Archive for the ‘Savings’ Category

3 Myths of Financial Inclusion


Mama waiting for biashara in Sagana, Kenya (Photo: Niti Bhan)

This article has been co-authored with Michael Kimani @pesa_africa

Banking the unbanked is very popular right now, as financial inclusion is seen as a key milestone on the path to development. In parallel, a plethora of “cashless” or “cash lite” solutions have begun permeating the cash intensive informal economy. These can be broadly described as digital financial services aimed at financial inclusion as they leverage the popularity of the mobile phone as an affordable delivery platform. Yet, their uptake has not been as viral as hoped.

We take a closer look (i) at the challenge from the perspective of market women and micro-traders who form the backbone of informal trade in daily necessities. Without her cooperation, the mass market adoption of digital currency is highly unlikely to become a mainstream part of life. We’ll call her Mama Biashara, from the Swahili word biashara meaning commerce, trade or business.

The United Nations defines the goals (ii) of financial inclusion as follows:

  1. Access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance;
  2. Sound and safe institutions governed by clear regulation and industry performance standards;
  3. Financial and institutional sustainability, to ensure continuity and certainty of investment; and
  4. Competition to ensure choice and affordability for clients.


Myth 1: Mama Biashara is financially excluded

All of this assumes that Mama Biashara has no option (iii) but to stuff her savings under the mattress. Since Kenya is the world’s leader in digital financial solutions for the unbanked, grabbing visibility with the undisputed success of its M-Pesa mobile money platform, we decided to choose its context for our analysis. Given below are the various financial services and tools available to Mama in the rural context, placed along a continuum from most informal to most formal.

Informal Formal final QZ africa

As you can see, Mama has a large variety of solutions that she avails for her financial needs – its just that they can’t all be classified as “formal”. Yet, technically, by the UN’s definition given above, can we actually say that Mama Biashara is financially excluded from “Access at a reasonable cost to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance”? Many of these locally grown alternatives such as Chama*, ROSCA* or ASCA* have been institutionalized in the Kenyan context, able to match the UN goals for points (2) and (3) as well as proving to be valid and viable competition offering choice and affordability (4).

If Mama Biashara’s basic financial services needs are being met right now by the variety of options and alternatives easily accessible to her, then what is the value proposition of a bank?

Her long standing reputation in the community, her relationships with her friends, family and peers, her “credit history” if you will, all becomes null and void when she approaches a faceless formal institution such as a bank. Due to the cash intensive nature of her business, little hard data on her financial history might be available for formal financial service requirements. On the other hand, her social recognition and long standing business relationships serve this purpose in the informal sector. Daily variances in cash flow which might require a quick loan or flexibility in payment can be easily covered by her ecosystem of financial options, something that the formal procedures and processes of financial inclusion solutions aren’t designed to accommodate. There’s an inbuilt component of trust that  the formal system is unable to overcome at scale.


Myth 2: Trust lies in the regulations, standards, governance and continuity of formal financial institutions

Trust in financial institutions, as implied by points (2) and (3) of the UN Goals, is embodied in their continuity, their regulations and performance standards, their governance by the laws of the land, and all the rest of the formal structures in place to create sound and safe solutions. This assumption, emerging as it does from the point of view of the sophisticated systems of the developed world, places the onus of trust on the rules and regulations governing the institution rather than the reputation of the individual or their worth in the community.

Yet, over and over, we see that Mama Biashara barely ends up using her bank account even if she manages to obtain one (iv) or is slow to adopt an innovative digital financial service. So we reorganized her financial tools on a continuum of most trusted to least trusted to see what patterns we could observe when we compared the same against the formal vs informal continuum. Was formality indeed the driver for trust?

Trust Continuum QZ africaWe were surprised to note that the least trusted was the most common metric of financial inclusion – the bank. These insights, based on interviews with women in Nyeri by Michael, reflect what Susan Johnson wrote on Kenya (v) –

But the difficulty of gaining loans through them (banks) means that the evidence confronting poor people is that a relationship with a bank is not a dynamic system of exchange in which funds are lent in both directions. The bank does not therefore represent a social relationship of equality and a means through which social connections are developed in ways that offer access to resources.  

