Posts Tagged ‘alternate currency’

Can digital currency earn trust in hyper-local rural economies?

One characteristic of rural and informal type micro-economies, is irregular patterns in cash flows and money supply.

Mama biashara for instance, finds it hard to replenish stock if business is generally slow within her domain. Even if she could, there is still Mr. boda boda who has to be paid. When he doesn’t get paid, the local bicycle repairman loses out as well; ultimately, a long chain of intra-local value exchange is not originated.

It seems, when there is little or no fiat cash to go round, the aggregate action of actors to yield economic activity within a locale is stifled – business cycles, household and individual consumption patterns.

But, what if they could bypass using cash? And make use of say, an alternative medium to settle biashara, boost short term liquidity and add sorely needed economic value ?

From my most recent immersion in rural Nyeri, I made a couple of notable observations on how slow moving fiat cash inhibits economic exchange where it is needed most:

Cooperative IOUs as trust currency

As a member of a coffee SACCo, my aunt is entitled to periodic lump sum payments for her share of the crop; IOUs that she can literally take to the bank. Every now and then, she settles transactions amongst her peers, by promising her soon-to-mature IOUs.  Since SACCo disbursements are a well known event, her creditors know when to come knocking.

Milk Co-op, Nyeri County, Kenya (Photo Credit: Niti Bhan)

Mutethi, a subsistence farmer, is a member of a dairy cooperative. He carries with him a blue milk card issued by KCC Kiandu milk cooling plant. All of his milk drop offs are weighed and a matching entry appended to his card. He redeems his IOUs during the next scheduled payment in cash, bank or mobile money. Until that time, all he has is this money form, that he cannot exchange for goods and services. Or just maybe, like my aunt, he does.

Valuable insights from the field! Two separate instances of alternative currencies, built around trust and a backdrop social setting – one virtual , the other physical.

Concept to prototype – Bangla Pesa, Kenya’s slum currency

Will Ruddick took this concept to prototype in Kenya’s Bangladesh Slum with Bangla Pesa – a coupon currency. Its multiplier effect, backed up by data, increased small business activity by 22% – that otherwise would not have transpired.

Senior Fellow Mwangi S. Kimenyi and Policy Analyst David Muthaka wrote on Brookings blog:

“Around 83 % of participants […] reported that their total sales were increasing as a result of the vouchers with only 0.05 % reporting a decline in sales. Average daily sales through Bangla-Pesa represent 22 % of the total daily sales […] ”

Take Away thoughts: Trust currency is virtual and so is digital money

In this post, I highlighted the perception of mobile money in informal and rural cash based micro-economies and posited:

“Are attempts at replacing cash with digital money, deep down, really about taking on ecosystems?”

Right now, I am especially interested in the implications of alternative social currencies on mobile money for development in SSA. Can such an approach aid transitions from cash to virtual money in cash intensive rural and informal domains? After all, it is here where the unbanked are likely to be found.

 

This post is a guest blog by Michael Kimani (@pesa_africa) founder of the African Digital Currency Association

Related post of interest: Systems thinking and the mobile platform for economic impact and wealth creation

Spain’s woes show behaviours reverting to patterns from pre-formal economies

This recent WSJ article on the emergence of coping mechanisms among the economically challenged in Spain caught my attention today for a couple of reasons. What struck me first was the fact that time (labour) was becoming a viable alternate to money (cash) and this made me come to this blog to look up the cashless transactions category to see if there were any patterns I could spot or unearth any previous posts on barter systems from the erstwhile first world. I did not.

However, what I did notice instead was far more of a revelation.  The behaviours that have been documented by the WSJ are not dissimilar to the existing patterns of fiscal management as seen in many rural parts of the developing world. In fact, one could go as far as to say that people are reverting to the way things were before the formal economy with its credit cards and financial tools came along.  For example:

Cooperative economy based on community networks

Ms. Martín, who doesn’t own a car and can’t afford taxis, has relied on other time-bank members to give her lifts around town for her odd jobs and errands, as well as to help with house repairs. In return, she has cared for members’ elderly relatives, organized children’s parties and even hauled boxes for a member moving to a new house.

The time bank not only saves her cash, she says, but also lifts her spirits by making her feel “part of a community that’s taking some positive action during hard times.”

This research project documented something very similar back in The Philippines where community members volunteered their time and labour to help a member build a house, earning “credit” against the day when they would need the same.

Alternative currencies, barter mechanisms and REculture

Besides time banks, they include barter markets springing up in barrios, local currencies designed to spur the flagging retail economy, and charity networks that repurpose discarded goods.

And of course, the community as insurance

“We are inside of a pressure cooker, and all we can do is let some steam off so it doesn’t explode,” says Francisco Romero, head of the municipal employment office in the town Totana, which has launched an urban gardening project, a barter market and a local currency to help its jobless youth.

Carlos Bravo, a 35-year-old information technician who helped launched a small bank in central Madrid this year, says time banks have a different sort of value: helping urban Spaniards rekindle a sense of closeness among neighbors that facilitates asking for favors and other forms of mutual assistance.

“They’re people you can count on,” he says. “And in this time of economic crisis, for people who lack the resources to get things on their own, they know there are people here to give a helping hand.”

In the meantime, the formal economy strikes back, attempting to bite the hand it cannot feed, with mechanisms that have already shown their limitations.

“It’s a step backward not only for a euro country, but also for a developed country,” says José García Montalvo, an economics professor at the University of Pompeu Fabra in Barcelona.

Banks and social currencies, he says, can backfire on the broader economy since the income received from such arrangements often goes undeclared, therefore depriving the government of tax revenue. Social currencies and time banks also preclude taking on debt, adds Mr. García Montalvo, which in moderate levels can help people start businesses and access beneficial goods and services that they can’t afford upfront.

Can we, honestly, in today’s world, look around us and say, with a straight face, anymore, that “Debt is good”? The Spaniards, however, have their heads on their shoulders.

Ms. Martín, the unemployed 22-year-old, says she has struggled to find work in the career she studied for, caring for the physically incapacitated, and has had to settle for temporary jobs. But she sees hope in projects like the time bank and thinks they are the wave of the future in Spain.

“There has to be a change in the mentality for there to be a change in the country,” she says. “We can’t continue to spend resources we don’t have. We have to learn to live with less.”

Perhaps we can all learn something from Spain’s painfully earned experience.