Sunday, Dec 21st 2014

Bangla-Pesa: The use of alternative currency in Kenya

Wednesday, June 5, 2013 - 00:00 -- BY MARTIN MWAURA AND CHARLES MGHENYI

The concept is not new and was first introduced in Kisumu Ndogo, Shauri Yako and Mnazi Mmoja slums in Kongowea Last week, Bangladesh slum in Changamwe, Mombasa, was in the news with reports that it had introduced its own currency - Bangla-pesa - to act as a substitute to the Kenyan money.

The founders and members of the initiative found themselves in court for allegedly using illegal currency to transact business. CID officers from Changamwe police station with 'orders from above' arrested five women and quickly arraigned them in court without charges being preferred against them. Kenyan police had panicked and read mischief in the publication of currencies meant to rival the Kenyan shilling, mainly propelled by the existence of secessionist groups within the area where the new 'currency' is operational. In a sworn affidavit by Corporal Awadh Issa Mohammed, the police said they were investigating Bangladesh slum residents Alfred Osigo, Paul Mwania, Caroline Dama, Rose Auma and Emma Odhiambo.

In the affidavit, Mohammed asked the court to grant him three days to conduct interrogations on the accused for suspicion of possessing papers used for engaging in forgery. The court upheld the submission and they were detained at the police cells for what they still believe was unlawful. The five were later charged together with their American co-founder on May 31. They were charged with possession of printed papers that had currencies, a charge they deny, and were each released on a Sh50,000 bond.

"The story that first appeared on a local daily instigated the arrests of the innovative citizens through misreporting," said William Ruddick, the founder of the initiative. Ruddick said the organisation had no intention of creating official money and that the Bangla-Pesa was clearly labelled as a voucher. The organisation, Koru, is a registered community-based group in Changamwe. The aim of the initiative is to support the locals to trade and save more money for developments. “Bangla-Pesa is a programme to strengthen and stabilise the economy of the informal settlement of Bangladesh by organising its more than 200 small scale businesses into a Bangla Business Network, through which its members can utilise a complimentary currency to mediate trades,” reads part of the introduction statement on Koru's website. Ruddick, the co-founder of the project, says their objective is to help the members trade their excess capacity among themselves.

“We have seen trade increasing by more than 20 per cent and we are not replacing the Kenyan shilling.” Ruddick is an American who has been working with the slum dwellers in different development projects. According to the organisation's website, credits are issued in the form of paper-vouchers that can pass from hand to hand as payment for goods and services. Toward the end of 2013, they hope to add the capability of using mobile phone technology as a means of transferring Bangla credits. “Ours is a noble cause of helping the locals and not what was reported in the media last week,” he says. “We are not MRC and we do not support any cause of going against the government's wish. This is a business to business voucher system and simply helps business record their exchange of excess capacity,” Ruddick says. “It is credit within this mutual-credit-clearing (or multilateral reciprocal exchange) system which provides a means of payment that is complementary to official money,” he adds.

The Banga-Pesa voucher are only allowed to circulate within the registered members who use it as a credit system plan and are expected to repay it after getting Kenyan money later. According to Ruddick, the concept is not new and was first introduced in Kisumu Ndogo, Shauri Yako and Mnazi Mmoja slums in Kongowea.

Rose Oloo, a member of the organisation who is also out on bond, says they just use the voucher as a means of getting products from the members of the Bangla-Pesa Network and not just anybody else. Oloo was at first afraid to share any details, saying it was the cause of all their problems with the government. When she opened up she said, “You only buy products using the voucher when you have no money but strictly from the registered members; it is a form of buying things on credit,” she says. John Paul Obonyo, a resident, said negative media reports had caused panic among the villagers after they were likened to the banned Mombasa Republican Council secessionist group. The story has drawn a lot of reaction from across the county with other people making fun of the concept.

Jomvu MP Badi Twalib over the weekend defended his constituents against the government harassment following the arrest of six people involved in the saga. While addressing residents during the Madaraka Day celebrations, Badi said Bangla-Pesa was a self help group initiative and was not trying to substitute the Kenyan currency. Badi added he has worked out a deal with the Equity Bank and and they will be training the locals on business skills from this week. “The Bangla-Pesa works as a voucher that the residents and business will use as a way of supporting local business and entrepreneurs.

The government should support the initiative instead of arrresting people,” he said. Josephat Kioko, a radio journalist in Mombasa who was shortlisted for an international award after enlightening the Eco-Pesa, the predecessor of Bangla-Pesa in Kongowea in 2010, expressed dismay following the misreporting of the story. Kioko came second runners up in Diageo Africa Business Reporting Awards 2012 in London last year with the story 'Eco-Pesa voucher'. In his official twitter account, Kioko posted: “Police should understand this and not wait for misinformation from media, then go on and arrest poor Kenyans struggling with little economy.”