The very nature of the formal system – in this case, the regulated and institutionalized bank – is the barrier to adoption among those active in the informal sector. The system is faceless, nameless and cannot provide the basis for an equitable, social relationship, as compared to a network of peers, a self help group (SHG*), or your friends and relatives. You cannot negotiate with the system as it offers no flexibility to accommodate the individual’s peculiarities or sudden needs.

Sustainable Value Chain 1

And the issues of trust and performance, in closely knit communities, depend upon social relationships, word of mouth and reputation built up over time. If someone doesn’t repay a loan, or if the semi-structured self-help group faces issues with their treasurer, these matters not only become common knowledge but can be dealt with directly by the affected members. For the most vulnerable segments of society, most of whom also fall in the category of being “unbanked”, whom do they turn to if a national bank or large telco fails them? Even M-Pesa is fronted by a human intermediary, the mobile money agent, a locally known member of the community.


Myth 3: Financial inclusion is an individual matter, or for the nuclear family

In Mama’s environment, social connections and belonging is very important. It is the foundation of her business, and it matters a lot. Especially in the rural context, your friends, neighbours and extended family are most likely to be your customers. The vast majority of your daily financial transactions are conducted within the community. This is reflected by the patterns seen in the two continuum diagrams of trust and formality. Each points towards local networks and social relationships as an important component of money management by the unbanked.

As Johnson discovered, reciprocity is as much a critical part of the functioning of the informal financial group, as negotiability (vi) is for successful adoption in cash intensive operating environments. The prepaid business model offered by telcos empowers Mama Biashara by giving her control over how much money to spend on her mobile phone, when to spend it as well as how often. In contrast, banks may penalize the early payment of a loan or impose a rigid payment schedule based on the calender year. Give and take is part and parcel of the community life. Groups help Mama in self control, restraint on spending, planning and saving for goals, together with social support in ritualized form.

Yet, the financial inclusion industry focuses counting the number of bank accounts rather than the number of people accessing one together under some umbrella of cooperation – a self help group or a chama might collectively bank their pool of money for safekeeping.  A group account is not about labels eg. Chama,  or a type of bank account, or the social features in a digital solution. There are rituals, practices and human connections embedded in the sharing of value. Entire cultures revolve around the community spirit and coming together in times of need – harambee, it is called.

When what is measured is what gets done, the financial inclusion industry overlooks all these elements in their goal to sign up each individual with a bank account (vii). No wonder such a high percentage of bank accounts become dormant within a year.


Mama Biashara’s perspective: What does financial inclusion mean to the unbanked?

These three myths are very powerful ones and they drive the design and implementation of financial inclusion programmes for the unbanked. Assumptions made by the stakeholders immersed in their formal, structured environments from the outset, when left unquestioned, act as intangible and unseen barriers across the formal/informal economic divide. “Banking the Unbanked” is such a catchy slogan that it took M-Pesa’s success in Kenya to expand the definition of financial inclusion in the latest version of the World Bank’s Findex report. Now, we see digital financial services rapidly becoming the holy grail for reaching the unreached. Yet not a single program or research project has begun from the perspective of their target audience of their aims and objectives. What does financial inclusion mean to Mama Biashara? Is there a need not being met by her existing solutions? What are her current alternatives? Until the informal sector is taken seriously in its own right as a vibrant & dynamic market and operating environment, offering stiff competition for Mama’s few extra shillings, we don’t see any of the technological marvels being introduced as viable or desirable in the long run.


