Posts Tagged ‘flexible’

When would you buy life insurance for a week? New products for the informal market

A South African company has figured out the back-end technology required to provide easily accessible prepaid or pay-as-you-go insurance products that can be serviced via your smartphone. Their solutions are designed for the unbanked, informal trader, typically living on an average household income of US$8 a day.

At first glance, I wondered who on earth would want to purchase health insurance or life insurance for just a day or week, or, even a month. The article just leaves it at “in case that’s all you can afford” – which doesn’t make sense from the informal trader’s perspective. Intermittent insurance is a form of gambling.

On the other hand, what’s left unsaid, is that South Africa’s informal traders face unpredictable violence whenever a bout of xenophobia shakes the community. That’s an unmistakeable period of insecurity and the risk is obvious, since most of those targetted in these riots are the informal traders themselves. If you can quickly purchase health and/or life insurance, through your phone, for a short duration of time, you’ve covered your responsibilities to your family in case of an accident.

The duo realised that while low-income consumers were willing to insure themselves against risk, these products needed to cater to their specific social and economic circumstances. They came up with a voucher system, where insurance could be purchased in more affordable packages to cover shorter timeframes. For example, life or medical insurance could be bought to cover just one day, a week, or a month – perhaps while a consumer makes a risky trip to visit family…

While their use cases mention funerals, I have a suggestion for a product meant specifically for small businesses like informal trading, particularly on irregular incomes. Can they design a insurance product that falls in between health and life categories? One that’s not quite disability, although it might include this.

Mitigating the random effects of uncertainty is what insurance is about. The challenge for many in the lower income segments, such as these traders, is that there will be times when their income will be affected by factors out of their control – an illness, when they’re the sole head of household/single parent; or drought, as is happening in SA right now. Or even, a known season of low income – informal manufacturing has a low season over the Christmas holidays unlike retail – such an insurance product could be purchased a few months in advance and money put away towards a payout at the start of the New Year.

These are just ideas based on what I’ve seen during my fieldwork over the past 8 years. There are probably more such opportunities available that can be fleshed out with a bit of research. The point is, that if you’ve worked out the technical aspects of how to make “Insurance on Demand” work, why stop at conventional categories from the formal economy like health or life?

Importance and value of Africa’s informal food markets

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

There’s a new book released by the International Livestock Research Institute (ILRI) and partners — Food Safety and Informal Markets: Animal Products in Sub-Saharan Africa—that probes the complicated world of traditional or ‘informal’ markets in livestock products. Here are some unexpectedly juicy findings:

Research by ILRI and partners shows that in most developing countries, more than 80 per cent of livestock product purchases occur through informal markets — and in places where there is no ‘formal’ alternative, like a western-style supermarket, close at hand. And the studies find that this situation is unlikely to change for decades to come. Also, even where supermarkets are an option, studies in East and Southern Africa have found that, due to a poorly patrolled chain of custody between producer and seller, milk and meat sold in supermarkets may pose a greater health threat than what is sold in traditional markets.

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Informal & Social Measures in the Kadogo Economy (Photo Credit: Niti Bhan)

Moreover, small producers have many attractions for poor consumers. They are typically within walking distance for people who lack cars and they offer the opportunity to purchase fresh food in small amounts — part of what is known in East Africa as the ‘kadogo’ economy. (Kadogo is street slang for ‘small.’) In addition, many sellers in traditional markets will extend credit and typically offer the traditional foods their customers prefer.

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Uchumi Supermarket, Ngong Road, Nairobi, Kenya (Photo Credit: Niti Bhan)

Many policymakers mistakenly believe that food-borne illness in developing regions will rapidly decline as the modernization or ‘supermarketization’ of food sales steadily supplants informal markets. But the ILRI studies show that Africa’s supermarket food is not necessarily safer than food in informal markets and also that informal markets are unlikely to disappear — and could even become stronger — in the coming decades.

Indeed, the research shows that consumers prefer informal to formal markets, and not just for their lower prices, but also because traditional markets tend to sell fresher food. They also sell local products and breeds, which many consumers continue to prefer — and those preferences seem to intensify as incomes rise. For example, in Africa and Southeast Asia, consumers often prefer local chicken breeds over cheaper imported breeds.

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Informal markets are growing, not shrinking, across the developing world and in many ways mirror the “locavore” trend occurring in wealthy countries’, said Grace.If we are going to improve food safety in these markets, we need policies that are guided by an understanding of producer and consumer behaviour, local diets and customs, and interventions that can reduce illness without imperilling food security or increasing poverty.’

