Corruption blamed on Cash — Digital Currency to the rescue!
Will blockchain and cryptocurrencies reduce corruption and replace cash? ARYZE have had a talk with Dr. Bitange Ndemo, former ICT Permanent Secretary of Kenya, Member of the Safaricom Board of Directors and Chairman of the Kenya Blockchain and AI Taskforce
Imagine an entrepreneur with a coconut oil processing plant, wishing to create his own digital token, where these tokens can be redeemed for using the machines to produce oil — a most valuable commodity to some people. The point of creating the token is to enable people without bank accounts or income to receive oil for cooking and production, as long as they have the coconut.
Now imagine that the local police comes knocking on the door of this man with an arrest warrant, for creating an alternative to the national currency in circulation. The case is taken to court, and consequently dismissed — bartering is not illegal.
While the story ends well for our entrepreneur, the problem has a deeper underlying issue. Knowledge and understanding of digital currencies is lacking on a governmental level, and is preventing social innovation from benefitting the lives of poverty-stricken individuals.
In Kenya, where this took place, people like Dr. Bitange Ndemo are taking steps to ensure that the benefits of mobile money and digital currencies can be realized in order to bring growth to East Africa. We spoke with him to learn more.
But first, a little bit of history…
Mobile Banking
At the turn of the century, the earliest mobile banking solution was released using SMS and WAP (Wireless Application Protocol) to support the use of the mobile web. European banks began to offer SMS banking to their customers using this platform. Until 2010, most mobile banking was conducted via this technology.
One of the earliest mainstream successes of mobile payments was the introduction of M-Pesa (2007), in Kenya, which allowed customers without bank accounts to perform mobile transactions through mobile phone credit. Users suddenly did not need bank accounts to move money and make payments — instead a customer would use his or her mobile phone to efficiently transfer funds across great distances and with added security.
More than 10 years later, mobile payments have come a long way. Electronic money transfers are no longer a new and innovative process. However, financial technology startups and financial institutions are constantly finding innovative ways of adding security, enhancing identification, and additional customer benefits to mobile money processes.
Perhaps unsurprisingly, interest in cryptocurrencies and blockchain technology has skyrocketed in Africa, for socio-political solutions, as well as economic purposes.
“One of the main pulls of blockchain technology in Africa is that it is decentralized, and transparent, leading to many possible use cases based on combating corrupt political and voting systems.” — Carlo R.W. De Meijer, Senior Economist, MIFSA (Source: FinExtra Blog)
We had an informative talk with Dr. Bitange Ndemo, former ICT Permanent Secretary of Kenya, Member of the Safaricom Board of Directors and Chairman of the Kenya Blockchain and AI Taskforce. The latter is an eleven-member team with a mandate to establish a 15-year roadmap that will reduce political corruption in Kenya with the aid of blockchain technology.
He also plays a role as an ambassador of the African Digital Assets Framework, which sees that cryptocurrencies and digital assets present an opportunity to create a “secure way for people to trade, peer-to-peer, across borders, enabling people to securely access and transfer items like currency, identities, land titles and votes over the Internet.” (Source: ITWeb — Johannesburg, 05/08/2018)
East Africa and Blockchain
In a country where cash is generally perceived to be a source of corruption, mobile money has seen huge success. Not only in the sense that it is harder to keep anonymous, but also in that it does not require a bank account to send money. In continuing with mobile money, cryptocurrencies are taking the next step in decreasing reliance on a local government’s monetary policies.
Dr. Ndemo was one of the key figures in bringing M-Pesa to East Africa and therefore had many insights on why and how it became a success, as well as the next trend in mobile payments in the region. As former ICT permanent secretary of Kenya, he was the first point of contact in establishing a link between the Kenyan government and Safaricom for launching M-Pesa.
“I took the risk… the previous government refused because they thought it would enhance corruption. I was the one who explained to the new president, and he accepted.” — Bitange Ndemo
When the Bitcoin hype reached its peak in mid-2017, Kenyans were quick to ride the wave. In fact, it’s estimated that an equivalent of “approximately 1.5% of Kenya’s GDP was spent on Bitcoin in Kenya — the highest of any African country” — according to Dr. Ndemo.