ASCA –        Accumulating Savings and Credit Associations
ROSCA –     Rotating Savings and Credit Association
SHG –          Self-help group of mamas with common business interest
Chama –      Informal cooperative society used to pool and invest savings
P2P credit –     peer to peer credit eg mama to mama
B2C credit –     business to consumer credit eg mama to her customers
B2B credit –     business to business credit eg a supplier to mama
MFI –          Micro Finance institution
SACCO –     Savings and Credit Cooperative


End Notes

(i) Qualitative interviews on digital currency with rural women micro-entrepreneurs in Nyeri, Kenya in February 2015
(iii) Mobile Finance: Indigenous, Ingenious or Both?
(iv) One out of four accounts ‘dormant’ as mobile money takes over banking
(v) How Does Mobile Money in Kenya Affect Financial Inclusion?
(vi) “Payment Strategies for those with irregular income at the BoP” (2009) – The Prepaid Economy project by Niti Bhan (UNIID SEA 2012)
(vii) Financial exclusion


Emerging Futures Lab brings to life concept design of innovative products and services by applying years of immediately actionable primary research in the cash intensive informal sectors of the emerging economies of the developing world. We see opportunities and markets where others see adversity and scarcity. Contact us now if you’re interested in the exciting frontier markets of Kenya, East Africa or elsewhere on the African continent.

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.

The importance of the agent/customer relationship for successful financial inclusion

The role of agent networks in East Africa’s mobile money and mobile banking roll-outs is widely documented; as an intermediary, a kiosk exchange point – accepting deposits for e-money/ withdrawals for cash and usajili (registration).

“. . .as the first point of contact, human agents help bridge the gap between a high-tech service and low-literacy clients.” – CGAP

But, most research falls short of exploring the subject in its entirety, specifically, the relationship between customers and human agents  – a recent example is the just released Agent Network Accelerator Survey – Kenya Country Report 2014 by Helix Institute of Digital Finance. To sum it up, I would say it was a numbers driven top-down approach to the subject (most likely focusing on what is best for the service provider), that failed to explore the human touch-points that make mobile money relatable.

“A lot these findings, I’m noticing, do indeed do all the research, but leave their underlying assumptions on people unquestioned [. . .] researchers go in & see behaviour – the What & How – but assume a lot on the Why”@prepaid africa

As I see it, there is a subtly rich layer to the mobile money agent and client relationship that is readily observable in close knit communities; frequent micro-transactions lead to conversations beyond basic transactions, off-the-cuff inquiries, and thus reinforce continued trust. For people not well acquainted with the intricacies of mobile money, or tech for that matter, these human intermediaries – the agents, most of whom happen to be women – are your trusted guides to the technology and face of the service providers.

Which is why, this assumption in a post by Mondato, hit a nerve.

“In the long run, as more fully developed digital payments ecosystems develop, there will be less need for agents . . .”

When talking about Africa’s markets, in mobile financial services or whatever context, research reports which disregard the qualitative nuance of local, social and communal interaction, lead easily to such assumptions. The  Helix report for example, grouped agents into 2 categories: rural and urban. On the ground however, these are polar extremes on a scale. If we go by strict definitions, this frame of reference doesn’t translate on the ground ; more common is a mix of both, or peri-urban or even rural folk who commute to their place of work in peri-urban. Perhaps a measure of cash intensity or ‘unbanked-ness’ in immediate contexts makes for a better framing?

My point is, the agent – customer relationship on Moi Avenue in Nairobi’s CBD, is markedly different from Githurai’s packed informal market place despite both located in Nairobi. In this cash intensive ecosystem, in the thick of all the chaos characteristic of informal micro-economies, human agents sit right next to mama biashara and boda boda guys. Here is where, you are likely to find the unbanked, underbanked and lower income segments.

I can’t help but think there is a larger role for mobile money agents in financial inclusion; one that resonates with commonly observed themes in this segment – social groups, local, face to face, trust. Like Monica, a cyber cafe attendant in Maai Mahiu whose role in the local community extends beyond simply offering internet browsing services. Jan Chipchase aptly describes this as symbiotic : customers, agents and service provider.

“The careful use of real world analytics combined with contextual qualitative understanding has the opportunity to reveal not only what people are doing, but also the nuances of how and why . . . this in turn will lead to the next round of service innovation insights”

How social networks can share the cost of technology – An innovative payment plan

The original Prepaid Economy project grant from the iBoP Asia Project required me to design a payment plan for a shared community asset based on the exploratory user research on households managed their finances on irregular and unpredictable incomes. For the first time since I started looking into this space back in 2008 I’ve come across the use of this conceptual business model in the wild.