Jimnah Mbaru, an international renowned investment banker who has made a remarkable contribution to the development of capital markets in Africa, supports the idea of complimentary currencies. Mbaru, who served as chairman of the Nairobi Stock Exchange for 10 years and Africa Stock Exchanges Association, said Bangla-Pesa was misunderstood. In his official twitter handle he says: “Bangla-Pesa is just a promissory note liquiditable at a later date.

It is discountable in the secondary market. It is NOT illegal.” “Innovation can come (from a) very unusual source. It is the mother of necessity. M-Pesa came through this route. Who knows Bangla Pesa,” Mbaru added on response to Kioko's tweet. Ruddick came out to defend the idea, saying “(Bangla-Pesa) complements rather than replaces the shilling. Have some more fact in choosing your headlines. Sensationalism has caused a lot of harm here.” Complementary currencies might sound new to Kenya, but many countries in the world have this system running and has given people a chance to exchange goods and services without use of money.

These systems may stimulate economic as well as social activities in the local community, and encourage mutual help between its members, consequently reveal and release idle resources unavailable to the prevailing economic system. This may benefit the local community, its members, and society at large. Complementary currencies may help involve people in solving their own problems rather than living on social benefits.

In the United Kingdom and the USA, authorities support the spread of such social networks, as numerous examples show that complementary currency systems leads to stronger community spirit, increase community participation, create better quality of life, and give elderly people a longer and more eventful life with less illness. Alternative currencies, in theory, encourage consumers to make purchases within their communities rather than elsewhere in the country or abroad. "Buying local" circulates wealth in the region, reduces unnecessary imports, and helps avoid higher unemployment levels, supporters say.

At least 4,000 complementary currencies are now estimated to be in circulation worldwide, compared with fewer than 100 in 1990, according to one report drawn from the Internet. On June 19-23, academics, government officials and practitioners drawn from all parts of the world will congregate in the Hague, the Netherlands, with the sole reason of debating the complementary currency systems. According to the organisers of the event, participants will discuss, among other issues, the innovative mobile phone payment systems in Kenya including the award winning M-Pesa and a similar phone payment system in Uganda.

Also to be discussed would be various community and complementary currencies from various regions of the world including LETS, Time Banks, the Argentine Redes de Trueque and the Ithaca Hours in the USA. Others include the German Regiogeld, the Brazilian community banks with surrogate currencies, the SOL currency in France and the ‘Transition Towns’ in the UK. In Belgium there's RES and the Wir in Switzerland,.

The Hague event, according to the organisers, aims at stimulating the exchange of ideas and experiences among the proponents of complementary currencies and its opponents. This clearly indicates the huge impact and the strong belief in complementary currencies all over the world. Kenyans seems to be joining this league. However, the big questions lingering in banking practitioners and Kenyans alike are: What does this mean for the Kenya Revenue Authority collections? Will the alternative currencies reduce the collections? The taxman maybe a worried man, but for Bangladesh residents, the voucher system is uplifting them from their poverty.

How the Lewes pound in the UK works

The Lewes Pound is a local currency in use in Lewes Town, East Sussex, in the United Kingdom. The currency was introduced in September 2008 by a NGO movement called Transition Towns as a mechanism to cushion the residents from the effects of climate change, economic inflation and rising oil prices.

It is legal as a voucher but not as a currency and the notes are valid for use for five years after which they can be exchanged for new Lewes notes or redeemed for Sterling pound notes.

It is essentially a voucher system traded locally as a complementary currency used alongside the sterling pounds. One can buy the vouchers at designated Lewes Pound outlets and spend it in stores that display the Lewes pound to buy goods and services.

By January 2009, the shops using the currency had risen from 70 when it was first introduced in 2008 to 130. Businesses that accept the Lewes Pound include grocery stores, restaurants, hairdressers, jewellers, pubs, yoga clubs and schools. Moreover, store owners can use the Lewes Pound to pay their employees and local suppliers if they accept it. In this case, it is treated as a taxable benefit.

However, It is not a legal tender and does not intend to replace the Sterling Pound thus there is no obligation by the residents to accept it and it is only accepted in participating outlets. The Lewes Pound is only spent within the locality and it is aimed at benefiting the local economy by encouraging demand for local goods and services. It can be exchanged for Sterling Pounds and they have the same book value. For every Lewes Pound issued, five pence is pledged to the Live Lewes Fund which is a kitty used in funding local projects that are not affiliated with the Lewes Pound initiative.

The Sterling Pounds exchanged for the Lewes Pound are kept in a safe deposit box in a local bank in case people want to trade in their Lewes Pounds.

Although it supports local trading and encourages economic growth within the town, it tends to lose momentum in circulation because for every Sterling Pound that leaves the market, it is replaced by a Lewes Pound therefore there is no real growth of the Lewes Pound if there is no demand for it. The currency will only grow if soft loans or interest free loans are offered on them which are not yet available since it is not a legal tender.

For safety measures, the Lewes Pound notes are printed on high security paper with watermarks, serial numbers and other hidden features to avoid duplication and production of fake notes. The work done in circulating and manufacturing the currency is all voluntary.