was highly successful and attracted 79 solicitations, 22 of which were
shortlisted, with four technology partners making the final selection. These partners included
Ernst & Young (EY), cLabs (CELO), Securrency and Stellar Development Foundation (SDF),
and Orbs and Matrix. In the spirit of learning and collaboration, the four technology partners
worked independently to assess the business challenge, and each built a functional prototype
to demonstrate the capabilities of their respective solutions.

The requirements set forth in the REOI emphasized the importance of security, data privacy,
scalability, maturity, and interoperability. In addition, key questions were asked as to who
would own and operate the platform, what the cost estimates were, and what the options
were for implementation. This report highlights the exploration journey of experimenting
with Blockchain/DLT, and aims to share the learnings and knowledge across the WBG and
the international community.

Exploring Blockchain For Disbursement Traceability Executive Summary

 Introduction
The World Bank, through its WBG/ITS Technology and Innovation Lab, experimented
with open source Blockchain and DLT protocols to address the disbursement traceability
challenge in on-going Bank projects. The preliminary findings from the Lab prototyping
(“Phase A”) were found to be positive; however, further exploration and field testing will be
needed before the technology could potentially be adopted at the enterprise level.

In Phase B, the project team launched a REOI and partnered with four technology part-
ners with proven track records of advanced experimentation with Blockchain and DLT for
the traceability of funds. Recognizing that engagement with any single technology partner
poses risks because of the pace of technological changes, and to facilitate an inclusive
and participatory learning process, Phase B results will be shared with the public via on-
line repositories (e.g. GitHub) and during knowledge-sharing sessions.

Phases A and B entailed an in-depth exploration of various business and disbursement

scenarios and the different available models of Blockchain/DLT technology to enhance
the traceability and accountability of funds. This report aims to share the approach and
knowledge gained through the internal and external phases of the project, including the
risk and implementation considerations for a production-ready system and the building
blocks needed to build a minimal viable product (MVP).
6

Background
1.1 Project Background
The World Bank is the world’s largest source of funding and knowledge on development solu-
tions. It uses its financial resources and extensive experience to help client countries reduce
poverty, increase economic growth, and improve quality of life. It is governed by 189 member
countries and delivers services out of 120 offices, and employs 16,000 staff globally.

The World Bank Finance & Accounting (WFA) Vice Presidential Unit is responsible for all as-
pects of the financial reporting and internal control framework of the International Bank for
Reconstruction and Development (IBRD), the International Development Association (IDA),
and the extensive Trust Fund/Partnership portfolio of these entities. WFA also leads the cli-
ent shared service function for the World Bank’s corporate expenses and its trust funds, and
ensures fiduciary responsibility for all disbursements related to Bank operations; it is also re-
sponsible for disbursements involving about 3,000 active projects financed annually by the
World Bank.

One of the World Bank’s key mandates is to ensure that the funds deployed to finance devel-
opment projects are being used for their intended purpose. An increasing number of member
countries and large donors have begun to approach the World Bank with requests for docu-
mentary proof, e.g. procurement contracts, invoices and proof of payment of disbursement
transactions, to ascertain whether the funds they have donated are being used properly.

WBG ITS Technology & Innovation Lab

Currently, the World Bank uses internal systems to disburse and monitor funds disbursed to
Borrowers or PIU countries. Once funds are released for projects, WFA has full traceability
and disbursement documentation available; however, it has limited traceability on how funds
are used and which participants are being paid after these funds are released, as most proj-
ects have multiple layers of participants (e.g. intermediary agencies, suppliers, NGOs, etc.)
that receive funds before they reach end beneficiaries. Ultimately, Borrowers/PIUs have the
responsibility to keep track of how the funds are used and retain original documents of eligible
expenditures, and making them available for audit or inspection. However, the World Bank
does not ask for copies of all original documents for the many projects it is responsible for;
instead, Borrowers/PIUs can submit summary expenditures reports in the form of interim un-
audited financial reports or expenditure statements, which summarize eligible expenditures
paid over a given period.

Many challenges present themselves when member countries and donors submit requests
to obtain relevant records to review projects and transactions. In most cases, storage of hard
copies of receipts and records are only accessible by Borrowers/PIU members; in addition,
they may be stored in multiple locations, and may be difficult to obtain once a project is com-
pleted. These review requests by member countries and donors are often extremely labor in-
tensive for both the World Bank and Borrowers/PIUs.

1.2 Loan Disbursement and Traceability Challenge

The World Bank’s Finance and Accounting Vice Presidency approached the WBG/ITS
Technology and Innovation Lab to help tackle the disbursement traceability challenge. 7

The current disbursement process between the World Bank and PIUs (e.g. national gov-
ernments) relies on the WB Client Connection system. Under this process, the World Bank
does not keep records of stakeholders further down the disbursement value chain. Once
the Bank disburses funds, PIUs have responsibility over the management of these funds,
as well as maintaining records of eligible payments to suppliers, intermediary or citizens.
Three main challenges must be overcome to achieve end-to-end disbursement traceability
in an efficient and effective manner:

This process presents three main challenges:

• C
 urrently, the storage of records which could facilitate the traceability of disbursed
funds is principally only accessible to PIUs, and usually only in hard copies which
makes it difficult to obtain these records;
• It is difficult to obtain records if recipient PIUs close after project completion; and
• Labor intense coordination efforts are needed to obtain records requested by auditors.