 A deeper understanding of the entire value web (chain doesn’t apply as the rural ecosystem is as unstructured and informal as the markets) of  these informal markets for meat, milk, vegetables and other foodstuffs will offer greater value than towards informing policy alone.

Informal retail is expected to grow, and “supermarketization” will neither come fast enough to change this any time soon, nor be able to replace the complex role the bazaar plays in both rural and urban contexts. This is worth remembering for consumer facing brands, especially in the FMCG sector, as well.

Mapping the path to prototyping an adaptable user centered design process

We’ve all seen the classic User Centered Design (UCD) process diagrams, mostly linear, that attempt to communicate the steps yet unable to capture the iterative nature of the activity simply due to the limitations on how many circular arrows one can add without losing clarity. When I first began exploring the process deeply for application in emerging markets, this is the one we naturally used during a brainstorming experience with David Kelley back in April 2006:

But those of you familiar with the application in the practice of user centred design will recognize that this section applies to the design planning phase, prior to the design and development of the first prototype, boxed up here as “implementation”. You’ll also note that “User research” or rather, “Immersion” in the field, is left implicit, although one can say that it is represented by the green circle. Exploring as I was, back then, the intersection of where design met business, I felt this diagram was limited in its ability to communicate what really happened, much less why or how.

[Illustration of the Process of Design from a great height]

Shortly thereafter, in May 2006,  Damien Newman put the now famous “squiggle” up on his blog in response to a contemplative post of mine. Aha! I said, when I read what Damien had to share about his illustration:

So I decided to consider how to frame design activities in all disciplines, to discover which ones were worthy of placing on my map, could be the process one takes to set about producing a designed solution. I think in its most basic and fundamental form, the process of design that one embarks upon, can be seen in three steps/stages/phases (whatever): Abstract, Concept & Design.

At first there is a sort of theoretical, not yet in existence, essence of a thought, state or problem solution. As designers, we set about to bring that abstract state into a concept, something that can be communicated, perhaps visualized, definitely discusses and shaped. The final stage is the design of the concept, into the form, solution or final presentation of the concept.

I’m not sure if you were to have stood at Fort Point in San Francisco at around 1827, and said “We need a bridge to get over there” if that is a fair description of the Abstract, phase – but its about the time a typographer decides to start their first sketches of a typeface that it shifts from being abstract into a concept.

At a firm like IDEO, all design starts with a healthy amount of messing around in the abstract. Human Factors leads their approach to framing a design concept and problem – and they clearly (like others too) excel at bridging any gaps between these three phases, and at including the client, their customers and designers in the process.

This squiggle was in response to this post of mine from August 2005, Design vs Design thinking where I’d first attempted to distinguish between the tangible role of a human centered designer and those who were inspired by the human centered design process for business strategy and planning. But, as experienced practitioners and thinkers on the messy, chaotic, non linear creativity inherent in these activities will recognize immediately, the squiggle is too implicit to help communicate the process with clarity to audiences without exposure to the process, such as your typical client organization or institution. Linear, structured thinkers need to feel confident they understand what you are planning to do and how you’ll go about it before they’ll sign a check.

And so, we finally arrive at early 2008, where the first attempt to crudely diagram the evolving process for emerging markets and bottom of the pyramid (BoP) customers as articulated in my previous post from 7th November 2012, was prototyped so:

Quite a few circular arrows are missing from the How? and Next? phases here as it attempted to frame the bullet points from process description into a visual format. Now I hope that with the help of excellent visual thinkers involved in our current project, there is a chance that this process can be greatly improved.

The Informal Economy Symposium, Barcelona on October 12th 2012

Our aim with this symposium is to explore the global scope, innovations and potential futures of the informal economy.

Opening Keynote will be John Keith Hart, who coined the term “informal economy” and the day long symposium on the 12th of October will be closed by John Thackara.  There will be three panel discussions, as follows:

PANEL 1: SCOPE, MEANING AND TENSIONS IN THE INFORMAL ECONOMY

This panel will explore the scope, tensions and influences of the informal economy. It will set the stage, provide case studies, and present new themes that make clear why the informal economy is a key topic for business and society today. It will address critical questions for the symposium: What are historical foundations, contemporary developments, conception and misconceptions of the informal economy? What parts are institutionalised or marginalised and which are not?  What does regulation look like?  How is the informal economy similar or different in emerging vs. developed markets?  What kinds of goods and services does it include?  Are there good and bad informal economies? How are the informal and formal linked? How do labor, goods and services move within and between them? Why does contemporary business need to understand the informal economy?