A successful South African entrepreneur who made his millions by selling computers in townships came up with an innovative variation of such as business model. Here are the details:

He soon realised the power of Stokvels, an informal savings pool or syndicate, in which money is contributed in lump sums on a rotational basis for family needs. Luvuyo clustered the teachers in groups of six where they contributed $35 every month. Within six months of starting the scheme, each teacher had their own computer.
He says you need to understand your business’s unique challenges to become a successful entrepreneur.

“We’re trading in Khayelitsha, where the employment rate is 60% and there’s no money. You need to be very smart in terms of how we get money and get people to pay. Some of the people coming for our services are dependent on social grants from government. They save that money for themselves to get a computer and better employment,” he says.

Role of Chamas in informal sector entrepreneurialism in Kenya

Researcher Mary Njeri Kinyanjui shares deep insights from Kenya on how social cooperation and collaboration play an important role in the informal entrepreneur’s business financing strategy.

In East Africa, particularly in Kenya, the formation of chama—a Kiswahili word for social group—has helped to enhance group agency and solidarity entrepreneurialism. Individuals collectively and cooperatively form a chama to pool and invest savings for welfare activities, such as paying medical bills or celebrating the birth of a child, as well as for investments, such as buying property, rural land, or plots in the city. The contributions are saved and then given to members on a rotational basis as lump sum loans at low-interest rates. Such business exchanges occur in a free and open market, which discourages hoarding, unfair trading, overpricing, and undercutting.

Here are two stories of Kenyans who have successfully utilized solidarity entrepreneurialism, and chama especially, in informal economies to improve their social and economic wellbeing.

In the 1990s, John, a trader of clothing and accessories, bought his products from wholesalers across Nairobi. However, with the onset of economic liberalization, many of these wholesalers went under, and new suppliers were too expensive. He decided that the only way to sustain his business was to go to China to source his products. With a group of friends, John formed a chama, which was comprised of 10 men, and traveled to China. Together, they made monthly contributions of 10,000 Kenyan shillings (or $108 in today’s dollars). The accumulated wealth was given out as loans, with an interest rate of 10 percent, for hotels and travel expenses in China. Through this initial chama, they have created a revolving fund that facilitates Kenyan traders’ visits to China when demands arise.

In 2011, Jane was invited by a friend to rent a stall to sell clothes in ECT Mall on Taveta Road in Nairobi. She had about $2700 in savings. She spent $325 of her savings to make a down payment and to start her business. After her first earned profit of $485, she was able to renew stock from wholesalers in Kamukunji and also save some money to contribute to her chama. After saving money for five months, she obtained a loan from her chama, which enabled her to buy more stock. And after one year, the traders in her chama made a unanimous decision to use their pooled savings and earnings from loans to buy land in Kitengela. Jane thus moved her clothing business to the plot of land in Kitengela and is now able to maintain her stall with ease because rent, water, and security costs are shared among the traders.

An older article by kiwanja offers an overview of the role played by these indigenous financial cooperatives in Africa, while the chama‘s importance in Kenyan society has already captured the attention of the tech innovators looking to develop mobile solutions.

Human centered design for financial inclusion: Lessons from fieldwork in rural India, The Phillipines and Kenya


Financial inclusion has become mainstream thinking in economic development. The vast majority of the unbanked live in the developing world, and a significant proportion of this population are rural residents. One can easily surmise, without recourse to statistics, that the bulk of the target audience for institutions seeking to offer them affordable and accessible financial services are part of the rural economy.

Now, the role of human centered design and its toolbox of methods and processes is being recognized as mission critical for successfully enabling these initiatives. So little is understood about the rural economy, particularly that of the developing world, that without the insights that design ethnography (also known as user research or more broadly, exploratory user research) among the end users can provide, barriers to adoption will remain unaddressed.

With this in mind, I thought to share lessons learnt during the past 6 years of experience in the application of human centered design processes in order to observe and understand household financial management behaviour in rural Africa and Asia.