Exploring Blockchain For Disbursement Traceability Background

 TWO
Blockchain
Exploration

WBG ITS Technology & Innovation Lab

Blockchain Exploration
2.1 Exploration with Blockchain and DLT
The World Bank Information & Technologies Solutions (ITS) created the Technology & In-
novation Lab (ITSTI) to provide a learning platform, exploration space, and provide technol-
ogy advice on disruptive technologies. The ITSTI team collaborates and partners with ITS
counterparts, internal WBG business units, and external stakeholders to explore, test and
understand new technology capabilities to enable the WBG to fully harness the Digital Age.
To achieve its mission, ITSTI engages and partners with leading technology companies and
start-ups, entrepreneurs, innovators and development organizations to experiment, devel-
op and roll out Blockchain-enabled solutions. This initiative aims to bring together develop-
ment practitioners and facilitate learning efforts across the WBG on DLT and Blockchain.
Additionally, ITSTI strives to improve the organization's capability to embrace innovation in
internal operations, and to respond to inquiries and needs from client countries.

The approach taken by ITSTI consisted of:

• E
 xperimenting and exploring by developing use cases focused on specific problems, le-
veraging collaboration with external experts, thought leaders and technology partners
to develop our knowledge, skills and expertise in the DLT space.
• L
 earning through Proofs of Value (PoV) use cases on the potential benefits of Block-
9
chain in addressing and solving development challenges.

2.2 Blockchain For Disbursement and Traceability Challenge

The current disbursement process between the World Bank and PIUs (i.e. national gov-
ernments) uses the World Bank’s Client Connection system. This process does not re-
quire the World Bank to keep records of stakeholders further down the disbursement val-
ue chain. Once funds are disbursed to PIUs, they are responsible for managing the funds,
and keeping records of eligible payments to suppliers, intermediary or citizens.

The World Bank’s Client Connection system is accessible to users around the world. This
creates opportunities for cyberattacks, leading the team to make considerable efforts to
secure the Client Connection system. However, as new threats emerge, the system could
become vulnerable. However, if the DApp approach is adopted, each blockchain node
could only be potentially accessed by “local” users through their associated DApp, which
would most likely decrease its vulnerability to cyberattacks.

Currently, the integrity of data in the Client Connection system relies on a database main-
tained by the World Bank. A rogue DBA in the World Bank could change the data. With a
distributed ledger solution, each change to data, triggered by either a direct value transfer
request or the execution of a smart contract, would require a consensus process among
the validator nodes. Under this scenario, data integrity would be strengthened as it is
maintained by all validator nodes.

Exploring Blockchain For Disbursement Traceability Blockchain Exploration

 Why Blockchain?
Why Not Client Connection?
Challenge With How Can Blockchain
Client Connection Address This?

Designed for a distributed

Providing global access to
and secure access to business
Security an internal WB financial sys- process networks. No single
tem induces security threats. point of failure

Data WB will need to maintain Clients countries can own

Ownership ownership of client data. their data.

10
Provides the core ability to
Tokenization Not possible to implement
implement digital tokens.
digital tokens of digital assets.
and digital assets.

Secure, auditable and

Reliability of data question-
Immutability immutable data capture through
able due to centralized control.
unprecedented shared control.

Not feasible to scale up acco- Allows us to create a permis-

Scalability modating project variations sioned multi organizational
limiting network expansion. network and scale on demand.

The World Economic Forum (WEF) developed the framework below to evaluate the poten-
tial benefits of Blockchain for specific solutions. The framework depicts the benefits of us-
ing Blockchain technology for the WFA traceability project. The dark blue squares show the
value applicable to the prototype being built to support the activity. The light blue squares
represent the potential long-term value if the technology is scaled up by the World Bank.
Descriptions of each relevant capability and value driver are listed below.

WBG ITS Technology & Innovation Lab

WEF & Blockchain
Value Framework for WFA Traceability

Key Improving Profitability Increasing Reinventing Products

Dimensions And Quality Transparency And Processes
Among Parties

Capabilities Automation Control Holistic Distributed Decentralized Enhanced

view Autonomous identity
- single X- DAx
source
of truth
Full Security Tokenization &
traceability digital assets

Speed / Evidence
efficiency tampering

11
Value Auditability Standardization Data Transparency Authentication New/
Drivers sharing expanded
partnerships

Ownership Data Resiliency Trust Marketplace New/

management creation enhanced
products
& services

Compliance Process Identity

automation management

Payments Track
and trace
Legend
Applicable to Applicable
Data Reconciliation the WFA to the WFA
Security Traceability Use Traceability Use
Case Vision Case

Exploring Blockchain For Disbursement Traceability Blockchain Exploration

 Capabilities
1. Full Traceability: The World Bank and key stakeholders can track and trace end-to-
end transactions to retrieve project documents and expenditures.
2. Evidence Tampering: No records are deleted. Any data manipulation, e.g. a status
change that makes no logical sense, can be traced and corrected by the relevant
partner organization.
3. Speed/ Efficiency: Documents and expenditure data are readily available to stake-
holders on this platform.
4. Holistic View/Single ‘Source of Truth’: A single ‘source of trust’ and reliability is es-
tablished if entities use the platform consistently for every transaction.
5. Distributed: Distributed ledgers cut down on operational inefficiencies by providing
a reliable platform for all transactions and maintaining data privacy.

