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Blockchain and Community Inclusion Currencies for humanitarian aid in Kenya

By Rosemary Okello-Orlale (Strathmore Business School) and Steve Kenei (Kenya Red Cross Society), 2 June 2021. A Kiswahili version of this article is available here.

Disasters and conflict situations are often linked with mass movements of people across Africa. Sub-Saharan Africa hosts four of the world’s largest refugee camps. Most of the refugees within the camps in Kenya, especially in Kakuma and Dadaab, have been having access to traditional aid programs. In these camps aid often comes in the form of cash-based assistance, through regular payments or cash for work programs. This reflects a wider global humanitarian shift towards cash-based assistance, including increased use of digital cash in the form of mobile money. During a High-Level meeting held by Strathmore University Business School (SBS) in partnership with the Kenya Red Cross Society (KRCS) and the International Centre for Humanitarian Affairs in 2018, it was observed that in the ever-changing environment of humanitarian aid few things are constant and, that there is need for humanitarian organizations to find innovative ways to be efficient and effective in aid delivery while also remaining financially feasible. During the meeting, the former Secretary General of the Kenya Red Cross Society, Dr. Abbas Gullet, highlighted fundamental challenges relating to economic infrastructures for marginalized communities in these camps, and that significant proportions of the cash aid provided by humanitarian agencies quickly flows back out of communities too quickly to provide a lasting impact, while key community members, networks and resources remain largely underutilized. He reflected on the applicability of blockchain technology for the humanitarian sector, drawing from experiences of stakeholders who have used or applied blockchains in their work

Photo courtesy of KRCS (Nairobi)

Vulnerable communities do not lack ideas for improving their own situations. Arguably, what they need is an effective medium of exchange that allows them to deploy their underutilized resources and generate financial capital themselves within communities. From the perspective of humanitarian agencies, there are also concerns related to accountability for the cash assistance that they provide – namely, how they can ensure that the cash provided is used for its intended purposes, that it sustains the most vulnerable groups, and that it stays within communities. These needs have led to calls for the development of new mediums of exchange that can reconcile the financial inclusion of marginalised populations with financial integrity and accountability for donors. Emerging technologies such as blockchain are considered to provide possibilities here, and underpin the development of new Community Inclusion Currencies (CIC). This blog post explains what a blockchain-based CIC is, how it works, and how and why it is being experimented with in Nairobi and Mombasa Counties in Kenya. We have also considered some important questions that are raised by the development and use of such technologies, focusing on the balances that need to be struck between preserving aid recipients’ privacy and autonomy, with aid agencies’ needs for accountability and effective aid targeting.

What is a Blockchain-based Community Inclusion Currency (CIC)?

A blockchain is a digital ledger of transactions. Each transaction added to a blockchain is validated by multiple computers on the Internet and this public record cannot be tampered with. Blockchain technology was invented to facilitate the bookkeeping of the Bitcoin cryptocurrency, but has evolved to enable other forms of peer-to-peer record keeping. Like many other industries, the global humanitarian sector has been actively exploring and experimenting with the potentials of blockchains for its operations, for example, in relation to managing transparent records of transactions to eliminate corruption, or to underpin identification systems for populations without other forms of personal identification (ID). Humanitarian organisations are also starting to use blockchains to develop a new type of exchange medium for aid: Community Inclusion Currencies.

Photo courtesy of KRCS (Nairobi)

One of the CIC initiatives launched in Kenya over the past years with the support of KRCS is Sarafu, an Ethereum blockchain-based eVoucher CIC that community members use to buy and sell basic goods in an environment where national currency is scarce. Sarafu eVouchers are backed by the local goods and services of the community. Their value locally is softly-pegged to the national currency, so the extent that vendors can exchange CICs out to the national currency is based on the number of reserves or “seed” funds remaining. While CICs circulate in communities at a unit value 1:1 hard-pegged to national currency, their total exchangeable value to national currencies can never be greater than the value of their reserve. On the receiving end, community members are registered and given a credit of 400 token/ Sarafu that is equal to Ksh 400 to buy and sell basic commodities such as soap, water and food stuffs within the community at registered vendors.

