Posts Tagged ‘kenya’

How the African movable assets bill can unleash innovation opportunities for the rural economy

Somewhere in Kenya, 4th June 2012 (Photo: Niti Bhan)

As Kenya joins Zambia and Zimbabwe in ratifying a Movable Property Security Rights Act, there’s a sense that the floodgates to innovation in access to finance might be taking place in rural Africa, south of the Sahara and north of South Africa.

Kenya’s law also goes beyond the cows and goats and allows a borrower to collateralise future receivables arising from contractual relationships.

How it ends up being implemented will set the stage for the next big disruption in financial inclusion. In the meantime, let’s take a closer look at the opportunity space for innovation in the informal and rural economy that dominates these operating environments.

 

1. A whole new bank, designed to meet the needs of rural Africa

Last night, a tweet by Charles Onyango-Obbo struck me forcibly, and reminded me of our Banking the Unbanked proposal crafted for ICICI back in January of 2007.

The very fact that contemporary thoughtleaders in the Kenyan banking industry are unable to take the concept of livestock as collateral for loans seriously, taken together with the deeply embedded assumptions of the formal economy’s financial structure leaves the door wide open to disruption.

It would not be too difficult to conceptualize a rural, co-operative bank custom designed for the local operating environment. In Kenya, where the mobile platform provides clear evidence of the viability, feasibility, and desirability of innovative financial tools and services that work for irregular income streams and provide the flexibility, reciprocity, and negotiability inherent in the cooperative local economies, such a bank could change the social and economic development landscape overnight.

In fact, one could conceivably foresee this “bank for rural Africa” scaling far beyond Kenya’s borders.

 

2. Insurance sector must respond to banking disruption

The domino effect of disruption in the banking sector should kickstart the stagnant insurance industry that has been ineffectually attempting to scale outside of the formal economy’s neatly defined boundaries. Bankers willing to take livestock as collateral for loans will therefore require insurance on their movable asset as a surety against the risk of disease, or drought.

Current products tend to emerge from the international aid industry, seeking to insure smallholder farmers against the shock of losing their livestock to climate related disasters such as prolonged drought, or an epidemic of illness. There is a dearth of relevant and appropriately designed insurance products from the private sector targeting the needs of the rural economy. For all the talk of African urbanization, even the most optimistic projections show that East Africa’s rural population will continue to dominate.

Thus, this an opportunity ripe for the plucking, given the right mix of product, pricing, and promotional messaging.

 

3. Disrupting assumptions of Poverty and Purchasing Power

Whether it is Kenya’s significant non profit sector or the nascent consumer oriented markets, the redrawn lines defining assets, collateral, and the floodgates of access to finance will require a complete overhaul in the way the population is segmented and measured.

Once these hundreds of movable assets have been valued, insured, and registered officially, even the most reluctant banker must now count the pastoralist among his wealthiest local clientele, able to draw a line of credit against his true wealth to the tune of thousands of dollars without feeling the pinch.

 

4. Triggering a rural investment and consumption boom

From mabati for a new roof and simti for the backyard wall, to the latest model smartphone or pickup truck, the concurrent boom in investments and consumption provides an ample playing ground for new products and services tailored for the contextual needs upcountry. Finally, Farmer Joe can install that solar powered irrigation pump for his orange groves in time to reap the next big harvest. And Mama Mercy can think of building up a nest egg of investments faster from the income provided by her farmyard animals.

Kagio Produce Market, Kenya, April 2013 (photo: Niti Bhan)

This might turn out to mean upgrading to a breed of high yield milch cows or being able to provide them with better quality feeds and medicines, but the financial bridge that a well designed strategy leveraging this movable assets bill and it’s timely implementation could mean the difference between the brass ring or treading water.

 

5. Trade and Commerce will open new markets

Given that the Kenyan Movable Property Security Rights Act 2017 goes beyond livestock to include other stores of wealth and value creation, there will be an undeniable impact on regional and cross border trade. No trader will give up the opportunity to leverage their existing inventory if it qualifies for additional credit that can be plowed back into the business.

