Posts Tagged ‘financial services’

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.

Food security: time to think of the small scale farmers

This article was written by David Indeje (@DavidBurudi) and was first put on the internet on West FM. It has been republished here with his kind permission.

Daily chores, rural Kenya 7 February 2012

Kenya 7 February 2012 photo credit: Niti Bhan

Agriculture is the essence of life, but it seems leaders are not getting the idea as farmers continue to experience the effects of climate change and in their own innovative ways, are rapidly adapting. A walk in various farms of Western Kenya farmers, many reiterate that, they have witnessed unpredictable weather conditions with long spells of drought and irregular rains that have had a negative effect on their lives.

“By May, our maize crops would have tussled after we had top dressed but we are still planting or weeding for the first time. The planting season is over and we are not sure if we will have the yield we anticipate,” the farmers lament.

Christiana Figueres, Consultative Group on International Agricultural Research (CGIAR) Fund Council Chair and Vice President of Sustainable Development at the World Bank Inger Andersen, during the COP 16 meet in Caucun, Mexico, noted that agriculture is an area that needs to be moved into the negotiations.

“The story about agriculture is one that is on everybody’s mind,” she said; “agriculture needs to be positive for people, positive for productivity and positive for climate.”

Improving agricultural productivity is the key for reducing poverty in the country. A global consensus has emerged that agriculture must move up on the global development agenda, and that investment in agriculture, especially smallholder agriculture, must be increased if the twin goals of poverty reduction and food security are to be achieved.

In fact, if Kenya is to achieve the first Millennium Development Goal to eradicate extreme poverty and hunger, the agriculture sector needs to grow much faster and maintain annual growth rate of 6.2 percent. This requires that we work on every single aspect of the agriculture production chain from regenerating depleted soil, using better seeds and more suitable fertilizers, whether organic or industrial, to drastically improving the quality of so-called extension services that support agriculture. It implies working on marketing and storage issues, road infrastructure and financial services.

Only by tackling all those aspects at once, involving both the public and private sectors, will we manage to improve agriculture productivity in a sustainable way.

One consequence of this neglect is the appalling state of rural infrastructure in Kenya. This leaves rural areas, which have the potential to feed the more than 40 million hungry people, cut off and isolated. Kenya has only exploited a fraction of its irrigation potential, and the density of rural roads today is a fraction of what Asia had in the 1950s. As a result, farmers rely almost exclusively on rain-fed farming and face exceptionally high transport and marketing costs that makes a shift to more efficient farming unprofitable.

Kofi Annan, Chairperson of the Board of the Alliance for a Green Revolution in Africa (AGRA), has acknowledged this isolation:

“The average African small holding farmer swims alone. She has no insurance against erratic weather patterns, gets no subsidies, and has no access to credit. I say ‘she’ because the majority of small-scale farmers in Africa are women.”

Access to farm inputs is critical in increasing farm productivity.

Current use of agricultural inputs and financial services is low amongst smallholder farmers in Kenya. Small-scale farmers in rural areas of Kenya have not been able to access financial services for acquiring farm inputs among other needs to improve farm productivity. This is partly due to low density of financial institutions in rural areas; inappropriate financial products; high cost and high risks of lending. Smallholder farmers adjust by resorting to informal credit, reduction of farm inputs, sub-optimal production techniques, and borrowing from family and friends.

This limits the investment in farm equipment and capital as well as other agricultural assets and inputs. As a result, there is need for practical assistance and capacity building to be provided by the private sector. Secondly, financing rainwater harvesting projects through micro-credit organizations that appear to be a sustainable delivery vehicle to enabling communities address the challenges of access to water and sanitation. In addition, small-scale farmers concentrate on low risk, low return activities because they cannot access start-up capital and cannot transfer system risks.

Kenya, April 2013 Photo Credit: Niti Bhan

Kenya, April 2013

As a result, there is low agricultural productivity among smallholder farmers. Low productivity attributed to inadequate use of production enhancing technologies and inputs such as fertilizers has led to food insecurity amongst the smallholder households and worsen unemployment and poverty. Credit is an important input into the production system and it contributes to increased food productivity. Access to credit increases the farmer’s working capital enabling the farmers to buy productivity enhancing inputs such as good quality seeds, fertilizers and chemicals. The challenge for agricultural financial institutions is to develop low cost ways of reaching farmers, especially smallholders.

random1

Kenya, April 2013 Photo Credit: Niti Bhan

There is need for farmer’s education to sensitize them on existing and new technologies they can use to improve production. This is especially among the rural farmers. Eventually, this would help in strengthening and establishing producers and traders unions: providing farmers with professional advice, current market information and input results in an organized way; controlling market price and products; providing farmers with loans at lower interest rate; and improving transportation, storage and processing standards.

The establishment of supportive policies such us offering of subsidies or free medical schemes to highly productive units per given farming year; or scholarship packages for children and adults of the unit according to the minimum production percentage given for eligibility for the same (this is meant to curb problems of rural children finances of education as well as reduction of poverty).

More food must be produced to contain the impact of soaring prices on poor consumers, and simultaneously boost productivity and expand production to create more income and employment opportunities for the rural poor. Smallholder farmers must have proper access to land and water resources and essential inputs such as seeds and fertilizers.

To ensure that small farmers and rural households benefit from higher food prices, a policy environment that relaxes the constraints facing the private sector, farmers and traders, must be created. That would mean reversing the decline in the level of public resources spent on agriculture and rural development and investing more in agriculture.