Recently Outsight was asked to help the Italian NGO, Helpcode, in partnership with the Politecnico Milano, scope how crypto-currency might be used to provide better services to beneficiaries in their projects. After some initial research we focused on sectoral currency as a way to multiply the value of donations in the education sector. Louis and Denise, the two founders of Outsight discuss the work…
The non-profit sector has, in recent years, started to take an interest in emerging blockchain and crypto-currency technologies, as these provide the potential process large amounts of transparent transactions at low transaction costs. These qualities — in theory — should enable the financial inclusion of beneficiaries, as the barriers of entry are low. In addition, specialised crypto-currencies can be utilised to multiply the impact of monetary funds when set up as a sectoral currency.
What is sectoral currency and how does it work?
The late Bernard Lietaer was a strong proponent of the radical possibilities of sectoral currencies and monetary systems to solve many challenges of today’s world. These included looking at the way we value resources in a short-termist fashion, to proposing mechanisms to protect the world economy from inflation. Among his many interesting initiatives, is the ‘Saber’ educational currency idea, designed for implementation in his native Brazil.
The educational currency is designed to set in motion “a substantial “learning multiplier” so that a given amount of money can facilitate substantially more learning for a greater number of students. The currency would fuel this learning multiplier without creating any new financial pressure on the economy. What this means in practice is that a tangible resource (in this case, a university scholarship) is given to younger students, rather than those who will use it. As the resource — turned into tokens — enters the educational system at a younger age, it is then possible to build a transaction chain between students of different ages until the tokens reach the older students who can cash them in with the university. The transactions that take place along the chain can be adapted to the needs of the system. In this case, the aim is for older students to provide mentoring services to younger students.
Students in the system hold an electronic wallet containing tokens. When a mentoring session takes place, the younger student will then ‘pay’ the older student with the tokens, which over time pass up the chain, age-group by age-group, until they reach the university students by the deadline of that year’s currency validity. Importantly, a demurrage fee (it loses its value after a set period) is attached to the currency in order to keep it in circulation. This prevents students from holding onto the tokens for their own profit later on as 100 tokens this year will become 50 tokens next year if not used. We have illustrated this chain below.
An overview of the educational sectoral currency system in the hypothetical DRC context.
In this example, a token could pass through five transaction points before being cashed in. Thus, a single scholarship for one student is having a positive impact on five other students who would otherwise not receive any direct benefit. This multiplying effect is the true genius of the sectoral currency approach and can be adapted to help many sectors, such as environment or care.
About the context
The Helpcode project location of Bukavu, Democratic Republic of Congo was used as a hypothetical location for the use of sectoral cryptocurrencies in support of ongoing programmes with the broader aim to reduce poverty through improved access to education. At the current stage of the research, the location provided the use case for the exploration and prototyping. There are currently no plans for direct implementation.
Bukavu is a city of about 800,000 inhabitants in the east of the DRC on the southernmost shores of Lake Kivu. Bukavu is a commercial and industrial center in the region and is known for the production of coffee, tea, tobacco and strawberries). Bukavu is host to four universities and at least four higher learning institutes including a teacher training college, a scientific research institute and an Institute of medical technology.
Helpcode has a small presence in Bukavu mostly through financially supporting school children. Funds are administered to the Foundation Foyer Ek’Abana, who then disburses the funds to about 1,600 beneficiaries — all of them children — to support the costs of attending schools.
Additional projects are planned to provide a mobile medical unit to serve about 1,500 street children throughout the city with basic medical services, alongside programs to reunite these children with their families and to provide economic support, as well as supporting return to school and connecting to job opportunities. Many children living on the streets are orphaned. Many do not have identities, though some support exists now to issue birth certificates and IDs. Unconditional cash transfers alongside the current support may be an option to older children, but these children do not typically have smartphones.
In this context, sectoral currency could offer the added benefit of increasing value for every dollar invested by providing the system to school age children who could then exchange credits for mentoring or services from older children who will use them for scholarships. The value of the system would be underpinned by Helpcode by making an agreement to exchange the local currency for an agreed cash value at the end of each school year. As the currency moves up the chain towards the final use at university, each owner can receive something in exchange for the currency that is of value to the older students — i.e. mentoring, care services, food. The value of each dollar of the currency effectively increases each time it changes hands moving up the chain.
The prototype
Following the system proposal, Politecnico Milano produced a prototype built using the Ethereum platform. The prototype offers the following features:
Registration as a student
Peer-to-peer transactions for mentoring sessions using QR codes.
Picture proof for mentoring sessions.
Demurrage of currency for each school year.
Cash-in at university.
At an early prototype stage, this is how the app looks.
The welcome page of the app.
The wallet page of the app. Here you can select the type of service and whether to send or receive tokens.
The transaction history page of the app. Where students can view their transactions.
The transactions themselves are made using a QR codes. The mentoree scans a QR code on the mentor’s phone once a session is complete to send credits to them.
The mentor’s receiving page.
The mentoree’s sending credits page. This would turn on the camera to scan the QR code.
Other important considerations
As a novel and relatively complex concept, it is important to consider the potential pros and cons of pursuing this idea in a development context.
Pros:
Sectoral currency has been trialed in Japan.
Some progress on humanitarian local currencies with ICRC.
Increases the value of scholarships beyond just recipients.
Existing demurrage crypto-currency example.
Cons:
Need to ensure access to suitable end devices for trading with the currency.
Risk of unforeseen variables — what if the currency becomes tradable for illicit services?
Risk of monetizing transactions that should otherwise be freely shared (casual homework support, advice)
We also listed some remaining questions and concerns that need to be addressed before pursuing implementation further.
Does this process require a critical mass of users to be effective?
How much adult guidance is required in this process for oversight and guidance?
What constitutes a valid mentoring session to initiate a transaction?
Do all children need their own smartphone or can a third party on the ground manage the transaction while younger children deal with hard tokens / paper wallets only?
What basic conditions need to be met for a sectoral currency to be successful?
Next steps
Together with Helpcode and Politecnico Milano, Outsight is pursuing the further development of the educational sectoral currency platform. We aim to engage with end users from a UX and service design perspective in order to ensure we can address the outstanding questions and make the tool more specific for its context of use. If you’re interested in using sectoral currency or want to discuss the topic with us, please feel free to get in touch.
ABOUT the authors AND OUTSIGHT INTERNATIONAL
Denise Soesilo
Denise is one of the Co-founders of Outsight and has worked with the World Bank and other development, humanitarian and UN agencies — advising on the application and implementation of space-based systems and other technologies in humanitarian operations.
Louis Potter
Louis is one of the Co-founders of Outsight. He has a wide range of experience covering development, health, innovation, technology and research. Having worked in the field, he is well acquainted with the practical realities of delivering impact. In recent years, he has been helping organisations to improve innovation processes and outcomes. He is an experienced facilitator and has been closely involved in efforts to improve collaborations between the nonprofit, academic and commercial sectors. He is based in Lausanne, Switzerland, and received his MSc in Global Health from the Karolinska Institute, Sweden.
Outsight International
Outsight International provides services to the humanitarian and development sector in an efficient and agile way. Outsight International builds on the range of expertise offered by a network of Associates in order to deliver quality results adapted to the specific tasks at hand. If you’d like to discuss working with the Outsight team, please get in touch or follow us on LinkedIn for regular updates.