Archive for the ‘Economy’ Category

Fundamental Elements of Informal Sector Commercial Activity

There are two key elements which underpin the dynamics of any business or commercial enterprise in the informal sector. These are Time and Money.

A generalized framework can be diagrammed, as shown above, where the dotted line denotes the degree of uncertainty and volatility of an individual’s cash flow patterns – whether from a variety of informal economic activities – such as for the farmer or trader; or from the salary received for a white collar job. The X axis – Time – denotes the increasing accuracy of estimating the Arrival date of a cash payment (from some revenue source), and the Y axis – Amount – denotes the increasing accuracy of estimating the Amount that will arrive. Their relative ability to estimate Arrival and Amount with any degree of accuracy is indicative of their ability to forecast and plan for expenditure.

Thus, at one end of the continuum, one can position an odd jobs labourer who may or may not get paid work on any given day, and is unable to predict with any degree of certainty what type of job he’ll get selected for, nor for how many days it will last. It could be as basic as loading a truck for half a day’s pay, which in turn might even be in kind, and not cash. And, at the other end of this continuum, one can position a the typical white collar salaried professional or civil servant who knows with certainty exactly on which day they will receive the salary and exactly how much will arrive.


Positioning and Location

Now, we can frame these two elements of the commercial operating environment in the form of a position map, as shown above, that maps the ability to plan expenditures against the stability of the cash flow. The red arrow is the continuum of certainty and stability of Timing and Amount of an income stream, anchored by the most vulnerable odd jobs labourer at one end and the relatively most secure salaried professional at the other.

Where it gets interesting is the relatively liminal space in the middle where the various economic actors in the informal economy constantly shift position as they seek to mitigate the volatility of their income streams, through a variety of mechanisms. Much of their decision making is related to their own perception of uncertainty and ability to forecast.

For the purpose of this explanatory diagram, I have selected 4 typical examples drawn from different sectors of the informal economy common in the developing country context. Each are at the more vulnerable end of their own segments i.e. a subsistence farmer, rather than one with an established cash crop; or a small roadside kiosk rather than an established general merchandise store in a market town; since they have not yet achieved the goal of their business development strategies to move their own entrepreneural ventures towards relative stability, and thus provide more insight on the relationship between cash flow patterns and investment and expenditure planning.

The hawker of goods at a traffic light or junction is in a comparatively more fragile situation than the kiosk owner with a fixed location who works to develop relationships with passing customers in order to convert them to regulars at her store. Unlike the kiosk, which might be located near a busy bus stop, or outside a densely populated gated community; the hawker cannot predict which cars will pause at the red light as he darts through traffic shouting his wares. However, compared to the odd jobs labourer, the hawker has comparatively more control over his income generation since his is not a passive function of waiting to be picked from the labour pool in a truckyard or construction site.

The smallholder farmer might actually be better off economically in many ways than his urban brethren involved in informal retail, being able to live off the land more cheaply than in the city. Experienced farmers, for the most part, are able to predict with reasonable accuracy, more or less the quantity of their crop, and the estimated timing of the harvest. However, his sense of uncertainty is often perceptually greater due to the unmitigatable impact of adverse weather conditions, or the sudden infestation of a pest or blight, any of which could at any time completely destroy his harvest, and thus, his expectations. This sense of insecurity in turn influences his decisions on expense commitments to far ahead in time, or too large a lumpsum at some point outside of his regional harvest season. The farmer’s income streams are relatively more out of his control than the disposable income in the pockets of the kiosk’s customer base.

The market woman with her display of fresh produce, at the entry level of inventory investment capacity, might only have one or two different varieties of vegetables or fruit to sell, and may not yet have established a permanent structure – a table, a kiosk – in the market. She might start off with only a tarpaulin on the ground with some tomatoes and onions for sale. Unlike the traffic intersection hawker, however, she is more likely to begin by assuming a regular placement and location as this establishes the foundation for her future business development, through the factors of discoverability and predictability among the customers in that locale.

