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Chamas – Social Saving on the Blockchain


In 2012, on the invitation of Ken Griffith, Ian Grigg went to Kenya to understand the working of M-Pesa (a mobile phone-based money transfer service). He was amazed to see the revolution brought on by the technology, but what intrigued him even more was the multi-generational tradition of Chama.

Chama is a Swahili word for “savings group.” People in the developing world form groups for community-based investing, borrowing, and saving. As it’s a community-led model, the default rates are low. Within a Chama, a small group of friends or associates comprised of five to 30 women (usually) band together for social savings. They contribute a particular amount of money in order to grow economically and meet their family needs. The members force each other to save together as a community. Simple chamas operate in a merry-go-round manner (i.e. everyone’s contribution is granted to one different person every time the group assembles). This practice completely relies on ‘trust’. More advanced chamas hold the savings for later investments, and allocate business loans to their members.

Chamas in Kenya alone control up to $8 billion in assets, although social savings groups are not limited to Kenya but are found across Africa, contributing up to half the GDP of African countries through saving and investing in the economy.

Source: ChamaPesa

Chamapesa: Introducing Blockchain to Chama

Chamas in their current existence do suffer from some drawbacks. They use paper ledgers, ad hoc holdings, have a poor investment environment, and, although based on community trust, are still vulnerable to corruption. These problems were generally seen in small communities. So, there was a need to improve the transparency, make them aware, and give more safeguards against corruption.

Grigg and Griffith came up with a solution by placing chamas and their transactions in the framework of the Ricardian contract. More advanced chamas make loans and investments, which have to be described as contractual obligations for proper accounting. Recording the chama savings as a Ricardian contract guarantees that their meaning is not lost yet; cryptographically secure accounting can proceed. A mobile app was built in 2012-2014 and reached alpha trial before the the team ran out of money.

But the rise of tokens as a crowdfunding source for businesses has given ChamaPesa a new life. The team has now moved forward from the original design to put each chama on their own individual lightweight blockchain. This development is of great importance to the small communities in Kenya and other developing countries which rely on chama savings for any financial needs.

Grigg’s larger goal is to conquer the corruption and security problems of the chama by giving the members a simple blockchain that is easy and intuitive to use. Rather than “put the chamas on the blockchain,” he plans to flip this problem upside down and provide every chama its own small blockchain, which accounts for accuracy by sharing the ledger amongst all the members.

The ChamaPesa Project

ChamaPesa was developed in Kenya and, at its essence, is a blockchain saving app for covering transactions of cash, share capital, and crypto assets. It is designed to ensure transparency within a chama.

Currently, the company is in the alpha phase and is developing the user functionality and back end.

To start, the user needs to download the ChamaPesa app. They can then create a profile and create or join a chama. The app will have the functionality to allow members to view the information regarding money spent. This will help bring transparency to the overall ecosystem.

For safety, ChamaPesa will add features to allow the distribution of chama-authorised information called attributes to other chamas. This is the ChamaPesa Identity Model.

Additionally, if the user loses his phone, his information can be easily recovered. Moreover, it has a distributed structure (i.e. no centralized server holds the money, instead a decentralized distributed Kenya Shilling is created). This will later be duplicated for other national currencies.

Revenue Model and ChamaCoin

The system will charge a small percentage (1%-2% and lesser as it scales) for managing the transaction system. The fees will then be converted into ChamaCoin automatically. But instead of creating a mining system that benefits stockholders or miners, 80% of the profits will be ploughed back into the community as an incentive pool. The remaining 20% balance will be used for the development team. The 80% of ChamaCoins will go for motivating users to recruit new users and chamas, to users who act as guarantors, and for good behavior in terms of savings and payments in the long term. All of these rewards will be paid out on a daily basis.

The Technology Behind ChamePesa

ChamaPesa’s three technology pillars are Ricardian LiteChains, Distributed Ricardian Contracts and ChamaPesa Identity Model.

The Ricardian Litechain is built on Grigg’s Ricardian contracts. The Ricardian contract enables a legal contract to be interpreted digitally without losing the value of the original legal prose. The form allows a contract to move from the world of law, through the world of cryptography, and into the world of accountancy. The litechain allows for transparency within the group without disclosing the information to the rest of the world/network. It is a lightweight chain designed specially for the chama.

The distributed contracts build on the decentralized server of a blockchain, and, using a system of smart contracts, ensure that assets backing the token are distributed and held by many groups rather than one centralized vault.

The identity model is an interesting innovation where the community is empowered to identify the individual, in contrast to more conventional methods based on any government- or corporate-based identity documentation. Chamas have developed as the unit of trust because of their inherent smallness, relationship focus, and, most importantly, they have skin in the game.

The company’s current focus is Kenya and will then look to expand globally. The ChamaCoin will help Chamas and financial inclusion reach the next level of evolution and growth.


Written by Stephanie Vaughan.

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