“Kenyans are eager to get away from using cash. In fact, most people do not even carry cash — mobile money is the norm. Historically, we have seen that cash can be a ‘source of evil’, as it can be used for corruption and bribery.” — Bitange Ndemo
From an official government perspective, the “government is vehemently opposed to digital currencies”, though, according to Dr. Ndemo. The Kenyan Central Bank leadership is in complete opposition to cryptocurrencies. Sofie Blaksted, from HiveOnline, had this comment on general sentiment in the region:
“Regarding blockchain in Eastern Africa, government appetite appears to be evolving rapidly from cautious, this time last year, towards actively embracing now.”
To that end, the African Digital Asset Framework is a report that is undertaken by the official Kenyan Blockchain and AI Taskforce, and has been pitched to capital markets regulators in East Africa.
This framework sets out to deepen the understanding of blockchain and cryptocurrencies. One of the goals is to create a framework to understand the issuance of diligent Initial Coin Offerings. They are considering this with focus on how to aid funding of innovative projects in the region through a legal sandbox.
Another element of this framework is to examine the consequences and benefits of establishing capital gains tax on cryptocurrencies. While many might argue that this is in direct opposition to the purpose of cryptocurrencies, others would say that it is a natural step towards mainstream adoption.
Finally, the framework sets out to unify standards and regulations, in a similar manner to the European Blockchain Observatory’s efforts in enhancing understanding, and standardizing regulations and implications of the technology/market.
When discussing about the relation of the community currencies, as Dr. Ndemo referred to them, to the Kenyan Shilling, he remarked that certain crypto-entrepreneurs in Kenya were very interested in having their tokens pegged to the value of the Shilling. However, from a regulator’s perspective, the value of the token must be spelled out very clearly — how the value is linked, precisely.
Kenya is not the only country to look towards blockchain implementations, though.
“Beyond Kenya, blockchain hubs are emerging across Africa, with Rwanda positioning itself as a tech hub. AID:Tech has an implementation in Tanzania for maternal healthcare, there’s Twiga Foods in Kenya (food supply chain, using Fabric) and South Africa is one of the few countries to legalise cryptocurrencies. I would say most East African countries are actively piloting something or other and the governments are cautiously welcoming, while South Africa is actively promoting.” — Sofie Blakstad, CEO of HiveOnline
Potential for ARYZE?
As entrepreneurs are hungering for a stable, pegged cryptocurrency to reap benefits from, and governments are on the fence about the clear value of these cryptocurrencies, ARYZE is presented with a strong opportunity. Bringing a stablecoin that is pegged to a national currency, as well as building the bridge between central bank and cryptocurrency, we may see that the agenda of anti-corruption and digitalization is positively enforced.
“We need a digital currency equivalent of fiat currency. We need it to deal with issues like corruption,” says Ndemo, when lamenting about how the Kenyan Central Bank is absolutely closed to discussions about cryptocurrency.
This is a chance to drive mainstream adoption into a powerful technology, while countering alienation of regulators. In East and South Africa, it is not uncommon to find that cash is a corrupting and dangerous medium of exchange.
For example, in South Africa, 71.000.000 USD has been stolen in cash-in-transit heists over the past 8 years. In the past year, a daily average of 2 armored transport trucks have been blown up and robbed while in transit.
The case for digital cash in Africa becomes stronger. Not only in Africa, but other “at risk” regions of the world can benefit immensely. Not to mention the case for remittances. The format of stablecoins and digital cash that ARYZE offers is the glue that will bind cryptocurrencies and traditional fiat currencies — a facelift to money, as we know it.
Governments becoming involved in the understanding and regulation of the technology is only natural, and for the most part sets out to protect average consumers from fraud and theft. We see it as a positive force in the journey for true adoption of blockchain and distributed ledgers, and eagerly look forward to following the developments in this region.
Article by Carl Jenster
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of ARYZE.