PANEL 2: THE FUTURE OF MONEY AND THE INFORMAL ECONOMY

This panel will explore the use of money and other exchanges in the informal economy. This panel builds on the previous, starting with the premise that the informal economy is a place to create new value for business and society. It will discuss the relationship between regulated finance and informal exchanges, focusing on, among other things, mobile money. Some key questions to be addressed include: How is the use, exchange and idea of money similar or different in formal vs. informal economies? How do digital technologies encourage and expand informal practices and exchanges?  What are the ways to establish financial links and other bridges between formal businesses and informal practices? What are specific financial needs in various informal economies? What are the challenges faced by companies operating in financial services and other businesses when addressing the context and practices of the informal economy?
panelists: Ben Lyon, Ignacio Mas, Niti Bhan  moderator: Rich Radka

PANEL 3: INNOVATION AND OPPORTUNITIES IN THE INFORMAL ECONOMY

This panel will look at innovation within the informal economy. Rather than approach informal economic practices as make-do strategies of people in the margins, panelists explore the potential for the lean and agile practices of the informal economy to adapt to contemporary global shifts. Some key questions to be addressed include: Can informal economic practices be indicators of future economic activity? What can these practices teach us about our own innovation efforts and modes of doing business?  What does the persistence of informal economies mean for the future of business? What challenges does it present? What are some ways companies can act on opportunities?

You can register for the symposium here, or follow the blog and twitter hashtag #informaleconomy.

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.

The underlying principle of flexibility

The Economist writes about the proliferation of mobile money across the African continent, high lighting some aspects of its rapid adoption by the local population – 96% of whom are on prepaid or pay as you go mobile subscriptions.  A new survey of global financial habits by the Gates Foundation, the World Bank and Gallup World Poll found, among other things, that:

Most mobile-phone transactions are tiny. Market traders, for example, use mobile phones to pay peasant farmers for a single bag of cassava or maize-meal. One of the most successful mobile-phone products in Kenya is a SIM card costing just a few cents—but that is all people need for the occasional transaction.

In the informal economy, where the need to control one’s time (duration, frequency and periodicity) and money (cash or kind) was paramount, and where already the vast majority of mobile phone users are on prepaid accounts, these mobile money transfer systems offer the flexibility that those on irregular income streams need, in order to manage their finances effectively.  No credit checks or payslips or reams of banking paperwork involved.

I saw this informality in the social measurements used in the market – rough approximations of quantity and estimates of weight. I wondered in a different post what this willingness to be flexible might imply – where neither the buyer nor the seller were concerned about exact weights and measures, allowing a communal decision on fair price to emerge instead. Now it strikes me that the underlying principle of flexibility is what makes all of these models work.

Informal payment plans offer flexibility and convenience

Rural consumer electronics shop, Kenya 16 Feb 2012

Rural electronics shops in the North Meru region of Kenya are full of colour television sets, home stereos and DVD players as increasing electrification of smaller and smaller market towns takes place. How do aspiring customers pay for these high value items on their variable income streams?

Aspirational ownership and tangible evidence of savings

Since shop owners tend to know the great majority of their customers as members of the local community, as neighbours and friends, and are aware of the patterns of income flow in the local economy, they have evolved an informal layaway plan for these high ticket items.

Customers choose what they wish to purchase, not simply the brand, model or device but also the exact specific item in the store. While each shopkeeper has his or her own method of record keeping, the general pattern is to put the future owner’s name on the product, the total cost and start a page in a ledger to track payments made against purchase. Customers can pay as little or as much as they are able, whenever they are able and every so often, the sticker at the back (or whatever specific means each shop uses) will change to reflect this remaining balance.  Some customers can take upto 2 or 3 years to complete their purchase but none can take the device home until the full payment has been made.

This informal and simple method touches upon so many of the insights uncovered during the original ‘prepaid economy’ research conducted two years ago that it almost feels like the perfect solution that fits the needs of the customers and the shopkeepers. The elements are:

1. Increasing the span of control over time (periodicity and frequency) and money (amount) for the customer lowers the barriers to successful purchase and payments. There is no undue pressure on the customer to make a payment by any due date nor to pay any fixed amount. Like topping up your prepaid mobile phone account, you can come and pay any amount at any time towards this purchase.

2. Seasonality and its influence on the rural economy is understood by the shop owners and they know that even if payments may be small or slow during the relevant low season, there’s a high chance that the product will be owned by harvest time.

3. Tangible evidence of savings is demonstrated by the equivalent of the “Sold” sticker – even if the product stays on display at the shop until the price is paid in full, its a tangible reminder of perceived ownership that you have put your name on it and are working to take it home one day.