Under the project, Transforming Communities Through Blockchain eVoucher, the Kenya Red Cross Society (KRCS) started the field implementation of the Sarafu CIC in May 2020 in Nairobi and Mombasa. The project is backed by the Ethereum Foundation – and runs on the open source Ethereum blockchain. It also involves partnerships with the Danish Red Cross, IFRC and Grassroots Economics Foundation. Although still a pilot, early results indicate that such CICs could be replicated within community poverty reduction programs in Kenya and beyond. This was documented in a series of blog posts written by Grassroots who were the service provider in this case.

Why not use existing digital cash systems (mobile money)?

Kenya has been a world-leader in the development of SMS-based mobile money systems and Safaricom’s M-Pesa system is used extensively across the country. In Kenya and elsewhere, such mobile money systems (that do not use blockchains) are also used for distributions of humanitarian aid. This raises the question: why would humanitarian organisations develop a new blockchain-based CIC, instead of using existing and widely used digital money infrastructure? For humanitarian organisations, the key factor relates to what the aid can (or cannot) be used for. Unlike an SMS-based mobile money system, a CIC can only be used by recipients to buy a certain range of essential goods within the community. Here the donors seek to strike a balance between giving beneficiaries greater spending autonomy (in comparison to distributions of food or non-food items) while at the same time trying to ensure that aid is spent on essential items, and that it does not flow out of the community. Therefore, the organisations believe that CICs introduce a replicable mechanism for communities to potentially eradicate poverty by creating connected and sustainable local economies. CICs are expected to support local demand and markets, thus benefiting local communities. This may also reduce the risk of tensions between locals and refugees, because the use of CICs by local merchants can be beneficial to the wider local community. For organizations like KRCS, apart from providing security for staff, CICs also give them an ability to analyse, in real-time, the flow of liquid community currencies inside and across communities, which could enable to them to help create diverse and resilient channels of monetary links between locals.

Photo courtesy of KRCS (Nairobi)

Such projects aim at reinventing cash transfer programs to act as a catalyst for communities to develop and trade in their own medium of exchange, underpinning dynamic and inclusive economic activity within the camp among refugees. According to KRCS, Sarafu allows community members to trade among each other thereby increasing productivity, promoting a saving culture, and enabling registered members to afford basic necessities.  Roughly in a month, the KRCS saw $95,600 USD worth of transactions on the network with 22,702 transactions via 2,588 users to which 12,700 CIC tokens have been distributed. Current pilots in Kenya have shown CICs have a much greater ‘multiplier effect’ for vulnerable communities than regular cash transfers. The project is aiming to reach 320,000 users in the next two years, all of whom are living below the poverty line.

Innovation and new questions for research

The emergence of innovative technologies for aid delivery always raises new questions about how these systems function, whether they meet the goals of the designers, and whether they are welcomed and beneficial for the communities who use them. Because CICs are still being piloted there is need to pose some of these questions, and gather more data to inform the continued evolution and application of the technology. The perspectives of beneficiaries should be focused on here: how do people experience CICs and how do they compare this to digital cash transfers or distributions of food or non-food items? More broadly, although CICs inevitably reduce the choice of beneficiaries in how they use these resources (compared to cash) this is intended to keep more resources within a community and therefore produce wider overall economic benefits. Is this how beneficiaries understand and perceive this system? There is also a question around how the new technology intersects with existing strategies for survival and economic activity within and around the refugee camps – especially in large and longer-term settlements.

Moreover, blockchains by their very nature create public records of transactions. This can be useful for humanitarian agencies to increase donor accountability/transparency and extract data that can help them optimize their approach for maximum economic benefit for communities. But again, how do beneficiaries see this trade-off between financial inclusion and privacy? Do they understand how their data is held and used, and what do they think about this?

We feel that CICs have the potential to help strike a better balance between these challenges and provide for the genuine benefit of economically-marginalized communities. Further collaboration between academic researchers (such as those involved in our Datafication and Digital Rights in East Africa network) and the agencies who are pioneering these innovations will be essential in gathering data from ongoing pilots to ensure that mutual benefits for humanitarians and aid recipients are maximized, and potential risks are mitigated.

Rosemary Okello-Orlale is the Director of the Africa Media Hub at Strathmore University Business School (r.okello-orlale@strathmore.edu). Steve Kenei is a Data Analyst in the International Center for Humanitarian Affairs/Kenya Red Cross Society (kenei.steve@redcross.or.ke).

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