Value Drivers
1. Auditability: Transactions are immutable: once written, they cannot be modified or de-
leted.
2. Ownership: More than one entity can write or read the database. Access may be permis-
sion-less (i.e. public) or permissioned (i.e. private).
3. Data Management: A shared platform to keep an organized, transparent and traceable
collection of data to benefit all relevant stakeholders.
12 4. Track and Trace: The capability to track the inflow to outflow of data.
5. Data Sharing: Provides a structured repository of information between parties involved
in a project or transaction.
6. Transparency: The data and documentary evidence captured are permanent and avail-
able to all parties involved in the transaction, while also maintaining data privacy.
7. Authentication: Participants have a digital identity in every transaction.

2.3 Business Challenge Scope

The World Bank Finance & Accounting (WFA) in collaboration with the World Bank Tech-
nology & Innovation Lab (“WB project team”) worked on a challenge framing exercise to
develop a solution that addresses these challenges described as “Phase A”. The solu-
tion had to be universally applicable to facilitate tracking and tracing of funds disbursed
to any type of WB funded development projects as captured by the identified disburse-
ment scenarios.
The WB project team in its journey to identify the best suitable technology, explored the
use of DLT and Blockchain as a potential technology solution. Transactions, records,
and digital assets stored in the blockchain platform are immutable, permanent, secured,
and shared – key blockchain functionalities that will enable the World Bank Group, its
member countries, and its borrowers to have “one version of truth”, during the life-cycle
of implementing development projects funded by the Bank.

WBG ITS Technology & Innovation Lab

 At the core of a DLT and Blockchain solution is a trusted common and shared system
platform in which all parties involved in development projects are implicated. This sys-
tem platform would:
i. Facilitate collaborative project implementation;
ii. Enhance traceability of how the funds are expended;
iii. Provide self-servicing capabilities;
iv. Facilitate transparency throughout project implementation;
v. Offer near real-time access of records to all interested parties;
vi. Ensure the permanence of records uploaded to resolve inactive PIU scenarios; and
vii. Provide a capability to perform KYC and AML checks.

2.4 Business Process and Disbursement Scenarios

Over a series of meetings and workshops, the project team mapped the World Bank’s
current disbursements processes. The figure below highlights the majority of the World
Bank’s current disbursement scenarios.

TRACEABILITY SCENARIOS ACROSS ACTORS BEYOND RECIPIENT (PIU)

WORLD PIU OF INTERMEDIARY 1 INTERMEDIARY 2 SUPPLIER CITIZEN

BANK MoF

PRE-REQUISITE:
World Bank to PIU 13

PAYMENT SCENARIO 1: UNCONVENTIONAL CONTRACTS: SUBGRANT

1
PIU to Intermediary AGREEMENTS OR AGENCY AGREEMENTS

CONVENTIONAL COMMERCIAL CONTRACTS

PAYMENT SCENARIO 2: 2
PIU to Supplier
CITIZEN DIRECTLY RECEIVES PAYMENT
PAYMENT SCENARIO 3: 3
PIU to Citizeny

PAYMENT SCENARIO 4:
Intermediary 1
to Intermediary

PAYMENT SCENARIO 5: 2
Intermediary
to Supplier

PAYMENT SCENARIO 6:
Intermediary 3
to Citizen

PAYMENT SCENARIO 7:
4 PIU'S INTERNAL OPERATING EXPENSES
PIU's Internal Operating
Expenses

Supplier provides goods

or services to citizen
GOODS OR
Other Payment Scenario: DIRECT PAYMENTS
SERVICES
WB to Supplier

Exploring Blockchain For Disbursement Traceability Blockchain Exploration

 2.5 Phase A: Internal Lab Prototype and Outcome
As an outcome of this initial phase, the team concluded that challenges could be tack-
led by building a shared and common technology platform connecting all stakeholders
involved in the implementation of development projects.
The team used Azure Blockchain as a service, on-cloud storage and Power BI to proto-
type the core features of the solution. The system consists of Blockchain nodes owned by
some stakeholders, which gives them their own copy of the project implementation data.
The prototype enabled the team to validate the suitability of blockchain technology for
the disbursement traceability challenge, and assess the viability of building a Blockchain
platform that is agnostic to WB-funded development projects. The team concluded that
the design pattern of an off-chain database can offer a richer analytics experience for
stakeholders, e.g. the World Bank’s management team, donors and shareholders. Fur-
thermore, the Blockchain solution can be scaled up and used to facilitate tokenization
which enables the flow of funds to be tracked from end-to-end, i.e. from inflow to out-
flow, until it reaches the intended purpose. Additionally, the solution can be integrated
with the World Bank or recipient countries’ systems. However, the development of this
solution was solely intended to serve as a testing and exploration opportunity to assess
the use of Blockchain and DLT in addressing the business challenge; however, the de-
veloped prototype is not production-ready in its current form. The success of the World
Bank’s prototype garnered interest from industry leaders as they seek to further explore
the feasibility and challenges of operationalizing a production-ready Blockchain system
14 to enhance transparency in disbursed funds.

