Archive for the ‘Kenya’ Category

Primer on African Fintech: Myths, Misconceptions, Opportunities, Hotspots and Roadblocks

As we prepare to start work for our third African fintech client, I thought it was time to quickly and briefly introduce the opportunity space and clear up some misunderstandings around fintech in Africa.

  • The first point is the common confusion between Fintech and financial inclusion. Investopedia’s definition of Fintech says financial inclusion, that is, affordable and accessible financial services to the underserved and unbanked is only one of the many areas fintech is actively addressing. While technology helps provide cheaper solutions for emerging markets such as those on the African continent, all fintech cannot be said to be equivalent to financial inclusion.
  • This leads us to a clarification on what exactly is Fintech. I prefer to quote Investopedia since the entry in Wikipedia defines it as the industry itself. “Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies.
  • Thus, while financial inclusion is a key untapped opportunity space for fintech innovation of all kinds, there are numerous other opportunities along the entire value chain of financial service provision both B2B and B2C, including intermediary services, which are ripe for disruption in the African context.
  • Beyond the conventional preference for disruption of the existing context, there are as many if not more opportunities for meeting the unmet needs of African businesses and consumers. History, geography, economics and conventional wisdom have together combined to create a vacuum of solutions and services that address the unique circumstances of the African operating environment which still tends to be heavily cash dependent and is described commonly as “informal”. And this commercial environment has lagged in custom designed tools and services for small business productivity or household enterprise management.
  • Hotspots: Kenya overwhelming leads in mindshare as the leading fintech innovation market on the continent, and grabs the lion’s share of investments in East Africa. However, the GSMA’s latest report implies West Africa is rapidly catching up, and may outspend East Africa. The WAEMU region is a hidden hotspot, and Ghana leads the anglophone countries.
  • The largest market opportunity, by population, remains a challenge however, for a variety of reasons including policy and regulation. Nigeria’s payments innovators have made a name for themselves but their domestic market has not felt the impact of their efforts. Even mobile money, introduced more than 5 years ago, has only achieved 1% penetration. On the other hand, it took India years and years before digital payments reached visibly transformational critical mass. There’s hope.
  • Lastly, Chinese investment has just entered the African fintech space, talking up financial inclusion – a clear sign of its economic importance for the future development of trade and industry.

Implications of Mobile Money Interoperability in Kenya?

Mobile money pioneer Kenya, has finally gone live this month with account to account interoperability between mobile money services. Neighbouring Tanzania pioneered interoperability between the mobile money services offered by local telcos with a soft launch back in 2014. Fears of cannibalization and zero sum scenarios were unfounded, as documented in an early evaluation report by the GSMA. On the other hand, perhaps that assessment of impact was far too early as little else is mentioned in the rather thin report. Fellow East African Community member Rwanda too has had interoperability for a couple of years now. Now, its Kenya’s turn.

In a market where mPesa services posted a market share of 80.8%, what, if any, will be the impact of this newfound ability to send money directly from wallet to wallet without cashing out?

Talking points in news media articles and various interested non profit bodies point to “increase in financial inclusion” and “increase in competitiveness” with lower transaction costs as the benefits to end users, but these seem to be just that, talking points.

Safaricom, the telco behind mPesa, has long maintained a stranglehold on the market, and even now continues raising barriers to frictionless payments. In the decade since mPesa’s launch and unchallenged dominance, the vast majority of Kenyans have had no choice but to set up their own account even if it means using a separate SIM*.

In a different market, such a move would be cause for a celebration- the potential benefits clearly outweighing any drawbacks to individual service operators, and the future potential for digital commerce and trade enabled by a frictionless payments platform to be realized in time. In fact, mobile money usage is only growing in both Tanzania and Rwanda, though in each the numbers of subscribers is less unevenly distributed across the telcos.

But in Kenya, beyond providing ~20% of mobile subscribers with the ability to send money to mPesa (more or less) seamlessly, the overall impact on platform and service innovation within the local economy is likely to remain limited. Providing the service takes the edge off Safaricom’s issues with monopolization of the market but will in no way change much of the daily transactional reality on the ground. Habits are hard to break. And mPesa has become a Kenyan habit.

