Shamba Network Sows the Future of Sustainable Agriculture in Africa with Blockchain and Climate Solutions – Crypto Projects to Watch 2023
Financial inclusion and access to global finance has always been lacking in sub-Saharan Africa. Although gains have been made, only 55% of the population had a bank account in 2021, according to the World Bank. The problem is more acute in rural areas, where there are few banks. Mobile banking solutions that allow users to transfer money and access microfinance, including lending and insurance, through their mobile phones have been around since 2007, but their effectiveness in supporting economic development is disputed.
More than that, these services are not aimed at addressing climate change, which disproportionately affects sub-Saharan Africa. While financial tools to manage and mitigate the effects of climate change exist, they remain beyond the reach of some of the poorest populations in the world, who are hardest hit.
Climate risk insurance, which provides compensation in the event of crop failure due to drought, for example, is often too expensive. The CO2 credit market, an increasingly popular solution to combating climate change, where certificates for CO2-reducing projects are exchanged, relies on middlemen, so local communities often see little or no benefit from the trades. Even if the middleman problem were solved, carbon credits often involve hundreds of thousands of hectares of land, which is far from what the vast majority of sub-Saharan farmers have available.
In short, lack of protection against climate change creates financial risk for a population that already lacks financial services. The problem before us is how do we combat climate change and reduce the economic consequences of climate change on sub-Saharan Africa?
Millions of people in sub-Saharan Africa are smallholder farmers, many of whom are subsistence farmers. They grow enough food for themselves and their families, but not enough to trade in the market for money or barter for necessary goods.
“Agriculture is the backbone of how most households survive [in rural Kenya] are able to support themselves, says Kennedy Ng’ang’a, founder and CEO of Shamba Network. He studied geospatial engineering in Nairobi and later worked at the International Center for Tropical Agriculture. He also has several family members who are small farmers and has a wide-angle perspective on how important it is to work the land for his homeland.
“I have seen firsthand how important agriculture is both to people as well as to our economy at a national level, and I believe there are still many things that can be done to improve it.”
Ng’ang’a believes that by giving farmers the right knowledge and tools to practice sustainable agriculture, “there is a lot of potential for them to be able to take control of their own destiny.” It means learning to farm in a way that does not deplete their land and ensures productivity for decades without the need for industrially produced fertilizers.
“Most of the agricultural land in Africa is being degraded, especially because of synthetic fertilizers,” he said. It is “mainly driven by large multinational corporations that control input supply,” including seeds.
Ng’ang’a started the Shamba Network last year to help farmers with sophisticated data and insights to improve their farming results.
Shamba’s first priority is to promote sustainable agriculture that will not deplete the farmers’ land – and thus their livelihood. Second, Shamba uses blockchain to give farmers access to new financial paradigms such as climate insurance and carbon markets.
Shamba is a multi-faceted project that tackles both socio-economic issues such as financial inclusion and development justice, as well as environmental issues, from encouraging local communities to more sustainable practices, to finally tackling greenhouse gas emissions through carbon credits.
Based out of Nairobi, Kenya, Shamba Network uses blockchain, remote sensing technology and statistical sampling to solve specific problems facing the region and its people. The explicit aim is to reduce the costs of climate insurance by improving the tools for monitoring, reporting and verification (MRV). It’s a term often used in carbon marketplaces, meaning software and hardware used to measure and verify data points such as carbon dioxide emissions. Along the way, Shamba promotes regenerative practices which by implication will also combat climate change. Eventually, Shamba aims to allow groups of small farmers to make money by issuing carbon credits.
Ng’ang’a became familiar with Web3 a few years ago, and with his agricultural expertise became particularly interested in regenerative finance (ReFi), a crypto brand that aims to build systems that support and promote sustainability. When he investigated further, he noticed that a lack of data created roadblocks to innovation. “People had a lot of ideas around what they wanted to do, but they didn’t necessarily have the data to back it up,” he said.
Shamba’s goal is to build ecological data oracles and smart contracts. Ecological data is information that describes the natural characteristics of an ecosystem. The Oracle technology is what brings this MRV information to the blockchain, the connective tissue between on-chain and off-chain data.