2.6 Phase B: Learning Objectives and Scope of Proof of Concept (PoC)

Phase B of the project extended the exploration through a PoC to assess the suitability
of Blockchain and DLT open-source solutions for enterprise adoption. In this phase,
PoC activities were meant to define the business logic, design patterns, implementa-
tion framework, costing, and country context considerations in order to inform a pilot,
production-ready solution. The project team recognized that the pace of technological
change precluded opting for a single technology partner, and decided to partner with up
to four partners with a proven track record of experience with Blockchain and DLT for
the traceability of funds. To facilitate an inclusive and participatory learning process, the
learnings from this phase will be made public via online repositories (e.g. Github), as well
as in the course of knowledge-sharing sessions with international communities.

WBG ITS Technology & Innovation Lab

Phase B Deliverables: The shared deliverables from the PoC included:
• Technical documentation of potential solution architectures;
• Design patterns or ideas related to document storage, privacy, and scalability;
• Source code (e.g. front-end, APIs, smart contracts);
• DLT protocol, to be made available as open source;
• Instructions and files necessary to set up the prototype for testing;
• Limitations to the proposed solution; and
• Questions and clarifications raised by the World Bank and technology partner

2.7 Phase B: About the Technology Partners

The REOI attracted 79 solicitations from technology firms. The evaluation committee
comprised colleagues from the WFA business teams, the Technology and Innovation Lab,
the ITS Finance complex, and the Security and Information teams. Twenty-two proposed
were shortlisted, and four technology partners were included in the final list. One of the
preconditions of the evaluation criteria was that the selected technology firms must have
proven experience in delivering a production-ready DLT system which incorporates secu-
rity, data privacy, scalability, and is interoperable. The proposals needed to demonstrate
whether the proposed solution could address identified challenges and achieve the busi-
ness objectives of traceability of loan disbursements made by the World Bank.
Technology partners were expected to address the following key questions in their 15
proposals:

TECHNOLOGY PARTNER CITY, COUNTRY KEY STRENGTHS

Ersnt & Young New York, US Large and well experienced Blockchain
Toronto, CA team, EY OpsChain platform, ERP integra-
tion, Privacy and Scalability, and Analytics

C-Labs San Francisco, US Celo platform, mobile driven and widely ac-
cessible. User onboarding solution & expe-
rience, UXM and thin mobile layer benefits
FCV countries

Securrency Annapolis, US Securrency has extensive experience in the

(along with SDF) Abu Dhabi, UAE Financial Sector with focus on compliance,
(San Francisco, US) policy enforcement, and tracking of founds
flow. SDF is a major industry player focused
on real-time cross border payments with
strong technology and human talent

ORBS Tel Aviv, IL Public blockchain infrastructure and sup-

(along with Matrix) Singapore, SG port permissioned apps. Unique blockchain
technology architecture, such as V-Chain.

Exploring Blockchain For Disbursement Traceability Blockchain Exploration

 KEY AREA KEY QUESTIONS

Feasibility Is blockchain the best technology solution for our challenge and
use case?

Scalability Can the system potentially scale to accommodate the 3000+ WB

projects and participants?

Interoperability Can the system integrate with existing WB and Borrower system
& other blockchain platforms?

Data Privacy How does the blockchain ensure data privacy?

Implementation Options What are the available potential options?

Ownership Who will own, operate, and maintain the platform?

Cost How much would a production system cost?

CLabs
cLabs built a prototype solution on the Baklava Test net, a staging network for the Celo
public blockchain. The solution leverages Web technologies, including traditional rela-
16
tional datastores to store documents and user information, and uses the Celo blockchain
to “notarize” documents by storing a cryptographic hash on the blockchain instead of
the full document. The use of tokens is supported in the solution but is not currently em-
ployed. The Celo Main net is an open and public blockchain network, but a permissioned
(i.e. private) network is also possible on Celo.

SDF and Securrency

The solution proposed by SDF and Securrency is built on the Stellar public blockchain,
and adopts a unique approach which focuses on incorporating tokens and transfer of val-
ue on the blockchain. Although the prototype can track and trace without the on-chain
transfer of value, this technology firm emphasized the point that the use of blockchain
without a corresponding on-chain transfer of value significantly limits the advantages of
blockchain. The automation of business processes and compliance (i.e. policy enforce-
ment) substantially enhances efficiency when embedded in the token representing the
actual value being transferred. The prototype has four unique interfaces to meet the
needs of all participants and includes a mobile wallet. The prototype can be run on a
public or private ledger, but Securrency and SDF have recommended the use of public
ledgers for speed, security, and most importantly, increasing global access.

WBG ITS Technology & Innovation Lab

Orbs and Matrix
Orbs created a solution on the Orbs blockchain which leverages the platform’s unique
virtual chains (vChains) and Secure Messaging Infrastructure (SMI). vChains provide
an isolated set of computational resources to an application consisting of SMI running
on one such vChain operated by all nodes, and project-specific applications running on
dedicated vChains operated by subsets of the nodes deployed to the network partic-
ipants. The SMI allows the encryption of messages to a defined set of recipients, with
only the intended recipients able to decrypt the message. The Orbs blockchain can sup-
port a solution with permissioned (i.e. private), or permission-less (i.e. public) blockchain.
The public blockchain is secured and supported by the Orbs Proof-of Stake ecosystem.
Orbs’ solution did not employ tokens as the focus of the challenge was traceability but
the solution can support tokens and transfer of value when needed.

