Archive for the ‘About’ Category

Analysis of the mobile phone’s impact on cash flows and transactions in the informal sector

As we saw, Mrs Chimphamba needs to juggle time and money as part of her household financial management in order to ensure that expenses can be met by income. We also saw that the mobile phone was made viable and feasible by the availability of the prepaid business model that gave her full control over timing and the amount required to maintain it — how much airtime to purchase? when? how often? — all of these decisions were in her hands, within the limits of the operator’s business model. Now, we’ll take a closer look at the impact of the mobile on her domestic economy.

Readily available real time communication has helped Mrs C by speeding up the time taken for a decision on a purchase or a sale. That is, the transaction cycle has been shortened. As the speed of information exchange increases, it increases the speed of transactions — it shortens the duration of time taken to execute them from inception to completion. This, in turn, implies that more transactions can now take place in the same amount of time thereby increasing the frequency and the periodicity. When mobile money is present, one can see that as both quantity and frequency of transactions speed up, so does the cash flow. We’ll come back to this factor.

To explain using a real life example, Mrs Chimphamba does not need to sit at her homestead wondering if today someone will pass by to purchase a bottle of wine. Similarly, Mrs C’s customers do not need to go out of their way to pass by her homestead to see if the wine is distilled and ready for sale, or whether it will still take another day or two for the next batch to be ready. Further, the uncertainty of whether they’ll have cash on hand on that future day, or if they’ll return as promised are all elements that real time communication have minimized.

Now, Mrs C is able to let her regular customers know that she’s making a new batch for sale and do they want to reserve a bottle for purchase? It allows her customers to put aside cash for this purchase. She is even able to accept and execute larger orders for some future date, and even accept some cash advances if her operating environment includes the presence of a mobile money transfer system such as those more prevalent in East Africa. This in turn changes her purchasing patterns and decision making as the pattern of cash flows — timing and amount — changes. She isn’t making do anymore on an unknown and predictable sale based on sitting and waiting for someone to show up to buy her wine.

Real time communication has improved the decision making cycle for both buyer and seller in a transaction as it counteracts uncertainty and information asymmetry even while speeding up the time take for a decision.

As the quantity and frequency of transactions increase— first, in cash conducted face to face, and then later, remotely by mobile money, regardless of the size of each transaction — the change in cash flow patterns begins to smooth out the volatility (the uncertainty factor has changed completely) between incoming and outgoing, as well as the decisionmaking involved. That is, the gap between income and expense starts becoming less in terms of both timing and amount — there is the possibility of a steady stream in the pipeline. Calculus offers hints of how the curve can begin to smoothen out as frequency and periodicity of transactions begins to accelerate.

Size of transactions thus begin to matter less in that the incoming amount now does not need to be so large as to cover expenses for an unknown duration of time before the next incoming payment; nor do expenses have to be tightly controlled constantly due to the uncertainty of the duration of time before the next payment, and the types of expenses incurred during this unknown period of time.

So the boost in decision making — how long it takes to complete a transaction, how often can transactions be completed — enabled by the real time communication facilitated by the mobile phone; plus the attendant immediacy of receiving payment via the same platform is the root of the improvement in the hyperlocal economy and consumption patterns among the informal sector actors. This is why large established traders (with sufficient financial cushion) were heard to observe that both purchasing power and consumption patterns had changed in their market town (Busia, Kenya Jan 2016) in the past 10 years since first the mobile phone, and later, mPesa, were introduced into their operating environment.

Uncertainty and information asymmetry that have long characterized the fragile and volatile nature of the informal sector operating in inadequately provided environments with unreliable systems and scarce data. In the next chapter we’ll step back and take a broader look at communication, connectivity, and commerce in the informal economy starting with the description of the operating environment’s characteristics regardless of continent.

This is part of a newly launched Medium where I will write in detail on economic behaviour and its drivers in the informal economy. Much of it draws upon the original research in the field from 2008-2009 which was shared on the prepaid economy blog. I found that time had passed and increased my understanding and I wanted to explore those discoveries in writing. Much of this is the foundation for recent works on ‘Mama Biashara‘.

An Introduction to Human Centered Design for Policy Makers in International Development

Part 4: The visual documentation of the original research on rural economic behaviour

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I have uploaded a PDF synopsis of the fieldwork conducted during the original Prepaid Economy research including approach and methodology.  Also documented are the different ways those in the rural economy manage their ‘investments’. These images support the observations documented in Part 2 and my thoughts on rural Indian cow ownership have been fleshed out here.