On the road to Bungoma, Western Kenya, February 2016 (Photo: Niti Bhan)

Trader’s mindset and the documented biashara growth strategies already in evidence point clearly to the productive economic use of this access to finance rather than passive consumption alone. As their business grows, they will require a whole slew of tools and services tailored to their needs. This could be as simple as a basic book keeping app or as complex as customized commodity (assets, livestock, non perishable foodstuffs, grains and cereals) exchange platforms that integrate the disruptive new services percolating through the entire ecosystem.

 

In conclusion

These few steps outlined above are only the beginning of laying the foundation for disrupting the current social and economic development trajectory of small town and rural Kenya. I see immense potential for both direct to consumer as well as business to business segments for forward looking organizations seeking a foothold in the burgeoning East African markets.

We, at Emerging Futures Lab, would be pleased to offer you customized white papers on the opportunities for new products, services, and even business models, based on this emerging financial environment recently signed into law by President Kenyatta. Contact us for an exploratory conversation on the scope and scale of your particular industry’s needs. Our experienced team can help you maximize these opportunities from concept design and prototyping all the way through to path to market strategies.

Livestock as movable assets and financial collateral: Collected insights

Mama Mercy’s farm, Nyeri, Kenya (Photo: Niti Bhan, April 2013)

Following in the footsteps of Zimbabwe, Kenya has just passed a law on the use of movable assets as collateral for loans.

President Uhuru Kenyatta has signed into law a Bill allowing borrowers to use household goods, crops, live animals and even intellectual property to secure commercial loans in a move aimed at boosting access to credit.

This is an important move, because unlike Zimbabwe, the “Kenyan Movable Property Security Rights Act 2017 paves the way for the formation of a centralised electronic registry for mobile assets that financial institutions can use to verify the security offered.”

The implications for the rural economy, entrepreneurial smallscale farmers, and the informal trade sector are enormous, and I will take a deeper look and analyze the implications in subsequent posts. First, I will begin by collating the past decade’s writing on the role of livestock in household financial management, clustered broadly by theme:

 

 

On The Role of Livestock
The multifunctionality of livestock in rural Kenya ~ literature review
“households will treat livestock similarly to a savings account or stock portfolio and typically (and perhaps reluctantly) only sell livestock to cover cash shortfalls when certain necessary expenditures arise”
The Role of Livestock Data in Rural Africa: The Tanzanian Case Study
Only provides evidence of the importance of investing in same
The role of the cow as an investment vehicle in India: Insights on Return on Investment

 

 

Emerging Futures Lab Original Primary Research
The Prepaid Economy project 2009: Original research on rural economic behaviour (IDRC & iBoP Asia) – Part 1
Observations & analysis of rural household financial behaviour – Part 2
Synthesis & Insights on rural economic behaviour – Part 3
Visual documentation from Philippines, India, and Malawi – Part 4
Rural Bottom/Base of the Pyramid and their cash economy

 

 

Application of insights for innovation in Kenya
Component parts of the rural, social economy
Seasonality as a factor in livestock export trade finance
Rural Kenya’s livestock and produce markets are a complex, economic ecosystem
Affordability, pricing strategy, and business models
Livestock’s role in path to upward mobility
From the individual to the community: the rural economic ecosystem (Dec 2013)
Importance and value of the informal food market
Creative ways to financial inclusion, by Michael Kimani

 

 

To Read More: Use this tag “movable assets” for all forthcoming analyses, and you can find a decade’s worth of my original research on informal economy, prepaid business models, literature reviews and ethnography here. The entire subject can be found under the category “Biashara Economics“.

Snapshot of the Dynamics of the Urban Informal Retail Trade in Nairobi, Kenya

Informal Economy Dynamics - Updated

Made by Latiff Cherono – click for larger image

Latiff Cherono quickly made up this diagram during a brainstorming session with Francis Hook and myself on the ways and means to further disaggregate the general category of “Informal wholesale and retail trade” that the Kenya National Statistics Board uses to lump together the second largest sector providing employment in Kenya after agriculture.

jobs2 In urban conditions, vending and hawking of this sort is the largest source of income for the formally unemployed.

