How Bitcoin is Solving One of Africa’s Biggest Problem (Part 1)

Osiri and her peers are embracing some of Bitcoin’s most controversial features and virtues of privacy and decentralization, to stick it to the man and turn it into fortunes.

It took a white man, CEO of Twitter Jack Dorsey, to point out one of the most powerful, yet underrated stories coming out of Africa, when he said “ Africa will define the future of Bitcoin.”

I am here to tell you that story. 

After years of poor governance and corruption, time has now caught up with Africa’s states. They are unable to generate enough job opportunities for the millions of digital native Africans that spend 6 hours everyday glued to their whatsapp, tik toks, selfies and hyper localized memes.

Half of their time is spent on smartphones and the other half out in the real world looking for any way to make a dollar. It is hard out here. No jobs. That’s all that matters.

In the midst of the digital economy that is taking root in Africa, Bitcoin , a rare, radical, anti-central bank digital asset has found its way into the hands of thousands of young Sub Saharan African digital native, like Osiri.

Osiri and her peers are embracing some of Bitcoin’s most controversial features and virtues of privacy and decentralization, to stick it to the man and turn it into fortunes.

Despite multiple warnings by African Central banks, and an embargo by banks and Mpesa imposing sanctions on Bitcoin & cryptocurrency exchange services, informal networks of virtual currency dealer in Kenya, Ghana, Nigeria and South Africa continue servings millions of dollars worth of demand, in ways that resemble the trading ways of their ancestors.

In the decentralized digital economy, trade of Bitcoin flows free, unhindered.

But while the rise of this decentralized digital economy is creating opportunities for the bulging youth populations of Africa’s economies, it is running up against the old power structures that will go to great lengths to maintain the status quo.

This is part 1 of a 2 part series on how bitcoin is solving one of Africa’s biggest problems.

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How the Young Somali Hawaladars of Little Mogadishu are Shaping the Future of Bitcoin in Africa (Part 1 of 2)

Youthful Somali hawadalars from East Africa are complementing an age old informal financial practice with an odd piece of a new digital resilient tool – bitcoin.

This article is Part 1 of a 2 Part Series

The importance of informal finance arrangements is a reverberating theme across Africa. Informal doesn’t necessarily mean bad or evil or dirty, it’s just that rather than rely on the heavy hand of the law, some communities prefer to place their trust in reputation and social networks for all trade commerce and financial relationships whether offline or online.

Others, will turn to informal institutions of trade and finance when faced by adversity in an immediate harsh environment such as war, political instability, structural programs or lack of reliable services.

For example, the Igbo traders in Nigeria pulling on social networks to scale resilient informal enterprise in the face of political instability in Nigeria. 

The early airtime currency traders of Africa who gave birth to mobile money like Mpesa tapped into the power of networks to fill a money remittance gap using an odd piece of technology.

Today, the peer to peer Bitcoin traders of Kenya are bypassing an embargo by banks to meet demand for bitcoin by leveraging informal bitcoin trading networks based on trust and reputation.

It is all there.

One of the best case studies is of the Somali people, during post black hawk down cold war of Somali in the 90s by Peter D. Little. 

Set in the early 2000s post war Somalia, his stories tells of the resilience of trade of livestock across the whole of East Africa despite the collapse of central government and no functional system. 

The Ethiopia Somali Kenya cattle trade flourished in spite of the failed state conditions, on the back of trust network built on kinship. Through informal financial instruments and contracts of exchange and trade, they were able to sustain demand in Nairobi, forming a key trading corridor network in the Horn of Africa

In the post digital, post mobile world of 2019, the Somali people of little Mogadishu are under a different kind of threat on their digital financial lives.

Digital financial surveillance is underway in Kenya as part of tax reforms by revenue authorities including mandatory monitoring of electronic transactions and taxes on the digital economy.

Kenya is under pressure to reform after taking on too much debt to fund infrastructure projects that haven’t quit materialized as planned. An economic slow down, high youth unemployment rates and the weight of repayments on sovereign debts are some of the symptoms of the times. Some commentators have likened the impending state of the times to the Structural Adjustment Programs of the late 80s to 90s which shaped much of what is today’s informal economy.

As we shall see, the Somali people are some of the most sensitive to threats of erosion capital. It is in their blood, a natural instinct to respond to invasive threats to wealth such as hawala networks to bypass strict capital controls.

This got me thinking, how will the Somali people weather a period of heavy monitoring, high scrutiny and low trust?

The the answer lies in Eastleigh, a bustling business district in one of East Africa’s capitals, Nairobi. Here, youthful Somali hawadalars are complementing the old informal financial practices with an odd piece of a new digital resilient tool – bitcoin.

While there is no war today, times are similarly tough, the only difference is that is all mostly digital.

This is Part 1 of a 2 Part Series on how the young Somali Hawaladars of little Mogadishu are shaping the future of bitcoin in Africa

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Why Facebook’s New Cryptocurrency Is a threat to Mpesa and Safaricom

Using blockchain and cryptocurrencies, popular internet platforms, are about to disrupt Mpesa in East Africa, the same way Mpesa disrupted banks.

According to sources, Facebook Is Developing a Cryptocurrency for WhatsApp Transfers known a Facebookcoin. If true, this spells doom for Mpesa and Safaricom as they will soon end up as a commodified dumb pipe, like a utility company resigned to a passive role in the medium to long term future.