Also of interest maybe this paper from Purdue’s Agricultural Economics department on The multifunctionality of livestock in rural Kenya whose abstract states:

While many contemporary development programs with regard to Sub-Saharan Africa’s pastoralists promote improved livestock marketing as a way out of poverty, they also fail to take into account the multi-functionality of livestock within these communities, and thus are doomed to failure. While livestock are a main source of income for the pastoralist household, they also serve a purpose as a store of wealth, food source, and status symbol. Furthermore, cattle and smallstock (sheep and goats) fulfill each function to a different degree. Since livestock are so multi-functional, marketing projects could better achieve their objectives if they had a more accurate picture of what motivates household livestock sale decisions.

Reflecting on this blog’s genesis after 5 years

I started this blog in late December 2008, in earnest and every day during the first prototype fieldwork for The Prepaid Economy project, one of the iBoP Asia Project’s first batch of Small Grant winners from the ASEAN region. For the first 5 months of 2009, this blog was on the mainpage of my website as I felt my entire enterprise – Emerging Futures Lab – was being entirely supported by this grant.

It was only in April 2009 that I began my next phase in advancing my experiential knowledge of preparing, planning and programming research using design ethnography tools from the field of user centered design (UCD) when I moved to Helsinki, Finland on a project with the then Helsinki School of Economics (HSE) and now a part of Aalto University. This university is the result of an academe-led innovative merger of the independent schools of business, design and engineering (science) which was manifest tangibly in the form of an experimental platform for interdisciplinary innovation research and pedagogy known to all as the Design Factory.

Everything that I came to understand about the patterns at play in the informal rural economies of the developing world was in one way due to conversations and whiteboarding exercises with the wide variety of people accessible to one in the factory. It was only later that it received the formal name of Aalto Design Factory, for most of its first year of existence it was simply “the df” or “df” to all of us early adopters and believers in removal of barriers and silos to effective communication, cooperation and collaboration.

In retrospect, I could have analysed a lot more with the rich deep dive of data I had gathered after my immersion in the field. I had spent 10 days off the www in a rice growing barangay in Iloilo, The Philippines and a similar amount of time but less direct inhome experience in rural Rajasthan, India. On the other hand, in the numerous projects since then, the layers of understanding the balance of flow – the give and take of transactions of value between trusted referrals, juggling the factors of “time” and “money” in order to smoothen the volatility between in the incoming cash and outgoing for daily needs and other expenses – have only deepened in nuance and understanding.

This research path was set upon in late 2008 – just around now, in fact since the deadline for applying for the iBoP/IDRC’s Small Grant was the first week of September. It has been 5 full years on wondering about the inherent conflict between periodic, calender based payment plans, monthly subscriptions and other regular inflows of cash, often paid as a bill of unknown amount due in the near future or as hire purchase payments AND the irregular and sometime unpredictable income streams from a variety of sources relied upon by the vast majority of the world’s households for managing their household finances.

Why the prepaid business model works so well for the informal economy, the base or bottom of the pyramid (BoP) and the seasonal ebbs and flows of the rural economy can all be explained by simply pointing out the fact that this pay as you go system hands over the control over amount to be paid and date it is due to the end user – something that Donald Norman, father of user centered design (UCD) has also pointed out as a factor in user satisfaction with a product and its design.

About 12 months ago I completed fieldwork that took my original primary research on the prepaid economy and its decision making behaviour in order to better inform business models and payment plans and went a few steps further into comparative analysis of experimental results. I was able to compare the sales results of a product line across 4 different variations of payment plans being pilot tested among rural offgrid residents in 2 East Africa Community countries.

This was almost as good as a direct test of the original hypothesis that the greater the span of control over time (duration, frequency, periodicity) and money (amount, cash or kind) a business model offered a member of the informal economy, the better the long term chances of sustaining the enterprise. In fact, I was able to add one more factor to the equational mix which was not considered when I first began this work.

This is what I call “Face time” or combination of social capital, daily proximity and interpersonal relational mix – that which allows you to negotiate on terms of payment such as time and amount with someone to whom you owe this cash or payment and the limits of this negotiation are bounded by the limits of trust between the two of you.

Face time  and Flexibility were the two main attributes of the 4 business models being pilot tested that seemed to capture the range of responses, performance and feedback, yet allow us to distinguish what was different in each model, thus what might have influenced a change.

None of this research was quantitative but completely qualitative groundclearing work to discover insights that would inform more relevant and appropriate business models and other market entry tactics to maximize, within constraints, the adoption rate of innovation (a new venture, a service or business model, an invention) among the population without regular paychecks and easy access to consumer credit. This work has also validated my hypothesis that the tools from user centered design could be used to advantage to grasp and make sense of more complex and wicked problems than could be understood by simple numbers alone.  The methodology being part of product development process also allows for company’s to reach a faster path to market with an innovative product or service or revenue stream in entirety.