Human Centered Design

Human centered design traditionally applies the insights from user research to inform and inspire the design of a product or service. At the Institute of Design, IIT Chicago, there were scores of methods and frameworks for every step of the entire process. In particular, the analysis and synthesis phase after fieldwork was completed was considered critical in identifying the actionable insights that would drive the conceptual design and subsequent development of solutions. All of this required that we frame the problem correctly at the very beginning, in order to ensure that our findings would be relevant and appropriate. Here’s a diagram that captures the entire concept:

Adapting human centered design for understanding rural household financial behaviour

Back in late 2008, when I first began framing the original problem statement for the iBoP Asia Project’s first Small Grants Competition, I quickly realized that the methods and tools as developed and disseminated in Chicago, could not be directly applied without adaptation to the distinctly different operating environment, and, the then unusual objectives of business model design.

Firstly, the tools and techniques for user research developed and refined in a first world sophisticated consumer market accustomed to decades of market research, telemarketing and surveys of all stripes wouldn’t work among lower income rural residents in a developing world context. They had little or no exposure to market research or design research of any sort, and surveys and questionnaires tended to imply government census takers or some kind of social study by an NGO. After all, it is only now that we are taking the “financially excluded” seriously as potential customers with wants and needs in their own right.

Secondly, back then, nobody had yet applied human centered design methods for intangible outcomes such as insights on household financial behaviour or the conceptual design of a payment plan for a community. User research conducted as part of the human centered design process was for consumer facing client companies looking to improve existing products or develop new ones i.e. very tangible outcomes. My research question was:

What insights can we derive from observing and understanding how those at the BoP currently manage their household budgets to inspire new transaction models or pricing strategies for businesses wishing to serve the poor more effectively, yet profitably?

Thus, I found myself not only having to adapt the methods and tools available to me, but also develop frameworks to sample a representative segment of the rural economy given the conditions and criteria of the operating environment. This I will share now for everyone else who will now be using the human centered design  approach for financial inclusion.

Framing the problem correctly

This was the most important element in ensuring the successful outcome. Tina Seelig has written on how REframing a problem can unlock innovation, a valuable insight when you’re already immersed in your own environment like a fish in water. But when we step outside of our accustomed operating environment to one which is dramatically different – a poor rural region for example, we can so often be overwhelmed by the sensory overload that we are unable to contextualize the challenge from the end user’s perspective. We’re too busy noticing all the differences and unable to distinguish the important from the mundane or identify macro patterns of behaviour because we are distracted by the minutiae of daily life.

The impetus for this line of research came from observing the success of the prepaid business model as mobile phone sales took off across the developing world. So my initial problem statement had been “What makes prepaid mobile airtime work so well for this demographic and what can we learn from this successful adoption to inspire business models and payment plans for other products and services?”

That emphasis on the mobile phone and its attendant business model would have narrowed the focus of my research and thus, influenced my questionnaire and observations. On the other hand, by shifting the focus away from what interested me, and broadening it to encompass the challenges of daily life, I would be able to perceive the entire context within which any particular business model or payment plan worked. That is, I took a step back from just the mobile phone or any one particular payment plan to understand the rhythm and the patterns of the rural economy. I framed the research as follows:

The focus of our exploratory and user research in the field will be to understand the challenge of planning household expenses and budgeting when incomes are mostly irregular and unpredictable.

This allowed me look at the larger patterns at play in the rural economy and as I was find out later, provided a foundation for understanding the cash based informal sector prevalent in both urban and rural regions of the developing world. That is, it formed the basis for understanding what makes the informal economy tick, something that I wouldn’t have been able to do if I’d kept the original focus as narrow as why prepaid airtime enabled the rapid adoption of mobile phones among the lower income demographic.

Takeaway for framing the design research problem statement

When you approach your client’s particular interest area in the broad space of financial inclusion, don’t just focus on their specific interests without considering the entire ecosystem within which the intended produce or service will reside.*

Rapid prototyping to test research protocol and questionnaire

The beauty of the human centered design is that nothing is expected to work the first time its built. Prototyping and refining the design based on user feedback and observation is embedded in the iterative nature of the process. This is also part of design thinking – the willingness to experiment to see what works, usually with the participation of the end users.

