Are virtual currencies a plus for poor countries? – podcast transcript

Reporters and presenters:

MA: Mark Anderson

AH: Alex Hern

ZF: Zoe Flood

Interviewees:

JO: Josephine Ojiambo

TS: Toby Shapshak

ER: Elizabeth Rossiello

EM: Eliud Mungai

TT: Terlumun Tyendezwa

TC: Terence Chua

MA [Swahili spoken]

JO Ah, you speak some Swahili.

MA [Swahili spoken]

JO Oh, it’s very good. I’m smiling.

MA Josephine Ojiambo is responsible for political affairs for the Commonwealth Secretariat.

JO Virtual currencies are a direct result of the growth of online communities and the need for a means of value exchange.

MA Earlier in February, she chaired a round table on virtual currencies, what they are and what they might do for the economy. There were many nations represented.

JO And I’ll name a few. We’ve got at the table indeed Kenya, Ghana. We’ve got at the table, Tonga from the Pacific Islands, India and also the UK and New Zealand.

MA If you’ve heard of virtual currencies, you’ve probably heard of bitcoin. We’ll get to how they work in a moment but first, this is the vibe of the meeting.

TT The major danger is the likelihood of abuse because of the anonymity factor.

MA Terlumun Tyendezwa, head of the Computer Crime Prosecution Unit for the Nigerian government.

TT I’m sure that almost every police force in the world will tell you they don’t have enough resources to fight crime, but there is a need to develop human capacity as well as get the requisite funding resources for equipment and training and all of that, and I’m sure no police chief will tell you they have enough resources.

MA Terence Chua is from the attorney general’s office in Singapore.

TC From a law enforcement perspective, the danger – if you want to call it that – is that anonymity makes it an attractive proposition for criminals to use in terms of hiding the money trails that we would normally use to try to get evidence against them.

MA But it’s not all bad.

TC I don’t think danger is really the right word. I mean, like any kind of currency, there are the upsides and there are downsides, the upsides of which are to consumers, obviously, is that it’s very convenient, some people like the anonymity, and of course it doesn’t hurt that at the moment bitcoin prices go up and down quite a bit and some people see it as an investment. And there are certainly advantages in terms of people trying to remit amounts back to their home countries, for example, when you’re working in foreign jurisdictions, without having to go through remittance services and then suffering transaction charges as well. So there are a lot of benefits to it.

MA That’s what we’re talking about today, the difficulties of working with bitcoin, even just explaining what it is for people around the world. But we’ll also hear how the African continent is best placed to innovate in this area. Why? You’ll find out in this edition of the Global Development podcast from the Guardian. First, what is bitcoin and how do we use it? Alex Hern is a tech reporter, here at the Guardian.

AH A virtual currency is any money which exists purely in the digital world. What it looks like is a digital wallet. You open it up, you have a balance at the top, you will have typically a QR code, a small grid of black and white squares, which someone can scan to get your wallet address if they want to send you money, and you have the ability to do similar if you want to send someone else money, or hook up to a smartphone’s camera or a webcam and you’ll be able to send money that way.

MA It’s like a very, very basic internet, solely for money. There are other virtual currencies like bitcoin but the basic premise is the same. There’s no bank, no central office your transaction goes through …

AH It’s a decentralised virtual currency. Every single person who uses bitcoin stores on their computer a record of where and when every single bitcoin ever has been spent.

MA This is like a ledger where every transaction can be found. You’ll also hear it called the ‘blockchain’, so when you hear blockchain think about a virtual ledger.

AH And you can go and look at every single bitcoin transaction since then on the computer of anyone who owns any bitcoin. What you can’t see, of course, is who holds these bitcoins The information is all stored under cryptographic signatures.

MA Which leads us to our next big feature, anonymity.

AH Those two properties combined, decentralisation and pseudonymity, meant the bitcoin was initially, and perhaps still currently, most popular for fringe legal and outright illegal uses online.

MA We’re talking drugs, weapons, that sort of thing.

AH The big question for the currency and its advocates is whether or not those uses are a majority or even a substantial minority of the currency which is what I would hesitate to say, or whether there are actually much smaller uses and there is a vast pool of legitimate uses.

MA It’s a new technology, so governments are worried about how it will be used. Josephine Ojiambo again.

JO The must-haves with every technology would be what you’d call a very balanced line between regulation, which could be seen as restrictive, and what you’d call supportive supervision. Because technology advances in leaps and bounds, we’re now thinking of being more proactive and thinking of developing legal frameworks that will be set in place to address the issues of anonymity before crime or criminal activities actually take place.