The original fieldwork in agriculture dependent rural economies in ASEAN and South Asia and the early work in Africa, all looked at the bulk of such a population, the lower income segments at the BoP. But now with the rapidly emerging global middle classes i.e. those displaying regular patterns of consumption, this knowledge gained can also help assess the worldview and consumer mindset of the emerging consumer markets of sub Saharan Africa.

There is so much yet to be learnt and every single actor is breaking new ground, whether its Econet Wireless and MKopa with their airtime or mobile money pay as you go solar lights and charging or whether its every social enterprise trying to sell a cookstove, a lantern or a water pump to the subsistence farmer. We need to document every instance of success so that patterns of what worked might be of help to better refine and improve our models for market creation at the very end of the global value chain.

Why is design important?

Design is first and foremost a philosophy, based on a system of values, which seeks to solve problems. What are we creating? Why and for whom? Are we correctly framing the problem to be solved? These are the questions to which the answers are then manifested tangibly in the form of a new product, service or business model.

Human-centered design approaches the task of problem solving by always seeking to understand the end-user’s needs and aspirations, goals and the environmental conditions and constraints in which they live. When we can design a product or solution that meets an unmet need or challenge successfully that becomes good design.

These qualities are what make design a powerful tool for not only increasing value for corporations but also benefiting their customers by providing elegant yet effective products, services and business models. Often the biggest challenge is to identify the real problem that must be solved, this where using design research methods and tools can help businesses at their early stage strategic planning.

Design thinking in business takes this problem solving aspect one step further. Now the tools and techniques from the field of design such as ethnographic research, rapid prototyping and conceptual brainstorming integrate with the pragmatic business frameworks of strategy, analysis and metrics to create and provide roadmaps for business innovation and competitive advantage. In this context, design has evolved away from traditional form giving to becoming an integral part of corporate strategy.

How and where can it be applied?

When you’re looking for new market opportunities – You know your company’s strengths and are looking for inspiration and insights for innovation within your existing product line or think there might be a new product category you’d like to explore. You know the market opportunity you want to target, such as “seniors or youth market” or “wish to expand to a new culture or country ” but need help to define the product or product category that would allow you to take maximum advantage of this opportunity.

Or when your business is facing a very specific challenge, but doesn’t really know why and needs to take a look not only at their products and services but their business system to see what can be tweaked. Often companies who need an innovative new product concept to become a global design “hit” will face this fuzzy problem. This is where design tools such as exploratory research and insights can lead to clear articulation of opportunity spaces and as yet unmet consumer needs, communicating visually through concept sketches as well as creating a strong business case for a particular design direction by supporting market analyses and metrics.

Design has the tools for visualizing complex large scale systems and the insights thus derived can be applied to improving the quality of the customer’s experience, improve the efficiency of the process and offer benefits across the spectrum of applications. For example, the UK has hired a senior designer to help improve the patient experience and the processes at the National Health Service. Bringing design’s empathy and user centered approach to process innovation adds intangible value to systems which were otherwise focused on efficiency and profits alone.

So design is extremely important. The nature of the field allows it to add empathy, insights, innovative approaches to problem solving to traditional means of addressing the same challenges. It creates value and enhances the user experience; it gives meaning to lifeless objects and can touch human emotions on a fundamental level.

First published

Pondering a new prepaid research focus

Ever since I completed the first Prepaid Economy study which looked at how those on irregular income streams managed their household finances – focusing on rural Philippines and India – I’ve been curious about rural Kenya. I’ve long wanted to delve into the impact, if any, of the mobile money systems that have rapidly gained popularity in the country.

My thinking goes that if I were to ask the same set of questions as I did in Philippines and India (and as John Lumbe did for me remotely in Malawi) without any prompting, then if services like MPESA et al had indeed made any signficant social or economic impact in the ways people deal with and manage emergencies, loans and planning for large future expenses, it would emerge spontaneously in the answers given.

Now it looks as though I may just get my chance to follow through with this dream in at least two rural locations, early in the new year. Lets keep our fingers crossed.

About Emerging Futures Lab and Team

Emerging Futures Lab

Founded in November 2007, the Emerging Futures Lab (EFL) is a small multidisciplinary team that aims to increase the understanding the people at the base of the pyramid across the developing world in order to improve the success rate of new ventures, products and services intended to serve this market in a holistically beneficial manner. A significant proportion of their primary and original research is published under the Creative Commons license. Past and ongoing clients include a global consumer electronics manufacturer, an energy giant, a leading mobile service provider, Finland and The Netherlands.

Founder

Niti Bhan has been developing and implementing new market strategies for both the developed and developing world for almost two decades. Her experience spans advertising and marketing communications during the heyday of India’s market liberalization to new product and service launches in the United States. Niti’s key skill is her ability to take the long view when identifying opportunity spaces and new revenue generation strategies based on a big picture perspective. An established author and speaker, her research interests include the challenge of designing effective business and transaction models intended for those with irregular and unpredictable incomes.

