Archive for the ‘Kenya’ Category

2017 is the Year Mobile Service Operators Became Banks

South African business headlines read MTN takes on Vodacom for title of Africa’s biggest digital bank and usher in a whole new era for banking and finance on the mobile platform. Having watched this space impatiently for more than a decade, seeing this was a landmark worth noting.

The number of mobile-money customers in the region (Africa) is growing rapidly, having surpassed the number of traditional bank accounts in 2015 to reach 277 million by the end of last year, according to GSMA. ~ Moneyweb, 3rd November 2017

Here’s a curated selection of my journey watching the phone become a bank:

Photograph of Nairobi billboard taken January 2016 by Niti Bhan

Blowin’ in the Wind – perspective, May 2007

A User Centered Approach to Banking the Unbanked in Rural India (PDF, entire process) – January 2007

Pondering the Mobile Innovation Divide – perspective, December 2007

African Potential meets Indian Experience – perspective, May 2008

The Telco and the Bottom of the Pyramid – perspective, January 2009

Systems Thinking Applied To Why M-Pesa’s Economic Impact and Wealth Creation Lessons Affects the Entire Ecosystem – Afrinnovator, March 2012

What is The Prepaid Economy anyway? – 14.7.14, in response to Michael Kimani

Banking Opportunities in Africa – The Banker’s Association of South Africa, 2014

A bank meets a telco – how mobile banking is changing the landscape of financial services in Africa – The Prepaid Economy: African Edition, January 2016

Savings Groups : Observations on Economic Cooperation and Collaboration in Rural and Informal Conditions

Recently, I was interviewed on communal rural economic behaviour, particularly socially cooperative ones  such as informal savings and lending groups. The questions posed were:

  • How has your opinion of savings group changed over time?
  • Why in your opinion, are people in Africa and Latin America countries (developing countries) predisposed to forming savings groups?
  • What is the importance of appreciating the indigenous financial services of the people of Africa (or anywhere else)?

I enjoyed the conversation reflecting on the lessons learnt over the past decade of primary research on household financial management within context of informal rural economies across continents and countries so much so that I decided to capture my reflections here as an integrated answer to both questions.

On the documentary level, nothing much has changed in the years since I first observed instances of cooperative economic behaviour in rural informal operating environments. Here’s a snippet from the Prepaid Economy Project’s report written in November 2009:

These complex webs of the rural community’s social networks of trust were obvious in the patterns of sharing and cooperation seen in every country. Groups would invest and save together, for example, the extremely sophisticated cooperative ladies lending circle which had expanded over time to include the services of a local bank in India; or the beekeepers cooperative in Malawi where half the annual profits were saved in a common account while the other half was equally shared.

Years later, we’re still documenting the complex webs of social networking and trust in informal economic ecosystems, and the wide variety of organizational structures for financial and economic management.

Its our recognition of the role of such groups, and their contribution to the resilience and the ability of informal economic actors to manage in volatile and uncertain conditions that has evolved, and changed. The layers of knowledge laid down over the years, across the geographies and cultures, now allow me to take a step back from the details of any particular context, and understand the patterns of cooperation, broadly, across continents and cultures.

Furthermore, our own increasing depth and breadth of understanding the highly interdependent networks of commerce and trade within the informal economic ecosystem – from farm gate to cross border trade – have led to us rethinking the concept of the end user, and questioning the assumptions implicit in the way user research is designed for fintech, financial inclusion, and other such related areas.

That is to say, the way my opinion changed regarding savings (etc) groups, over the years, has been to recognize their importance as the basic building block of the rural and/or informal economy in the developing country operating environment, rather than simply observing their behaviour as a means for individual household financial management, as we’d done in the very beginning.

Source Alice’s entire value web can be thought of as an informal economic microsystem

From the human centered design perspective (HCD, or UCD = user centered design), which is the basis for our work here at emerging futures lab, we have begun to consider that the “end user” of our design solutions might as often turn out to be the group, instead of the individual member of that group. This has been the biggest change in my opinion, over time, in answer to the first question

For the remaining two questions, I rapidly sketched this continuum of different types of “informal” groups engaged in financial behaviour as seen in cash intensive, rural, and informal conditions, seen below.