MA Of course, for all the dangers the prospects for bitcoin and others in Africa could be huge. For an idea of how the continent has got behind new ways of thinking about money, you only have to look at M-Pesa.

JO It was an innovation of a young Kenyan and M-Pesa now has grown within the region and it’s used across the income sectors from low income to middle and high income for transacting business. I, as a Kenyan national, and others even know that you can transact M-Pesa from London and now from many settings in Europe and in the United States.

MA I was fascinated to hear you say that you’ve used M-Pesa here in London. Do you mean that you’ve used it to send money back home, or how did you use M-Pesa while you were here?

JO Both ways. My family sent me M-Pesa, they bought it in Kenya and then sent me money, and also I’ve sent money to friends in Kenya already.

TS I have a friend who was driving back from the airport in Nairobi and a beggar knocked on the window and he said, “I’m sorry, I don’t have any local currency yet,” and the beggar whipped out his cellphone, tapped on it and said, “M-Pesa.”

MA This is the writer, Toby Shapshak.

TS Something like 40% of Kenya’s GDP passes through M-Pesa and something like $30m a day. This is very significant, it’s become a financial institution in its own right. You can pay for school fees, you can buy groceries, I’m told you can even bribe customs officials using M-Pesa. It’s a modern-day cheque system for the mobile era – it’s highly efficient. The friction involved is minimal, transacting is useful and easy, and the most important thing is you can do it on the most basic of cellphones, because Africa isn’t a smartphone continent yet, it’s going to get there but it’s just not there yet. M-Pesa’s activity is so significant that it had an impact on Kenya’s inflation. I mean, that’s a previously unheard-of statistic in terms of new forms of money.

MA But M-Pesa isn’t the only game in town. For Africans looking to send money without a bank account, without access to foreign exchanges, there are other innovations.

TS Interestingly, what some people have been doing is sending airtime, you know when you buy airtime from, say, a cashier in a supermarket you get a till slip with a 12-digit number and you type in *111# and you put in the number and it’s a short code using USSD. That’s the technology that underpins it, and what people do is they SMS the code for the airtime to somebody else, so instead of having to actually use money you are using an airtime voucher as it is, and airtime itself has become a currency of its own. I mean this is just the smartest, savviest innovation out of necessity you can think of. People have found a way to get around the fact that there isn’t a banking system they can use or that’s cheap enough for them to use. They don’t have to register for M-Pesa or mobile money of any description, they can just send an airtime voucher and airtime itself is a currency. It’s got value that you can send and trade.

MA And it’s not simply about other versions of credit.

TS I think we’re going to see quite an increase in electricity solutions. People are going to find ways to use solar or get a solar installation. There’s several examples of how you can lay by to buy a solar torch, which comes in three different parts – the torch, the battery and the solar panel – and you pay for it bit by bit, by bit, and ultimately you own it. And, of course, one of the advantages of having, say, your own solar set up in your house is that not only will it power your own house but you can sell any excess capacity to say your neighbours. You know, there’s fantastic opportunities for small entrepreneurs who can use clever solutions and then be paid instantly by a mobile money.

MA But being able to ignore the bank system is only one problem solved. The other is the expense that banks charge for each transaction, and that is something bitcoin could solve. Alex Hern again.

AH Because there’s no central authority, there is no central authority setting a transaction fee, there’s no Visa or MasterCard or M-Pesa even taking a cut of every transaction to pay for the infrastructure. With bitcoin, ideally you have none of those costs. You do of course still have to pay for a computer and an internet connection so it’s not perfect. With remittances, potentially it’s even better, because of course a remittance typically someone sends one currency and receives another, so as well as the fee for simply moving money, which most companies will charge you, there’s the fee for a foreign exchange service as well. Those fees can be pretty astronomical actually, remittances firms are not averse to being slightly predatory. So theoretically the advantage of bitcoin is massive. It’s no more expensive, no harder to send a bitcoin from London to Pakistan than it is to send it from west London to east London. The problem is, of course, that most people today who live in London and want to send money to Pakistan don’t have bitcoin and want to send bitcoin, they have pounds and they want the recipient to receive rupees. That means that if you’re going to use bitcoin to make the payment, you still have to do two essentially foreign exchanges: you have to buy bitcoins with your pound and you have to sell bitcoins for rupees. Those there’s no guarantee they’ll be fee-free and in fact they probably will have a fee charged on them. So it’s not perfect yet.

MA But if bitcoin takes off and people use it to buy goods …

AH That remittance problem goes away. If I already have bitcoin in London because I do some portion of my daily business in bitcoin then I don’t need to pay a fee to turn anything into bitcoin, and similarly at the other end, if the person who’s receiving it has a lot of places they can spend bitcoin they don’t need to turn it back into Pakistani rupees.