That is, in addition to Timing and Amount of Income – the cash flow patterns and sources – we begin to see the role played by location – Place1, as a supporting element of the commercial activity in the informal economy. While farmers are least likely to have much control over the location of the land they may inherit, their risk mitigation strategies to minimize volatility of their income streams and maximize their ability to plan for the future and manage emergencies will be discussed in depth in the section2 on rural household financial management. These practices are the foundation of business development strategies commonly observed in the informal economy in developing countries which tend to be less urbanized, and as is often the case, more dependent on agriculture as a component of national GDP.


1 People, Pesa, Place: A Multidisciplinary Lens on Innovating in Emerging Markets
2 Rural Household Financial Behaviour on Irregular Income Streams at the Base of the Pyramid

Work in Progress: An Introduction to the Informal Economy’s Commercial Environment

This topic is being shared in the form of a collection of essays on the following themes, each becoming hyperlinked on completion. Do bookmark this page for regular updates.

Introduction to Background and Context, some caveats apply
Fundamental Elements of Informal Sector Commercial Activity
Rural household financial management as a foundation
Linkages and Networks span Urban and Rural Markets
Underlying Principles for Financial and Social Contracts in the Informal Economy
Informal Sector Business Development Strategies and Objectives
Why A Blanket Approach to Formalization is not a Panacea
Disaggregating and Segmenting the Informal Sectors
The Journey to Formalization Cannot be Leapfrogged


Creating Economic Value by Design (John Heskett, IJD 2009)
Financial Behaviour Patterns Observed Among Households in Rural Informal Economy (IDRC, 2009)
More or Less: The Fundamental Principle of Flexibility” Slides (Informal Economy Symposium, 2012)
A Comprehensive Analysis of the Literature on Informal Cross Border Trade in East Africa (TMEA, 2016)

Financial Behaviour Patterns Observed Among Households in Rural Informal Economy in Asia

This is the original working paper of the research conducted on rural household financial management, in developing country conditions, pioneering the use of methods from human centered design for discovery, during Nov 2008 to March 2009, aka the Prepaid Economy Project. It was peer reviewed by Brett Hudson Matthews, and I have incorporated his comments into the PDF.

This research study was carried out with the aid of a grant from the iBoP Asia Project (, a partnership between the Ateneo School of Government and Canada’s International Development Research Centre (

The abstract:

The challenge faced by Bottom of the Pyramid (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.

The Conclusion:

In sum, it can be concluded that the challenges for value creation can be quite different for BoP ventures interested in addressing the rural markets. From the observations made in the field, we can highlight three key implications for business development. These are:

  • Seasonality – with the exception of the salaried, everyone else in the sample pool was able to identify times of abundance and scarcity over the course of natural year in their earnings. Identification of a particular region or market’s local pattern of seasonality would benefit the design of payment schedules, timing of entry or new product and service launch, for example.
  • Relative lack of liquidity – The majority of the rural households observed tended to ‘store wealth’ in the form of goods, livestock or natural resources, relying on a variety of cashless transactions within the community for a number of needs. Conventional business development strategies need to be reformulated to take this into account as these patterns of behaviour may reflect the household’s purchasing power or income level inaccurately.
  • Increasing the customer’s span of control over the timing, frequency and amount of cash required – Since the availability and amount of cash cannot be predicted on calendar time, this implication is best reflected by the success of the prepaid mobile phone subscriptions in these same markets. When some cash is available, it can be used to purchase airtime minutes for text or voice calls, when there is no money, the phone can still receive incoming calls. Models which impose an external schedule of periodicity, frequency and amount of cash required may not always be successful in matching the volatile cash flow particular to each household’s sources of income.

