Search Results for ‘biashara economics’

Exploring the Scope of Biashara Economics

biashara2There’s a dearth of research on the economics of biashara – the everyday commerce that keeps daily life running. And this hampers the efficacy of the design of programmes and policies meant for operating environments where the informal economy may be providing employment for more than half the working age population, and often, as high as 80 to 90% – India is at 92%, just for context.

This is not yet a literature review, although that is next on my list. It’s an attempt to capture the realization, while reading a couple of fascinating articles on the South African township economy, that the underpinnings of the informal retail and trade economy were not themselves the subject of research.

We stand firmly on the shoulders of giants, I realized, when reading these papers, though they maybe few in number. Without John Keith Hart’s body of work, none of us would be here, not even the “informal economy” –  the label itself attributed to his work in Ghana in the early 1970s. And without Martha Alter Chen’s rethinking of the informal economy, I wouldn’t have taken the path that I have this past decade.

…as long as you lump together the activities of the people like selling hotdogs door to door (although buying it from a wholesaler informally), distilling wine for the village, keeping small shops within walking distance when towns are far away or even urban services ranging from garbage disposal to dishwashing to repairing shoes – with the “firms that are hiding from formal regulations and don’t want to pay taxes etc” any formal programs or activities, whether from the social and economic development angle or the corporate profitability angle are going to act at cross purposes.

Martha Alter Chen writes in “Rethinking the Informal Economy” that India stands out as an example where the informal economy has been accepted, acknowledged and now slowly being addressed by government policy. Not in order to dissolve it or remove it but to work with it simply because the incomes of far too many people are dependent on it and no formal systems can be put into place to take care of each and every corner of the country nor her billion citizens.

One can then take what seems to be working, called “creative, resilient and efficient” by Hart, quoted by Chen, and enable systems that support it further, fostering development and increasing success rates at the touchpoints where the informal and formal meet.

So, it is with their distant blessing I will also put forth all that we’ve uncovered about the economics of informal trade and commerce, in the context of the various existing studies which overlap and provide us with insights or confirmation on our own findings. Including the tag “biashara economics”; I’ve now created it’s own category.

Biashara Economics: Get attuned to the cycles in your business – Lesson #4

Just as egg wholesalers know that business spikes during the school holidays due to increased demand, the ladies who trade in clothes, old and new, know that clothing is a discretionary purchase. In the low season, some switch to selling necessities like charcoal, or fresh veg. People still need to cook and eat.

Mama Margeret who used to trade in omena found it too seasonal for a reliable income stream. Both the supply, and the demand were seasonal, thus increasing the volatility of the market. Now, she has settled into wholesale of grains and cereals, with a bit of peanut butter on the side.

Once you get attuned to the natural rhythms of your cash flow – and this, really, is what takes apprentice traders anywhere between 3 to 4 years to feel confident – you can start planning to diversify into wider range of products that work together in a sophisticated financial flow portfolio.

Biashara economics: You can’t afford to let go of the reins – Lesson #3

The nature of biashara, which is primarily trade and commerce in a cash intensive economy, is such that margins are extremely thin, and there is a fragile line of trust, credit, and credentials which keeps the flows humming.

M-Pesa changed that in some very fundamental ways, allowing the tightly furled buds to bloom. Trust, now, could be bypassed by sending money directly to the payee. That same phone number which is your account for holding cash in a convenient way is also your location. This allowed for scale and reach to flourish in the trader’s network, and some Mamas could start thinking of retirement. Their network was doing the work for them.

Do traders let go off the reins once they’ve built a stable cash flow coming in every so often?

Not really. Its a characteristic of the trader’s credential that he or she be seen to be on top of their game. Mama who has almost retired still knows everything about the price of grain in the market. Expertise is always valued.

In many ways, the web underlying biashara is well suited to the dispersed and connected centers of supply and demand in the global value chains.


Biashara Economics: Nurture your Network – Lesson #2

Without a network, you are nothing. In biashara, the complex webs of give and take (Walther has a nice map, he was inspired by social media networks, and inspired our thinking) that are the engine and the nervous system of the organic, living platform for trade are running on trust and relationships, offering you first call on centers of demand and sources of supply.

All that the mobile phone’s advent really did in these massively interconnected human information systems network is speed up the supply chain, and unleash faster release of cash influxes into the system. It got boosted in the past 10 years, we have numerous eyewitness narratives from the Asian trading community.

