Creating a Local Means of Exchange for African Entrepreneurs: How a Blockchain-Based Community Currency Gained Traction in Tanzania

In emerging economies, nan deficiency of disposable income often hinders economical growth. Evenly distributing a section intends of exchange tin straight tackle this issue, particularly erstwhile its proviso and governance are antiauthoritarian and transparent.

The Encointer Association, a Swiss-based nonprofit, has spent nan past 7 years processing specified an approach. The Association’s blockchain-based organization rate strategy started arsenic a aviator successful Zurich, and it is built wrong nan Kusama ecosystem — a decentralized blockchain web that provides nan unafraid infrastructure connected which Encointer (and different systems) operate, powered by its autochthonal cryptocurrency token KSM. The successful aviator demonstrated really this strategy tin alteration communities anyplace successful nan world to create and negociate their ain section currency. 

While Malik was processing this strategy astatine Encointer, Alinagwe was building nan Jukumu NGO to foster economical connections wrong nan Mburahati organization successful Tanzania. The statement brings entrepreneurs and different professionals together to fortify section economies: for example, by helping farmers waste their nutrient and supporting section businesses.

The 2 of america connected done communal friends aft nan Polkadot Safari conference successful Nairobi, Kenya, successful nan outpouring of 2023. Shortly thereafter, we began exploring really Encointer could beryllium adapted to nan Tanzanian context, and successful September 2023, alongside our partner Chatafisha, we launched the Nyota organization currency successful Dar es Salaam utilizing Encointer’s protocol. 

Each of nan 3 partners down nan Nyota section rate strategy contributed chopped expertise. Encointer brought its blockchain expertise and transparency-driven principles, Jukumu leveraged nan solidarity and spot it has earned successful nan section community, and Chatafisha brought its acquisition processing integer devices for marginalized communities, from discarded pickers to savings groups. Together, we localized Encointer’s model, launching Nyota arsenic a costs strategy for section equipment and services. Within months, information grew to almost 100 individuals and respective businesses crossed various sectors.

Below, we’ll research really this section rate strategy works, and really akin systems tin beryllium developed to support economical maturation successful different communities crossed emerging markets.

A Model Rooted successful nan Concept of Universal Basic Income

Unlike accepted monetary systems, which trust connected in installments and interest, Encointer’s exemplary is built astir grassroots economical coordination and community-driven rate creation. It includes cosmopolitan basal income–like mechanisms that supply regular section rate issuance to participants. The strategy distributes this section rate done in-person attestations based connected beingness beingness and communal verification alternatively than charismatic documents. This process ensures each participant’s characteristic and allows group without general IDs aliases slope entree to participate connected adjacent terms. 

Everyone successful nan section organization is invited to participate successful these gatherings, which return spot each 10 days. For each verified participation, individuals person 5 Nyota, nan sanction of nan digital section currency. Within nan community, 1 Nyota is informally weighted astatine 1,000 Tanzanian shillings, making nan reward balanced to 5,000 shillings (about $2). For immoderate participants, this represents adjacent to a day’s basal budget.

In summation to nan issuance of nan section currency, a integer faucet (i.e., an automated token dispenser) distributes a mini crypto allowance of 0.1 KSM (approximately $0.50) per gathering and participant. This operates arsenic a small, traceable rate transportation delivered done a operation of blockchain and mobile infrastructure. While nan Nyota rate is intended to chiefly move wrong nan community, pinch restrictions connected whether/when it tin beryllium exchanged for Tanzanian shillings, this further allocation of Kusama crypto tokens tin beryllium easy exchanged for shillings, for illustration to screen mobile information costs aliases different outer expenses.

Through these currencies and nan strategy that enables them, nan Encointer exemplary offers a caller instrumentality to traceably stimulate section economical development, pinch imaginable applications successful some world and home improvement programs. 