A Comprehensive Analysis of the Literature on Informal Cross Border Trade in East Africa

Download the comprehensive literature review (PDF) on informal cross border trade, in the context of the informal economy of the East African Community, the Democratic Republic of Congo, and South Sudan. This paper was supported by TradeMark East Africa during the period November 2015 to January 2016. A short extract from the preamble is given below:

For trade to be truly inclusive and sustainable, it must embrace the informal economy rather than excluding it. When John Keith Hart first coined the termi in the early 1970s, he did not distinguish between the illicit and licit aspects of the informal trade he observed all around him on the streets of Accra. In the decades since, this conflation has created more challenges than necessary, throwing up barriers where there were none.

As Kanbur and Keen suggestii, unpacking the basic concept of the “informal sector” and describing the various segments will lead to far greater returns on the resources invested and improve the outcomes and impact of the policies and programmes designed for each.

“Informal trade” across Eastern Africa can best be described as a web of interlinked networksiii serving to connect peoples and products across the region. Held together byiv trust, kinship and community relationships, it has been seen to be resilient, and persistent. Robust enough to survive natural disasters and manmade upheavals of the decades past, it is flexible, nimble, and responsive to patterns of abundance and scarcityv.

i Hart, K (1973), “Informal income opportunities and urban employment in Ghana”, The journal of modern African studies 11 (01), 61-89

ii Kanbur, R and M Keen (2015), “Rethinking Informality”,

iii Walther, O. (2015), “Social Network Analysis and Informal Trade”, Working paper for the World Bank

iv Hart, K (2000), “Kinship, contract, and trust: The economic organization of migrants in an African city slum”, Trust: Making and breaking cooperative relations, 176-193

v Bhan, N. (2009), “Understanding BoP household financial management through exploratory design research in rural Philippines and India”, iBoP Asia and IDRC

On the relationship between economics and design

This is an extract from the Introduction to John Heskett’s seminal paper, “Creating Economic Value by Design

The work of Herbert Simon, Nobel Laureate in Economics in 1978, is a rare exception of design being considered as a factor in economic theory. His starting point was acknowledging that the world we inhabit is increasingly artificial, created by human beings. For Simon (1981), design was not restricted to making material artefacts, but was a fundamental professional competence extending to policy-making and practices of many kinds and on many levels:

Everyone designs who devises courses of action aimed at changing existing situations into preferred ones. The intellectual activity that produces material artifacts is no different fundamentally from the one that prescribes remedies for a sick patient or the one that devises a new sales plan for a company or a social welfare policy for a state. Design, so construed, is the core of all professional training; it is the principal mark that distinguishes the professions from the sciences. (p.129)

Implicit in Simon’s reasoning is an emphasis on design as a thought-process underpinning all kinds of professional activities; yet the varied skills through which design is manifested are not discussed. He did indicate, however, why design is so rarely considered in economic theory. Economics, he stated, works on three levels, those of the individual; the market; and the entire economy (p. 31). The centre of interest in traditional economics, however, is markets and not individuals or businesses (p. 37). A serious problem is thereby raised at the outset: two important considerations relating to design—how goods and services are developed for the market place and how they are used—receive scant attention.

I was lucky enough to both work with him as a colleague as well as attend his classes in Design Policy and Design Planning & Market Forces as his student. I’ve been diving into my notes and his lectures of late as I wrestle with my theorizing on what I’ve been calling Biashara Economics, whose earliest avatar was the prepaid economy project of 2008/9.

Frame Insights: Going back to first principles in the Innovation Planning Process

After conducting research, we need to bring structure to what has been found and learned. We sort, cluster, and organize the data gathered and begin to find important patterns. We analyze contextual data and view patterns that point to untapped market opportunities or niches. Finding insights and patterns that repeatedly emerge from multiple analyses of data is beneficial. ~ Vijay Kumar, 101 Design Methods

“It’s what happens after the research that’s important” is something I found myself saying three times to three different people in three different contexts over the past couple of days. Anyone can go out and interview users and beneficiaries. What’s important is what happens during the Analysis phase.