Currently blogging at Perspective.

Past research partnerships

TEKES /Helsinki School of Economics  – EFL was appointed researcher on a 19 month project over 2009 – 2010 to uncover, collate and document innovative business models for and at the BoP across the developing world for the National Innovation Policy committee of Finland.

Ministry of Agriculture, Economy and Innovation, now known as Ministry of Economic Affairs, The Netherlands Sept 2012 – July 2013 in collaboration with LEI, Wageningen UR and also the Ministry of Foreign Affairs on the topic of user centered design approach to sustainable agricultural value chain development.

Relevant Publications (to be updated from original project)

Design for the next billion customers – Core77, April 2008

The 5D’s of BoP Marketing: touchpoints for a holistic, human centered strategy – Core77, January 2009

Design for Social Impact Workshop hosted by Rockefeller Foundation, June 2008

Project 1: Payment strategies for irregular incomes at the BoP

What insights can we derive from observing and understanding how those at the BoP currently manage their household budgets to inspire new transaction models or pricing strategies for businesses wishing to serve the poor more effectively, yet profitably?

The focus of our exploratory and user research in the field will be to understand the challenge of planning household expenses and budgeting when incomes are mostly irregular and unpredictable.

As things stand now, the challenge posed by current business models and payment plans is not the amount that must be paid but the inherent conflict between the regularity of the payments, usually on fixed schedules, against the unpredictability of funds available and irregularity of cash flow.

The short term goal of this project is to design a conceptual prototype of an innovative payment strategy or business model by which a community can share the cost of a shared resource or asset or enable access to information technology.

The target beneficiaries of the research would be any organizations seeking to serve BoP markets in a sustainable and profitable manner. The results are expected to be scalable and replicable for any BoP community and for different products and services. Furthermore, the results would also form a platform and offer frameworks for further and ongoing research.

Locations:

Since the funding is from the iBoP Asia project that focuses on science and technology innovations for the BoP in the ASEAN, locations were selected accordingly. The first location is a village in Iloilo district in the Philipines, about an hour outside Iloilo city, and contains about three internet cafes. The second location is in rural northwestern India, in the desert state of Rajasthan about 5 hours outside of New Delhi and 15 minutes by car from the district town center of Sawai Madhopur.

User profiles:

Since our intent is to understand the basics of household financial management by those at the base of the social and economic pyramid in rural areas we have selected our profiles accordingly. Approximately 6 to 8 individuals will be selected for indepth interviews, some ad hoc shadowing and plan extended observations over a few days of one selected household in each location.

For example, in the Philipines, I will be hosted by a woman who is head of the household and whose income is derived from a small convenience store run out of her home selling cold drinks and sundry goods like sweets and snacks.

Other identified profiles are based on selected combinations of education level and source of income – whether a regular job with fixed monthly income or irregular like the small trader or shopkeeper or odd jobs labourer, literate and illiterate as well.

Timing:

Philipines: The funding organization has requested an extended stay here as they have an NGO working with a community installing rainwater harvesting equipment and have asked for expert assistance. The user research will be about 10 days onsite (or until all interviews have been completed) followed by another week with the NGO at a different rural location. Not more than 3 weeks is estimated and the start date would be sometime in mid to late February.

India: Phase one observations and interviews will be conducted over ten days starting very late December ongoing until early January. 

The iBoP Asia Project Small Grants program

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The Ateneo School of Government, with the International Development Research Centre, is implementing a project entitled Science and Technology Innovations for the Base of the Pyramid in Southeast Asia.

By building partnerships with and among research councils, government agencies, business institutions, and other relevant organizations in the region, the Project aims to create and promote an environment that will encourage science and technology (S&T) innovations that respond to the development needs of the marginalized base of the
pyramid (BoP) sector in the region.

The overall objective of the iBoP Asia project is to foster S&T innovations that can effectively address the development needs of the poor and excluded in the region. Ultimately, the effort should contribute towards affordable solutions in areas that address the unmet needs, increase productivity and incomes, while at the same time facilitating the BoP’s participation in wider economic systems.

The iBoP Small Grants Program was launched to provide the necessary funds for researchers in Southeast Asia to bring forth their innovative research ideas, and help create S&T-based solutions to the development needs/problems of the BoP.

Emerging Futures Lab project “Payment strategies for those on irregular incomes at the BoP” was  selected as grantee for 2008. The grant requires the documentation of the exploratory user research conducted in the field – rural India and the Philipines under this specific grant proposal – online via blogs, articles, photographs and videos.