Thus, when I first set out to use design methods in this wholly new way (seeking to understand household financial management among the rural poor), I insisted on a ‘prototype’ location first. This allowed me to test the questionnaire – it was completely thrown out right after the very first attempt to interview someone – as well as develop the framework for sampling uncertainty in the informal sector.

Don’t imagine that your carefully prepared questionnaire and the rest of your research protocol will hold up in the field. Be prepared to evolve it in order to see what works. That’s why its so important to frame the problem statement first so that you know what you’re trying to understand. We’re talking about sensitive topics when researching for financial inclusion, and our goal should be tread respectfully towards greater understanding rather than rigidly following research protocol.

User profile identification matrix for sampling a representative pool

Design ethnography aims to gather an in-depth understanding of human behavior and the reasons that govern such behavior. The qualitative method investigates the why and how of decision making, not just what, where, when. Hence, smaller but focused and representative samples are more often needed, rather than large random samples.

Since the object was to understand how those on irregular incomes planned and managed their household expenses, a variety of claimed income sources such as farming, shopkeeping, job or minicab driving was deemed important to be identified in each location.

In order to ensure that the sample best represented the local context and situation, a qualifying chart was developed ad hoc in the prototype location (India) as a method to approximately evaluate an individual’s ability to predict the timing and amount of their income, and thus plan their expenses.

This found to be useful in ensuring that the widest possible variety of local influences on cash flow were represented in the sample pool, not merely the majority of the population who were farmers, all of whose fields of wheat or rice would tend to ripen for harvest around the same time.

For example, in the Philippines, the representative sample pool, by primary stated source of income, included a rice farmer, a minicab owner/operator, a sari sari shop owner, a door to door frozen food seller and a furniture craftsman with his own workshop.

It was also ensured that the range of remittances (from zero to only for savings) received by the individuals was also varied. Individuals with full-time jobs were not considered nor were those whose sole source of income was remittence from abroad.

Takeaway for developing your own matrix for sampling the local populace

This chart formed the basis for sampling across various income streams. The employed have a regular salary, they are able to say with accuracy exactly how much money to expect and on which day. The odd jobs labourer, at the other end of the spectrum, cannot predict if he will get work on any particular day nor how much work. The farmer (generalized here) is able to estimate approximately when the harvest will be ready for sale and its value, though naturally not as accurately as a regular paycheck.

If you are only looking at farmers’ incomes then consider a spread across cash crops, size of harvest, crop mix and produce sales patterns. There are high potential farms and low potential ones.  The idea is not to end up with your entire pool of people with similar patterns of cash flow. If you’re looking at a village or rural population cluster, consider agribusiness services such as shopkeepers and transporters, as well as other service providers such as water delivery, small kiosk, market traders etc.

The reason for this is due to the variance in people’s ability to plan for savings, loans, mortgages, credit or other financial products based on their ability to predict their cash flow. The more uncertain your income stream, the more risk averse you’re likely to be.

Locations in country

Choosing locations to sample depends on the aim of the design research study – are you looking at the  entire country? Or just one particular region? Based on geography, different parts of the country may have more or less food security, so again it makes sense to sample from at least two if not three distinctly different areas based on their economic standing.

From the perspective of financial inclusion, it doesn’t make  sense to only look at two similar economic regions with cash crops, unless your study’s focus is a middle or higher income level demographic.You may also wish to consider a spread of profiles based on their distance to the nearest market town or financial services institution. Patterns of behaviour will differ based on time and money it takes to travel. For instance, even if your income streams gave you the confidence to consider a loan, the cost of travel may not make it worth the effort.

Final thoughts

The informal and rural economies are far more sophisticated in their financial management than we are able to perceive in the first instance. Designing solutions that work with the rhythms of the natural seasonality are more likely to be adopted than those which impose calender schedules. Negotiable flexibility and trust based webs of cooperation are part and parcel of the hyper local rural economies. How can we retain these pillars of community life and resilience in the face of adversity and uncertainty even as we seek to include the marginalized with our modern tools and technologies?