 

*  mPesa has a penetration rate of ~81% as compared to Safaricom subscriber penetration of ~72%, as of January 2018

 

Why is the Kenyan mobile loan industry facing just a digital version of India’s MFI problems?

When you make fast, easy, short term loans available on the phone to anyone with a need for quick money, why is it a surprise when high levels of consumer debt are the result?

A recent survey by financial inclusion giants like FSD and CGAP discovers that low income Kenyans have not been helped by the plethora of easy access mobile loans introduced in the market in the name of financial inclusion and ‘access to finance’.

“The rise of the digital credit market has raised concerns about the risk of excessive borrowing and over-indebtedness among lower-income households. Digital loans are easy to obtain, short-term, carry a high interest rate and are available from numerous bank and non-banking institutions,” states the report

The same pattern of behaviour is emerging as did in India during the peak of the MFI small loan boom almost a decade or so ago. People are borrowing from one loan to pay off the other, and livelihoods are hurting while some face challenges putting food on the table. The year 2017 might have been economically challenging for Kenya, but the design of repayment plans are also a factor.

“Digital credit is not reaching everyone and remains ill-suited for most of the population, such as farmers and casual workers, whose livelihoods are characterized by irregular cash flows,” says the phone survey.

The attractiveness of the market opportunity however is such that new loans served through the mobile phone are still being launched every other month in Kenya. Whose responsibility is it to ensure that programmes meant to benefit the lower income population don’t end simply perpetuating the same problems seen before, albeit as profitably?

Mobile First Africa: Social Media’s Boost to Rural Productivity in Kenya

Now in business for just six months, he also uses social media pages to sell his products, improving his customer reach.

“Through Facebook posts I receive enquiries and orders from Kenyans in the diaspora living in the US, South Korea, South Sudan, UK, Switzerland and Botswana who want the splits to be delivered to their families in Kenya,” he said.

“I also use the page to educate farmers and friends more about brachiaria grass.” ~ How farmers look for new markets every season

Continuing with yesterday’s theme of business productivity in mobile first Africa, this story caught my attention for the way this farmer leveraged the reach and discoverability of social media to grow his business.

Social biashara such as this is diffusing outwards from the urban centers where it first began. Expect to see many more such stories emerge from the unexpected places.

Why the African Consumer Market is NOT the same as the African Middle Class

Consumer goods store, Kilgoris, Kenya (March 2012)

The biggest challenge faced by consumer facing companies looking at the African Consumer Market is the age old positioning of the “middle class” as the ideal target audience. This middle class is segmented by the same attributes as the original middle classes who formed the consumer markets of the developed world.

This is the outside of the same store. Its located in a town called Kilgoris, situated at the edge of densely populated Kisii in western Kenya, and the sparse land of the nomadic Maasai pastoralists.

When you consider the range, the variety, and the price of the products displayed for sale, and compare it to the small dusty town with just one modern building, you wouldn’t imagine that solar panels worth USD 200 or Sony Bravia flatscreen TVs would be selling like hotcakes. But they do.

No dealer in a heavily cash based consumer market such as upcountry Kenya would tie up his working capital in expensive consumer electronics if there wasn’t a demand for it that meant the products sold quickly enough to keep the cash flowing in. My assumptions were completely upturned by this shopkeeper’s insights – it was the Maasai making purchases after attending the weekly livestock market.

A maasai manyatta Source: https://bushsnobinafrica.wordpress.com/tag/maasai-mara-game-reserve/

They’d pack 6 foot long solar panels, flat screen TVs, and satellite dishes onto the tops of hired trucks and take them off to their thornbush and mud manyattas. Yet neither you nor I would classify them by any of the traditional marketing department’s attributes as being part of the “middle class” consumer segment.

On the other hand, they were undeniably part of the African consumer market, and as the shopkeeper informed us, they were not only willing to spend on their homes, regardless of what they looked like from the outside, they could afford the best that he had to offer. He showed us his entire stock of kitchen appliances, water filters, jugs, mugs, and even children’s toys and fake flowers from Dubai! It is dealers like this who know best what their customers want and they range as far away as Nairobi to obtain the products in demand.

