Why Africa’s Policy Makers Should be Worried About Virtual Platforms and Virtual Currencies

In a lot of ways, Facebook is more like a government than a traditional company. What does this mean for Africa’s Governments, fintech industry and policy makers?

“In a lot of ways, Facebook is more like a government than a traditional company” – Mark Zuckerburg

The rise of virtual internet platforms such as Facebook, Whatsapp, Telegram, Kakao is challenging established regimes of state and sovereignty, monetary policy and issuance of currency, control, ownership and governance of virtual resources in developing countries in Africa.

Billions of users, including Africans are spending more time on virtual networked platforms that command the attention of far greater audiences than the populations of individual nation states. WhatsApp has 1 billion, Telegram 200 million users and Facebook has 2.3 billion users worldwide.

Now, these virtual platforms are all getting into the business of  issuing currencies using ‘blockchains’ or shared ledgers to monetize all the possibilities of economic activity within the confines of their platforms. 

Out of all of them, Facebook’s Libra coin drew the most attention. No surprise at all considering the sheer size of its 2.3 billion people user base.

What does this mean for Africa’s fintech industry and policies, that tech giants from overseas can monetize the digital economy of Africa through non-sovereign means including issuance of digital currencies?

What follows is a transcript of conversations between Michael Kimani  and Andile Masuku, about the current shift to internet virtual platforms, and currencies, and what lies ahead for Africa’s Fintech policy.

Michael Kimani is Head of Business Development East Africa at Zippie, a mobile blockchain platform, a Fintech Innovation Advisor for Visa and Secretary General of the Blockchain Association of Kenya. He is one of East Africa’s renowned digital money analysts.

Andile Masaku is a Co-founder and Executive Producer at Africa Tech RoundUp.

Some parts of this Q&A were pulled from a podcast with Andile, while some of it are from phone discussions with Malak Gharib of NPR and Ronit Ghose of Citi Bank.

The structure is presented in the format of a Question and Answer. Enjoy!

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How PayPal & the UK Government are nudging Kenyan Online Workers to Bitcoin

Kenyan online workers, PayPal and the UK Government are entangled in a mess that is paving way for Bitcoin and cryptocurrencies

A spat between the UK government, PayPal and Kenya freelancers has got everyone mixing up issues.

“Thousands of jobless graduates from Kenya who help lazy university students in developed countries to cheat academically could soon be forced to find something else to do after the UK government started clamping down on essay mills.

On Thursday, international digital money transfer service, PayPal, announced it was withdrawing its services to essay-writing firms selling to university students. This was after weeks of pressure from the UK government, which insists stopping payments for essay mills would go a long way in beating academic cheating.’ Daily Nation

There are 3 parts to this story.

First, the British Education Secretary, Damian Hinds, says when UK students tap cheap labor in Kenya for their assignments, it is unethical and cheating. 46 university vice chancellors last year wrote to Hinds, calling for the banning of cheating websites.

Secondly, PayPal is caught up in the wrangles for facilitating online payments between UK students and Kenyan freelancers. PayPal has come under pressure to stop processing these payments and declared it will not support unethical academic behaviour by UK graduates. Some people have suggested, cryptocurrency may serve well as an alternative for Kenyan freelancers.

Finally, in Kenya, we are all caught up debating whether it is cheating or job creation, as thousands of graduates are dependent on the thriving business for wages and employment.

This case is a glimpse of tectonic shifts at play on the future of Africa, its youth population and the web economy. It is easy to miss the forest for the trees.

To get at the heart of the matter, we need to go back to 2009 when it all began.

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How Digital Platforms are Shaping Africa’s Informal Economy

A new digital generation of informal African entrepreneurs have adopted and adapted gig economy tools and digital platforms to meet their needs for a flexible and negotiable digital marketplace. Apps that can drive demand and scale reach affordably are transforming African markets, opening up new opportunities for young Africans.

With contribution from Niti Bhan

When people think about the informal economy, this is the picture that often comes to mind.

What is often forgotten, is that the next generation of informal economy actors – mama mbogas, boda boda okada riders, wakulima farmers, traders, taxi drivers, matatu touts, drivers et cetera in Kenya and East Africa will be vastly different from the women depicted here.

The coming generation of Africa’s informal economy are today’s millennial digital natives – hungry, educated, exposed to global trends, with all the tools available to them like everyone else anywhere in the world. Only with no prospects of formal employment on the horizon.

‘Informal’ is no longer synonymous to the streets, associated with the roadside, automatically defaulting to the marginalized or vulnerable – it is not a disease to recover from. The informal economy is an equal opportunity, organized and commercial operating environment offering Africans the chance to achieve their aspirations.