As we have recognized, regardless of continent or community, the group is a basic economic building block. What changes from group to group, depending on its function and its need in the community, is the sophistication of the organizational and money management structure.

On one hand is the simplest form of cooperation – people pool money that one member then receives as a lumpsum to use, only the mechanism of choosing whose turn it is may require some coordination. At the other end are sophisticated economic management structures often with formal registration and recognition.  This includes integration of formal financial institutions and their products – such as leveraging capital in the form of a fixed deposit in a bank for drawing loans, or their services, such as a designated officer from the bank attending chama meetings.

The fact that both simple and sophisticated groups exist within the rural and informal economy imply that the factors that predispose people to turn to cooperative and collaborative solutions for managing their finances in conditions of uncertainty and unpredictability are thus related to factors external to the local culture or society, and have more to do with the similarity of the conditions inherent in the operating environment of the informal and rural economies of the developing world. These include irregular cash flows from a variety of sources, multiple income streams over the course of the natural year, seasonality inherent in agricultural crop cycles, and lack of a social safety net.

Here’s another snippet from the original report of 2009:

Insights derived from the fieldwork lead us to believe that the key factor that makes the ‘prepaid’ transaction model so successful among the BoP is the fact that the decision making is in the hands of the individual. This model gives the end user significant control over time – frequency and periodicity and money – varying amounts, in the hands of the customer and thus fits in with their need to manage their varying cash flow from multiple income sources with a great degree of flexibility.

Furthermore, among rural communities, it was observed that social capital – that is, the community ties and extended networks – plays a significant role in the success of existing informal yet traditional means of borrowing, lending and sharing wealth and expenses.

That is, the negotiability, flexibility, and reciprocity, that trust enables within one’s social ties, is reflected in the prepaid business model that enabled mobile phones to spread rapidly around the world. And it’s this factor that provides the evidence for our assertion that an external business model or payment plan to be introduced into such an informal economic ecosystem succeeds when it resonates with existing forms and structures of financial and economic behaviour.

This is not only why its critical to first observe, document, and understand the existing solutions and behaviours in what may seem to be a financially excluded population, but it provides the keys to the design of sustainable solutions that are successfully adopted and utilized. The bottomline is that the “informal” or the rural isn’t adhoc or chaotic as initial observations might imply, but there are rhythms and structures inherent in the system that may, in fact, be invisible.

Absolute Numbers 2007-2017: The “Developing” World Now Dominates the Internet

Source: http://tmenguy.free.fr/TechBlog/?p=161

Traditionally, the data on ICT usage across the world tends to be presented proportionally – per capita usage, or penetration in the form of percentage of population. This made sense 10 years ago, when the world had just begun to notice the rapid growth of mobile phone adoption in developing regions. The typical example shown above was extremely popular – many of you will recognize it – Africa was outstripping the world in phone sales, and the prepaid business model had opened the floodgates.

At this time, however, devices were still at the feature phone stage, and Nokia owned the market. Voice and SMS were the real time communication disruptors, and smartphones only just entered the public consciousness. Internet penetration was still in the future.

Recently, however, I came across current data on internet usage presented in absolute numbers – shown above – of people online. The difference is rather stark, when compared to the proportional representation – see below.

Not only are the next two billion online, but the absolute numbers re-order the regions in a very different way. Asia leads the world online, and even Africa ranks higher than North America. Here’s the same data presented, by region, as a pie chart.

The distortion created by proportional or per capita presented skews the true landscape of the actual human beings who are using the internet. Ten years ago, this might have made sense given the passive content consumption nature of much of the early world wide web.

Today, given the dominance of social media, and the frictionless ability for anyone to share their thoughts, their photos, or their music video, its the absolute numbers that actually make a difference. There is more content available in Mandarin than in English, though we may not know it, and there are more Africans talking to each other every morning than there are North Americans.

I’ll be following up with more writing on the implications of this historic decade in human history – between 2007 and 2017, the long awaited next billion not only came online, but began showing us how to disrupt everything from cross border payments, to cryptocurrency adoption. They are my hope for a more peaceful, inclusive, and sustainable future for our grandchildren.