EY
EY’s solution is created on EY OpsChain, which is a proprietary platform and open-
source Ethereum blockchain protocol. It also has foundational open-source software
components (e.g. Nightfall and Baseline protocols, smart contract templates, tokeni-
zation, Blockchain analyzer), which could allow the World Bank and stakeholders to in-
teract with each other in a secure manner either through a private or public blockchain,
thereby protecting privacy.

17

Exploring Blockchain For Disbursement Traceability Blockchain Exploration

18

THREE
Outcome
and Learnings

WBG ITS Technology & Innovation Lab

Outcome and Learnings
3.1 World Bank Loan Disbursement Traceability Key Learnings

Platform Ownership, Nodes:

Solutions are usually built on public or private blockchains, but ownership of the plat-
form can vary depending on the operating model. Technology partners reiterated that
the goal would be to have an open source, decentralized platform, with shared ownership
among stakeholders.
However, if a Blockchain solution was to be pursued, the World Bank would initially be
the main stakeholder and maintain ownership of all governance rights and authority over
the nodes being operated. The World Bank would “own” the platform and bear the initial
set-up costs. The selected Blockchain vendor would be responsible for the maintenance
of the platform and system.
Most technology partners suggested that between 6-11 nodes would be needed for the
5-7 pilot projects. The World Bank would operate the nodes initially, and thereafter pro-
gressively decentralize and allow other trusted parties to begin running their own nodes
on a case-by-case basis. Other trusted entities running nodes could be government min-
istries, UN agencies, donors, or suppliers/intermediaries.
19

3.2 Solution Design Architecture Learnings

KYC/AML
Business Context: As a specialized agency within the UN family of organizations, the
World Bank pays due regard to decisions of the UN Security Council under Chapter VII
of the UN Charter, and it is World Bank’s policy not to make payments to persons or
entities listed on the UN sanctions list. The Bank is also required under its Articles to
“make arrangements to ensure that the proceeds of any loan are used only for the pur-
poses for which the loan was granted . . . without regard to political or other non-eco-
nomic influences or considerations.”

The World Bank performs “Know your Customer” (KYC) and “Anti-money Laundering”
(AML) checks on all parties it pays directly, including lendors, banks, donors, recipi-
ents and World Bank employees. Furthermore, it relies on MoF/PIU counterparts to run
checks on other parties involved in a project, which the Bank does not have a direct pay-
ment relationship with. It is therefore important to incorporate KYC/AML elements when
registering blockchain participants to ensure that the Bank adheres to requirements un-
der its Articles.

Applicability: The disbursement traceability project for WB-funded projects involves

various stakeholders and participants, ranging from PIUs to intermediaries, suppliers

Exploring Blockchain For Disbursement Traceability Outcome and Learnings

 (contractors and subcontractors), and beneficiaries. To leverage DLT/blockchain tech-
nology for the traceability of funds, these different participants would need to interact
with the proposed technology platform. To ensure the security and legitimacy of partic-
ipants, the project team sought to address concerns relating to the KYC and AML capa-
bilities outlined below. Before the World Bank is able to collaborate with client countries
or PIUs and set up a technology platform, or even become a participant in a disburse-
ment traceability platform, it will need to understand:
• W
 hat are the liability concerns or reputational risks around KYC/AML that World Bank
should be aware of?
• Who would be responsible and bear the onus of performing KYC/AML checks?
• H
 ow the World Bank could gain confidence and be assured that participants are appro-
priately KYC’d?
• H
 ow would the KYC/AML take place which can be proposed to the appropriate stake-
holders as best practices?

Key Learnings and Proposed Approaches: Although the project team acquired valuable in-
sights and learnings in the course of this exploration phase with technical partners, more
clarity and scope for further work is needed on the topic of KYC/AML. The learnings were
either through some demonstration on the prototypes, or through various knowledge ex-
changes and technical deep dives between the project team and technical partners.

It is important to note that some KYC/AML requirements and corresponding approaches

20 would vary according to the solution design. For instance, if an on-chain transfer of value
is explored, it would be accompanied with additional requirements, as well as policy and
compliance-related issues. However, irrespective of the chosen approach, the team was
able to obtain a number of key insights on applicable KYC/verification and AML practic-
es, both at the institutional level (WB), downstream entities (PIUs) to the end-beneficia-
ry and citizen level:
• T
 he initial anticipation is that the KYC process would not undergo many changes from
the proposed solution of using blockchain for traceability, and the respective parties in
the disbursement chain would continue to perform existing KYC/AML processes. The
process could continue to take place off-chain, as currently happens, with the possible
integration to the envisioned solution platform.
• A
 s per functional requirements, all the relevant parties that need to be KYC’d would need
to submit the required documentation during the on-boarding process. This would be vet-
ted by the intended actors and the verification documents would then be notarized with
its hash on the blockchain. The KYC’d documents themselves would be off-chain. Proof
of the verification would remain on-chain for other relevant parties to query and verify,
without revealing the underlying information.
• I ntegration to the existing KYC/AML systems of participating parties, for example Lexis/
Nexis in case of the World Bank, could help them achieve higher automation levels in the
KYC/AML process.
• A
 dditional considerations are required for KYC in the scenario where the solution design
leverages tokenization for disbursements and traceability. In such a case, a third-party
digital wallet provider, or an intermediary responsible for on-boarding participants on the
network, would be responsible for performing KYC, as per the applicable criteria.