* See the problems with introducing Google’s Beba Pay design without taking entire ecosystem into consideration

Sharing insights on the ROI of cow ownership with The Economist et al

Dung cakes provide free fuel for the rural housewife (photo credit: Goverdhan Meena)

While the internal rate of return (IRR) of a cow may certainly be in the high negative numbers, per the recent Economist note on research, there are other elements of the cost/benefit analysis that also need to be taken into account when considering the real value of owning livestock. There are differences based on region and locale naturally though the patterns of economic activity might resemble each other due to similar challenges. Here, I will mostly look at the rural Indian context.

1. Fuel

Rural households without access to the electric grid use firewood and cow dung cakes for cooking and heating in India. Cow dung as fuel is not used to the same degree of prevalence in rural Africa as it is in India. Above is a photograph of a typical village home in Rajasthan, western India. You can see the source of fuel, the black buffalo, tied up next to the work area. During the dry winter, dung is collected, mixed with bits of twig or straw and shaped into patty cakes by hand and then left to dry. After they have sufficiently hardened, they are stored for future use in their own shed.

Dung is slow burning and retains heat longer, while wood catches fire quicker so a combination might be used based on the day’s menu or if wood is not available. While labour cost has been calculated for the upkeep of a cow, it does not take into account the labour cost of foraging for firewood whereas the dung is both free of cost, plentiful and easily available right there at home. This pattern of juggling more expensive fuel with cheaper fuel (here, expensive and cheaper can also be said to be easily available or convenient and less accessible or time consuming to obtain) is prevalent in rural households observed in The Phillipines, in India, in Malawi, in Kenya and in South Africa.

2. Fertilizer

Organic, free, sustainable fertilizer. Enough said.

3. Milk

Even if the women in the household may not be able to afford a cow or it may be considered a man’s possession, she usually has a nanny goat or two for milk in the morning. When there is no access to the electric grid, nor home appliances to preserve it for longer than a day, then the best way to access fresh milk for the morning cuppa is directly from the udder. With larger livestock such as a buffalo or cow, the quantity maybe sufficient for cash sale to the ubiquitious chaiwallah if noone else. Milk and milk products such as yoghurt and cottage cheese (paneer) are a part of the Indian vegetarian diet. Sales provide an avenue for cash money, necessary to the most self sufficient farm, such as for mobile airtime or salt, oil and tea leaves.

4. Investment

An assumption that these recent discussions on the ROI of a cow or buffalo seem to be making is that the cost is that of a fully grown animal. Few lower income households could afford mature livestock and the majority would tend to purchase a young calf. Whether its subsequently fattened for food, such as in The Philippines or for milk and young, such as in India and Kenya, 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. In parts of rural Kenya, livestock prices are known to be depressed at the beginning of the school year as parents prepare for fees, books and uniforms.

5. Status

When it does not make sense for you either purchase or park that shiny Mercedes in front of your humble home, how do you communicate wealth and status?

The walls are plastered with a mixture of cow dung and mud before the womenfolk decorate with traditional designs. Dung is considered a purifier and has myriads of uses. This household clearly sends a signal of its status in the village and its ownership of a producer of fuel, food and fertilizer.

As Singh notes, the respect and regard paid to cows in India is well known, but the importance to rural Indians of the dung and urine of this sacred animal is often ignored. “Cow dung is used as a cooking fuel, sanitizing cleanser, construction material, for insulating and waterproofing walls and floors in rural houses, as a cultural symbol in religious worship and the raw material for producing organic compost and generating electricity.


Further discussion on the findings published in The Economist was by economists Daren Acemoglu and James Robinson, in a post titled “Cows, Capitalism and Social Embeddedness” where they say:

 What to conclude from this? Perhaps one explanation is to embrace the idea, once popular among some social scientists and recently gaining some further traction in more sophisticated forms among development economists, that poor people are irrational and cannot make decisions in their own best interests.