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”, http://www.voxeu.org/article/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

How the African movable assets bill can unleash innovation opportunities for the rural economy

Somewhere in Kenya, 4th June 2012 (Photo: Niti Bhan)

As Kenya joins Zambia and Zimbabwe in ratifying a Movable Property Security Rights Act, there’s a sense that the floodgates to innovation in access to finance might be taking place in rural Africa, south of the Sahara and north of South Africa.

Kenya’s law also goes beyond the cows and goats and allows a borrower to collateralise future receivables arising from contractual relationships.

How it ends up being implemented will set the stage for the next big disruption in financial inclusion. In the meantime, let’s take a closer look at the opportunity space for innovation in the informal and rural economy that dominates these operating environments.

 

1. A whole new bank, designed to meet the needs of rural Africa

Last night, a tweet by Charles Onyango-Obbo struck me forcibly, and reminded me of our Banking the Unbanked proposal crafted for ICICI back in January of 2007.

The very fact that contemporary thoughtleaders in the Kenyan banking industry are unable to take the concept of livestock as collateral for loans seriously, taken together with the deeply embedded assumptions of the formal economy’s financial structure leaves the door wide open to disruption.

It would not be too difficult to conceptualize a rural, co-operative bank custom designed for the local operating environment. In Kenya, where the mobile platform provides clear evidence of the viability, feasibility, and desirability of innovative financial tools and services that work for irregular income streams and provide the flexibility, reciprocity, and negotiability inherent in the cooperative local economies, such a bank could change the social and economic development landscape overnight.

In fact, one could conceivably foresee this “bank for rural Africa” scaling far beyond Kenya’s borders.

 

2. Insurance sector must respond to banking disruption

The domino effect of disruption in the banking sector should kickstart the stagnant insurance industry that has been ineffectually attempting to scale outside of the formal economy’s neatly defined boundaries. Bankers willing to take livestock as collateral for loans will therefore require insurance on their movable asset as a surety against the risk of disease, or drought.

Current products tend to emerge from the international aid industry, seeking to insure smallholder farmers against the shock of losing their livestock to climate related disasters such as prolonged drought, or an epidemic of illness. There is a dearth of relevant and appropriately designed insurance products from the private sector targeting the needs of the rural economy. For all the talk of African urbanization, even the most optimistic projections show that East Africa’s rural population will continue to dominate.

Thus, this an opportunity ripe for the plucking, given the right mix of product, pricing, and promotional messaging.

 

3. Disrupting assumptions of Poverty and Purchasing Power

Whether it is Kenya’s significant non profit sector or the nascent consumer oriented markets, the redrawn lines defining assets, collateral, and the floodgates of access to finance will require a complete overhaul in the way the population is segmented and measured.

Once these hundreds of movable assets have been valued, insured, and registered officially, even the most reluctant banker must now count the pastoralist among his wealthiest local clientele, able to draw a line of credit against his true wealth to the tune of thousands of dollars without feeling the pinch.

 

4. Triggering a rural investment and consumption boom

From mabati for a new roof and simti for the backyard wall, to the latest model smartphone or pickup truck, the concurrent boom in investments and consumption provides an ample playing ground for new products and services tailored for the contextual needs upcountry. Finally, Farmer Joe can install that solar powered irrigation pump for his orange groves in time to reap the next big harvest. And Mama Mercy can think of building up a nest egg of investments faster from the income provided by her farmyard animals.

Kagio Produce Market, Kenya, April 2013 (photo: Niti Bhan)

This might turn out to mean upgrading to a breed of high yield milch cows or being able to provide them with better quality feeds and medicines, but the financial bridge that a well designed strategy leveraging this movable assets bill and it’s timely implementation could mean the difference between the brass ring or treading water.

 

5. Trade and Commerce will open new markets

Given that the Kenyan Movable Property Security Rights Act 2017 goes beyond livestock to include other stores of wealth and value creation, there will be an undeniable impact on regional and cross border trade. No trader will give up the opportunity to leverage their existing inventory if it qualifies for additional credit that can be plowed back into the business.

