Ben Parker: Bitcoin Has Potential in Fragile States

Ben Parker, co-founder of IRIN, a humanitarian news service spoke to CoinDesk about bitcoin's potential in fragile states.

AccessTimeIconJun 20, 2015 at 1:00 p.m. UTC
Updated Sep 11, 2021 at 11:44 a.m. UTC
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Most of us are familiar with the argument that bitcoin could help the unbanked, but Ben Parker, co-founder and former director of humanitarian news service IRIN, has seen firsthand how the digital currency could play a crucial role in fragile states.

In 2013, Parker was director of communications for the United Nations (UN) in Somalia, and in 2012, he led the UN Office for the Coordination of Humanitarian Affairs for Syria in Damascus. Parker was also posted in Sudan as a UN communications officer from 2003 to 2006 and was closely involved with raising the alarm about the war in the Darfur region.

Having worked in humanitarian affairs and on the ground in conflict zones for the last 20 years, Parker provides a unique perspective on how bitcoin could succeed where it's perhaps needed most – in struggling developing nations.

Parker told CoinDesk:

"I've seen how countries struggle when they don't have formal banking systems and I've seen also the huge growth of the M-Pesa mobile money system in Kenya. Most recently, I was working in Somalia, which actually has been cut off from formal banking in many ways for 20 years."

Setting the scene

Somalia provides an interesting case study for bitcoin.

Having been caught up in state of civil war – of varying intensity – since 1991, the East African nation was heavily hit by anti-money laundering (AML) regulation in the aftermath of the 9/11 terrorist attacks.

To add injury, in May 2013, Barclays, the last major bank to provide remittance services to the country, announced plans to shut down approximately 250 money transfer businesses.

Somalis have been using Hawalas – an informal value transfer system run by brokers – to remit funds home, but they too came under scrutiny. In April this year, Kenya's government shut down 13 Somali money transfer businesses – or Hawalas – after the al-Shabaab militant group claimed responsibility for the attack on Garissa University which resulted in the deaths of approximately 150 people.

Although the hawalas are still operating – with bank accounts in Dubai and Australia – it is fair to say that the Somali remittance market is suffering the consequences of lost relationships overseas, primarily in the UK and the US – both of which have relatively big Somali communities.

"They [Somalis] have a huge diaspora community. They are very connected to home and send a lot of money in remittances [...] the remittance market is bigger than aid," Parker said.

According to the UK government, remittances to Somalia are estimated at around $1.2bn a year, accounting for 50% of gross national income and supporting 40% of the country's population of approximately 10.5 million.

Despite this, Parker said things were changing in Somalia.

"The first MasterCard operation has just started there, with one of the commercial banks in Mogadishu," he noted, adding "I think you could argue that the commercial banks have now seen that it [Somalia] is a frontier market that they need to play."

Bitcoin in Somalia

But, is there room for bitcoin?

In Parker's opinion, the digital currency could co-exist with traditional banking, but Somalia, he thinks, should prioritise gaining legitimacy and re-instating formal banking relationships.

"As someone who has tried to work for Somalia's stability, and looking at it more in a political way, and in an international image way, my argument is that Somalia does not need to be put in a special category. Just like anywhere else, assuming bitcoin doesn't go up in smoke, some kind of cryptocurrency will co-exist with traditional fiat and other mobile solutions."

Legitimacy, he said, is necessary because people often associate the country with war, famine and chaos. "It's a huge stereotype."

Having said this, Parker urged the relevant authorities to consider bitcoin regulation, noting how this should be a priority for developing countries where, perhaps, the digital currency is needed the most.

He went on to note that some of his colleagues, working on various UK-based remittance-focused projects had said that the digital currency's potential for remittances "had not come up" in discussions.

"Does that mean that it [bitcoin] won't happen? Or does it mean it'll happen and then people will be scrambling for a policy response?"

Bitcoin vs mobile money

For bitcoin to really take off in Somalia, Parker said people would need to have access to modern mobile phones and these would have to reach wider adoption in rural areas."Internet connectivity is not great, Internet penetration is not very high."

As of December 2013, 1.5% of Somalia's population (156,420 people) used the Internet. According to 2012 data, the country's mobile penetration rate stood at 16.3%.

Somalia represents an interesting contrast to neighbouring Kenya – where mobile penetration is alleged to have reached 80% – and mobile money system M-Pesa, powered by SMS technology, has achieved relatively impressive adoption. By 2012, approximately 17 million people had registered with M-Pesa in Kenya.

The System allows people who own a mobile phone, but do not have or have only limited access to a bank account, to send and receive money, top-up airtime and pay their bills.

"There's one problem with M-Pesa", said Parker, "some would say that it has become a forceful quasi monopoly on the part of [moble network operator] Safaricom. If you want to send or receive money you need to be on Safaricom."

Speaking about bitcoin's potential, Parker noted:

"It's easy to make the jump and say, well, actually bitcoin achieves the same thing, with less friction, and less dependence on a particular mobile phone operator, and as far as I know, less transactional cost."

"Bitcoin is more frictionless, its cross-border and its not hooking you to a particular telephone company," he concluded.

Bitcoin in Syria

Unlike Somalia, Parker said, Syria had a resilient banking infrastructure.

"What was interesting about Syria was that the frontline was so fluid, the many public services continued to operate."

Parker noted:

"Is it [Syria] specially needy in terms of money transfers? I think yes [...] I assume now the banks are more or less closed, they weren't at the earlier stages of the conflict [...] in the case of Syria, the paranoia from donors about not sending money to the wrong people would make it unlikely that they would do any significant cash or cash equivalent inside Syria."

He commented how there is a growing trend within the aid industry to send cash to those in need, rather than procuring other form of aid. Like bitcoin, cash presents a relative challenge to law enforcement agencies, who may be unable to trace the transferral of funds.

The fear of diversion of funds would make Syria a bad experiment [with bitcoin] at this point, said Parker. "Is ISIL using bitcoin? I have no idea."

Parker explained that in Somalia, Al-Shabaab, the extremist group, made all their money inside the country, by taxing people viciously.

"Al-Shabaab would tax you at the checkpoint, tax business men, they would knock on the door of the shopkeeper and take the 10% and they'd call it 'zakat', which is charity, it wasn't charity, it's mafia racket."

He also posed the argument that the terrorist group may have other avenues to raise cash. "I don't think ISIL needs bitcoin," adding:

"There are some scenarios, I think were cashless anonymous value is scary and dangerous and as I say, I think't that's law enforcement problem."

Blockchain for diamonds

Although Parker said that the blockchain would warrant a completely different conversation, he also spoke about one of its most "intriguing" use cases; the traceability of diamonds and illegal exports from the African continent, specifically from the Democratic Republic of Congo.

On the topic of blood diamonds – a term used to describe diamonds mined in war zones and sold to fund insurgent movements –, Parker said this was "quite a hot issue in Botswana".

Although he claimed that he was not knowledgeable enough about blockchain technology, Parker outlined the distributed ledger's benefits for smart contracts:

"I think if blockchain could be used for traceability that could be quite a good thing."

Ben Parker is speaking at Consensus 2015 in New York. Join him at the TimesCenter on 10th September. A list of the event speakers can be found here.


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