What is Mchezo?

Informal finance is an important cornerstone in developing economies. Examples include Hawala, an informal value transfer system mainly used in the Middle East, or informal insurance Cajas from Latin America for health and emergencies. The Rotating Savings and Credit Association (ROSCA) is one of the most widespread mechanisms. Depending on the region, ROSCAs are known as Chamas, Tandas, or Susu. Most participants of ROSCAs are women, and early examples were recorded as far back as 200 B.C. in China. In a ROSCA, members contribute to a common fund, with one person withdrawing the full amount at the start of each cycle. A ROSCA thrives on social capital, where group dynamics ensures commitment, as defaulting harms reputation and future creditworthiness.

In Tanzania, ROSCAs are called Mchezo, which means “game” in Swahili. Mchezo is widely used in communities and savings groups all over the country. The amount contributed depends on the group’s agreement, and members take turns withdrawing the entire sum. The purpose of a Mchezo varies depending on the group’s financial goals, whether for investment, emergency funds, or personal use. Some stores organize Mchezos to help their customers finance kitchen appliances or cosmetic products. Store owners understand that this approach is an effective way to attract more customers, especially since many people lack the savings to purchase these items outright.

The Kusama Mchezo

Encointer introduced the faucet feature in Oct 2023, allowing members of communities to claim 0.1 KSM per successful attendance of Encointer cycles. The Encointer protocol ensures that each person can only claim once. The faucet is donation-based and it enables a non-bureaucratic cash transfer directly into the hands of individuals of a specific region where the donations provide an additional income of real value and liquidity beyond Encointer’s community currency. This inspired the Nyota leadership to combine the faucet with local Mchezo traditions.

The first Kusama Mchezo group started with 18 members from the Nyota Community. Every 10 days, members pooled the 0.1 KSM they each claimed from the faucet and jointly exchanged them into Tanzanian Shillings (TZS) with the help of an agent who had an account on a crypto exchange. Each cycle, 72k TZS (~27 USD) was given to one member, with the expectation that they would use it to buy supplies for their business and sell goods and services for the local NYT currency, usually at a partial split with TZS. Mchezo participants become entrepreneurs and they are willing to take strategic risks with the “extra money” from the faucet because they get it on top of their – otherwise very restricted – daily budgets and it doesn’t feel like they would risk money they earned with hard labour. This spirit is expected to stimulate economic activity within the Nyota community.

One member used the funds to buy cooking oil or sugar in bulk (10 liters or more). Then the member would provide small packages of around 0.5 to 1 liter to the community, accepting NYT as partial payment (usually 30% in NYT plus 70% in TZS).

With this mechanism, new businesses and acceptance points of Nyota were established. 

The fact that Kusama’s KSM token was used for the faucet complicated things. The volatility of the exchange rate between KSM and TZS made it impossible to maintain a steady payout cycle with a fixed amount of TZS. The Mchezo participants decided to share this risk and the Mchezo payout cycle sometimes had to be delayed to collect more KSM and pay out the 72k TZS to the next participant. In the future, the Encointer faucet will support stablecoins which shall protect the Mchezo from such volatility risks.

Results

The first Mchezo has created 15 new businesses. 7 of these are still actively contributing value within the community (selling tailoring services, cooking oil, flour, rice, biryani, fresh juice, hair braiding, sugar, washing soap for partial NYT payment). The total pooled and distributed amounts to 1,260,000 TZS, which is almost 500 USD in a region where many live off 5$ per day. 

The Kusama faucet has been a key driver for people to join the Nyota Community, introducing them to Kusama, Nyota, and digital currencies in general. This has also sparked greater interest in blockchain technology.

The Kusama Mchezo is the first one in Dar es Salaam where contributions are made in digital currency, unlike traditional Mchezo, which relies mainly on fiat money from personal income or business activities. Here, members can use their Encointer cycle rewards, reducing financial strain compared to conventional savings rotations.

