Detailed Plan

<u>DirectEd - Donation for Education</u>

Vision

To revolutionize the way financial aid is provided to developing nations around the world by building blockchain-based software that can provide NGO's with an efficient, secure, and transparent way of transferring money across the globe. In doing so, we hope to build trust in Cardano's blockchain technology and hence set the stage for future microfinance solutions.

This Proposal

As a first step towards this vision, we will develop a stipend platform that will allow talented students who otherwise wouldn't afford to study at university to do so.

This proposal is only a request for funding for further research. In the spirit of Cardano, we want to ensure that our project is based on solid research and that we have a team with the best and brightest people we can find. Hence, this proposal only contains a smaller budget that covers the first phase of our project timeline. Our general stance is that our code will be open source.

Problem Statement

<u>Problem 1</u>: Crowdfunding and donations services give opportunities to those who have none. However, they lack efficiency, transparency, and security.

• Cost-inefficient, due to the need to have many middlemen and verification of the recipients as well as the transfer of funds.
• Lack of transparency, a donor cannot trace the money they donate and hence know exactly who the final beneficiary is.
• Inability to ensure eligibility, it is currently very difficult and expensive to verify qualifications and hence eligibility of potential recipients of scholarships.

Solution. By processing donations directly to the Cardano network, and distributing them to verified individuals, obstacles such as mistrust, fraud and administrative costs can be eliminated.

<u>Problem 2</u>: Education is widely agreed to be a crucial factor in a country's economic development, yet thousands of brilliant students simply don't have the economic means to pursue a tertiary degree. This is lost potential that we want to remedy.

• Few NGOs focus on higher education. This means this is a particularly neglected area and hence more valuable for us to work in.
• Interest rates are extremely high, approaching the two digits range [1]. This means that even if loans are available, the downside risk is very high. The consequence is that talented students from poorer backgrounds who may not want to take these kinds of risks end up not pursuing tertiary degrees.
• Despite the importance of education, it is generally underfunded and deprioritised. Part of the reason for this is that it is hard to assess the causal impact of more education and hence the return on investing in it. By designing our scholarships with the intent of ensuring that we can also assess the impact of more education, we will be able to estimate the return on investing in education and hence convince more governments to invest more in education.

Solution. By focusing on poorer regions where all students otherwise wouldn't be able to study at university we target our relevant group. To assess the impact of education, our primary strategy will be to combine a regression discontinuity design with some randomisation. This means that students above a certain score or percentile are eligible for the stipend but that we then randomise amongst these top students, recognising that one or two-point differences are not very informative of true ability.

<u>Problem 3</u>. Microlending using blockchains or cryptocurrencies is unchartered territory which means that trust in the technology must be built up before microfinancing dApps can succeed. DirectEd will showcase the practical benefits of distributed ledgers and hence pave the way for developing successful microlending dApps later.

• A company working with an NGO, purely focusing on donations using blockchain technologies are not as likely to draw attention and suspicion from regulators. This is particularly important in Ethiopia which has a heavily regulated financial technology sector. This will allow us to focus on the underlying technology and practical problems without having to worry about legal hurdles as much.
• Similar to how a micro-lending institution would yield a monetary return on investment to the creditor, a donation platform is analogously providing donors "impact per dollar spent". This is why most of the underlying technology and code we would develop for DirectEd will be able to also be used for a microfinancing dApp later on.

Solution. DirectEd will create trust in the technology that will be necessary if microlending DeFi protocols are to succeed later on. By successfully showing that we can send money directly from donors to recipient students and follow up on their educational progress, we indirectly show that microfinancing modelled after this is also possible.

How does this benefit the Cardano ecosystem?

This project could have been submitted under a number of different project calls. There are also a number of very strong reasons for this project that go beyond its direct impacts.

• Goodwill and positive associations to Cardano as a technology as it will be seen as a technology that can facilitate good projects as opposed to being a vehicle for speculation.
• A successful donation platform that increases willingness to donate, is transparent and cost-effective has a lot of potentials to gain traction outside Cardano and DeFi communities and hence attract positive media attention, developers and researchers to the ecosystem.
• It can draw the attention of governmental and non-governmental organisations who seek better ways to transfer money or development aid to people in poor countries with corrupt or untrustworthy governments.
• Building bottom-up incentives for Cardano adoption. All recipients will need to have an ADA wallet to receive their stipend. As DirectEd scales up, broad-based adoption will follow naturally.