But I wonder if the marketers and the analysts still seeking the middle class have a clue about this huge market invisible to their eyes? And, whether, they’re looking in the right places?

Mobiles at the Border Post: Anti-Atlas of Borders Exhibition Slides (Jan 2016)

In January 2016, our submission for the Anti-Atlas of Borders Art Exhibition in Brussels was accepted for a commission of 500e. We were thrilled and surprised since we’d never imagined our work on mobile platforms, technology, and the borderland biashara could be considered from the arts and culture point of view.

Here is our story in the form of slideshow – each of these was printed in full size and hung on the walls.

Household energy consumption behaviour in East Africa: Lighting & Conclusion (3 of 3 Parts)

 

Jua Kali Kerosene Lamp, Kenya

The following is extracted from a six month study during 2012 on household energy consumption behaviour in rural Kenya and Rwanda among the lower income demographic, that led to an understanding of some of barriers hampering the sales of client’s solar products in this market. This 3rd and final part will focus on fuel usage and consumption behaviours for lighting. Users sampled for this study were selected based on varying fuel consumption patterns, ranging from a single homestead to a rural hotel open from dawn to 1am offering solar powered football on television.

Fuel Choice and Consumption Behaviour is Influenced by Duration and Timing of the Need

Kerosene is the primary source of fuel for lighting for those who live without access to electricity, regardless of whether its on their shamba, or in a building in town. Not only is the reach of grid access limited to a small percentage of rural Kenyans but the cost of the final connection to the dwelling is also a barrier for many. Due to the nature of this project’s focus, the majority of homes visited were without a solar home system.

Hurricane lanterns are the most popular lighting devices among kerosene users, as the glass covering the lamp protects the flame as well as contains the smell and smoke. With prices as low as 250Kes, everyone has at least one, if not more at home and the number maintained depends on size of the family, number of buildings on the homestead and the fluctuating ability to purchase fuel.

Pressure lamps can cost ten times as much and consume far more fuel although they offer a brighter light – they were not seen in Makueni households and the only regular user was the furniture maker who restricted its use to times of high productivity during the Christmas season. In Kisii, they are owned by members of the congregation who use them once a month for religious functions and the fuel is provided by the church. Gregory the schoolteacher called them “gas guzzlers” whose bright light was not worth either the high running cost or price of the device itself.

Everyone owns a few small tin lamps but they were referred to as something discarded during the upwardly mobile climb to a hurricane lantern – “Oh, we must have a few lying about somewhere in a dusty corner” said one wife while Mama Grace only used it in the confines of the kitchen building where the open flame, with its attendant smoke would make no difference. However, due to their small size, they require very small amounts of kerosene and tend to be kept as a backup for times of need when the fuel supply runs low or to be used by the aged, such as Kilonzi’s grandmother who finds the hurricane lantern difficult to maintain.

In addition to kerosene fuelled lamps and lanterns, every home owned at least one flashlight of some sort, whether powered by dry cell batteries, grid rechargeable or disposable for what they referred to as “emergencies or needing to go outside at night”. By emergency, they meant that this form of light was faster and easier to turn for sudden need than the more complicated task of lighting a kerosene lamp, plus it could be used in wind or rain. For many, this item received first priority if resources such as batteries or cash for charging were limited.

What stood out across the board was that everyone knew, almost to the minute in some cases, exactly when they used their light source. This behaviour was evident regardless of the household’s energy source including if it was solar power and thus “free”. Answers would range in specificity from estimates “around 7pm to maybe 10pm, sometimes later” to on the dot timings “from 5.45am to 6.30am in the morning”.

“I only use it for children to study” Mama John who scrimped and saved for solar

This gives rise to the conjecture that the fundamental observation in household financial behaviour of being able to control time (duration, frequency, periodicity) and money(whether prepaid source of fuel like kerosene or postpaid like electricity), is an ingrained habit even after upward mobility has removed the need for such stringent conservation. SHS do not require the same frugality daily use and cost and this can be seen in increased use of entertainment appliances like televisions and radios but lights still follow this pattern. However, it can also be said that rural life is slow to change in response to the introduction of modern conveniences and this may also be a significant factor.