To ponder this in detail, I wanted to go back to first principles, and drill down into the post research stage where we are expected to frame our insights.

Vijay’s slide pops out 5 key outcomes from this phase, and these are critical for solution development in the subsequent phase. These 5 outcomes from analysis of the data collected during the research phase are:

  1. Looking for patterns
  2. Exploring systems
  3. Identifying opportunities
  4. Developing guiding principles
  5. Constructing overviews

It is this stage that distinguishes the quality of the outcome. Now, in the case of our work in the informal economy operating environment, we have built up an overview of the landscape over the past several years, primarily through immersion and thick data collection using design ethnography methods.

Starting from the purchasing patterns and buyer behaviour of low income consumers, back in early 2008, all the way through to the development of guiding principles such as flexibility, we have explored and mapped the ecosystem from numerous vantage points.

Today, our synthesis of user research does not happen in isolation from the body of work – intellectual property – that has been developed over time, through experiential and practical knowledge.

This, then, is what underlay my conviction when I spoke about the importance of the quality of interpretation of the data, and the transmutation of these interpretations into implemented insights in the form of new product features, service design elements, or nuances of the payment plan in the business model.

Increasingly, the Frame Insights phase of our work has led to the evolution of our understanding of the commercial landscape in rural and informal markets where incomes tend to be irregular and volatile, and infrastructure is inadequate or missing. It is this that I’ve been attempting to capture under the category of Biashara Economics.

It’s not Africa specific. The patterns hold, give or take ~30% margin for historical/cultural/social differences, across continents. That is because these patterns are the natural response to the common characteristics of seasonality, volatility, uncertainty, and unpredictability. And this is why one can see the success of the prepaid business model around the world.

It strikes me here that this in fact validates the methodology and approach to exploration and discovery in unknown contexts, something I had framed as the starting point for the very first such project almost a decade ago. Over time, I discovered how much the methods, as delineated by Vijay in Chicago, had to be adapted for the context but that is a topic for another time.

Prepaid Mobile: The Business Model that Empowers

It feels like a long time since I last pondered the nuances of the prepaid business model, until I came across some words written by Indian social media researcher Swati Janu. She documented her observations on the infrastructure of insecurity from the tenements of New Delhi.  There’s value in reflecting on how our understanding only increases over time, and we can never say that we’ve stopped learning

This sentence caught my attention:

From a rural population that is fast going online to the resourceful teens in urban slums, the lower income demographics are choosing to buy internet, through small but recurrent amounts, which enable them to straddle the line between affordability and aspiration.

The small but recurrent amounts – the Rs 10 mobile recharge Janu writes about – are the lifeblood of the prepaid payment plan for voice, text, and data (airtime) for the now ubiquitous cellphone that has changed the landscape of the developing world.

To enable the lower income demographic’s ability to straddle the divide between their aspirations and their ability to afford them is empowering. One could say that:

Prepaid is a business model that empowers aspiration, through affordability, incrementally.

Instant gratification has never been within their purview.

Livestock as movable assets and financial collateral: Collected insights

Mama Mercy’s farm, Nyeri, Kenya (Photo: Niti Bhan, April 2013)

Following in the footsteps of Zimbabwe, Kenya has just passed a law on the use of movable assets as collateral for loans.

President Uhuru Kenyatta has signed into law a Bill allowing borrowers to use household goods, crops, live animals and even intellectual property to secure commercial loans in a move aimed at boosting access to credit.

This is an important move, because unlike Zimbabwe, the “Kenyan Movable Property Security Rights Act 2017 paves the way for the formation of a centralised electronic registry for mobile assets that financial institutions can use to verify the security offered.”