Why higher education in Ethiopia?

At the moment, student loans for ambitious and hard-working students are extremely expensive. Annualized interest rates are approaching 2-digit numbers. This means that many students, especially from poorer backgrounds, will choose to not pursue a university degree because of the inherent risk of putting on a lot of debt. This implies a loss of productive capacity seen over their entire lifespan and such a loss is likely particularly large among students from lower-income backgrounds because those are the ones who currently are likely to opt-out of pursuing a tertiary degree due to the economic risk.

Furthermore, higher education is receiving much less attention than primary and secondary education. We believe that there are stronger spillover effects of higher education relative to other levels of education. The target group is smaller and hence many logistical problems are easier to solve. Furthermore, we believe it is easier to establish the necessary infrastructure at the universities, i.e. that the university reports on the student progress so that further stipend payouts can be conditional on satisfactory progress towards a tertiary degree.

Ethiopia has been our choice because of the Ethiopian government's adoption of the Atala Prism identity system. We believe the potential for wide-scale adoption and more seamless integration of our technology is more likely in Ethiopia because of the identity system.

How do we plan to address traditional African financial cultural norms and practices?

The first concern we have is not limited to Africa specifically, namely, trust. New technology and banking both share the feature of being something new users need to be able to trust. However, even traditional banking is something relatively foreign to the many people in Ethiopia and other sub-Saharan countries. Since cryptocurrencies are treated with a great deal of suspicion even in advanced economies, this is likely to be an issue in Africa too. Hence, in order to get consumers, firms and policymakers on board, we must showcase the practical usefulness of the technology and build trust by showing that it works.

This is why we believe that building a platform that employs all the strengths of Cardano for a good purpose is the most feasible and impactful medium-term project to pursue as a path towards microfinance in Africa. As we mentioned under "How this benefits Cardano", this project brings along many benefits that ultimately will pave the way for building a Cardano-based financial infrastructure in Africa.

With that said, we have also done some research into financial norms and practices that we will have to take into account in the future.

• Ethiopia has a significant Muslim population which means that any microfinancing dapp would have to take this into consideration given that Sharia does not allow receiving or paying interest rates [2]. Looking ahead, as the technology matures and microfinancing becomes more realistic, we aim to research Islamic banking generally as well as the specific regional characteristics found in Ethiopia. However, at the present moment, we solve these concerns by focusing on donations rather than loans.
• Further, digitalised finance is currently heavily regulated in Ethiopia even though it is now gradually being liberalised. This is also part of the reason why we believe that a donation platform focusing on education is currently the most realistic and feasible implementation of Cardano.

We have also identified key institutions and infrastructure that we will have to consider as we develop our platform.

• eQub. Savings is traditionally made through offline savings groups. This is beginning to become digitalised [3]. This is likely something we will have to relate to as we develop dApp for microfinancing in Ethiopia.
• Internet connectivity and mobile payment. Mobile phone payments are not yet as widely adopted as the Mpesa in Kenya. Most people have traditional phones but not smart phones. Any cryptocurrency application has to take that into consideration. Integrating blockchain technology with one or more of the competing mobile phone payment providers such as M-BIRR will likely be necessary.

Our team

<u>Simon Sällström</u>

Team lead and research lead. Graduate student in Economics at the University of Oxford with a particular focus on the labour market and education in developing nations. <https://www.economics.ox.ac.uk/people/simon-saellstroem#/>

<u>Fabian Friberg</u>

Developer. Master's in Computer Science (Lund University). Proficient in Java, Python, C++, C, Haskell. Other: SQL, Matlab, OpenFOAM, LaTex, Git.

<u>Cecilia Huang</u>

Developer. Master student in Computer Science (Lund University). Proficient in Java, Python, Haskell. Other: Django, SQL.

<u>Mio Hjerpe</u>

Research. BSc in International Business student (Lund University).

<u>[to be decided]</u>

Research and coordination. Ethiopian coordinating partnerships with local NGOs.

Status: We are currently in touch with a university teacher in Addis about this position.