Those on ambition’s ladder are nurturing their customers, and helping them grow into micro wholesalers themselves. A key biashara growth strategy is to slowly transform your primary customer base (every woman knows the secret of pareto’s law – give 80% of your attention to 20% of your clients) from primarily B2C – where revenue cap is linked to the regional socio-economic demographics; to B2B – where the sky is the limit in reach and network.

Nurturing the network is the secret to customer relationship orientation.

Biashara Economics: Diversify your portfolio – Lesson #1

Biashara’s growth strategies include the need to diversify one’s customer base from B2C to more B2B. In small markets, that’s the only way to grow revenue without hitting the cap on the actual number of people who can buy your tshirts. It’s when you are able to nurture a stable team of customers who purchase wholesale from you that you can think of making the leap for the brass ring.

The biggest takeaway from a closer look at the dynamics of informal trade is that risk is mitigated in this environment of greater uncertainties through diversification of income sources. Tomorrow, if you are unable to earn due to illness or accident, there are ideally some small passive streams of cash flow (eggs, fresh veg, fruits, charcoal) that work for you as an unemployment cover.

The long term objective for utilizing these strategies were to work towards ensuring a reasonably stable income stream with the minimum viable amount of physical effort. Retirement funds, you could say.


Introducing the concept of Biashara Economics, underwritten by a value web of trusted relationships

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The true value of social network lies not in its actor’s activities but in their relationships to each other. When social networks attempt to monetize their users, they tend to identify them as discrete individuals rather than interconnected actors all acting in a wave at a concert. The ripple effect seen in biashara informed us of the presence of an underlying web of value exchange seen as form of social digital currency.

Social digital currency can be said to consist of the following component parts that symbiotically work holistically as an integrated whole.

  1. Social capital – Trust.
  2. Virtual capital – see research on the metafilter community
  3. Live capital – livestock, chickens, fish, rabbits et al
  4. Skills and information capital – experience of paperwork for instance
  5. Cash or easily liquid capital

Thus, in the informal sector we saw instances of extremely cooperative economic behaviour bordering on barter characteristics, with cash as one of the many instruments used.

How can we bank on this richly layered wealth in rural human capital?

Time to reach consensus on the #informaleconomy debate

As yesterday’s post showed, the unforeseen outcome of India’s demonetization initiative on the rural cash economy arose due to the lack of disaggregation of all that tends to get lumped together under the umbrella label “informal”. Segmentation would lead to more impactful design of policy and programmes.

WIEGO has an excellent review of the academic debates on the informal economy, covering the competing schools of thought. There is the Shadow Economy with its tax evasion and under reporting vs the livelihoods of the poor struggling to make a living in adverse conditions.


In 2009, Ravi Kanbur, Professor of Economics at Cornell University, posited a conceptual framework for distinguishing between four types of economic responses to regulation, as follows:

A. Stay within the ambit of the regulation and comply.
B. Stay within the ambit of the regulation but not comply.
C. Adjust activity to move out of the ambit of the regulation.
D. Outside the ambit of the regulation in the first place, so no need to adjust.

Under the Kanbur framework, category A is “formal.” The rest of the categories are “informal,” with B being the category that is most clearly “illegal.” (Kanbur 2009). […] Kanbur argues that using a single label “informal” for B, C, and D obscures more than it reveals – as these are distinct categories with specific economic features in relation to the regulation under consideration.

While acknowledging that it is useful to have aggregate broad numbers on the size and general characteristics of the informal economy, Kanbur concludes that disaggregation provides for better policy analysis.

So, why do we continue to wave our hands over the whole thing and conflate the legal with the illegal?

These distinctions are all well and good to debate in the cozy conditions of a seminar room without needing to come to any consensus, but as the human and economic cost of demonetization in rural India becomes clear, particularly the impact on the planting season, it puts a spotlight on the shortcomings of the way the rural and cash economies are currently dealt with. A pragmatic conclusion is urgently required.

My literature review on the past 20 years of research on the informal trade sector in Eastern Africa showed that this lack of distinction between what was shadow (B) and what was merely below the radar of the regulations (C &D per Kanbur’s distinctions above) gave rise to the criminalization of even the smallest livelihood activities of the local tomato seller who might cross a border to get a better price for her wares.

This in turn led to their harassment – particularly financial and sexual – by the authorities as there were no counteractive regulations in place that recognized fulltime crossborder trade as a licit occupation or profession.

What will it take for this to change?

India’s current experiences provide ample evidence of the dangers of leaving this untouched.