ER So we moved our offices out here to Karen, which is a leafier suburb of Nairobi, a little further away from the traffic because now we have …

MA To see how bitcoin is beginning to take hold on the African continent, we sent reporter Zoe Flood to Nairobi, Kenya, to a start-up called BitPesa.

ER So I’m Elizabeth Rossiello, I’m the founder of BitPesa, which is the leading digital currency exchange for Africa and what does that mean? It means we sell bitcoin and we accept bitcoin for remittance payments from abroad. It’s quite an upgrade from our last space, well our first space I guess was Charlene’s couch, then we moved up to the start-up garages with a shared incubator space with horrible coffee, and we graduated to above a dance studio which played classical music nonstop, and finally a real office here at the Karen Stables, where we have lighting and windows and, you know, all the rest.

ZF Could you tell me a bit about the story of BitPesa? How did you come into being?

ER Sure. I came to Kenya in 2009 to work as a microfinance rating analyst and what you saw was the institutions that successfully incorporated mobile money is their operating expense figures suddenly started to plummet. So, it was a really exciting time seeing this new technology have real change in the way businesses can be built and structured. You know, when I explain bitcoin to people back home in the US or here at my other home in Kenya, I find they get it at the same level. Here they just say oh, an international M-Pesa, and back home they’re like, oh OK, it’s sort of like PayPal but not really. So it’s interesting to see how quickly it’s picked up here.

EM My name is Eliud Mungai, I am a Kenyan entrepreneur. Bitcoins I’ve been using since October 2014. BitPesa, I started using in December. I started using it for speculative stuff, buying bitcoins and just checking on the price to see how it’s moving and then I discovered about a platform called BTCJam, it aided in my micro-lending, I actually do micro-lending on the side, so I got into this platform and I found another valuable use for my bitcoins. So once I started using BTCJam and the trading became the conversion of the bitcoins to Kenya shillings frequent, that’s when I started using BitPesa.

ER Right now in our beta version a customer has to already own bitcoin. You log on and you’re required to give your name and your date of birth and your address, which we scan against some security measures, so we perform the same sort of basic KYC, which is know your customer and any money laundering that all of the other remittance companies do. So when people talk about the kind of digital currencies being insecure that’s really a business decision, whether you want to put in place the same sort of legal and regulatory requirements that the other businesses have, and that’s something we’ve decided to do. And then it’s a simple QR code that pops up or an address, you’re asked to send the bitcoin to that address and within minutes – usually within two to five minutes – your recipient has received it on their phone. And the recipient has to know nothing about bitcoin, they’re not exposed to the price volatility, they’ve received the bitcoin within minutes before the price has fluctuated and it looks exactly like any other mobile phone payment. So your grandmother receiving the money in Mombasa doesn’t need to know anything about how you sent it. All she knows is that she’s received more money, quicker than usual.

EM Trust is a very big issue because it involves money and people will need to gain that trust so that they can gain confidence in the service, but the biggest advantage in the Kenyan market is one, because of the Safaricom M-Pesa we’ve been used to it and also over the years we’ve gained a lot of trust with the brand of Safaricom M-Pesa. It’s a good market because we’re used to the services and because of these platforms that are coming, because they’re linked to M-Pesa, we find is entrusting them but also it’s speculative and it also takes a lot of risk-taking, but being young entrepreneurs it’s something we are used to, yes.

ZF At this point bitcoin isn’t that well known in Africa. How do you plan to deal with that?

ER Well, we’ve been building a community here in Kenya, which is exciting, so in early 2014 we would have weekly or monthly meet-ups where there’d be like three people, five people, but pretty soon by six months in we had a kick-off event with 120 people. I mean amongst the youth and amongst the tech community we definitely have made a name for ourselves and we do a lot of what we call kind of like information sharing so what is bitcoin, what is the blockchain, how are ways that you can use bitcoin and the technology, the apps that you’re developing in your businesses? We’ve done a lot of grassroots work on that front. We also have seen like sprouting up little mini-bitcoin companies, like companies that are looking to use bitcoin. There’s the first bitcoin conference being held in Cape Town next month, which is exciting, and there’s certainly like pockets of bitcoin adopters and users in Ghana and Nigeria.

EM BitPesa, I use it let’s say like two times in a week. The biggest transactions I’ve done with it is for conversion, I’ve been able to get a loan to fund my retail business from BTCJam and I was able to convert, because it was a big bitcoin amount, I was able to convert it choosing BitPesa into Kenya shillings. And also now because I refer a lot of my customers who have been lending to BTCJam the amount that they need to be lent I convert it to bitcoin, so I use BitPesa on a weekly basis because I usually try to get at least two customers in a week, I convert their Kenya shillings to bitcoin so that I can lend to my customers.