WBG ITS Technology & Innovation Lab

• V
 arious AML capabilities and fraud detection analytics can be integrated in the proposed
platform. Strong desirable AML capabilities could be achieved through smart-contract
enabled fraud detection; this could be done by programming in a series of requirements
and blockchain analytics tool to monitor the flow of funds on the blockchain. This could
potentially help to ensure that funds can only flow between approved participants, as
well as flag any suspicious activities with any account/wallet for the payee to take appro-
priate action.

Data Privacy and Security

Business Context: The World Bank stresses the importance of data privacy and security
when working on projects. Not only does the Bank have its own standards to meet for
data privacy, but when funding projects using trust funds, routine audits are performed
to make sure that the procedures used in the project adhere to the privacy standards of
member states. Any solution and system that the World Bank uses must be secure and
able to adhere to stringent data privacy standards.
Different technology partners have proposed different approaches to support trans-
action privacy. However, all platforms support the recording of hash values of support-
ing documents associated with the transactions, so that no actual document data will
be recorded on the blockchain.
For solutions based on a public blockchain, some technology partners have proposed to use
a virtual chain approach to restrict which network nodes can participate in private transac-
tions. Other partners would rely on zero-knowledge proofs (ZKPs) to provide transaction 21
privacy, even though this technology has not been fully implemented on all platforms.
For solutions based on a private blockchain, besides restricting membership on the net-
work, the use of smart contracts has been proposed to provide fine-grained access con-
trol on transaction execution, with the use of ZKP to provide data confidentiality.

Identity and Access Management

Identity and access management for a blockchain network need to operate at both the
node level and the user level. At the node level, the identity of a node can be used to de-
termine whether this node can participate in a permissioned network. At the user level, a
user typically participates in the blockchain network’s activities using a wallet, in which
a private key is stored and used to sign transactions or claim ownership of digital assets.
In our POC, both levels of identity and access management have been employed. In ad-
dition, some solutions have provided a traditional application in which users can use a
traditional Web identity to authenticate themselves and gain access to the application.
In the case of traditional Web or mobile application and to achieve true data integrity and
non-repudiation of the transactions, this may still require the end user to use a digital
wallet to sign transactions or documents.
Some technology partners considered the need of users who do not have a smartphone,
and developed a solution for users with feature phones to sign transactions. Others in-
troduced KYC/AML checks as an integral part of the identity system, so that only veri-
fied users can participate in transactions that have compliance requirements.

Exploring Blockchain For Disbursement Traceability Outcome and Learnings

 Moving to a Distributed System: Security and Risk Implications
A blockchain-based solution inherently has a distributed architecture. With this new ar-
chitecture, we will be shifting some, if not all, external users from accessing World Bank’s
systems directly at the UI layer, to a new model in which users will access their own user
interface; this, in turn, will trigger transactions that are populated from their blockchain
node to other nodes on the blockchain network.

Such a distributed architecture should increase the user’s community level of trust in the
system, as data integrity is maintained by the whole community, and also because mul-
tiple copies of the same data could be used for validation. One security issue with this
model is whether all the nodes of the blockchain network can be maintained as securely
as the World Bank would do. However, given the availability of cloud computing across
the world, it is feasible for a secure configuration to be defined and validated so that
participating organizations can run their own nodes without compromising the security
of the overall network.

Another potential risk area is the rigor in user on-boarding and lifecycle management.
This can be addressed by establishing standard requirements for user on-boarding and
leveraging a network of trusted authorities to issue verifiable claims of user identities,
so that no matter which node a user would connect to, the same validation process is
followed, with proofs available for identity verification.

22
3.3 Feasibility, Interoperability, Maturity, and Scalability
The following discussion is limited to the ‘tracking and tracing functionality’ and does
not cover the future scenario where a blockchain could be used to support the exchange
of value.
Any production grade solution implemented to capture the evidence related to eligible
payments, e.g. to suppliers, intermediary or citizens, will only serve its main intended
purpose (i.e. to obtain the relevant records any time in future) if the following two main
conditions are satisfied.
1.  ll records/transactions are logged into the system during the project implementa-
A
tion stage.
2.  ll records/transactions are preserved for a very long duration, i.e. even after proj-
A
ect implementation is over.

The following points are important considerations to bear in mind:

1. User-friendly UI and integration with the World Bank and client systems
It is important to conduct a detailed analysis of the current environment and include the
input from all entities (i.e. World Bank, PIUs, intermediaries, suppliers, etc.). This analy-
sis should be the input to the design phase of the new system.

WBG ITS Technology & Innovation Lab

It is possible that the future production environment will create links to hundreds of ex-
ternal systems. Special attention should be given to the monitoring of the environment,
e.g. detection and notification of failed links, submission of transactions occurred during
downtime, etc.
2. Change management
Changes to operational procedures will be required to ensure that all parties involved in
downstream transactions enter the required information in the new system, e.g. linking the
trigger for disbursement to the existence of corresponding details in the new system. In
the absence of rules mandating the data entry to the new system, it is unlikely that exter-
nal parties will enter all the required information into the new system.
3. Handling of historical transactions (data migration)
It may not be possible to capture historical transactions in the new system for various
reasons, including:
• A project may be closed;
• Technical difficulties in collection and submission of historical transactions; and
• No existing mandate to input the historical transactions into the new system.

