In Kenya, 68 per cent of the total population is under the age of 35. This group is entering the workforce at unprecedented speed and scale, but the formal economy is not meeting job demand. Today’s global crises are further exacerbating unemployment. A promising solution can be found in digital microwork – a form of digital labour outsourced by global firms that breaks up complex technical projects into thousands of fractional tasks which can be completed at any time on a smartphone. This provides new and flexible income streams for the burgeoning youth population while supporting Kenya’s Vision 2030 objective to become a global business process outsourcing (BPO) destination in the next eight years.
As a form of BPO, digital microwork has the potential to unlock income opportunities across different skill levels and increase savings potential for un/underemployed youth in radical ways. But if microwork jobs are low-hanging fruit, what hinders young Kenyans from taking advantage of them? This is largely due to the cost and friction of cross-border micropayments. Transaction fees often require microworkers to forfeit a significant portion of their earnings (in some cases up to 30 per cent of gross earnings), making microwork uneconomical. Cryptocurrency removes this costly barrier, and stablecoins – a type of cryptocurrency tied to a store of physical value like a fiat currency – make cross-border payments affordable, simple, instantaneous, and accessible to all.
Crypto-for-good organisations are proving the potential of cryptocurrency and digital labour through real-world use cases. In 2021, Mercy Corps Ventures and Celo partnered to test the application of cross-border stablecoin payments for 200 young people living in informal settlements in Nairobi, Kenya, for completing digital microwork during COVID-19 lockdowns. The three-month pilot demonstrated that cryptocurrency (in the form of Celo Dollars – cUSD) dramatically reduced the average transaction cost for microwork payments – dropping from 28.8% for a $5 transaction, to 2.02%, regardless of the transaction value. This translates to a 93% reduction in transaction fees (from $1.44 to $0.10), drastically boosting participants’ daily take-home earnings. Furthermore, it unlocked the digital microwork sector as a desirable earning opportunity for youth, and seamlessly improved participants’ ability, and desire, to save.
Now, it is up to Kenyan policymakers to ensure a delicate and enabling regulatory balance is in place to scale these opportunities. Stablecoins can solve real market problems and unlock value in the digital economy for Kenyans. Today, nearly one in 12 Kenyans own cryptocurrency, Kenya is already the world leader in peer-to-peer cryptocurrency transactions and is ranked fifth overall in cryptocurrency adoption.
The country is well-positioned to build on its reputation and leapfrog many of its peers through digital labour and cryptocurrency. Careful monitoring of this rapidly growing system is important, but the lack of a clear regulatory framework risks throttling opportunities for Kenyans while its neighbours thrive. Such a framework can promote consumer protection while supporting innovation. Moreover, overregulation may lead to an underground digital ecosystem where opportunities to create a free and equitable system becomes entirely out of reach for everyday users.
To enable a successful new digital economy, the Kenyan government can proactively take the following actions:
Recognise the legitimacy of stablecoin. In 2015 the Central Bank of Kenya’s (CBK) renounced Bitcoin and similar technologies but more recent developments include discussions of a Kenyan digital currency. This is an important first step to fostering the enabling environment necessary to scale the transformation of the digital economy.
Address the largest potential barrier to inclusion – a Know Your Customer (KYC) requirement that makes it difficult, if not impossible, to get started. Simply setting traditional KYC requirements similar to a bank account may not work. Having a more inclusive and innovative approach to KYC and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance is at the root of the success for mobile money platforms, such as M-Pesa, and should be considered for cryptocurrencies.
Form a Working Committee that designs a regulatory roadmap and use a “test and learn” environment, such as a regulatory sandbox, to closely evaluate and publicly trial new systems and processes.
Trial digital labour and stablecoin on a larger scale as part of Kenya’s “test and learn” environment, building appropriate consumer protection safeguards into new products and services while learning from, and working with, innovators.
Apply lessons learned from the Working Committee and initiatives tested to develop a stablecoin regulatory framework, with clarity on the near-term and long-term implications and opportunities of stablecoins and the digital economy more broadly.
Work with other governments to establish cryptocurrency regulations and promote the urgency of doing so. Cryptocurrency is a global currency, so related regulations will require global cooperation. Kenya’s policy development will require Pan-African and international collaboration to be truly effective.
The most significant decision for policymakers and leaders is whether to risk reinforcing existing systems that exclude millions from the emerging digital ecosystem, or to actively create a safe, ethical pathway for universal inclusion. The latter can unleash great economic potential and elevate the lives of many young talented Kenyans.
Scott Onder is the Senior Managing Director, Mercy Corps Ventures