Posts Tagged ‘asia’

A Unique Path to Development Seen for the Informal Economy

Just recently I stumbled over this slim book < 60 pages that analyzed existing data sources in order to frame an answer to the research question they posed:

How did the informal economy―markets and the private sector―develop in the absence of legal and administrative frameworks to support it?

Some of the most intriguing insights extracted here:

And they echo my own statements regarding the East African Community that its the informal sector that’s growing faster and responsible for employing the majority of the population. This makes integration and bridging efforts between the formal and global together with the local and informal even more critical.

The path to integration as described in the book may not apply to the African economies but holds some unusual insights for those in eastern Europe which may struggle with some of the same issues of top down planning and grassroots income generation.

All in all, the step by step approach over the past decade to recognize, and thus integrate the informal sector was much appreciated and if you’re interested, you can download the book here.

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.