As a result, the new system will only be adopted by newly launched projects.

4. Operating and owning blockchain nodes and off-chain data storage

It is important that any entity which runs the blockchain node or provides the support for
off-chain data storage continues to provide the required support, even after a project is 23
closed. As a result, it may not be possible to delegate this responsibility to entities which
are only active during the project implementation phase. As most of the vendors have
proposed, the actual documents will not be stored on the chain. The actual documents
will therefore not be replicated on the various blockchain nodes. In this context, it is im-
portant that the entities hosting the off-chain databases provide the required guarantee
that data are maintained properly for a considerable time in the future.

The following are general considerations related the production environment:

• T
 hree environments will be needed for the new blockchain system, namely develop-
ment, testing and production. Testing will be carried out in a parallel environment and
could also involve test systems from the World Bank and other external entities.
• A
 s multiple parties are involved, overall governance support is very important, i.e. ev-
eryone needs to be very clear about their respective roles and responsibilities.
• D
 ue to the decentralized nature of the blockchain platform, any changes to the soft-
ware should be jointly managed. All change requests should be tracked using a stan-
dard tool. Any change should only be moved to the production environment after the
pre-agreed key controls are satisfied
• A
 robust software version control system should be used to provide complete view of
changes and revisions.

Exploring Blockchain For Disbursement Traceability Outcome and Learnings

 3.4 Public vs Private Blockchain Model
Public Blockchain is a type of Blockchain which lets anyone read and write to the shared
ledger. It also allows anyone to be part of this public Blockchain network in varying ca-
pacity and capabilities. But if anyone can be part of this public Blockchain network, who
manages and owns it? While this topic is not addressed in this paper, the relevant question
for this project is whether any future World Bank Blockchain enabled infrastructure should
adopt the model of public Blockchain? Advances in blockchain technology have given us
other models to consider, such as permissioned blockchain, which restricts access to
partners/collaborators of the project, thus creating a blockchain business network. These
collaborators are responsible for governing the blockchain. Permissioned blockchain dif-
fers from public blockchain in terms of functionality and security, and is typically adopted
by enterprises, whose needs differ from public blockchains. Some of these functionalities
are known and trusted participants and apply data confidentiality, system and business
rules, security, scalability, formal governance and regulatory compliance. These needs
guide enterprises towards a permissioned blockchain, where these needs can be met.

The disbursement traceability project team considered the following project requirements:
• T
 he blockchain network should include World Bank client countries and partners, e.g.
donors, NGOs, PIUs, etc.;
• C
 lient country data should be confidential and available only to themselves and the
World Bank;
24 • System and business rule guidelines have been defined and identified;
• Enterprise grade security is needed;
• T
 he blockchain network should be scalable to provide transaction throughput in sec-
onds, hence requiring a Proof-Of-Authority (POA) consensus model;
• T
 o ensure regulatory compliance and governance over the solution, a consortium of
World Bank, donors and client country would be needed.

3.5 Tokenization for Traceability

Applicability: The specific advantages inherent in the implementation of DLT include:
(i) its distributed trust model; (ii) the resilient nature of technology solution; and (iii) the
immutability of the information going on the Ledger. The implementation of DLT does
not need or require a ‘token’ in its design. However, in the context of the business re-
quirements and challenge statement, it is important to assess whether tokens would be
an essential part of the overall DLT solution design, and how blockchain/DLT powered
tokenization could provide capabilities to address the problem. Depending on how toke-
nization is used in the solution design, it could have different implications in the opera-
tionalization of the proposed technology solution. One of project team’s objectives was
to better understand some of the following open questions.
• C
 an the proposed DLT-enabled technology solution address the traceability and track-
ing of fund flows challenge, and ensure that the disbursement of funds meets its intend-
ed purpose at various levels of delivery chain without the use of tokens?

WBG ITS Technology & Innovation Lab

• W
 hat are the different tokenization models that could be applicable for the challenge un-
der consideration?
• H
 ow can tokenization help in representing funds flow on blockchain with ‘real value-trans-
fer’ taking place through traditional financial channels?
• W
 hat are the different operationalization models in the context of tokenization and relat-
ed considerations that should be further assessed?

