Archive for the ‘Perspective’ Category

Time to reach consensus on the #informaleconomy debate

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

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


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

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

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

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

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

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

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

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

What will it take for this to change?

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

Unforeseen outcomes of India’s demonetization shine light on the value of our design philosophy

Informal Economy, Market Analysis and SegmentationLatest news on India’s demonetization informs us how the rural economy is bearing the brunt of this initiative.

The action was intended to target wealthy tax evaders and end India’s “shadow economy”, but it has also exposed the dependency of poor farmers and small businesses on informal credit systems in a country where half the population has no access to formal banking.

The details shed light on the consequences of implementing interventions without a holistic understanding of the landscape of the operating environment. In this case, it is the rural, informal cash intensive economy.

…the breakdown in the informal credit sector points to a government that has failed to grasp how the cash economy impacts ordinary Indians.

“It is this lack of understanding and not appreciating the importance of the cash economy in India on the part of the government that has landed the country in such an unwarranted situation today,” said Sunil Kumar Sinha, an economist and director of public finance at India Ratings.

This lack of understanding the dynamics of the cash economy (I don’t mind calling it the prepaid economy, in this context) and it’s role in the rural Indian value web has led to unforeseen challenges at a time when farmers are planting seeds for the next harvest, hampering the flow of farm inputs as traditional lines of credit face the obstacle of an artificial shortage of liquidity.

I want to use this clear example of systems design failure to explain my philosophy and approach to our work in the informal economies of the developing world. I’ve written often enough about what we do, now I have an opportunity to explain why we do it, and why it’s important.

Read On…

Insights on the psychology of cash money – Demonetization vs Financial Inclusion

moneyThe flurry of commentary on the Great Indian Demonetization of November 2016 has thrown up some nuggets of insight worth considering more deeply.

Santosh Desai explores the psychology of cash money in the Times of India blog, linking the need for tangible evidence of income to physical labour, as opposed to those of us with the contextual knowledge to understand the virtual concept i.e. digital currency.

“…there is another aspect of this situation that needs more reflection- the nature of the relationship we enjoy with cash. Cash is not merely a symbolic representation of value. Cash is the idea of value captured and owned. It is the product of labour that is an entity by itself and becomes much more than what it can buy. Sitting on a pile of cash gives pleasure both metaphorical and real.”

“…there is some value that is placed on the device of currency notes over and above the value that it signifies.”

This aspect has not been looked at deeply enough, imho, when financial inclusion is talked about, particularly in the context of digital solutions. I suspect that therein will lie behavioural insights that could conceivably drive design changes that lower the barriers to adoption in the strategies to introduce digital currencies and mobile monies to hitherto unbanked populations.

Earning money needs to be signified concretely. Those whose life’s earnings are in the form of a few high value currency notes, do not decode demonetization in quite the same way as those used to money in its conceptual form. The idea that it is possible to de-legitimise their life’s labour is to shake the foundations on which one’s life is constructed. What if some money is not exchanged? What if some paperwork, that bane of those living on the margins, is incomplete?

What if the mobile phone’s battery dies? Do my hard earned monies disappear like other unsaved data?

Trust in technology is a function of our contextual knowledge – our immersion in an environment saturated with electronic communication and screens of all types and purposes provides us with conceptual frameworks that are entirely different from someone whose daily labour is on the farm, or at a mechanic’s garage.

While those who are financially excluded might not face demonetization i.e. the de-legitimization of their labour, as Desai mentions above, the current attempts to convert their cash intensive habits into digital form via various “cashless” initiatives overlook the psychology of cash. Regardless of locale, those at the margins (the excluded) have high levels of mistrust in the system, through their experiences with institutions and the system, over time and history.

The talk of ‘cashless’ is easy, but it ignores that there is a cultural dimension to the physicality of cash. Digital wallets operate on a transfer of intention, where a promise to pay gets converted into an intention to buy. For this to work at scale, one needs to have become comfortable with the idea of surplus and develop the confidence that money will come without having to struggle or having to think about it all the time. One needs to develop trust in institutions, in a context where the evidence around is overwhelmingly to the contrary.