An alternative, however, is provided by the anthropologist James Ferguson in his book The Anti-Politics Machine that is a study of development problems in Lesotho in Southern Africa. There are many points to this book but one of them is to show that economic analyses that failed to take into account the social ‘embeddedness’ of economic behavior often come up with spurious interpretations of what is going on — and as a result, give irrelevant policy advice.

The consistent behaviour, call it socially embedded or irrational foolishness, that has been overlooked in these highly learned discussions is that of emphasizing self sufficiency and independence from the formal or cash based economy

Cattle are but one of the many means rural households utilize to ensure that they need the absolute minimum cash money outlay in their daily household expenses. Labour cost is rarely that of the head of the household, most cows will be looked after by youth or womenfolk on the homestead. What is a daily challenge for those who live on the land and off of it is the availability of actual coins and paper notes for conducting transactions. The seasonality of the harvest, yet another element that tends to be overlooked by urban educated professionals receiving salaries in digital money directly deposited to their bank accounts, implies that any significant amount of actual tangible cash money is also linked to that period of buying and selling on the market.

For the rest of the natural year, there are very few sources of cash money available to even the most self sufficient household, and this is a behaviour that is emphasized. Most everyone interviewed will proudly proclaim just how little they need for external purchases, pointing proudly to their sources of “free” fuel, firewood, daily milk or dairy, and of course non perishable staples like wheat or rice.

This pride in the rural resident’s self sufficiency and independence from what they see as the burden of ties to cash money requirements is not something that any amount of data collection, metrics or economic rationality can ever quantify nor replace, as The Economist suggests, with mobile money as an alternate savings mechanism.

The Role of Livestock Data in Rural Africa: The Tanzanian Case Study

Kilala livestock market, Eastern Kenya (photo: niti bhan)

Kilala livestock market, Eastern Kenya (photo: niti bhan)

The World Bank finally notices the humble goat, four of which will buy you a new Nokia featurephone in Malawi. Funded by Bill and Melinda, this report takes a closer look at the domesticated animal as a financial instrument and investment vehicle. Here’s a snippet with some points I’ve made bold:

Some of the most revealing findings of the Livestock and Livelihoods in Rural Tanzania study, which is a based on the most recent national survey, are about the contribution of the livestock sector to the economic growth of the country, productivity of the sector itself and gender differences in terms of livestock ownership and access to input and markets.

From an economic standpoint, the data collected indicates that smallholder farmers dominate the Tanzanian agricultural sector and are involved in some form of subsistence agriculture. Furthermore, most rural households report some income generated from livestock activities, earning up to an average of 22% of total household income.  Poor households tend to own smaller livestock, specifically chickens and goats, while wealthier ones tend to own larger animals, especially cattle.

Inputs such as animal fodder and hired labor tend to be scarce among smallholder farmers in Tanzania, while livestock diseases are widespread. Both of these factors hamper productivity of the sector and thus represent a missed opportunity. Data reveals that less than one-third of all family-owned livestock is vaccinated and approximately 60% of all the animals suffer from some type of preventable disease. On the positive side, 25% of the households that own livestock use organic fertilizer for crop production, a practice that if taken to scale can potentially increase overall agricultural production.
The Tanzania study confirms that investing in smallholder farmers who own livestock in rural Africa is a catalyst for economic growth.

Risk is dynamic, not static

Exhibition Panel – Samsui Woman, National Museum of Singapore, March 2013

And investor, bankers and venture capitalists imagine they are taking risks that deem high interest rates when operating in Sub Saharan Africa.

Come now, you do not gamble with your next meal, your risk is static.

What every micro entrepreneur, in the informal economy they’re still trying to grasp,* knows is that risk and rewards are dynamic over time. The best one can do is negotiate on time and money and the degree of wriggle room one allows, in order to minimize the volatility of the spikes. Its rarely the amounts that are the problem in cash flow management but the whole pipeline.

This is why ambitious craftsmen across Kenya prefer to save cash money (Savings of anywhere between 18 to 24% interest rates by formal banking industry) to fund their expansion plans, as they’ve noticed the uber frugal Asian traders do across the railway lines.

Would you be paying those rates for your home improvement loan?

* (92% of employment in India is from the informal sector including agriculture)

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.