On the road to Bungoma, Western Kenya, February 2016 (Photo: Niti Bhan)

Trader’s mindset and the documented biashara growth strategies already in evidence point clearly to the productive economic use of this access to finance rather than passive consumption alone. As their business grows, they will require a whole slew of tools and services tailored to their needs. This could be as simple as a basic book keeping app or as complex as customized commodity (assets, livestock, non perishable foodstuffs, grains and cereals) exchange platforms that integrate the disruptive new services percolating through the entire ecosystem.

 

In conclusion

These few steps outlined above are only the beginning of laying the foundation for disrupting the current social and economic development trajectory of small town and rural Kenya. I see immense potential for both direct to consumer as well as business to business segments for forward looking organizations seeking a foothold in the burgeoning East African markets.

We, at Emerging Futures Lab, would be pleased to offer you customized white papers on the opportunities for new products, services, and even business models, based on this emerging financial environment recently signed into law by President Kenyatta. Contact us for an exploratory conversation on the scope and scale of your particular industry’s needs. Our experienced team can help you maximize these opportunities from concept design and prototyping all the way through to path to market strategies.

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“.

The dangerous assumption that there’s no competition from the informal sector

In addition, the informal economy of open street markets still dominates 90% of retail in large countries like Nigeria and Kenya, meaning it’s a near safe bet there’s plenty of room to grow. ~ Quartz Africa, Jan 2017

Failure is a risk, and an inescapable function of the amount of resources invested, not just money. Time, effort, and managerial ambitions are also losses that destroy value for companies. Danger, then, lies in leaping to assumptions that turn out to be wrong. This is one of them.

First, a bit of history. Just over a decade ago, the Indian market was opening up to world’s investment flows in the retail sector, and estimates of the potential were as rosy and glowing as Africa’s today. From The Economist in April 2006:

Most Indian shops belong to what is known, quite accurately, as the “unorganised” sector—small, family-owned shops surviving on unpaid labour and, often, free land for a small stall. “Organised” retailing accounts for only 2-3% of the total, and of that, 96% is in the ten biggest cities, and 86% in the biggest six. However, organised retailing is growing at 18-20% a year and inspiring a rush of property development. Shopping malls are springing up in every big town: some 450 are at various stages of development.

By 2015, it was clear that these ambitious potentials were never going to materialize, though many malls did spring up in cities across the country. Last year, I covered this topic looking back at the growth projections and the subsequent real numbers achieved from the perspective of the resilience shown by the informal retail sector. I noted, in August 2016:

Yet if you look at the data from 2015, you’ll see that the forecasts were far too ambitious – formal retail has only reached 8% penetration in the past 10 years. Nowhere close to the 25% expected by 2010. Mind you, these were all the management consultancy reports bandying the numbers around.

I bring this up because I’m seeing the same kinds of projections happening right now for the African consumer market by the very same firms.

Second, this time it’s not just a management consultancy report with all the research and analysis efforts they pour into making their case. It’s not been distilled into one single yet dangerous sentence:

meaning it’s a near safe bet there’s plenty of room

Yeebo_Market_08

“Plenty of room” (Photo Credit: Yepeka Yeebo in Accra, Ghana)

There’s an inherent assumption within the assumption that the myriads of little stands, market ladies and their longstanding relationships with customers and suppliers, and the entire ecosystem which exists, such as in the photograph above, can simply be bulldozed over with a granite and marble mall development covered in shiny unreflective glass.
It didn’t happen in India, and it’s not happening in Africa. From Ghana, this news article on mall development says:

Ghana’s economic woes have translated into a variety of challenges for formal retailers who are competing for sales alongside the dominant and deep-rooted informal shopping sector. According to a recent report by African commercial property services group Broll overall sales in most modern shopping malls are well below historic averages, despite garnering sufficient foot traffic.

cth8lgkwcaauetyFurther, and more dangerously, this blithe assumption of a cakewalk where an informal sector so tangibly exists, overlooks the innate ingenuity of those who seek a dignified life even while hustling for a living. And that there’s no competition or customer service.

Snapshot of the Dynamics of the Urban Informal Retail Trade in Nairobi, Kenya

Informal Economy Dynamics - Updated

Made by Latiff Cherono – click for larger image

Latiff Cherono quickly made up this diagram during a brainstorming session with Francis Hook and myself on the ways and means to further disaggregate the general category of “Informal wholesale and retail trade” that the Kenya National Statistics Board uses to lump together the second largest sector providing employment in Kenya after agriculture.

jobs2 In urban conditions, vending and hawking of this sort is the largest source of income for the formally unemployed.

