How Blockchain Technology is Revolutionizing “Chamas” — Kenya’s Informal Saving Groups

Kenya is ranked top in global financial inclusion index with 9 out of 10 adult Kenyans either banked through bank or mobile money accounts. Safaricom’s Mpesa continues to dominate Kenya’s mobile money market. According to Safaricom’s latest financial report, withdrawals and transfers accounted for over 70% of Mpesa revenue.

Unlike payments, the Kenyan savings market is largely informal. All over the world, people form little groups to save, borrow and invest together. Kenya is no different — these social saving groups are known as Chamas. Kenya has over 1,000,000 Chamas, with more than 65 percent of the 6 out of 10 Kenyans participating in at least three such savings group. Chamas are vital to the Kenya’s social and economic fabric, with collective savings accounting for 46% of Kenya’s GDP. Across Africa, this market holds about $100 billion in assets, with an even larger transaction volume.

Given its informality, Chamas’ main challenge lies in its poor record-keeping system, which is mostly paper records. These records are susceptible to loss, misplacement, duplication, and manipulation. Other challenges include: unpaid loans, member mistrust, lack of transparency and accountability. This is where blockchain technology comes in. Blockchain technology improves a Chama’s bookkeeping systems, governance and ensures its transparency.

ChamaPesa is set to disrupt Chamas by using blockchain tool based on Ricardian contracts. The ChamaPesa app, which is set to be launched in 2019, manages membership, bookkeeping, share issuance, payments, and loans between Members. ChamaPesa supports Chamas through:

• digitized bookkeeping;
• immutable ledger, which enhances security and reduced fraud;
• community based identity where instead of relying on a centralised credit bureau, users’ identities is based on their real world social network: friends, family, neighbours, business partners and so on. ChamaPesa combines endorsements with Guarantees and Arbitration to increase accuracy of its identity model;
• increased transparency where members can, for example, view the treasurer’s account including information regarding spent money;
• A merry-go-round feature that allows all chama members to directly send money via their mobile phones to the member who is supposed to receive it that month;
• Chamacoin, a new utility token, that helps support an open network that delivers financial opportunities to millions.

ChamaPesa addresses much of the challenges holding back Chamas from growing, scaling and even challenging banks. Kenya’s familiarity with digital currencies and mobile payments provides a great platform for ChamaPesa’s take off. ChamaPesa provides the banking sector a run for their money, given that they have over the years been trying to formalize Chamas with no clear success. Most importantly, ChamaPesa will incentivize young people (myself included) to become more enthusiastic about joining Chamas and saving!