Let’s look at some numbers:

There are more positive effects to be observed in the first round of Mchezo besides the increase of the NYT turnover. Since the Kusama faucet started, the overall money flow has increased, strengthening cooperation and business relations. More businesses now accept the local Nyota currency as payment, making it easier for community members to access services and exchange goods. The Nyota leadership has observed a significant increase in livelihoods in the region and an improved economic situation. 

“It’s what they say and it’s easily observed: Before the Nyota community currency and Kusama benefits, things were completely different compared to now. Now, we can see the community relationship between members is very strong, and they have an open market to sell everything they bring into the community. The use of Nyota currency has increased savings and reduced the cost of getting good products and services. Kusama and Nyota are now additional sources of income that didn’t exist before the Nyota community started.” — Alinagwe Mwaselela, Nyota Community Lead

The results from the first round of Mchezo look promising. It had a positive impact on participating businesses’ turnover and, in turn, improved the livelihood of all community members because they could afford additional goods and services thanks to partial payment in NYT, which they get as an unconditional community income. This improvement was enabled by KSM donations. Our goal is to leverage donations but multiply their impact and eventually reach self-sustainability. Further experimentation is needed to prove this possible.

Outlook

Due to the success and the great feedback within the community, a second Mchezo is on its way. Instead of having one big Mchezo, the idea is to facilitate a few smaller ones. Each Mchezo brings together a specific group of business people, e.g. six Tailors from the Mbhuarati region. On top of the Mchezo, the groups have access to a small businesses loan program, organized by the Nyota leadership. To receive a loan, a joint project with value for the participating businesses must be formulated and a collateral in NYT community currency must be deposited, driving the demand of NYT. 

The Nyota community members often face precarious living conditions that make it challenging to afford everyday essentials. This financial strain can lead to unsustainable business decisions. Recognizing the link between personal well-being and business performance, the Mchezo supports its members’ personal needs, which helps them to build a more stable and productive environment. To foster mutual trust in the community, the usage of the Mchezo funds is being communicated transparently within the group. 

We are looking forward to the next round of Mchezo.

You can donate KSM directly to Encointer communities of your choice now and support these experiments!

Acknowledgements

We thank Alinagwe Mwaselela for managing the Kusama Mchezo, providing the on-the-ground data and co-authoring this post. And we thank the entire Nyota community for proactively blending their cultural habits with the new digital possibilities Encointer offers.

Links and References

• https://www.investopedia.com/terms/r/rotating-credit-and-savings-association.asp
• https://en.wikipedia.org/wiki/Rotating_savings_and_credit_association
• https://www.rfgroup.com/caymanislands/news/blog/rotating-saving-clubs-for-small-business-owners
• https://www.e-mfp.eu/post/when-fintech-meets-traditional-informal-financial-schemes-recent-trends-innovations-digitising

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Africa’s Role in Web3

The global blockchain space, including Kusama, which secures the Encointer Network, may well be criticized for being overly concentrated in the Global North. With over 1,500 active nodes distributed globally, most are hosted in North America, Europe, and parts of Asia. Africa, despite being home to 1.4 billion people, is heavily underrepresented in this space.

This imbalance is bad for everyone. The blockchain’s promise of decentralization censorship resistance only goes half-way when the majority of its infrastructure depends on first-world countries and their data centers. The new initiative in Zaria is addressing this by running their own on-premise IT infrastructure, independent of hyperscalers like AWS or Google Cloud.

Global distribution of Kusama Network’s ~1500 active nodes.

The Challenges of Running IT Infrastructure in Africa

Operating productive IT infrastructure in Africa presents unique challenges, including:

• Frequent power outages: Reliable electricity is a luxury in many areas, forcing creative solutions for uptime.
• Unstable Internet connectivity: Intermittent access to the Internet jeopardizes participation in global blockchain consensus.
• Hardware availability: Modern, affordable IT equipment is often difficult to source locally.