The dry cell battery

Similar patterns of duration and accuracy of timing were also observed in choice and purchase of dry cell batteries, particularly for the radio. People knew which specific programs they wanted to listen to thus the
time and duration of their use of the radio. Everyone wanted to be able to listen to the radio more often but conserved battery life for as long as possible. Many even acknowledged that expensive brands like Eveready which cost 65Kes a pair lasted three times as long as the cheaper Chinese Lion brand costing only 30kes the pair but their irregular cash flows acted as a barrier to purchase dependant as they were on what cash was available on hand (or in pocket) at time of need.

Concluding Remarks

Consumers with limited incomes prioritize household energy and fuel spending according to importance for survival. Food and thus cooking come first followed by light. Everything else depends on the criticality of need against funds available. For example, Muthoka, who was unemployed and living on his small subsistence farm deep in the interior away from a market town, said that if he had to choose between 20Kes worth of kerosene or charging his mobile phone, he would choose kerosene first for lighting was more important to him than his mobile.

Similarly, Gregory the schoolteacher, put batteries for the emergency flashlight as more important than for playing the radio. The question becomes “What can we do without?” and only one of the many respondents of the more general household survey prioritized her mobile phone over light but she was a business woman whose income depended on her being available for calls.

The caveat here is that these answers are not absolutes and while most people will say that the phone is less important, there will be times of need when charging the phone or topping up airtime will be critical.

However, unlike kerosene or dry cell batteries for light, one can always borrow a friend or neighbour’s phone for an emergency phone call. These are the kinds of trade-offs people make when living on the edge on limited and irregular cash flows.

Pricing is rarely the problem

These insights on people’s household energy management and purchasing patterns, based as they are on the limitations and timing of their income sources are what led to the conclusion that the actual price itself was not the barrier to sales but instead it was a combination of factors starting with the choice of packaging and the subsequent pricing and sales strategy.

 

Part One: Introduction to Household Energy Consumption Behaviour Study in East Africa (2012)
Part Two: Cooking

Household energy consumption behavioural study in East Africa: Cooking (Part 2 of 3)

Scrap wood fueled three stone fire in sheltered corner

The following is extracted from a six month study during 2012 on household energy consumption behaviour in rural Kenya and Rwanda among the lower income demographic, that led to an understanding of some of barriers hampering the sales of client’s solar products in this market. This 2nd part will focus on fuel usage and consumption behaviours for cooking. Users sampled for this study were selected based on varying fuel consumption patterns, ranging from a single homestead to a rural hotel catering for more than 12 hours a day.

Fuel Usage Behaviour is Influenced Greatly by Location

Choice of fuel and decisions on quantity kept in stock for cooking is dependent on the location of the primary residence rather than income. Rural homesteads in Kenya have a separate outhouse for cooking and firewood is the preferred choice of fuel even in those regions where shambas are too small to support their own grove of trees.

Kilonzi’s wife dreams of upgrading to an LPG cookstove some day in the future

That is, while Kilonzi’s wife on a large shamba in Makueni might stack enough firewood for just two or three days, collected for free from her own backyard, Mama Grace the tea farmer with land constraints in Kisii will purchase an entire tree to last her for a month. Meanwhile, the more economically challenged on small shambas devote a week foraging far and wide for enough brushwood to last for two or three months before needing to take time away again from more pressing household duties.

Charcoal is also used on the homestead but only for certain tasks like making chapatis or for quickly brewing tea for visitors or in the morning rush before school or work. Even if the charcoal is made right on the shamba from a tree that needed felling, most of it is kept aside for sale and considered a source of cash money rather than consumed as fuel.

Residents who live away from their shambas, taking up rooms in town due to their work where cooking must be done in the same space as living and other activities, cannot use firewood. In fact, if renting, landlords clearly state that the use of firewood is banned, as a safety precaution. Thus, urban residents are forced to choose fuels that can be used in small, portable cooking stoves and charcoal ends up being the most common due to its relative cost as compared to kerosene. Those who do own a kerosene stove are in the minority and again, its use is only for very specific tasks that require speed such as making tea for visitors or in the morning.

