Posts Tagged ‘concept design’

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.

Systems thinking and the mobile platform for economic impact and wealth creation

I have been meaning to write this post for quite some time now, percolating as it has in the back of my mind but it was Mark Kaigwa who finally spurred this writing. This is not all about MPesa, though it will take a look at some of the issues why its runaway success in Kenya has not yet been duplicated elsewhere, beyond the obvious brought up in most articles of “its the banking regulations” or “its the distribution network”.

Much credit of the fundamental thinking that will underlie this post’s premise must go to Wambura Kimunyu with whom I’ve discussed these issues on Twitter.  Furthermore, I believe that if we can frame the problem (and thus the potential solution) correctly, we may be onto something that could in fact make a big difference to the many ways  we attempt to enable and support social and economic development.

Some background

The topic today is the mobile phone (which I’ll also refer to as the mobile platform, since the phone aspect is but a feature of this handheld device) and its role among what is popularly known as the BoP or those at the Base or Bottom of the Pyramid, yet when I think about the very many pilot programs and attempts to spur development via the mobile platform or, as in the case of MPesa, to launch game changing mobile money transfer et al systems elsewhere, what immediately comes to my mind is a reflection on the issues that plagued the analysis of the success of Asus’ eeePC when it was first launched back in late 2007.

We take very affordable and very portable netbooks for granted today but back then in time, the category did not exist until Asus launched their 7″ linux based, open source, rugged and durable beauty for around USD 400.  It was referred to as a “subnotebook” back then and caused much head scratching among the developed world’s leading lights, even as it spurred all manner of competitors to focus on the two most obvious elements of its perceived success criteria – “price” and “form factor”.  Whereas I argued, that what made the Asus eeePC so successful was its fundamental premise – to be an easy to use affordable device squarely aimed at emerging markets and how it was this positioning that drove every other element, including its form factor and price. By focusing only on the obvious, without taking the holistic thinking and underlying value proposition into consideration, competitors were overlooking many of the details that supported its initial success.

Some framing

I see something similar happening with one of the most obvious success stories in the “Mobile as a platform for economic development of the BoP” bandwagon.  MPesa shows up in most analyses of “Business models or mobile thingies that are helping the poor” reports churned out so faithfully by researchers everywhere, yet the question arises, should it be even considered in that sandbox of things that help the poor in the first place? And by doing so, are we overlooking some of the factors of what makes it work so well in Kenya as well as misinterpreting that it was meant to be used only by the poor?

When the first reports of MPesa’s hiccups in South Africa came to light, it was then that Wambura first tweeted about the lack of the banked that were critical to spur the unbanked and thus the overall uptake of the service.  That is, if the MPesa ecosystem did not have enough banked people with money to circulate, then there wouldn’t be enough unbanked nor would there be enough money to circulate etc etc leading to the challenges that they are facing in South Africa now.  You needed the banked to bank the unbanked.  It sounded counter intuitive to me back then but over time as I observed many different facets of this activity across different strata in Kenya it came to me just how much sense this made and also how relevant this aspect was for the success of anything that should be considered as a means to improve incomes among the BoP when using the mobile platform (or otherwise, to be honest).

Why so?

Some systems thinking

That is, for any solution designed to enable the flow of wealth – mobile money transfer for example – or improve wealth creation at the BoP – it was not enough to simply target the poor alone. It would not work as a “Solution for the BoP” primarily because the BoP do not have any liquidity,  even if they do indeed have assets especially in rural areas, or they do not have the cash for it to flow through the system in the first place. Thus solutions aimed at improving economic activity for the poor needed ‘non poor’ actors in the ecosystem in order to inject cash into the system and thus make it flow (and one hopes, grow).

Taking this thought one step further, MPesa – assessed as a holistic ecosystem for financial transactions – has been so very obviously successful in the Kenyan context primarily because it is used by everyone, regardless of their economic standing or bankedness (if I may coin a non word).  In fact I believe that the number of banked actually surpasses the number of the unbanked – there is a link there that right now is not in the scope of this post but we can look at it later.

And thus, when ‘Solutions on the mobile to help the BoP or poor’ are considered, they should be looked at in terms of the complete ecosystem including the critical question of Where will the money come from into the system in the first place?  Without which, they will limp along as a cash poor system with little wealth to circulate, achieving nothing for the BoP in question. Look at this article on MPesa repositioning itself in South Africa towards higher income brackets and away from the original target audience of poor rural women. QED.

Solutions meant to improve economic conditions for the BoP cannot be focused only on the BoP.

Rather the focus needs to shift to complete ecosystems that fill a vacuum of need – usually in infrastructure or services – that include actors from differing socio economic strata in order to make a viable difference to larger population involved.  Not only is MPesa a clear example of this framing – it filled the vacuum of “how to securely and affordably send money” – but it did so for everyone and anyone who wanted to do so.

Similarly, when I consider my favourite example of the Mumias Sugar Company and their payroll management pilot program for their daily wage sugar cane cutters, I see the same potential for a greater impact on social and economic development for the lower income demographic involved in this system. The solution is one that is win win for all stake holders – from the company who doesn’t need to send armed guards with cash into the fields to the workers who now not only have savings accounts but don’t need to carry lumpsums of cash around with them on payday.

I also hear that real time inventory management and other enterprise level solutions for supply chain management are also moving onto the MPesa/mobile platform in Kenya – again involving the tiniest duka as well as the big name manufacturers or distributors.  Again we can see the potential impact on inventory management and thus, cash flow, even at the bottom of the retail pyramid, where its most critically needed and we can project the potential that it will improve the economic standing or at least help smoothen the variability of income streams that these smallest players in the informal economy require.

Will all stakeholders benefit? Yes. And will the members of the ecosystem who happen to fall into the so called BoP category benefit? Most likely. And more likely than if only the lowest segment was involved in a system of this sort rather than participating in the larger ecosystem of buyers and sellers.

Bottom line

Bringing all this back to the framing of the solution space or rather, the analysis of the success factors, I believe that a simple shift away from seeing only the obvious – mobiles! money! BoP! –  system level solutions that fill critical infrastructural and service gaps in locales where there are few or inadequate alternates and that serve many including the BoP can and will do far better to improve the economic wellbeing across the board of society that those that focus on one demographic alone.

Note: This was the original post that inspired the editor’s version published on Afrinnovator.