As you can see in the map visualizing Latiff’s analysis of a well known location for street vendors and hawkers to operate breaks down traffic flows not only by speed but also takes in account both static and dynamic forms of informal trade.

It may look chaotic but there are principles underlying the decisions made by both pavement vendors and mobile vendors (streethawkers in traffic) for their location of choice. These relate to the speed of passersby and potential customers – both wheeled and heeled, as Francis is wont to say – and closer analysis will most likely provide evidence of attempt to drive more footfalls to the shopfront, so to speak.

An example is the way pavement vendors locate themselves on either side of the busy bus stops, while mobile vendors who vend their way through traffic focus on the bottlenecks created by the roundabout and the traffic police.

We’re still in early days yet but time and money seem to be two of the factors that describe the attributes to segment and categorize the informal retail sector in urban Africa.

Innovation, Ingenuity and Opportunity under Conditions of Scarcity (Download PDF)

coverIn July 2009, I was inspired by working in the Research wing of the Aalto University’s Design Factory in Espoo, Finland, to launch a group blog called REculture: Exploring the post-consumption economy of repair, reuse, repurpose and recycle by informal businesses at the Base of the Pyramid*.

Within a year, this research interest evolved into a multidisciplinary look at the culture of innovation and invention under conditions of scarcity and it’s lessons for sustainable manufacturing and industry for us in the context of more industrialized nations.

reculture research bed

Emerging Futures Lab, July 2010 (Aalto Design Factory)

As a preliminary exploration, my research associate Mikko Koskinen and I timed our visit to Kenya to coincide with the Maker Faire Africa to be held on the grounds of the University of Nairobi in August 2010.

This photographic record of our discoveries (PDF 6MB) among the jua kali artisans and workshops of Nairobi, Nakuru, Thika, and Kithengela, guided by biogas inventor and innovator Dominic Wanjihia captures the essence of the creativity and ingenuity it takes to create without ample resources and adequate infrastructure.

A synopsis of our analysis is available here.

 

* The publishing platform, Posterous, died a short while later and we lost years of work. I’m looking into reincarnating REculture on Tumblr soon.

 

Signs of Interdependency between the Formal and the Informal Economy

bridging economiesThere is a lot to be unpacked here – I made a mindmap of the urban African entrepreneur who is the backbone of the visible emergence of a consumer class. I’m drawing from my experience of the Kenyan context. I started this in response to Michael Kimani’s Storify recently on the mythical “middle class” and the African consumer market.

We know that this demographic, regardless of the efforts to label it “middle class”, is quite unlike the traditional bourgeoisie that built the developed world a century ago. We can call them the informal bourgeoisie – solid members of society who nonetheless break stereotypes of the white collar, university educated, salaryman.

More often than not, they are entrepreneurs and businesswomen, traders and makers, and workshop owners, who bootstrap their lines of business through the traditional means available amongst what is still called the informal economy. If they’re lucky they might have finished high school, or even graduated from university, but a degree is not a prerequisite as it might be in a private sector job.

In this post, I’m only going to write about something that struck me last night when I was staring at the mindmap. The line that links business to entrepreneur can also be considered a bridge between the informal economy and it’s business practices, and the upcoming formal markets of urban population centers.

The successful workshop owner or regional trader rapidly acquires the signals of his or her business success in the form of consumer goods and increased expenditure on staples and necessities, including upgrades to choice of schools and church. I believe that formal financial services and products such as bank accounts, credit cards, and various apps on a smartphone are part and parcel of this.

In effect, the entrepreneur is the link between the informal economy which provides employment and income to the vast majority, and the burgeoning formal sector in consumer facing services and products.

The formal economy is more likely to be dependent upon the health of the informal sectors than the reverse.

This interdependency, and relationship, is important. I will be coming back to this diagram again to unpack more of what I’m seeing here. For now, it’s enough to have figured out that initiatives meant to eradicate the “pesky” informal trade might have greater implications than initially assumed.