Fractional Reserve and Democratic Liquidity

The Nyota inaugural shows really this attack tin beryllium applied successful section communities. We established nan Nyota organization rate arsenic a costs replacement for locally produced equipment and services. The worth of this rate is rooted chiefly successful spot wrong nan community, based connected its acceptance by section vendors for mundane transactions. In addition, it is supported by a organization reserve that was initially filled done a rate injection that came from grants awarded to nan Encointer Association, including backing from nan Web3 Foundation and nan Kusama ecosystem. Within Kusama, grants are distributed via an on-chain treasury (a transparent, blockchain-governed backing excavation successful which participants publically submit, measure and ballot connected proposals). 

The organization reserve acts arsenic a fractional reserve, meaning it backs only a information of nan worth of nan cryptocurrency circulating successful nan section economy, not each portion one-to-one. Similar to nan golden standard, nan reserve provides a reliable anchor that strengthens spot successful nan currency.

In practice, nan reserve addresses a communal sustainability situation of organization currencies: Popular businesses that judge ample amounts of section tokens often accumulate much than they tin meaningfully walk wrong nan community. By allowing these businesses to person a constricted stock of their holdings into nationalist currency, nan strategy prevents imbalances and ensures that cardinal participants stay engaged. 

Because nan reserve only needs to screen a fraction of nan circulating value, nan measurement of section rate transactions tin transcend nan magnitude of outer backing injected into nan system. In different words, each dollar placed successful nan reserve enables respective dollars’ worthy of section exchange, arsenic nan organization rate circulates many times among participants earlier immoderate conversion to fiat rate occurs. Access to these conversions (called switch options) is granted done proposals and organization votings. Currently, approved switch action proposals alteration members to person Nyota into USDC, a U.S. dollar–pegged stablecoin, straight wrong nan Encointer app. The USDC tin past beryllium transferred and exchanged into Tanzanian shillings. Integrations pinch Visa cards and pinch integer nationalist rate systems are planned, which would simplify nan process and little barriers to access.

This attack aligns pinch nan rule of subsidiary democracy, empowering communities to style their ain economies from nan bottommost up. Leveraging mobile and blockchain technologies, it ensures accessibility and transparency without relying connected authorities aliases firm infrastructure.

Expanding nan Model Through Local Partnerships

Over time, we expanded this model. Jukumu organized businesses addressing akin basal needs, specified arsenic tailors, nutrient vendors aliases sellers of hygiene products, into sector-based groups. Within these groups, members create associated projects (for example, tailors coordinating their clothing accumulation aliases nutrient vendors participating successful bulk purchasing of ingredients), and they tin use collectively for mini loans from nan organization reserve to screen these costs. Access to these loans requires a viable associated task and capable section rate (Nyota) held collectively by group members arsenic collateral. This strengthens practice wrong sectors while reinforcing nan circulation of nan organization currency.

To thief accelerate adoption, we worked pinch organization leaders to leverage section informal savings groups, integrating nan Encointer strategy pinch nan accepted Mchezo: a rotating savings and in installments strategy profoundly rooted successful Tanzanian culture. Combining nan Mchezo exemplary pinch Encointer’s Kusama-based integer faucet resulted successful nan Kusama Mchezo, 1 of nan world’s first blockchain-enhanced savings circles.

In nan first information of lending successful this savings circle, participants pooled their crypto allowances, exchanged them for Tanzanian shillings, and utilized nan costs to commencement aliases grow mini enterprises. Within months, 15 caller ventures emerged, including tailors, cooks and artisans. Many are still operating today, moreover arsenic nan Kusama Mchezo has moved into its 3rd information of lending, demonstrating nan initiative’s effectiveness successful injecting liquidity, building spot and fostering entrepreneurship.

Blockchain arsenic Public Infrastructure: A New Instrument for Effective Development Aid

These successes relied connected cardinal contributions from each of nan partners successful nan Nyota initiative. Chatafisha played an important domiciled successful mounting up nan project, but has been little progressive successful its ongoing operations. The business pinch Jukumu has enabled section invention to flourish: The NGO has go nan societal backbone of nan Nyota organization successful Dar es Salaam. It mobilizes entrepreneurs and savings groups, builds spot done training and organization work, and adapts nan strategy to section economical practices and taste norms. Jukumu coordinates day-to-day operations, gathers feedback and evaluates impact, ensuring that Nyota remains locally governed, socially embedded and responsive to organization needs. One of its earliest ideas, a partial buy-back program, allows members to speech a information of their organization rate backmost into Tanzanian shillings. This system has not only provided liquidity, it besides became nan conceptual seed for what would later germinate into Encointer’s fractional reserve model.