Key Learnings and Proposed Approaches:

• O
 ne of the proposed solution approaches is to realize the benefits of DLT for disburse-
ment traceability without the use of tokenization. In this scenario, the platform would be
used for primarily for the reporting of fund transfers, corresponding confirmations, and
document notarization.
• A
 nother potential approach is using proprietary digital tokens to represent the flow of
funds on the blockchain. ‘This approach could establish a more direct connection be-
tween real value transfer and the reporting that takes place on the DLT platform, thereby
ensuring stronger disbursement traceability and confirmation that funds are being spent
for their intended purpose. This approach will be beneficial if used in conjunction with
DLT analytics capabilities for any reconciliation that would be needed between actual
financial transfers and their tokenized representation on the DLT/blockchain platform.
• A
 third approach is the use of existing stable value tokens, which have incorporate mecha-
nisms which provide a stable value digital representation of a fiat currency. Some commer-
cial banks are also looking into issuing DLT-based stable value tokens and various other
25
wholesale and retail payment technology innovations. This could help in enabling on-chain
payments where new and emerging mechanisms for cash-in and cash-out could be explored.
• T
 o gain acceptance and adoption for the proposed disbursement traceability technology
platform, it may be important to consider not restricting the solution to only notarization
purposes, but also for tokenization to enhance visibility and traceability. This could cre-
ate added incentives for adoption.
• T
 he team also explored and gained insights into various custodianship models and re-
quirements that would need to be considered when utilizing tokenization capabilities.
One of the key aspects of digital asset custody is how to securely and safely managing
private keys. The custodianship capabilities of digital asset instruments therefore require
additional diligence and excellent security.
• W
 hile utilizing tokenization, more emphasis is needed on KYC/AML, which may require
new capabilities.

3.6 Forward Looking: Innovation Opportunities

Innovation in Payment Technologies: The growth of new emerging technologies, e.g. block-
chain/DLT, AI and machine learning, mobile technologies, etc., have led to a growth in de-
mand for new payment technologies. While focusing on the disbursement traceability chal-
lenge, the project team also examined emerging innovative payment technologies.
Many financial institutions are currently looking into leveraging the benefits of these
technologies in making in wholesale and retail payment systems more efficient, these

Exploring Blockchain For Disbursement Traceability Outcome and Learnings

 include: Interbank Innovation Network (IIN); institutional coins; so-called stable coins;
CBDC; DLT-enabled payment platforms; and payment tech innovations. While various
efforts are being directed towards payment technology innovation, the team recognizes
that incorporating these new models poses different known and unknown risks which
would require further assessment.
• U
 se of existing so-called stable coin for disbursement: There are stable coin platforms,
public blockchain, which provide for so-called stable value currencies pegged to fiat cur-
rencies, and which can enable value transfer on-chain. This could help bring efficiency in
value transfer in addition to tracking disbursement, especially further down the disburse-
ment chain.
• U
 se of cryptocurrencies for disbursement: Can cryptocurrencies, such as Ethereum and
Bitcoin, be leveraged for making disbursements? UNICEF has piloted the idea of using
public cryptocurrencies, such as Ethereum and Bitcoin, to receive value transfer from
donor organizations and use them to disburse/invest in pre-selected start-ups. This
UNICEF project was launched to track the exchange of value and to better understand
and equip the organization to a future-facing way of looking at digital finance. However,
the use of cryptocurrencies would pose myriad risks and challenges in the context of the
World Bank disbursement traceability challenge statements, including the volatile value
of cryptocurrencies, data protection and privacy, regulation uncertainties, etc.
• U
 se of CBDCs (if and when they arrive): The team did not consider CBDC as part of
this exploration; however, it is increasingly clear that various central banks are actively
researching and exploring the idea of issuing natively digital currency backed by their
country’s central banks. Although, this is a more future-facing agenda and remains at the
26
exploratory stage. This development could have implications for World Bank disburse-
ments and enable digital currency initiatives.
The data privacy and confidentially requirements are addressed by permissioned
Blockchain capabilities. However, considering the global scope of World Bank projects
and the diversity of financial intermediaries, the different public blockchain platforms
provide an opportunity to benefit from the innovation, accessibility, and immutability of
these public ledgers.

WBG ITS Technology & Innovation Lab

 DEFINITION OF PAYEES

PIU/MoF Payee (Recipient) Recipients of funds typically include PIUs or MoFs that get paid
directly by the World Bank in their designated account.

Intermediary Payee Additional layers of intermediary(ies) that receive payments from

the PIU and either cascade payment down to other intermediaries or
the ultimate citizen beneficiary.

Supplier Payee Provider of goods and services as contracted by the PIU or

intermediary in compliance with WB procurement policies
and procedures.

Ultimate Citizen Payee Ultimate citizen payee who may receive payments directly from the
PIU or the intermediaries. 27

DEFINITION OF BENEFICIARY

Ultimate Citizen Beneficiary Ultimate citizen payee who may receive goods or services directly
from the PIU, Intermediaries or Suppliers.

Exploring Blockchain For Disbursement Traceability Outcome and Learnings

 Borrowers
(PIU/MoF)
Recipients of funds typically
The World Bank include PIUs or MoFs that get
paid directly by the World Bank
in their designated account.

Key Stakeholders Intermediaries

(NGOs, Agencies, Layers
Stakeholders such as,
of government, etc.)
Auditors, Participating
Member Countries, KEY PLAYERS Additional layers of intermedi-
Donors, Other MDBs. ary(ies) that receive payments
from the PIU and either cas-
28 cade payment down to other
intermediaries or the ultimate
citizen beneficiary.

Beneficiaries Suppliers
Ultimate beneficiaries who Provider of works, goods, and
may receive benefits from services as contracted by the PIU
the PIU or the intermediar- or intermediary in compliance
ies or the suppliers. with WB procurement policies and
procedures

WBG ITS Technology & Innovation Lab

 29

Exploring Blockchain For Disbursement Traceability Outcome and Learnings