Are Bitcoins Likely to Penetrate East Africa?

Where do Bitcoins fit into East Africa's complex ecosystem?

The East African business landscape offers a blend of boundless opportunities and limiting challenges. For a business to scale in this environment, it must take advantage of the benefits in the region, while fully comprehending and avoiding the unique challenges of the East African Community. Where do Bitcoins fit into this complex ecosystem?

Bitcoins, the cloud-based, anonymous, international, un-taxed, un-regulated, and un-controlled currency may soon rise to Kilimanjaro-level heights in East Africa; or, the system may fail to depths of Lake Tanganyika. To predict the future of Bitcoins in East Africa, we must examine the realities of business, banking, payment options, and technological adoption in the region.

Online Payment Solution in East Africa

Challenge: In most of Africa, traditional banking systems are inaccessible to most of the population. A population that, within eight years, is expected to reach 240 million people.

Opportunity: By contrast, an overwhelming majority of the population does have access to mobile phones or other online systems.

Result: Businesses that understand the sheer volume of potential disruption that an online payment solution in this region can offer are flocking to East Africa. Among them: Google, Ericsson, Visa, and MasterCard.

Traction in the East African Payment Landscape

Because of their insatiable hunger for an online payment solution that truly serves their needs, East Africans are early adopters of many available technologies. M-PESA, the mobile money transfer service for cellular operators in Kenya and Tanzania, already processes 43% of Kenya’s GDP. And all four mobile operators in Kenya operate a money transfer service:

Bitcoin’s Advantages in East Africa

Worldwide, one of Bitcoin’s main advantages is that it is a peer-to-per system, which circumvents government and banking regulations and controls.

Cross-border East African transaction fees at firms like Western Union and MoneyGram (the combination control two thirds of the market share) can cost up to 14%. On top of this, inter-African transfers cost as much as 25%. African regulations like KYC (Know Your Customer) and AML (Anti Money Laundering) are designed to stop the financing of criminal activities. These regulations are partly to blame for the exorbitant fees.

Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University and director of its Technology Policy Program, says “Bitcoin’s invention is revolutionary because for the first time the ‘double spending problem’ can be solved without the need for a third party. Bitcoin does this by distributing the necessary ledger among all the users of the system via a peer-to-peer network.”

With Bitcoins, intermediaries like Paypal or Western Union are no longer needed and fees can be reduced to 1-3%.

The drawback of Bitcoins is volatility. But East Africans aren’t looking to Bitcoin as a long-term investment strategy. As a short-term money-transfer solution, volatility is not a factor. Therefore, the benefits of Bitcoin in East Africa are its independence from government and banking systems and its cost-effectiveness. Its usual drawback, volatility, is not a factor in its intended use in Africa.

Bitcoin Competitors in East Africa

Since its benefits far outweigh its insignificant drawback, the only element that can stand in the way of market domination is competition.

The possible competitors to the Bitcoin system are mobile payments and online payments. Mobile payment systems like those of M-Pesa are still partially bound by boundaries. That is that a customer in Kenya cannot transfer money to, or from, family in Nigeria with this system, thanks to regulations. On the other hand, newly introduced third party payment platforms do allow cross border mobile payments to merchants who use them.

In last year’s article, “Is Bitcoin the Future of African Banking?,” Kathryn Cave highlighted Mwbana Alliey, founder and managing partner of Savannah Fund, an Africa focused Technology Venture Capital fund, who saw the prospect of Bitcoin as “the opportunity for a truly Pan-Africa money revolution.”

Online payment systems like Paypal also have regulatory issues. Even once these systems deal with regulations, they are still far more expensive than Bitcoins. This means, in East Africa, Bitcoin’s independence from banks, regulators, and governments is likely to make it an unstoppable force.


Eran Feinstein is the founder of 3G Direct Pay Limited