Despite these hurdles, the PayNuq community has risen to the challenge. Their IT infrastructure runs entirely off-grid, powered by solar panels and a battery backup to ensure 24/7 operation.

Repurposing Old Hardware for Blockchain Decentralization

Rather than investing in expensive new equipment, the PayNuq community repurposed a 10-year-old HP EliteDesk 800 as a parachain collator for the Encointer Network. The only necessary upgrade? A faster SSD. This DIY approach is a powerful statement, proving that decentralization doesn’t have to mean exorbitant costs or exclusive access to state-of-the-art equipment.

Tackling Internet Connectivity

Independence from the power grid is not enough. The setup also needs uninterrupted internet connectivity. While satellite internet could be an option in the future, it brings new challenges, such as potential monopolization by providers. For now, the team relies on local cellular networks while exploring affordable and sustainable upgrades.

The Bigger Picture: Financial Incentives and Independence

Their efforts don’t just benefit their community—they also make economic sense. The Kusama treasury rewards system chain collators with up to $300 per month for uninterrupted service, providing a steady revenue stream for the PayNuq team. If their infrastructure proves stable, they could expand to run nodes for other systemchains or even become a relaychain validator and build a very profitable business.

Why This Matters

Decentralization isn’t just about technology; it’s about equity, accessibility, and resilience. By creating their own Encointer currency and operating off-grid infrastructure, the PayNuq community is achieving independence from first-world infrastructure operators and foreign currencies to pay for the it.

Moreover, their efforts enhance the Kusama Network’s censorship resistance by diversifying its geographical and operational control. This is decentralization at its best—rooted in local innovation and global impact.

Looking Ahead

As we follow the journey of the PayNuq community, it’s clear that they’re not just building for themselves—they’re setting an example for other underrepresented regions worldwide. Their story is a reminder that blockchain technology can empower communities everywhere, especially when paired with resourcefulness, collaboration, and a commitment to independence.

Stay tuned as the Zaria community grows within the Encointer Network. Their progress promises to be an inspiring chapter in the story of global decentralization.

The post Independence Powered by the Sun: A Nigerian Community’s Journey into Blockchain and Self-Reliance appeared first on Encointer.

In contrast to most other community currencies, Encointer operates without a central entity that keeps the books, defines the rules and needs to be trusted. Encointer communities are managed on a public blockchain and the governance rules are enforced by the blockchain protocol. In this article, we’d like to present our first prototype of democratic governance for local communities.

First, let’s clarify what we mean by democracy on the local community level:

• Equality: every person who is affected by a decision has exactly one vote. All affected persons have equal power over the outcome.
• Deliberation: Everyone affected by a decision can publicly and freely express their views and learn from others.
• Information Symmetry: Every voter has equal access to the necessary information to form an opinion and cast their vote by themselves.
• Sovereignty: Communities independently determine their fate without relying on any internal or external authority to respect and implement their decisions. This ensures full control over governance and decision-making processes.

While these idealistic goals are challenging in practice, technology can help approximate them. This article presents the first implementation of democratic governance for Encointer communities, focusing on equality and sovereignty. It allows for essential experimentation, driving the protocol’s evolution.

Who gets to vote?

Encointer communities are open to all individuals physically present within the community’s defined area who are willing to participate in its social protocol. A mobile phone with the Encointer wallet app and internet access is all that’s required—no identity documents, bank accounts, credit cards, or spare money needed. Participants don’t even need to reveal their name, email address, or other identity attributes.

Encointer uses a digital personhood protocol to assign votes to unique individuals physically present in the community over time. This protocol relies on in-person gatherings, as explained in our whitepaper: Community members attest to each other’s personhood and membership at cycle events every 10 days. The more frequently a person attends these gatherings, the higher the confidence that they maintain a single account. To prevent Sybil attacks, each cycle attendance within the last five cycles counts as one vote for governance decisions. This approach, though not perfect, aligns much better with democratic values than plutocratic token voting, common in proof-of-stake blockchains, and is preferable to relying on an autocratic platform operator.