I suspect that if this subject was explored further, we would discover that where mobile money has succeeded, such as in East Africa, the institution that was trusted was the telco – the mobile service operator, and that the early stages of adoption have a different narrative from that being used currently in entirely new markets where mobile money still struggles to penetrate. India and South Africa are two such places where the unbanked and the financially excluded have reasons of history to develop high mistrust of the systems of the privileged.

To convert one’s worth into worthlessness, even if for a small period is to make everyone nervous. Psychologically, money works on a convention of mutual deception. We agree to call something money, and that is good enough. But to have the thinness of this convention exposed in such a way is to cause great anxiety.

The transition to a cashless future can be made gentler and more accommodating to their fears and concerns, generating a sense of security and commitment, with some empathy for an entirely different world-view and life experience.

An economy of trust

_92445052_02Cash on credit is the caption given to this cartoon by the BBC. Neighbourhood groceries are offering their regular customers cash advances in addition to bread and milk.

While the media is filled with a plethora of stories of heartbreak, my own suspicion is that we’ll discover the resilience of the cash intensive informal sector lies in the relationships between people, once the hubbub has died down.

Silent snow

img_6602I just emptied out my camera and this photograph from exactly one month ago was sitting there from 11th Oct 2016. The leaves are still green, and on the trees, and just the beginnings of the orange turn to autumn’s falling leaves can be spied on the tops.

Today, there’s at least 6 inches of snow on the ground – I’ll try to have a photo up later – and its the first day of sunshine in a week of blizzards that started last week. This is the bright hope of the Finnish winter, that the white snow will come and blanket the ground and lighten up the darkness. It’s been a strong and early start to real winter, normally November is grey and wet and cold and miserable. This feels like January already. And it will stay this way until February.

Where is my warm glogi and the parties?

Balancing the outcomes in systems design

The Carpenter’s Problem as a solution framing tool is quite flexible. It permits a spacious solution space in the shaded area of the graph, that allows for localization and customization for best fit to particular region or geography.

For instance, the challenge of designing the most inclusive internet for all the newcomers from emerging economies, must map against the minimum viable and optimal solution.

Is access to a signal the actual problem to be solved?

Perspective on the Carpenter’s Problem

exampleThis is my favourite concept for describing how to cost effectively iterate complex systems solutions within a given set of constraints and conditions. That is, the ideal solution for best fit, can be said to lie in the shaded area as shown in the graph above.

This approach to solution framing comes from operations research – what is the optimal solution that minimizes resources (inputs) for maximum outputs (value creation).

I first used this in a speech I gave at the CII NID Design Summit back in the December of 2006. Oh my, has it been ten years already? How time flies.

As Granny was saying, with this conceptual framework for problem statements, one is assured of the maximum constraints possible i.e. the most inclusive design is set up as the ideal – affordable, accessible, and equitable.

Even if language and literacy put up barriers between people connected to each other via their mobile phones, especially smartphones, can’t we not design a universal user interface, such as Ted Boulou’s Somtou device, that could use all the power of the tech at our fingertips to do the greatest good towards a more inclusive internet than all the free wifi in the world. There, I said it.

“Unlearn the past to create the future”

ckptyranny1The late Michigan University management professor, CK Prahalad, is best known for his last, and most famous publication, The fortune at the bottom of the pyramid. But to MBA students, management consultancies, corporate planners, and regular readers of the Harvard Business Review, he is also known for a long and distinguished career in management thought leadership. Identifying and recognizing the Core Competency of corporations is another one of his strategy concepts.
I bring him up because today I want to start my keynote on behalf of the Inequality and Technology opening conference by BankInter Foundation for Innovation with a point he made in a speech given at the Indian School of Business in Hyderabad back in 2009.

The tyranny of dominant logic, he called it. We are all socialized to believe, he said, that developing countries cannot be the source of innovation. And this dominant logic provides the theoretical lens by which we see the world. Developed country managers, consultants, academic researchers, all have been socialized to accept this notion.

Because of this, he said, we have never questioned the premise that innovation flows from the top down to the bottom; or, from the North down to the South; or, from the developed countries to the developing. But, as he pointed out with numerous examples in his speech, this doesn’t actually hold true. And this blinds us from seeing otherwise. We must unlearn, the past, to create the future, he told us.


