Archive for the ‘Philipines’ Category

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.

Finally, the silver bullet of micro-finance can be buried in peace

Six years ago, in March 2009, after my return from The Philippines where I’d first conducted fieldwork using design ethnography methods to understand household financial management at the erstwhile Base of the Pyramid in a rural region, I had written:

Another eye opener was hearing the story about a micro-finance loan for enabling local women to start their own small businesses. The woman in question runs a sari sari store as seen in the photograph above in a small cluster of houses. She participated in the program about 4 years ago and took out a loan of 5000 pesos to start the shop. It was based on the Bangladesh model according to her memory of the introductory seminar by the loan officers and they would be required to pay it back over a period of 25 weeks (6 months). The experience made her so unhappy that she will never take out such a loan again, poor woman entrepreneur or no.

The first payment was due exactly one week after the loan was disbursed – she’d barely set up her shop, bought inventory of stocks, figured out pricing and what to do, already she was under pressure to start repaying. She used the capital to pay the interest and wished that there had been a grace period to get the business up and running. After all, it was not a cow or a mobile phone, something that could conceivably start earning money in the first week after purchase. A shop needed time to start generating cash flow as people in the neighbourhood discovered the location and spread her prices (the lowest in the walkable distance) by word of mouth. The pressure was intense and created tremendous ongoing tension every week. It just wasn’t worth it and she was glad to have gotten out from under the cloud.

Others, she says, are still trapped in the ongoing cycle of taking out constant loans for working capital and repaying back, never quite earning enough to buy a decent amount of inventory and thus earn enough to get their heads above water.

Was this bridge between “poverty and progress” meant to drown the BoP in consumer debt? The whole experience sounded like a vicious downward spiral for the new business owner/entrepreneurs.

Now, finally, after years of suicides and scandals, such as in India, and debt burdened poor, as in South Africa, there’s a spate of articles digging the grave for this usurious practice of “loans for the poor”.  I could see this train wreck coming but when silver bullets capture the imagination of the powers that be, small voices barely heard can rarely make a difference. It takes years of failure, and so many lives ruined, before donors, funders and institutions wake up to the problem.

The question still remains, however, whether anyone cares enough to design a more viable solution/s, and to put an end to this nonsense, or, whether under the new name of financial inclusion, market forces will continue to drive the implementation of cheap and easy money dangled in front of the poor?


Creative ways to financial inclusion, inspired by observing practice

Needless to say, mobile money has been a wild success in scaling an expansive agent network for converting cash to e-money and enabling person to person money transfer. Speaking at a recent conference, John Staley, Chief Officer – Finance, Innovation and Technology at Equity Bank had this to say:

“We should move the conversation from mobile money to mobile financial services.”

Absolutely! My takeaway from his comment was ”how do we get there?”

You see, with a mobile phone in (almost) everyone’s pocket, coupled with ubiquitous mobile money, conventional wisdom quips “to each his own bank.” Building on this assumption, focus quickly shifts to tweaking mobile money functions and pushing mobile based financial products to market. While this strategy may work for affluent, educated urban consumers, already familiar with banking functions of a modern economy, is it a fit for others who do not meet these criteria?


Banking Outside the Box

Often cited as the ‘unbanked’, lower income segment groups found amongst rural and informal sector demographic, aren’t as helpless as we imagine them to be. In fact, they have devised creative ways to exercise parallel banking functions: group savings, insurance, social reputation based credit scoring and loan systems; mechanisms oblivious to outsiders and at times, even subject to misinterpretation.

One instance, from Kenya’s Kiambu County, in part rural part urban Ruiru, a young goat grazes idly, unmanned and tethered to a pivot stone. For the family that owns it, this is their way of saving; it costs little in terms of management and input, with a future expected value that can be reasonably estimated. This practice is not unique to East Africa, evident from similar field observations in rural parts of India and the Philippines.

“The comparative affordability of a calf is such that the value of the mature animal is considered a worthwhile return on investment. In an emergency, livestock is a walking fixed deposit, to be sold for ready cash.” – Niti Bhan

The way I see it, in order to succeed, financial inclusion efforts need to draw insights from the people it seeks to enable, be considerate of their culture, observe their behaviour and get a better sense of their environment. Like the domestication of animals common in rural, for example.

Which is why I was rather pleased when I came across this headline on an unconventional approach to credit, Ng’ombe loan; much closer to the realities of a rural operating environment in my opinion.

“[Murang’a] Youth will receive high-yielding, pregnant dairy cows on credit [from Muramati and Unaitas SACCO] and repay the loan through milk deliveries to processors.” – Business Daily

An expectant cow as the loan principal, with repayments priced in daily milk deliveries.


Putting People first

So how do mobile financial services fit into this picture? What will mobile financial services for the ‘unbanked’ look like in the future? Is mobile even a consideration for servicing the ‘unbanked’?  I won’t pretend to know.

One thing seems certain though, if the plan is to expand these services to our target audience, then just tweaking won’t cut it. It could be because the people involved are far removed from our daily experiences, interactions, notions and concepts of money or banks. Whatever the reason, when the customers are people, it behooves us to better understand their POV, even if seemingly unorthodox, so as to inform design of financial products – mobile or not.

RIP Google BebaPay – Requiem for a cashless payment system

Less than a year after going live, Google is closing down the BebaPay smart card which was introduced as an NFC based cashless payment mechanism for Nairobi’s public transport.

Last year, I’d analyzed the context and the operating environment in which they’d launched their service, on hearing the news that they’d been struggling to gain traction. I’d gone on to add my thoughts on designing services for the informal economy, where a vast majority manage on irregular incomes and transactions are primarily in cash.