The implications for the rural economy, entrepreneurial smallscale farmers, and the informal trade sector are enormous, and I will take a deeper look and analyze the implications in subsequent posts. First, I will begin by collating the past decade’s writing on the role of livestock in household financial management, clustered broadly by theme:



On The Role of Livestock
The multifunctionality of livestock in rural Kenya ~ literature review
“households will treat livestock similarly to a savings account or stock portfolio and typically (and perhaps reluctantly) only sell livestock to cover cash shortfalls when certain necessary expenditures arise”
The Role of Livestock Data in Rural Africa: The Tanzanian Case Study
Only provides evidence of the importance of investing in same
The role of the cow as an investment vehicle in India: Insights on Return on Investment



Emerging Futures Lab Original Primary Research
The Prepaid Economy project 2009: Original research on rural economic behaviour (IDRC & iBoP Asia) – Part 1
Observations & analysis of rural household financial behaviour – Part 2
Synthesis & Insights on rural economic behaviour – Part 3
Visual documentation from Philippines, India, and Malawi – Part 4
Rural Bottom/Base of the Pyramid and their cash economy



Application of insights for innovation in Kenya
Component parts of the rural, social economy
Seasonality as a factor in livestock export trade finance
Rural Kenya’s livestock and produce markets are a complex, economic ecosystem
Affordability, pricing strategy, and business models
Livestock’s role in path to upward mobility
From the individual to the community: the rural economic ecosystem (Dec 2013)
Importance and value of the informal food market
Creative ways to financial inclusion, by Michael Kimani



To Read More: Use this tag “movable assets” for all forthcoming analyses, and you can find a decade’s worth of my original research on informal economy, prepaid business models, literature reviews and ethnography here. The entire subject can be found under the category “Biashara Economics“.

It’s way past the time to consider the Informal Economy as a distinct commercial environment

Brand stickers on avocados displayed for sale on a highway, Kenya. April 2013

Regardless of continent, it is now high time we accepted the informal economy (unformal or unrecognised or unorganized sectors) as a commercial operating environment in its own right.

The continued oversight is rapidly coalescing into a gaping void of hiccups and failures, by large companies, non profit institutions, and startups, alike. This issue goes far beyond “understanding the informal” or recognizing the fulltime professional status of the service providers that I’ve written about before.

It’s about the problems created by continuing to assume every individual is poverty stricken and struggling to make a livelihood simply because a significant portion of their commercial activity operates outside what is rarely defined but is assumed to be the formal, structured economy held up as the pinnacle of economic development.

It’s why academics can barely conceal their flabbergasted surprise that a person has a better quality of life, and a reasonably viable revenue stream in [gasp] informal market trading, or even agricultural work.

It’s why @pesa_africa questions the continued transplantation of e-commerce business models directly from Seattle to subSahara given that they’ve tended to wither on the vines.

It’s why market women and traders pay the price of daily harassment and abuse by those given authority over their peace of mind.

And, it’s also why the freshest produce gets to you first thing in the morning in Nairobi or Cotonou or Kinshasa.

This is not meant to be a paean to the hardworking women and men who keep the engines of commerce and trade humming in the harshest of environments with scarce resources and inadequate infrastructure.

It’s the first step in acknowledging yet another holdover from a colonial past that decades later still hampers and hinders the social and economic development that should have happened by now, by all rights.

It’s also the necessary counterpart to the recognition of agency required for design interventions to succeed once donor funding ends.

This theme is consistently covered in this blog in the category Biashara Economics and hashtag #biasharaeconomics

A matter of timing: seasonal opportunities


Temporary stall for festive goods (Photo: Niti Bhan, March 2017)

These stalls full of water pistols and balloons sprouted overnight a couple of days before the spring festival of Holi (March 13th 2017) – these vendors are neither local nor regulars in the market complex. They’re here to offer seasonal products and might even have been invited by the local shopkeepers to provide attractive temporary displays not unlike festival shopping at the mall.

IMG_7356Seasonal opportunities for special offers and custom products are not to be missed chances for a boost in sales. India’s FMCG majors can’t afford to ignore the seasons that guide the cash flow for the majority in the informal and rural economies over the course of the natural year.