Pilot Insights | Addressing unemployment and generating stable incomes for Kenyan youth through crypto
Mercy Corps Ventures launches new report.
It is no secret that sub-Saharan Africa has the youngest and fastest-growing youth population in the world today, accounting for over 20% of the region’s population. In Kenya alone, 68% of the total population is below the age of 35. These young people are entering the workforce at unprecedented speed, but the formal economy is not meeting job demand.
One promising solution can be found in digital microwork — a form of digital labor outsourced by global firms that breaks up complex technical projects into thousands of fractional tasks which can be completed at any time on a smartphone.
This provides new and flexible income streams, is accessible to many different skill levels, and can increase savings potential for the burgeoning youth population. Despite the promise of this opportunity, the industry has been slow on the uptake in Kenya, in large part due to the cost and friction of cross-border micropayments. Transaction fees often require microworkers to forfeit a significant portion of their earnings (in some cases up to 30% of gross earnings), making microwork uneconomical.
Cryptocurrency, and specifically stablecoins, can remove this costly barrier making cross-border payments affordable, simple, instantaneous, and accessible to all.
Evidence has previously been lacking to prove this solution, so this is where pilots come in. In 2021, Mercy Corps Ventures (MCV) ran a three month pilot with partners Celo Foundation, Appen, Mercy Corps Kenya, Toca Labs (now Corsali), Kotani Pay, and Nairobits, to test whether digital stablecoins and mobile wallets could ease frictions and reduce costs in cross-border payments for un/underemployed young people completing microwork in Kenya. The pilot was designed to specifically meet the needs of youth who have traditionally been excluded from the formal economy, during a time when opportunities were even more scarce due to the pandemic. When the economic impact of the Covid-19 lockdown reached her informal settlement in Nairobi, Kenya, Lucy Atieno — a single, 26-year-old gig worker — lost her main income stream. Then Lucy joined the pilot and began freelancing part-time as a digital microworker:
“I have not been in active employment so I have mostly been at home. For me, the microwork came in as an opportunity to make use of the extra time…and earn something so that I could take care of some responsibilities.”
We trained 200 Kenyan youth, like Lucy, to access digital microwork from global platforms using a mobile app and integrated Valora digital wallet. Participants were paid within a few seconds with transaction fees at approximately $0.01 using Celo dollars (cUSD), a global stablecoin pegged to the US dollar. They were then able to cash-out anytime to Kenya’s ubiquitous mobile money platform, M-Pesa. While the amount for a single task is small, on a productive day, Lucy could earn up to KSH 800 ($7.00— significant for part-time work) by completing microwork tasks on her smartphone, such as tagging photos or transcribing audio clips for global technology firms. This meant that when she finished a microwork task, she received an immediate digital wallet payment and could transfer to her M-Pesa account in order to pay her week’s bills. Alternatively, she could keep the money in her wallet and leverage a promotion within the Valora app that rewarded savings with CELO rewards, further boosting her income.
The ability to earn this income from home, grow her savings, and cash out earnings anytime made Lucy feel financially secure.
The pilot results firmly confirmed our initial hypotheses:
- Stablecoins reduce the costs and frictions of sending and receiving cross-border micropayments. By leveraging easy-to-use mobile platforms, anyone with a phone can access a dramatic reduction in cross-border transaction fees: from 28.8% for a $5.00 transaction to 2.02% regardless of transaction value. This translates to a 93% reduction in fees (from $1.44 to $0.10).
- Stablecoin-based digital wallets can unlock new digital employment and earning opportunities for un/underemployed youth by making digital employment a more lucrative, desirable work opportunity.
- Stablecoin-based digital wallets can incentivize savings behavior for low-income or previously unbanked populations by building a user-friendly wallet with savings rewards into the payment process.
All 200 pilot participants completed their three-month engagement with highly positive feedback on the flexibility of the work opportunity, confirming that they would refer both microwork and stablecoin-based digital wallets to a friend.
“I have achieved so much because of this program, I ended up starting a business because of it, so my life has changed for the better. I learned how to use Celo dollars, I learned that I can use it to transfer money from here in Kenya from one person to another, to my family members or even abroad. Valora is a great app, it’s way cheaper to send money through Valora than any other apps right now in this country.”
Female Pilot Participant — Nairobi, Kenya
The momentum behind crypto, and stablecoins in particular, signifies the overwhelming demand for a new way of transacting. Kenya is already leading the world in peer-to-peer cryptocurrency transactions, and ranks fifth overall in cryptocurrency adoption. Simultaneously, the country’s youth bulge represents an urgent employment challenge the world has never seen before, warranting openness to new tools. MCV’s pilot confirmed the potential of digital microwork and stablecoin to unlock future economic opportunity.
Now, a delicate regulatory balance is required to enable a new digital economy which serves the needs of Kenyans, as outlined in the policy recommendations of the new pilot report.
Beyond the core microwork findings, the pilot also revealed the huge potential for crypto to dramatically reduce the cost of remittances and enable cross-border commerce to take place. In 2020, remittances made up 3.13% of Kenya’s overall GDP, totaling a value of over three billion dollars. With global weighted average remittance costs at 4.71%, Kenyans receiving remittances are potentially losing out on over $80 million per year.
If all those transactions only cost the 2.02% enabled during the pilot, the total potential impact to the Kenyan economy could be over $200 million.
Cryptocurrency carries significant potential to positively impact the Kenyan economy as well as remittance users everywhere. Cross-border transactions for remittances, payments, and commerce means that young people, regardless of their location, can generate income and participate in the global economy.
“With so much hype in the blockchain space it’s really refreshing to work on a project that addresses a pressing need for marginalized communities around the world. It’s a reminder that while the Web3 revolution may have started in Silicon Valley, the potential of blockchain is truly global.”
Will Le | Partner — Innovation, Celo
Mercy Corps Ventures will continue accelerating financial inclusion and de-risking the adoption of new decentralized finance (DeFi) innovations by conducting real-world pilots that build the evidence, impact and insights for large-scale implementation. The tools to enable a truly inclusive and equitable global financial system are now within reach.