Heavy Duty Charcoal Usage by Hotel

For those whose primary fuel for cooking is charcoal, the quantity purchased is dependant on cash in hand if their income is not from a salaried position and this ranges from a ‘deben’ which lasts for about 5 or 6 days and costs around 100 – 130 Kes to an entire sack which ranges from 500 to 750 Kes and can last as long as a month. Pricing for fuel is closely related to its proximity to the source, since transportation can be expensive and convenience is a service that comes with a premium. Kerosene which sells for 83 Kes a litre at the petrol station in town was found to be selling at a rate of 140Kes/litre at a small duka deep in the interior.

Part One: Introduction to Household Energy Consumption Behaviour Study in East Africa (2012)
Part Three: Lighting & Concluding Remarks

Introduction to rural household energy consumption behaviour in East Africa (1 of 3 parts)

The following is extracted from a six month study during 2012 on household energy consumption behaviour in rural Kenya and Rwanda among the lower income demographic, that led to an understanding of some of barriers hampering the sales of client’s solar products in this market. This first part is an overview of household financial management in conditions irregular and unpredictable income streams from a variety of sources. The 2nd and 3rd part will focus on fuel usage and consumption behaviours for cooking and for lighting separately. Users sampled for this study were selected based on varying fuel consumption patterns, ranging from a single homestead to a rural hotel catering for more than 12 hours a day.

Aspirational ownership and tangible evidence of savings in prepaid purchase model of solar panel, as seen in Chuka, Kenya (Photo: Niti Bhan, February 2012)

Rural Kenyans are not very different from rural Filipinos or Malawians or Indians when it comes to the way they manage their daily household expenses. Similarities in decision making, in purchasing patterns and in observed consumer behaviour, all stem from the same underlying need to plan and manage on irregular incomes from a variety of multiple sources in harsh environments of scarcity and uncertainty. The underlying driver is always to stretch the limited shilling, rupee or peso to the maximum while keeping one’s head above water.

With the exception of the salaried schoolteacher, who managed on fixed amounts of cash paid predictably on a calender schedule, the rest juggled an irregular cash flow against required expenses, attempting to minimize the differences over calender time and as a planning mechanism across the natural year’s seasons of abundance and scarcity. Even cash croppers like Mama Grace, who received end month payments from the tea factory, coped with the significant difference in the quality and quantity of tea harvested during the wet and the dry seasons with a variance of as much as 300% between high and low payments.

Rural homesteads manage their household finances rather like a “portfolio of investments” that mature over varying times such as cow’s milk which can be sold daily for cash, while a chicken takes less time than a field of maize to be ready for harvest and sale. Thus decisions are made based on timing of the expense and the choice of ‘investment’ to liquidate on what was ‘ready’ as well as the amount of cash required. For example, in Kilala livestock market it is a known fact that livestock prices always drop in January as its time for first term school fees and everybody needs to sell to raise the necessary cash. Similarly, major purchases or cash outlays are planned for known times of abundance such as right after the seasonal harvest.

Unlike those on a fixed salary who are able to plan ahead, those on irregular incomes need greater control and flexibility over the timing – that is the frequency and the periodicity; and well the amount – in cash or kind; of their cash flow, as a planning mechanism for financial management. In fact, the greater the span of control the customer has over their time and money, as articulated above, the greater the success of a business model or payment plan. This is why prepaid airtime is the preferred model for 96% of the African continent’s 700 million mobile phone users and also why kerosene has been so hard to dislodge. It can be purchased by cash amount (say 40 Kes worth) or quantity (half a litre or 5 litres) on demand or in bulk, and then frugally used for as long as possible, allowing consumers control over their “time” and “money” with great flexibility.

Observations on household fuel and energy use reflect these purchasing patterns and consumer behaviour. Cooking and then lighting are the most important needs, and the two elements of time and money as discussed above, show up in the form of duration and location. While duration of use has a direct relationship to the amount of time and money required, location has a critical bearing on behaviour in rural Kenya as will be seen in forthcoming posts.

 

Part One: Introduction to Household Energy Consumption Behaviour Study in East Africa (2012)
Part Two: Cooking
Part Three: Lighting & Concluding Remarks