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.
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