As you can see in the map visualizing Latiff’s analysis of a well known location for street vendors and hawkers to operate breaks down traffic flows not only by speed but also takes in account both static and dynamic forms of informal trade.

It may look chaotic but there are principles underlying the decisions made by both pavement vendors and mobile vendors (streethawkers in traffic) for their location of choice. These relate to the speed of passersby and potential customers – both wheeled and heeled, as Francis is wont to say – and closer analysis will most likely provide evidence of attempt to drive more footfalls to the shopfront, so to speak.

An example is the way pavement vendors locate themselves on either side of the busy bus stops, while mobile vendors who vend their way through traffic focus on the bottlenecks created by the roundabout and the traffic police.

We’re still in early days yet but time and money seem to be two of the factors that describe the attributes to segment and categorize the informal retail sector in urban Africa.

Innovation, Ingenuity and Opportunity under Conditions of Scarcity (Download PDF)

coverIn July 2009, I was inspired by working in the Research wing of the Aalto University’s Design Factory in Espoo, Finland, to launch a group blog called REculture: Exploring the post-consumption economy of repair, reuse, repurpose and recycle by informal businesses at the Base of the Pyramid*.

Within a year, this research interest evolved into a multidisciplinary look at the culture of innovation and invention under conditions of scarcity and it’s lessons for sustainable manufacturing and industry for us in the context of more industrialized nations.

reculture research bed

Emerging Futures Lab, July 2010 (Aalto Design Factory)

As a preliminary exploration, my research associate Mikko Koskinen and I timed our visit to Kenya to coincide with the Maker Faire Africa to be held on the grounds of the University of Nairobi in August 2010.

This photographic record of our discoveries (PDF 6MB) among the jua kali artisans and workshops of Nairobi, Nakuru, Thika, and Kithengela, guided by biogas inventor and innovator Dominic Wanjihia captures the essence of the creativity and ingenuity it takes to create without ample resources and adequate infrastructure.

A synopsis of our analysis is available here.

 

* The publishing platform, Posterous, died a short while later and we lost years of work. I’m looking into reincarnating REculture on Tumblr soon.

 

Signs of Interdependency between the Formal and the Informal Economy

bridging economiesThere is a lot to be unpacked here – I made a mindmap of the urban African entrepreneur who is the backbone of the visible emergence of a consumer class. I’m drawing from my experience of the Kenyan context. I started this in response to Michael Kimani’s Storify recently on the mythical “middle class” and the African consumer market.

We know that this demographic, regardless of the efforts to label it “middle class”, is quite unlike the traditional bourgeoisie that built the developed world a century ago. We can call them the informal bourgeoisie – solid members of society who nonetheless break stereotypes of the white collar, university educated, salaryman.

More often than not, they are entrepreneurs and businesswomen, traders and makers, and workshop owners, who bootstrap their lines of business through the traditional means available amongst what is still called the informal economy. If they’re lucky they might have finished high school, or even graduated from university, but a degree is not a prerequisite as it might be in a private sector job.

In this post, I’m only going to write about something that struck me last night when I was staring at the mindmap. The line that links business to entrepreneur can also be considered a bridge between the informal economy and it’s business practices, and the upcoming formal markets of urban population centers.

The successful workshop owner or regional trader rapidly acquires the signals of his or her business success in the form of consumer goods and increased expenditure on staples and necessities, including upgrades to choice of schools and church. I believe that formal financial services and products such as bank accounts, credit cards, and various apps on a smartphone are part and parcel of this.

In effect, the entrepreneur is the link between the informal economy which provides employment and income to the vast majority, and the burgeoning formal sector in consumer facing services and products.

The formal economy is more likely to be dependent upon the health of the informal sectors than the reverse.