<u>[to be decided]</u>

Research. Oxford student with a background in education research in developing nations.

Status: We recently contacted one education research student from Ethiopia whom we hope to recruit to the team.

Timeline. Success parameters to be achieved by the end of each phase

Phase 1: November 2021 - February 2022 (4 months)

Recruitment and collaboration

• Establish contact with all relevant NGOs in Ethiopia.
• Recruit at least two team members in Ethiopia
• Recruit team member(s) from Oxford with a background in Ethiopia
• Recruit two scientific advisors with experience working in East Africa, preferably Ethiopia.

Development

• Completion of the Plutus Pioneer programme.
• Completion of a website
• Start development of the donor-side of the DirectEd platform.

Research

• White paper: Education, NGOs and Infrastructure in Ethiopia. Focus: (a) risk assessment, given the ongoing conflicts in the region, (b) identifying candidate regions and/or high schools for pilot adoption, (c) overview of the research literature on the impact of higher education, (d) identifying candidate partnership universities for the scholarship
• Technical report, detailing the challenges and potential solutions that we have discovered.
• fund7 proposal

Phase 2: March 2022 - July 2022 (9 months)

• Begin talks to establish a formal partnership with an NGO working in Ethiopia and either an NGO in Europe.
• Technical whitepaper. We expect to work with other Catalyst projects who are developing solutions to some of these challenges: (a) how the donor pledging mechanism will work, (b) how we ensure that there's no cheating of the system, i.e. that stipends do go to talented students who otherwise couldn't attend university, (c) how recipients will be able to receive stipends in local currency even without access to the internet.
• Research proposal. First draft on the research methodology that we will use to evaluate the impact of the scholarships.
• Complete a minimum viable product that can receive and distribute a donation from person A to B.
• fund8 proposal.

Phase 3: August 2022 - October 2022 (12 months)

• Completion of both the donor side dApp and recipient mechanism for receiving funds.
• First pilot testing in high schools and universities in Ethiopia. 30 students registered on the platform.
• Finalized research proposal submitted for large grant application to properly fund the project.
• Initiate meetings with larger organisations such as the World Bank, UNHCR or the Red Cross who might be interested in the technology for related uses.

Phase 4: November 2022 - June 2023 (20 months)

• Begin marketing and fundraising in Europe and North America.
• The official public launch of DirectEd in February 2022 (partially contingent on the Atala Prism rollout amongst Ethiopian students at the end of Phase 4).
• 500 registered high school students in Ethiopia on the platform, ready to receive scholarships through the platform by the end of phase 4.
• $30.000 pledged for donations by the end of phase 4.

Phase 5: July 2023 - September 2023

• First stipend payments distributed to the first cohort of students studying at university as made possible by DirectEd.
• Initiated partnerships with NGOs across Africa to establish similar systems.

Budget breakdown for DirectEd Phase 1

All of our current team members are either full-time professionals or full-time students meaning that we will all be working on this part-time.

$1440. Project Lead, and recruitment.

• $30/hour * 3 hours per week * 16 weeks = $1440

$1840. Research. This is a general research budget that is allocated amongst all current and future team members during phase 1 of this project.

• $23/hour * 80 hours

$1800. Plutus Pioneer for our two main developers.

• $15/hour * 10 hrs/week * 6 weeks = $900
• 2 developers

$3600. Website and dApp platform development (donor-side).

• $40/hour * 40 hours = $1600
• 2 developers

$400. Software licenses (if needed), website domain, server costs, Plutus Application Backend.

• Website and server costs = $250
• Other = $150

$200. Recruitment.

• This includes expenses such as covering travel costs within Ethiopia for our partners there or expenses associated with holding meetings with potential collaborating partners.

--------------------------------------

$9280

Sources:

[1] World Bank. 2008. Lending interest rate (%) - Ethiopia | Data. URL: https://data.worldbank.org/indicator/FR.INR.LEND?locations=ET

[2] Hirst, Thomas. 2015. "These are the top 9 countries for Islamic finance". URL: https://www.weforum.org/agenda/2015/07/top-9-countries-islamic-finance/

[3] Getachew, Samuel. 2020. Digital Equb. URL: <https://www.thereporterethiopia.com/article/digital-equb>