How to propose changes?

Any community member can propose spending community reserves or changing currency rules, such as modifying community income, adjusting the demurrage rate, or changing cycle gathering locations. These changes can be automatically enacted by the protocol upon approval without needing an administrator or authority. Additionally, members can submit petitions signaling community wishes for change, which motivated groups can act upon.

As any member can submit proposals, there can be many proposals up for vote at the same time and they might mutually contradict: One proposal may set the community income to 10 units every 10 days, another one to 100 units and one may even suggest 0 units. This allows for a more expressive participation than a simple Aye/Nay vote on a number that has been previously agreed on in a working group of only few people in a take it or leave it manner.

The simple rule to resolve the conflict among competing proposals is that the first proposal that maintains approving state for a confirmation period will be scheduled for enactment whereas all other open proposals for the same parameter change get canceled.

Stagnation vs. Chaos: Adaptive Quorum Biasing

Every governance system needs to balance stability vs agility. “Never change a working system” vs. adapting to changing needs.

We need to acknowledge that not every community member will actively participate in governance. Many may take a passive stance and don’t act as long as they don’t suffer. Building an opinion on a matter can be a lot of work and not everybody is willing or capable to invest this effort. This is one of the reasons many democracies elect representative bodies to decide on their behalf. As a grassroots protocol, Encointer attempts to avoid such representative bodies and instead proposes a very dynamic proposal system which still defaults to the status quo unless the approval for the change is very strong.

The basic principle is: The lower the voter turnout, the higher the approval threshold. At 100% turnout, the threshold is 50% and matches the simple majority rule. With lower turnout, a higher percentage of Aye votes is required for approval, ensuring only well-supported changes pass. A turnout threshold, suggested at 5%, ensures proposals represent a significant portion of the electorate.

The Lifetime of a Proposal

Proposals can be submitted anytime and are voted on continuously. Let’s first look at an example where only one proposal is active.

After submission, a proposal has a 9-day voting period. To be approved, it must stay in a passing state for a 2-day confirmation period within its lifetime. Approved proposals are scheduled for enactment for the upcoming cycle.

On Leaderlessness

Every community will have its leaders, whether those who initiated the currency or those knowledgeable about the technical tools. While striving for equality, we must recognize the importance of leadership in accomplishing necessary tasks. Encointer provides tools for communities to distribute power more equally, but each community must find what works best for them. Encointer’s architecture intentionally avoids centralizing power in a single leader by default while still maintaining structure.

Sovereignty

A community is only sovereign if it controls all necessary components for its platform and does not depend on external actors. With Encointer being a global platform, there is a dependency on the Kusama Network and the Encointer parachain for a local community currency to operate. Encointer takes various steps to enable communities to run their own infrastructure, from blockchain nodes to indexers. But in the end, Kusama governance can overrule all local decisions if KSM holders choose to. Therefore, true sovereignty requires an exit option for communities.

Exit means: leave the Kusama consensus system and go solo or join a different consensus system. Thanks to the technical flexibility of substrate chains, this is actually possible: A community can snapshot their state at any point in time and re-genesis on their own substrate chain – which they then need to maintain alone, obviously.

Pioneering Web3 Democratization

Decentralized systems like blockchains have typically used cryptoeconomic governance, inevitably leading to plutocracy. While some may favor plutocracy over the autocracy of big tech or certain nation states, we shouldn’t give in to the lesser evil too quickly if a more socially sustainable solution is possible.

With its approach to democracy, Encointer gives humans a vote. There are no gatekeepers controlling membership or credentials. Participation is based on physical presence and voluntary engagement.

Simply implementing the best governance system possible won’t do: We also need the communities who adopt it and give it meaning. Your turn!

Are you interested in how it works exactly? Try our deep dive tutorial!

Ready to experiment in your community? Follow the examples of leu.zuerich, GreenBayDollar, and Nyota in Tanzania: Bootstrap an Encointer community!

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