This interdependency, and relationship, is important. I will be coming back to this diagram again to unpack more of what I’m seeing here. For now, it’s enough to have figured out that initiatives meant to eradicate the “pesky” informal trade might have greater implications than initially assumed.

Bridging East Africa’ formal – informal financial services divide

Kenya’s formal inclusion looks pretty, the financial inclusion industry has been has been great at talking up its achievements over the past 10 years. Here, 75.3% of Kenyans are now formally included, a 50.3% increase from 19 years ago. Official statistics on mobile phone penetration is up to 80.5% of the population and there is general consensus, the mobile phone has been central to expanding formal financial services to the – unbanked and under banked. The numbers are pretty awesome.

In February, FSD Kenya’s chart of the week featured an interesting pattern.

 

source: http://fsdkenya.org/data-visualization/chart-of-the-week-credit-in-kenya-how-big-are-loans-on-average/

source: http://fsdkenya.org/data-visualization/chart-of-the-week-credit-in-kenya-how-big-are-loans-on-average/

 

The red line marks the axis between the formal (prudential) and informal financial services alternatives. The largest source of credit for the bottom 40% populate the informal segment – SACCOs ,MFIs, Peer to peer, community groups. Dotting the top in blue are the banks and mobile banking lending products Mshwari.

So, there is more going on besides what the numbers say about formal financial inclusion.

 

Appreciating the informal sector’s financing alternatives

I got a sense of this gap between what the reports say and what was on the ground in 2015/2016 as part of 2 immersive fieldwork projects – Nyeri Mama’s Financial Diaries and later same year as part of Borderland Biashara: Mapping the cross border, national and regional trade in the East African informal economy project. I got to meet and spend time with biashara people, mama biashara, informal traders at the borderlands, boda boda guys, brokers and 65 year old Wangari – all in their natural setting – the mostly rural and cash intensive informal economies at the borderlands.

I found out that 90% of them had a basket of alternative credit, investment, insurance and savings informal financial products at their disposal – up to 8 different volatility management groups. The flavor of these alternatives ranged from extreme formal prudential to extreme informal.

Wangari, from Nyeri, for example, did not have a bank account but, was part of

  • 1 Micro-finance bank,
  • 2 Cooperatives
  • 1 ROSCA (Rotating Savings and Credit Association
  • 1 Chama (savings group)
  • a Catholic church group and
  • a modest Nokia mobile phone with Mobile wallet (Mpesa) and mobile wallet bank (Mshwari)

At the borderlands of Busia and Malaba between Kenya and Uganda, close to 96% of 100 biashara interviewees were part of at least 3 savings groups, besides their mobile phone. There was almost always one savings group that was part of their trade or craft networks.

 

Bridging the Gap

system-monster

When we look at the under banked strictly through the lenses of a bank, we miss out on the rich diversity of community bank-like products at their disposal. When their options are labelled informal, the tone becomes one of expanding the larger banking formal system, at the expense of our dear Chamas.

My suggestion for the present day efforts to push towards financial formalization, is to instead transform into a pull towards formality. Is there a middle ground? Where we can have the rich of the Chamas and savings group together with the formal financial system? Or where we can have a blend of the rich of the savings groups with technology?

Yes, we can, and there are examples from East Africa’s Kenya and West Africa’s Chad

  • Equity bank directly engages registered savings groups at the Busia Malaba border, a trader’s Chama.  A credit officer from a local branch attends weekly meetings with the group, and liaises between Equity Bank and the Chama. The bank facilitates loans guaranteed by the group as a unit. 

“Muranga county seeks to ease unemployment with cow loans”Daily Nation

  • Ng’ombe loan, by Muramati and Unaitas SACCO, was an unconventional loan product much closer to the realities of a rural Muranga. Youth in this county received high-yielding, pregnant dairy cows on credit, and were to repay the loan through milk deliveries to processors. An expectant cow as the loan principal, with repayments priced in daily milk deliveries. How cool!