Today we note that Kenyan BebaPay card holders have been advised to use up any remaining balance and/or turn in their smart cards for a prepaid MasterCard, issued by the same bank that Google partnered with. We also note that Google had shut down their payments pilot in The Philippines and is apparently planning to step out of the payments space.

This gives rise to food for thought – are they shutting these initiatives down because of a pivot in business strategy away from payments, leaving the way open for MasterCard? Or, and this is of interest to me from the design planning perspective, did their inhouse approach to new product development create a situation where they found themselves struggling to lower barriers to user adoption of their services, and thus led to their decision to withdraw from the entire playing field?

Tech driven innovation

I have the experience of a deep dive or immersion – in the operating environments of both Kenya and The Phillippines – exploring the way people manage their finances whilst juggling their irregular income streams to minimize volatility and plan for their expenses. These new markets are so different from Google’s accustomed playing field that their usual approach to new product introductions may not be the right fit, if indeed they seek to expand their reach beyond their existing sphere of dominance.

On the interwebs, we have become accustomed to the concept of companies that launch products in beta, still buggy and finding their way. Over time, we have also come to recognize Google’s habits of shutting down services, regardless of how much we may weep or wail –> Google’s RSS Reader, for example, is one still missed by many in the old skool.

But once you step away from your tech savvy audience in the broadband segments, to the millions of noobs coming online, with an entirely different contextual knowledge of technology and its practices, I don’t believe you can summarily make the same moves you could have earlier, without there being a bigger backlash.

700,000 commuters have been left stranded in Nairobi, forced to find a replacement for an innovative tech solution that they were forced to adopt in the first place when the government put their cashless policy in place for bus fares.

This is the real world, and these are real people, struggling to make their way home after a hard day’s work trying to make a living.

This isn’t the minor inconvenience of not being able to use Reader’s free service to grab your favourite RSS feeds.

These are also new markets for the Google brand. One where reputation, commitment and longevity matters. These are not your regular customers tied to your GMail or other services, like the rest of us, that we still come back to search or check our mail even if you take away a toy or two from your playground. Particularly if you’re looking to provide a service for the lower income bracket in the developing world.

The Ugandan tech blog Dignited pointed out the demise of Google’s Trader – yet another service meant for the untapped and emerging newcomers to global connectivity – and this implies that a pattern of unreliable behaviour has already established itself in the enduser’s mindset.

They embraced your shiny new bauble you launched for them with such fanfare and then you yanked it away.

This won’t be an issue only for Google, tbh, its a part of the design culture for the digital era. And one, perhaps that needs a momentary rethink when considering the next billions coming online.

There is a larger conversation here, I can tell, on design, process and methodology and its evolution in response to more greatly intertwined world we live in. On the internet, which is now ever more global, the flap of that butterfly’s wing can indeed reach further than you envisioned.


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


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

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

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

Exploratory User Research in the Rural Economy

When I first began developing the attributes by which to select representative user profiles for the original fieldwork to begin understanding the “prepaid economy”, that is, household financial management in rural India, The Philippines and Malawi, it was based on people’s ability to plan and budget.

Sustainable Value Chain 8

One can plan best when one is certain of the amount of money incoming and its date of arrival, thus one is best able to manage household expenses on a regular salary on a periodic calender based schedule.  If we cluster rural residents by their ability to accurately estimate the amount of money against its arrival, then the salaried employee is at one of the continuum of certainty. He or she knows exactly how much they will receive and on which date. The other end, however, is the most uncertain, such as the case of the daily wages labourer who may or may not be called for work on a particular day or week.

The farmer, if experienced, tends to fall in between these two points, as they are usually able to look at their crops and estimate approximately the yield and readiness of the harvest. This simple framework of time and money allowed for a reasonably representative sample of any particular region where geography is responsible for the climate and the seasons. The uncertainties faced by local farmers were broadly the same.

Now, we hope to take a closer look at this segmentation model to better refine our understanding of rural economies. At which point did a farm transition from mere subsistence towards aspirations? How? What distinguished a member of the global emerging middle class (GEMs) from one who was barely able to hold house and hearth together? Which other actors were critical to the rural economy, delineated in this case as the last mile of the agricultural value chain, and who were the supporting cast ? All farmers in a region are not alike – how would we begin to cluster sub-segments and which additional attributes would help us?

As a starting point, here are some of the key insights that have already been consistently identified:

  1. The greater the span of control the end user had over their time and money in a payment plan – the amount, whether it was in cash or kind; and its timing i.e. the frequency, periodicity and duration, the greater the likelihood of its success.
  2. Seasonality was a fact of life and cash flows over the course of the natural year reflected this aspect. High seasons and low; wet seasons and dry – the rural economy was closely tied to the land, the ebb and flows of income affecting everyone in the farming community, from shopkeepers to truck drivers.
  3. Liquidity does not reflect wealth, nor cash expenditures a signal of purchasing power.
  4. Affordability is less a matter of absolute price and more dependent on the flexibility of the payment pattern.
  5. In the majority of the developing world, the rural economy is flexible, informal, local, social and interdependent. Trusted social networks were the basis of looking upon the community as insurance in bad times and resilience in the face of uncertainty and adversity a recurring characteristic.

Reflecting on this blog’s genesis after 5 years

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

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

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

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

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

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

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

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

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

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

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

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

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

Mobile phones and China: Two concurrent factors of global urbanization of rural African market towns.

Do we need to play guess the country or will you take my word for it that three of these photographs are from the Visayas islands in The Philippines and other 3, that match, are from all over Kenya.

Published! Pathways Out of Poverty by iBoPAsia Project

Innovating with the BoP in Southeast Asia.

The iBoP Asia Project has published the complete set of small grants funding innovation projects for those at the Bottom of the Pyramid in the ASEAN region. One of the first projects to win the Small Grants competition in 2008 was The Prepaid Economy Project: Understanding BoP household financial management.