Complementary Currencies

Money is any commodity that has value and is accepted during the exchange of goods and services. We use money as a store of value, a unit of account, and as a medium of exchange. For most of us, money is purely the national currency; Kenya, Uganda and Tanzania Shillings, Rwandan Francs, US Dollars, among others. Did you know that there are alternative currencies that complement the national currency?

Complementary currencies (CCs) are a regional means of exchange that supplement national currencies and enable people to build social solidarity and strengthen local economies. During the lockdown period, actual money was scarce. Businesses had a surplus of products and services to sell, but there wasn’t enough money circulating to keep trade going. CCs were useful in continuing trade activities, enabling the purchase of goods and services through the use of vouchers.

How do CCs Work?

Meet Mike. He’s a shop owner in Mathare. His fully stocked shop is located in a densely populated area, but he struggles to make two sales a day. Mike cannot pay school fees, buy groceries for home use, or pay his bills. While people surround him, none of them has money to purchase the goods he’s selling. To solve his problem, Mike can opt to take a loan to pay his bills or sell his goods at a loss, thus putting him out of business. It’s a choice between a rock and a hard place.

Enter CCs. CCs are a form of local currency created within a community and provide access to credit and liquidity to all members of the network. In addition to trading in the national currency, the network exchanges tokens or vouchers in place of cash. Using this alternative creates liquidity in the sense that the vouchers can be exchanged for money eventually but serve as a means of exchange from business to business, or individual to individual in the network. For success, the network needs to have multiple and varied enterprises to keep money circulating within the community.

Mike can join the CC network in his region as a business that accepts and makes payments in the local CC. The business network includes schools, clinics, transport, individuals, and other SMEs. Upon application, Mike is vetted and given credits that he can use to make payments. These credits are his risk rating, and Mike can not hold CC credits above his risk rating. His risk rating is revalued from time to time and can be higher or lower based on his use of the CC.

Instead of relying on cash to make payments, Mike uses his CC credits at all businesses or organisations that accept CC credits and, because he accepts CC credits he can make more sales. CCs provide mutual credit between businesses and are backed by goods and services in the locality. The purpose of the credits is to enhance circulation and trade and not as a store of value.

Do CCs threaten the national currency?

CC credits work for locally provided goods and services. However, Mike still has to pay Unilever, P&G, Coca Cola, Brookside, Supa Loaf, and other suppliers who do not accept the local CC. How does this work?

Remember, Mike still trades in Kenya Shillings. He can use KES to pay his suppliers, or other businesses outside the CC network or even start saving now that he has extra capital and is making more sales. Alternatively, he can trade the CC credits at a cost for Kenya Shillings.

In 2013, the Kenyan State agencies, including the Central Bank of Kenya banned the Bangala-Pesa CC widely used in the Bangladesh Area of Mombasa County. The ban and subsequent arrests of the founders of Bangla-Pesa CC were sparked by fears by the State that the CC would replace the Shilling. After a massive Court battle in 2013 and 2014, the State eventually embraced the CC and appreciated that CCs do not threaten the national currency. Instead, they provide numerous benefits to the community;

CCs stabilise trade and economy in periods where the national currency is scarce. During the lockdown or other economic downturns, CCs kept businesses going and money flowing within local communities.

CCs are a zero-rated loan facility as the users are not buying it with national currency but are given vouchers as credits increasing access to cheap affordable credit. The collateral in this model is trust and your social capital.

CCs help support local businesses. National economies may be doing poorly, but local economies can keep running using CCs.
CCs help put to use the excess resources of the community that can otherwise not be paid for or quantified. Time-based currencies, for instance, build on the assumption that all humans have valuable talents that can contribute to the wellbeing of society. Using time as a unit, people exchange their time to get benefits in the community. Time-rich but cash-poor people can exchange their time for goods and services.
CCs enhance participation in community and control over community improvement projects like clean-up projects, waste management projects, security projects, etc. Eco-Pesa in the Kongowea market, for instance, allowed youth to earn credits for every bag of garbage collected from the area. Youth were actively employed and could access goods and services, and Kongowea became a cleaner environment.

Are CCs still active in Kenya?

CCs in Kenya all run under Sarafu-Credit. Sarafu-Credit is a system of community currencies used as a regional means of exchange supplementing the national currency system. Sarafu-Credit has been developed and implemented by the non-profit Grassroots Economics.