“TigoPaare – People’s Banks for Communities across Africa”Balancing Act Africa

  • In Chad, Paare are the equivalent of Chama group savings plans in East Africa. TigoPaare is a group wallet that adds a ‘group layer’ on top of standard mobile money, to deal with common funds, trust and other group initiatives. The wallet helps informal cattle trades look after their income from cattle sales, with the functionality to make loans to members. The pilot attracted 19,000 users, including community mutual funds, cotton producers cooperatives, churches, market sellers and women’s groups.

 

 

African Youth find Opportunities in Informal Sector Biashara

2

Biashara in Africa’s emerging economies – Nigeria, Kenya, Zimbabwe- are at loggerheads with the state.  An ever bulging young demographic  and a failure to absorb them into the formal economy has resulted in increased biashara.  The informal sector’s low barrier to entry, appeals to the young Africans’ aspirations, like Simon Danda from Zimbabwe. Rather than to idle, he is one of many tapping into biashara opportunities, mostly in trade and services. A common theme is sweeping across the the continent. Yacine Bio- Tchane observes from Benin, West Africa

“ECOWAS countries’ economies are driven by more than 50% by the informal economy. In Benin, where the informal sector represents more than 90% of the economy, graduates are found becoming drivers of taxi-motos to make ends meet. They were not able to find work within their sector so they became taxi-motos.”

But, the peculiar nature of the informal economy is a challenge for state agencies.

On July 13 2016, for the umpteenth time, City Hall officials from Kenya’s capital, Nairobi, vowed to crack down on informal sector biashara people: Hawkers, Matatus, Boda bodas, car washes, roadside eateries, and street families.

“The Nairobi County Government has formed a sub-committee tasked with restoring order and sanity in the central business district (CBD) following complaints from businesses over hawkers’ invasion of key streets. All car washes, kiosks and hawkers will be arrested with immediate effect”  – Business Daily

2 weeks earlier, the Nigerian state of Lagos had clamped down on street trading in a bid to sanitize its streets.

“Lagos State Governor Akinwunmi Ambode, said the renewed enforcement was in line with Section One of the Lagos State Street Trading and Illegal Market Prohibition Law of 2003, prohibiting street trading.” – Lagos Goes Tough on Street Trading, Hawking

2 months prior to Nairobi’s crackdown, Zimbabwe’s efforts to contain protests were met by strong resistance from informal biashara people. Traders opposed an ultimatum to either vacate streets by end of June or face arrest.

“We are not going anywhere until the government give us jobs, it’s better they kill us. I have an accounts degree and was forced into street vending because there are no jobs. They destroyed the economy and now they ban us from selling on the streets.”Ventures Africa

In Africa, the line between an entrepreneur and a lawbreaker is a thin one.

Biashara contributes to the economy

informal sector jobs

When I walk through Nairobi’s Tom Mboya and Moi Avenue, I see entrepreneurs. Young men, women, breastfeeding mothers and the disabled committed to biashara. They will sell you anything you want! From foodstuffs, to electronics, or the popular mitumba (second hand clothes) to a quick boda ride out of the city.

Arguably, no one understands the needs of consumers better than biashara people. They naturally seek out demand and will go where they can find it. The massive evening foot traffic of the continent’s buzzing capital’s (Nairobi Lagos,Harare) makes for a great concentration of demand.

More people are now turning to the informal sector. GDP and labour force statistics highlights the vital role of this segment in Africa’s economies

“In Kenya, it is estimated that the informal sector in excess of 35 per cent to the GDP and employs close to 80% of the workforce.” – Taxing the informal sector requires better strategy

“In Nigeria, informal trading of which hawking is a part thus accounts for 10% of total Nigeria’s GDP, bigger than crude production” Yemi Kale, Director General of Nigerian Bureau of Statistics

The trouble is the conflict between the state agencies’ perception and the value creating biashara. How we view this sector is important and matters for both public and the private sector in

  • Crafting public policy

Biashara people are taxpayers, and economic contributors just like formal institutions, a fact often forgotten. Just like we craft targeted policy for the formal economy, after considering stakeholders interests, so we should for biashara.