Popular internet platforms in East Africa have grown beyond social, and now support value exchange within their closed environments – for example Facebook  and whatsapp, both social platforms where people engage in online trade and biashara.

By adding a US dollar pegged coin known as a stablecoin within its virtual network, more value can be captured and retained within the network until it is absolutely necessary to cash out into local currency.

Facebookcoin, platform based currencies and network cryptocurrencies pose a threat to Mpesa just because of the sheer size of the networks they command and everything that goes on within them. This is great news for Fintech startups and banks in East Africa who can reinvent themselves in a post Mpesa world.

Here is how I see it.

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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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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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How The Chinese, Africa’s Most Popular Browser , And A Bitcoin Mining Company Are About To Change African Payments

Africa’s most popular mobile browser, Opera is about to radically change the payments landscape in Africa.

China Loves Africa 2 by Michael Soi
Michael Soi’s China Loves Africa Collection

I think before this blog and thread, the global cryptocurrency community will not appreciate the strategic relevance of Bitmain’s $50 million investment round into one of Africa’s most popular Chinese owned mobile browser, Opera. What they will not see is the Fintech connection at play in East Africa, where the wildly successful mobile browser is creeping into digital financial services like mobile payments. For the payment professionals of East Africa, the pertinence of this investment on the future of their industry will not dawn on them perhaps until it is too late.

Last week’s SEC’s disclosure on Opera’s newest investor for their $115 million IPO, was the best strategic news on cryptocurrency ‘adoption’ in Africa I have seen in the last 5 years with far reaching implications on e-commerce, trade and payments for the region than appears at first glance.

My choice of a header image above accurately captures increasing Chinese influence on Kenya and Africa, at both state and commercial level.

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Is Financial Inclusion in Africa Overrated?

People in Africa do not sleep and dream of having bank accounts. What they want is income to put in a bank account. Simply having a bank account gets you nowhere. Simply being cashless gets you nowhere.

Prepaid economy
Logo designed for The Prepaid Economy by Jennifer Mwaogwugwu 3/16/13

 This week I was honored be part of #WhatsNextFinclusion, a series put together by Metta on the state of the Fintech industry in Kenya and more importantly, the future. I was there on behalf of ChamaPesa – a ledger keeping app for social savings groups in Africa. Check out #ChamaPesa on twitter.

This year’s edition was sponsored by Mastercard and the moderator threw some pertinent questions at the panel. I, of course, have my own opinions from my own experience over the past 4 years – what i have observed as an analyst, user researcher, blogger and now co-founder of a startup in the space.

But, I thought it better to pose the same questions to some of the more experienced, brilliant minds from the continent that I have had the privilege to interact with, learn from and exchange ideas.  

What follows is a response from Mwalimu Nyerere – my friend and mentor – on the state of the financial inclusion industry in Kenya and Africa in the raw.  Nothing has been alter-rated so as to preserve the original thought and tone, only polished to give it flow.

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How Kenya’s Digital Financial Inclusion Industry Is Failing Women Entrepreneurs

Mshwari & Mpesa is only half the story. The rest of it is happening offline, in cash and trust networks

Don’t get me wrong, the efforts by the Kenyan financial inclusion industry have not gone unnoticed. Without naming specifics, the industry’s greatest feat by far is building a wide accessible network for formal financial services.

But access is only one item on a long list. It doesn’t matter how many bank accounts you give to the poor. Heck, even throw in a bitcoin cryptocurrency bank account – 2 mobile banks, 5 traditional bank accounts and 2 cryptocurrency bank accounts. Access means nothing when you can’t put money in people’s pockets. I speak for all when I say Kenyan people want to be empowered, they want more pesa in their pockets period. And that’s ok!

So when I criticize the industry, I mean well.

If you’ve been up and about in Kenya, you will appreciate how pesa will almost always positively correlate to some sort of biashara opportunity and even more likely one in the informal sector

My assertion is there is an overall failure by Kenya’s financial inclusion industry to look beyond the digital personas of the people of East Africa’s informal economy. Whereas, much of their lives unravel offline in cash, trust and biashara networks.

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Why Bitcoin ATMs in Kenya are Dead on Arrival

Bitcoin ATMs in Nairobi are only a great idea on paper. Electronic ATMs have lost to human agents in Kenya

I get it. Bitcoin ATMs are cool. You can walk up to a machine, insert cash and instantly get cryptocurrency. But Bitcoin ATMs in Nairobi are only a great idea on paper.  

For cryptocurrencies to take off – for whatever use cases – people need a way to exchange their regular pesa in and out of the system. There is no way around this. It is the only way to bridge access and grow adoption. Calls for Bitcoin and cryptocurrency ATMs in Kenya and Africa typically stem from this access gap.

Unfortunately, this idea in Kenya and East Africa is dead on arrival.

The evolution of banking in nations, like Hong Kong, the US or the UK, took a vastly different form compared to East Africa’s much talked about mobile banking phenomenon. Any successful models for cryptocurrency adoption in East Africa have to be informed by local contexts. For starters, taking notes from existing digital money systems.

Agent networks – henceforth human ATMs – are the key to unlocking access.

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