Read On…

Detailed breakdown of Uber’s business model in Kenya puts spotlight on weaknesses

Latiff Cherono has just published an indepth analysis of what exactly it takes for an Uber driver in Nairobi to cover the cost of doing business. Here’s a snippet,

In this post, I try to understand the root cause of the disconnect between how the customer (who defines the value), Uber (the service that controls the experience) and the driver (the one who provides the service).

He accompanies his analysis with a detailed breakdown of costs and revenues, such as the table below, and others in his post.

new-picture-2And concludes:

The incentive for any person who starts a business is to maximize their profits. As such, we should expect that Uber drivers will approach their business in the same vein. However, the data provide by Uber to the driver is limited and prevents them from making informed decisions about generating revenue. For example, drivers do not know the estimate distance of a new trip when they accept it via the app. They are also penalized for not accepting rides (even if that trip may not make financial sense to the driver). All this is by design as Uber wants to maintain a steady supply of “online” vehicles on their network. One may argue that Uber is not being transparent enough with its independent contractors.

My thoughts:

Nairobi, Kenya isn’t the only ‘developing’ country context where Uber is creating unhappy drivers (and customers, one assumes) due to the design of their system. While most of the first world challenges to the company have come from the perspective of the formal economy and its regulations and laws regarding revenue, tax, employment status et al, the same cannot hold for the entirely different operating environment where the informal sector holds sway. And taxi driving is one such service.

Kampala, Uganda has it’s own challenges for Uber, including:

  • Uber drivers are reportedly leaving the service, switching off the Uber apps or not picking calls from corporate clients and those paying with a credit card. For the first four months after its launch, Uber was offering drivers incentives that saw them earn between Ush200,000 ($57.1) and Ush350,000 ($100) a week.
  • With increasing competition, drivers say that Uber’s incentive structure has been changing. In the first four months, Uber drivers were getting Ush15,000 (about $4) per hour, but this has since been scaled down to Ush10,000 ($2.9) and to Ush4,000 ($1.1) in incentives.

There is so much to be unpacked here, including the entire section on Uber’s own perception of how the market works, upto and including how to introduce time limited incentives, that I’ll follow up on it subsequently.

In this post, I wanted to highlight Latiff’s analysis and hard work pulling together the operating costs data, even as I leave you with this snippet from the article:

Uber’s commission in Nariobi was reduced from 25 to 20 per cent following protests by drivers in August, accusing the taxi hailing service of working them like slaves.

As I wrote earlier in the year, Uber could have done so much more in these markets, particularly on the path to formalization. Instead, they’re continuing on their journey as yet another smartphone app making life even easier while squandering the potential for real world change for the less privileged members of our societies.



The East African Community is a hidden gem

eac-locator-mapEven as headlines shriek about “Africa”s economy undergoing some form of turmoil or the other, increasingly, indepth focused reports point out that the East African Community is performing exceedingly well. “Africa”, it turns out, is a vast and diverse continent made up of more than 50 countries. The IMF said:

…the multi-speed growth in the 1.4 % regional aggregate growth this year over-shadowed the prevailing diversity across the region. Almost half of the 45 countries in the region (south of the Sahara), including Côte d’Ivoire, Ethiopia, Senegal, and Tanzania, he noted, would continue to enjoy robust growth, with economic output set to expand by 6 per cent or more by this year…

while the World Bank chimed in with:

…the region’s economic performance in 2017 will continue to be marked by variation across countries.

eac-gdpIt was when UNCTAD’s Mukhisa Kituyi pointed out that in East Africa, intra-regional trade is closer to 26% – double the figure generally touted for the continent’s performance, that it struck me how much the current approach to considering metrics for the continent hid so much of the value. Either the entire continent is taken as a whole, or as “sub Saharan Africa” including South Africa. Once I’ve seen the use of SSAXSA – those parts of the continent that aren’t North or South. Perhaps its time to disaggregate our assessments even further?

While this post isn’t meant to be a comprehensive literature review, so much as an evidence based request for more focused and granular analysis of the opportunity spaces on the African continent, here’s a variety of areas where the EAC countries tend to rank in the top 10. Note that they’re all from different sources as well.

logistics-secondFood for thought, isn’t it? In subsequent posts, I’ll be taking a closer look at the EAC as an attractive opportunity space for new market strategies and business development.