Africa’s prosperous future will only be realized by embracing the informal. This is not a choice.

While my thoughts are presented in the context of East Africa, I believe it resonates with the broader, global ‘gig’ economy. So perhaps my 60,000 ft view from Nairobi, East Africa rings true for the rest of the world.

Allow me to paint a picture for you using one of the sectors of the informal economy – trade.

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How Africa’s Airtime Currency Traders Birthed A Fintech Innovation Playbook

This is a story of how informal airtime currency resellers of Africa birthed mPesa, mobile money, and an innovation playbook for Africa’s emerging economy.

Not everyone can see it.

If you are keen though, you’ll realize Africa’s informal economy is an open playbook on how to innovate, build and scale successful products and services for the emerging African consumers. Ask me how I know, and I’ll point you to the little known story of prepaid airtime currency re-sellers in Africa who, by cobbling up a rudimentary hack, were able to model a country-wide money transfer network, that would later be adopted by Africa’s telecommunication companies (Telco), spun off into a massive revenue generating business to eventually dethrone the monopoly of banks in East Africa.

But the real story is neither about airtime, nor Telcos. What it is really about are the lessons we can draw upon Africa’s informal economy on how to approach innovation in Africa.

This is a story of how the prepaid airtime re-sellers of Africa not only birthed mPesa, and mobile money, but an innovation playbook for Africa’s emerging economy.

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Why African Fintech Wants To Digitize Chamas, But Can’t Seem To Get It Right

Why is the digitization of Chama groups so valuable for Fintechs and Telcos and Banks? And more interestingly, why is it such a tough nut to crack?

 

A group of high profile organizations including Facebook, Mastercard, FSD Kenya, Safaricom, Fintech startups,  and even the World Bank have convened in Nairobi for a one day workshop to try figure out how to digitize the chama groups of East Africa. While it has been over a decade of digital financial inclusion estimated at 80%, none of them have figured out how to successfully digitize chama groups.

Just so we’re on the same page, I use chamas as a catchall for any group of people who come together with a shared goal, agree on a self governing mechanism and pool together resources such as time, labour or capital to achieve their shared aspirations. This simple form of self organization, self governance and chama identity makes it a highly flexible people-structure and why it exists in different forms across the world and Africa as Paare in Chad, Asusu in Nigeria or Chilemba in Zambia.

So why is the digitization of Chama groups so valuable for Fintechs and Telcos and Banks? And more interestingly, why is it such a tough nut to crack?

I found the answers to these questions from Toffene Karma, the one person who successfully digitized the social savings group of Chad West Africa known as Paare using a mobile product known as TigoPaare.

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How Nairobi’s Matatus Defied the Will of Kenya’s Cashless Policy Makers

Nairobi’s failed cashless experiment, an attempt to digitize all commuter payments in Kenya is a poster child on the pattern of thinking that’s left a trail of struggling Fintech experiments in the name of Silicon Savannah.

 

We often fall into the trap of making broad sweeping assumptions about people and places based on our preconceived notions of an what we consider is an ideal world. In the context of East Africa and its bulging informal economy, countless technology entrepreneurs, policy makers, donor agencies and wazungu NGOs have fallen victim to throwing resources at reality hoping to turn it into their Utopian dream. Pick a sector, any sector – be it agriculture, transport, banking, ecommerce. Everything but the kitchen sink has been tried at perceived problems. I say perceived because the definition of the problem depends on who you ask.

Kenya’s short innovation history is littered with such experiments, typically ambitious, well funded but not lasting long before packing up.

Nairobi’s failed cashless experiment, an attempt to digitize all commuter payments in Kenya is a poster child on the pattern of thinking that’s left a trail of struggling Fintech experiments in the name of Silicon Savannah.

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Chamas are the Financial Side of Real World Social Networks

Chamas and social savings groups are the last barrier that protects people when all else is failing like banks, or government or social welfare.

Boda Boda Savings Group Meeting at Ruiru
Boda boda chama by Michael Kimani @pesa_africa

A picture worth 1000 words!

This picture was taken at Ruiru, a town about 20km beyond Nairobi city. What you see here is a group of motorcycles popularly known as boda bodas parked next to Wakini fueling station right outside Mama Lucy’s Deli on your way to Wa Matangi. The feel of this place is a blend between a pure rural and pure urban area – peri urban. Don’t be fooled by the dirt. So why are there 11 empty boda boda? Let me tell you why. Continue reading “Chamas are the Financial Side of Real World Social Networks”