  • Product and service design for Sub Saharan Africa consumer markets

Biashara people are the consumers of the formal economy’s products and services like mobile money transfer services, mobile banking services, sports betting, airtime, and FMCGs.

We need to understand biashara’s operating environment (business or people), if we are going to sell goods and services to this sector.

  • Innovation for Sub Saharan Africa’s economies

Once we appreciate biashara people as a market segment with its own merits, we can free ourselves of our one eyed biases and innovate for their  biashara needs.

For example, we can start by not referring to them as Bottom of the Pyramid people.

 

 

*The original version of this article appeared on my blog

Borderland Biashara: Mapping the Cross Border, National and Regional Trade in the East African Informal Economy

efl research team

Rinku Gajera & Michael Kimani, Malaba Border, Kenya, January 2016. Photo: Niti Bhan

And, we’re back! With apologies for the long delay in posting on the blog, we’d been busy wrapping up our groundbreaking design research for development programming project for Trade Mark East Africa this past month or so. As you can imagine, the last few weeks of any project suck all the bandwidth out and leave little for blogging or writing.

Let me be the first to say that this project could not have been executed or completed without a rockstar research team – Rinku Gajera, Research Lead, and Michael Kimani, Research Associate, together put in gruelling hours in the sun, and on Skype, to help increase our understanding of the informal economy in East Africa, particularly the informal trade sector – cross border, national, and regional. Emerging Futures Lab has been immersed in design and development of pioneering methodology for mapping the informal trade ecosystem – henceforward known as biashara, at the borderlands of the East African Community, since November 2015.

tmeaFor this opportunity, I must thank the CEO of Trade Mark East Africa, Frank Matsaert, who saw our passion and our belief in the worth and value of the informal sector, and recognized the need to understand the traders, their business practices, and their aspirations, as the first step necessary for the design of interventions that are not only people-centered, but cost effective and impactful.  We were granted creative license to colour outside the box of the terms of reference with our designer’s empathy and exploratory mindset, and frame this project as an exercise in developing the understanding necessary for the design of human centered methods, tools and frameworks for development programming. You can be sure that there will be more on this topic published soon on this blog, so grab the RSS feed now, or sign up for inboxed posts.

Download the Borderland Biashara Ecosystem Mapping project at the Kenya/Uganda border at Busia and Malaba.

Nov 2015Inception report Informal Economy, Kenya/East Africa/Uganda
Jan 2016Literature Review on Informal Cross Border Trade in the East African Community (EAC), the DRC and South Sudan
May 2016Final Report, General Public – Borderland Biashara, by Emerging Futures Lab

Uber’s app lowers barriers to formalization for unorganized taxi industry in Kenya

IMG_3811

Nairobi Taxi stand, Kenya. February 2016 (photo: Niti Bhan)

This interesting article in the Kenyan news made me think about the role that an app like Uber could play in markets where there’s a high proportion of informal & unregulated business activity.

As with much technological advancement, resistance comes with change. Mpesa and the internet were once thought to be passing fads and have later changed industries. Uber’s disruptive strategy strayed from the normal operations in the local taxi industry. However, its benefits cannot be slighted. The app organizes the industry while creating a registry of taxi operators complete with their personal details and revenue earnings.

[…]

Deal with the local taxi organization or the app. Under the current laissez-faire model, the taxi associations are unregulated with the government unable to protect the consumers. Uber has stepped in to shape an unstructured industry into a formal operation.

What’s really interesting here is that same elements of the sharing economy that disrupt the more structured, formal markets in the industrialized world, are those that could provide structure and organization to the chaos of the cash based, informal sector in the developing world.

In effect, the gap between teh formal and the informal required something that could provide flexible, negotiable business models and organization structures in order to bridge effectively. Prepaid business models are one that work for the informal sector’s cash flows but they don’t provide any facility for an industry to organize – here, taking the necessary elements of flexiblity, negotiability, and reciprocity one step further into an app, the Uber solution offers information neatly captured and accessible at your fingertips.