The Shamba network tracks ecological data from over 30 free satellite databases from various universities and organizations around the world that capture air quality, precipitation, temperature, vegetation, etc., along with ground data obtained from statistical sampling.
For example, if there is drought on a farmer’s land, satellite data will show a lack of rainfall. The oracle will feed this information to the blockchain, triggering a smart contract so that climate insurance can be automatically paid out to them. This could reduce the cost of climate insurance by as much as 40%, Ng’ang’a said.
Shamba has worked with microfinance company Fortune Credit and Diva Protocol to insure 150 cattle herders in northern Kenya. For example, if the vegetation level in the region falls below the certain threshold where the livestock can starve, a payment will be made to the herders. The financial partner in the project works with thousands of herders and farmers, giving Shamba plenty of room to scale its impact.
These processes used to be done manually. An insurance provider would have been out in the field to check the original and final condition of the land, which added a lot of costs to the insurance. Shamba fully automates the process, so that “no one has to process a payment”, and the entire process is carried out through smart contracts.
“So when a farmer signs up for a product, they make sure that for one of them it’s going to be done on time. But also most importantly, nobody can step in and block their payment,” Ng’ang’a said.
Shamba’s data collection and analysis capabilities can also improve carbon credit metrics. The decentralized MRV tools can help determine the ecological impact of a group of farmers implementing sustainable or regenerative practices. This verification is crucial to creating high-quality carbon offsets. A group of smallholder farmers can claim carbon impacts from implementing sustainable agricultural practices, and the decentralized MRV tools can be used to verify these impacts and create carbon credits.
Shamba’s success is largely dependent on a wider ecosystem of Web 3 climate solutions. The project is part of a number of such projects: Web 3 climate data aggregator dClimate, nature credits marketplace Regen Network and afforestation protection Open Forest Protocol. Together, they build the ecosystem where projects like Ng’ang’a can flourish.
In Gatanga, an area down roads winding through steep, vegetation-covered hills a couple of hours north of Nairobi, Shamba is laying the groundwork for smallholder communities that may eventually issue their own carbon credits, along with local NGO Youth Action for Rural Development (YARD). The credits will represent organically grown fruit trees which will then be sold to international markets.
The trees clean the air, prevent soil erosion and produce healthy food. “Of course we know how trees work, they clean the air. So by planting the trees, we will breathe fresher air,” and will be healthier, said Terry, who like the other farmers gave only his first name. YARD has taught local farmers about sustainable farming techniques and healthy habits since 2002.
These farming groups organize themselves to pool and manage their resources. Some of them essentially run their own bank; they collect money and lend it to members when needed. Because the farmers are already managing money collectively, they already have a process in place to distribute any carbon credits, said YARD’s founder, Sebastian Wambugu Maina.
The funds can be decisive. To buy the equipment needed to grow 3,000 avocado trees, Terry’s group spent about KSH 5,000 ($37.30), but now they have no money to continue the project. “We need financial resources,” she said. “Obviously, the revenue won’t come tomorrow, or in two months,” but they’re trying to build a sustainable business that will continue indefinitely.
Shamba generates income through commissions from the insurance fees and will eventually also benefit from sold carbon credits.
But to develop the project, Ng’ang’a says the startup also needs funding. As with other projects in regenerative finance, financing can be difficult. The market for these products is either small or in some cases non-existent, so typical investors may find it difficult to sell. However, there are ESG-oriented investors including Mercy Corps Ventures or Cerulean Ventures who have shown interest in such start-ups.
Ng’ang’a has so far supported the project through Gitcoin grants, as well as some funding from a Filecoin accelerator. For about a year, seven people around the world have been building this full-time with only $200,000 in funding. The founder has tried to increase growth with traditional equity financing, but it has been an uphill battle.
“Most venture capital funding does not necessarily come from Africa. There are people who can tolerate a lot of risk, who are actually betting on African entrepreneurs, said Ng’ang’a. “So we’re always trying to find other ways to survive, even when we’re trying this [equity-based funding].”