ZF Why is Kenya specifically an interesting market in which to test bitcoin remittances?

ER Well, I happen to live and be working here in Kenya so that was one thing and I knew the market really well. I think it’s important when you’re looking to do a pay-out country exchange or a southern regional exchange to really know the regulatory environments, really know how operations work and that’s what was our competitive advantage. Myself and our COO, Charlene Chan, had been living here for over six years and had been working in this space, building financial products so we felt very fluent in this region. The other benefit of course is what everybody talks about, the penetration rate of mobile money, now that’s a blessing and a curse. It’s really exciting how high the penetration rate is and how much that understanding and that financial literacy has really affected our target population here, however you’re also very overly reliant on a single company’s technology, so while it’s a great place to start we’re excited to diversify into other markets where there are multiple mobile money operators and also better bank switches.

ZF Smartphones are still emerging in sub-Saharan Africa, lots of people don’t have access to them. Is that a barrier to your business?

ER No, I mean that’s exactly what our business does, we kind of bridge that gap in that we not only convert that client into local currency but we deliver it into non-smartphones as mobile money instantly. But we also offer the opportunity for people who do have smartphones and do have data access to purchase bitcoin, and of course if you’re interested in purchasing bitcoin you most likely know how to get a bitcoin wallet and have already learned a little bit about it. So, we provide kind of the whole spectrum and if you want to receive bitcoin as a payment from abroad you don’t need to come through us but when you want to cash that out into local currency that’s when you’d use our platform. So we’re really offering a service, both for those without smartphones and data access and more advanced consumers.

MA Elizabeth Rossiello, speaking to Zoe Flood. Bitcoin and other virtual currencies have yet to take off but it feels like if this will happen anywhere it’ll be somewhere in Africa, where innovative solutions to finance have been around for years and where cellphones are the most popular form of computer. So putting the two together like M-Pesa and now BitPesa seems like a no-brainer. Alex Hern again.

AH Bitcoin works very well on a mobile phone. It’s perfectly possible to use bitcoin without ever touching a desktop bitcoin client. One of the downsides is the way mobile clients work for bitcoin, there is always someone with a backend doing a heavy lifting, and that means that there’s the risk that in the future those companies would start charging for their services. So whereas bitcoin on the desktop you can say will always remain fully decentralised – you will always be in charge of how your money travels through this network – you can’t quite say the same for mobile. So it may be a dead-end but we are also talking 20, 30 years’ time, we’re not talking in six months, they will put paywalls up.

MA Toby Shapshak.

TS Bitcoin’s advantages are how fluid it is to transact. There’s a fluidity and an ease of use built in to bitcoin that doesn’t exist in legacy financial markets. The problem, however, is going to be that it’s too complicated for people to understand, and of course it’s hard enough doing transactions in your own currency while pegging them against the dollar. You need to remember that a lot of countries do a lot of dollar-based transactions because of the certainty of hard currency and that its exchange rate doesn’t fluctuate much. So there are people having to do transactions in dollars and in their local currency and then of course they’d have to work out what the exchange rate to bitcoin is and bitcoin as we’ve seen has been highly volatile. People are just not going to use it because of its volatility.

MA And Toby has one final warning to those looking to develop digital businesses in Africa.

TS The thing to remember is that buying a smartphone is only part of the cost. The next biggest factor is having to pay for the cellular data and data in general in Africa, it’s very expensive through the cellular networks and they tend to be very punitive out of bundle rates, so whenever people’s data bundles run out they are oppressively charged a significant amount of money. So there’s a lot of fear of bill shock.

MA But if places like South Africa and Kenya can get mobile infrastructure right, the rewards could be significant.

JO The interface between what is seen as a local mobile telephony with an application for the developing world setting and that of a more, should I say, developed world setting on the use of bitcoin is now really on the table. It’s possible now to talk about mobile telephony in the developing world setting, and link it to virtual currencies and talk about the way forward, both in improving the efficiency of transactions, but also looking at regulation.

MA Josephine Ojiambo ending this edition of the Global Development podcast. Thanks to her and to all our guests – Terence Chua, Terlumun Tyendezwa, Toby Shapshak, Elizabeth Rossiello and Eliud Mungai. Thanks also to reporter, Zoe Flood, and producer, Matt Hill. Remember, all of our programmes are available on the Guardian’s website, theguardian.com/global-development and on iTunes, SoundCloud and all podcasting apps. My name is Mark Anderson – thanks for listening and goodbye.