A recent article in The Economist on the economic value of owning cattle in rural India made me to realize just how little is understood about the rural economy. Here’s a snippet:
That is because most people find spending easier than saving. Immediate pleasures are easier to grasp than future joys—and so people make spending decisions that they later regret. Economists refer to this as “myopia”. Cows force people not to be myopic. Compared with money held in savings accounts, cattle are illiquid assets. Taking cash from a cow is harder than taking money from an account. As a result, temptation spending is trickier.
The paper has implications for poverty-alleviation strategies and for financial services in developing countries. Aid programmes that try to reduce poverty by distributing livestock may be ineffective at raising incomes, if the returns from owning them are so poor. If cows are used as a means of saving, the spread of mobile banking in places like India will provide another, better option. Even then the problem of temptation spending arises.
This discussion makes quite clear that the underlying assumptions being made by the learned authors of this study are not only implicitly wrong but based on their own perspective of life in the concrete jungle with access to easy credit enabling impulse purchases and conspicuous consumption. Milk, for their morning cereal, tends to come from a tetrapak in the extra large refrigerator and electricity provides the means to warm it.
Since the Prepaid Economy project has been immersed in rural household economic behaviour for some 5 years now, perhaps its time to share the basis for better understanding the why behind the what that is being so fervently discussed. The final report as submitted to the funders of the original fieldwork will be shared in 3 parts:
1. The Abstract – scroll down after the cow for this extract.
2. The Observations
3. The Synthesis and Insights
4. The visual documentary of the above with annotations.
5. My thoughts on the role of the cow in the rural economy, supported by references to research previously linked to on this blog as well as additional fieldwork in Kenya.
The challenge faced by BoP ventures has been the lack of knowledge about their intended target audience from the point of view of business development whereas decades of consumer research and insights are available for conventional markets. What little is known about the BoP’s consumer behaviour, purchasing patterns and decision making tends to assume that there are no primary differences between mainstream consumers and the BoP except for the amount of their income – pegged most often between $2 to $5 a day.
In practice, the great majority at the BoP manage on incomes earned from a variety of sources rather than a predictable salary from a regular job and have little or no access to conventional financial tools such as credit cards, bank accounts, loans, mortgages. This is one of the biggest differentiators in the challenge of value creation faced by BoP ventures, particularly among rural populations (over 60% of the global BoP population lives in rural areas).
Exploratory research was conducted in the field among rural Indian and rural Filipino populations in order to understand how those on irregular incomes managed their household expenses. Empirical data collected by observations, interviews and extended immersion led us to identify patterns of behaviour among the rural BoP in their management of income and expenditure, ‘cash flow’ and ‘working capital’ and the significance of social capital and community networks as financial tools. Practices documented include ‘conversion to goods’, ‘stored wealth’, ‘cashless transactions’, and reliance on multiple sources of income that mature over different times.
This paper will share our observations from the field; identify some challenges these behaviours create for business and also explore some opportunities for value creation by seeking to articulate the elements that BoP ventures must address if they are to do business profitably with the rural ‘poor’ based on their own existing patterns of financial habits and norms.
*It just struck me that even the name of my local guide in Rajasthan was Goverdhan, which means “to increase the wealth (value creation) of a cow”.