A few decades ago, the idea of giving money to poor people instead of food packages and healthcare was almost scandalous. Free money? With no strings attached? Surely, this was aid gone wrong – a desperate attempt to do things differently that was bound to fail.
Today, the evidence for cash transfers as an effective form of aid has changed the way we think about giving money to the poor, as well as the methods we use to fight poverty. In December 2018, a number of UN agencies released a statement that identified “cash-based assistance as one of the most significant reforms in humanitarian assistance in recent years”. This is just one example of how innovative approaches to old methods can shift the mentality of an entire industry.
At Grassroots Economics, we believe that poverty alleviation and innovation go hand in hand. The UN estimates that the gap in financing to achieve the Sustainable Development Goals (SDGs) is $2.5 trillion per year in developing countries alone. This creates a real crisis for the humanitarian field. It doesn’t matter how effective new methods are – they need to be financed. So where will the money come from?
Blockchain-powered community currencies promise to revolutionize how we do aid. Giving people money will only get you so far. Injecting cash into stagnant economies doesn’t change the underlying structure of those cash-strapped, underutilized networks. The real challenge is creating socio-economic value systems that are rooted in vibrant, cohesive and resilient communities.
In order to do this, communities need to be empowered to turn cash circulation into economic activity. A cash transfer recipient who still has to commute 4 hours to grind their maize is still burdened by the fact that key products and services aren’t available in their area. As a result, most of the money that goes into the community goes straight out again, making no difference to local business growth, employment opportunities or access to resources.
The Sarafu network is a community currency system that has existed for nearly a decade in Kenya. We give people the power to define money in their own terms, where value is backed by the productive assets of the community. In other words, instead of giving cash, we enable mutual credit. Using Bancor’s blockchain API, we’ve been able to see the real-time growth of robust economic networks. Token data offers powerful insights on demurrage (negative interest rates), incentive structures and promoting economic resilience and development. When people use Sarafu to trade with each other, pay for school fees, or start a business, they’re making sure that the credit that enters the community stays there.
Community currencies create robust local networks: A snapshot inside the Sarafu network in Lindi. Nodes represent individual traders.
Bill Gates and Silicon Valley can’t finance the gaps that exist in the developing world. Poor communities don’t lack demand, or labour, or ideas. They lack a medium of exchange to deploy their under-utilized resources. When people are empowered to create that medium of exchange for themselves, they’re able to kickstart stagnant economies and create value where there previously was none.
This is how you build prospering economies powered by thriving communities. For more information on our work in Kenya, visit our blog.