The Encointer Association, by contrast, does not run section projects. Its domiciled is infrastructural: It develops and maintains nan open-source exertion that allows communities for illustration Nyota to rumor and govern their ain currencies, provides nan integer wallet and governance mechanisms, and offers method guidance.

While Encointer is built connected blockchain technology, cryptocurrency is not utilized arsenic a speculative plus successful initiatives for illustration Nyota. Instead, it functions arsenic a nationalist integer infrastructure that enables coordination without relying connected banks, governments aliases backstage platforms. This infrastructure, by utilizing an unfastened root codification base, makes it imaginable for communities to govern their ain currencies, reserves and information rules transparently and collectively.

This infrastructure enables 3 things: 

• Community self-governance: Participation authorities are linked to in-person gatherings, wherever participants attest that different participants are unsocial individuals pinch their ain accounts. These attestations assistance participants nan correct to mint nan section organization rate and to participate successful corporate determination making, including votes connected really nan organization reserve is used. For example, decisions connected which activities are supported, aliases who tin speech section rate backmost into nationalist currency, are made collectively. 
• Inclusion without general IDs: Because information is based connected beingness beingness and communal attestation alternatively than charismatic documents, nan strategy remains accessible to group who deficiency general recognition aliases entree to banking services. Verification does not trust connected a cardinal authority; instead, it is performed collectively by participants themselves, pinch everyone operating connected nan aforesaid level. 
• Lower costs and higher section impact: Compared to accepted assistance transfers, blockchain-based worth transfers tin importantly trim transaction costs. More importantly, wrong nan Encointer system, costs are not simply spent once. Instead, they go portion of a locally governed economical rhythm that keeps worth circulating wrong nan organization and amplifies its impact.

The strategy is much than a elemental rate transportation mechanism; it establishes a section rate and a democratically governed reserve, enabled by regular organization gatherings that shape nan ground for trust, coordination and corporate decision-making.

The Nyota Community: A Model for Local Currencies successful Africa

Today, Nyota counts much than 100 participants, and it has funded 60 progressive entrepreneurs organized successful 7 business groups.

At its bosom is Chairwoman Jackline Sobo, who hosts regular gatherings successful her home. Known for her roasted cashew nuts and braiding skills, she says: “Through Nyota, galore group person travel to cognize my work. We support each other. When I bargain from them, they besides bargain from me. It makes america turn together.”

Stories for illustration Jackline’s uncover really Nyota has go a self-reinforcing section economy, blending technology, spot and quality creativity. They besides hint astatine nan effect that could beryllium achieved if nan Nyota exemplary is applied elsewhere successful Africa.

Since 2023, Encointer has worked pinch different communities to research their liking successful launching their ain crypto-based section currencies. Inspired by nan Nyota community’s occurrence successful Dar es Salaam, nan organization of Zaria, Nigeria has worked pinch nan Encointer squad to motorboat a caller section cryptocurrency inaugural pinch a solar-powered IT setup. To alteration this, nan section squad repurposed an aged HP machine arsenic a blockchain node, showing that method decentralization does not require costly infrastructure. Their node now helps unafraid their section rate and, astatine nan aforesaid time, strengthens nan world information of nan underlying Kusama Network, helping to equilibrium Africa’s underrepresentation among blockchain validators.

However, the information driving this caller community is astir much than moving infrastructure for a world network. Like nan Nyota task and different blockchain-based section currencies, it is astir bringing prosperity to nan individuals and businesses crossed Africa and different emerging markets that person been excluded from entree to superior for acold excessively long.

Malik El Bay is nan operational lead of nan Encointer Association; Alinagwe Mwaselela is nan Team Lead of nan Nyota Community and nan laminitis of Jukumu NGO successful Dar es Salaam.

Photo credit: Alinagwe Mwaselela