Posts Tagged ‘opportunity’

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.

Can too much formalization be bad for poverty alleviation?

Earlier this year, there was an interesting article which pointed out the important role the informal sector plays in developing countries, particularly on the African continent.

Apart from being over-financialised, which reduces the incentives to create “real jobs” the other structural problem facing the South African economy is its over-formalisation. The informal sector accounts for just 15% of South African jobs, compared to 70-80% in East Africa, for example.

The reason, again, hearkens back to the white-dominated economy that apartheid created, where the majority black population was only valuable for their labour, so any entrepreneurial self-sufficiency in the black community was stifled, in order to channel them into the wage economy.
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The over-formalisation presents a situation where a mama mboga (roadside vegetable seller) is expected to a get a food handling inspection license, pay corporate tax, pay the official minimum wage and provide health insurance for her assistant before being allowed to open a (physical) shop.

There is no space in such an economy for East Africa’s bodaboda or  Nigerian okada (motorcycle “taxi”) riders or second-hand goods sellers, and so, no wriggle room to quickly accommodate the mostly black young people coming of age every year.

Over-financialisation means there’s little pressure to create formal sector jobs, and over-formalisation means there’s little ability to create informal sector jobs.

In contrast, the Nigerian Bureau of Statistics has evidence that the bulk of the new jobs being created each quarter are from the so called ‘informal economy’ rather than the traditional formal sectors such as the civil service or large established private companies.

The informal economy’s comparitive weakness has always been its irregularity as compared to the predictable structure of teh formal, but here, as thousands of young people enter the workforce, this allows it to accommodate their income generation demands. Opportunity abounds for the hustler and the street vendor and low barriers to entry mean that anyone can earn a little something.

Perhaps its time for us to shift our perspective when we consider the informal sector, and consider its value and role in society with an unprejudiced eye. While numerous efforts are being made to address the dual challenges of unemployment and the demographic dividend, they will not happen overnight. The informal economy has clearly shown its persistence, resilience and importance for livelihoods wherever there has been significant need for development. Can we meet it halfway and speed up the time it would take to lift millions out of poverty?

The Rise of the African KINGs

The Abraaj group announces yet another African investment fund, one which emphasizes the following:

The sectors include consumer goods and services, consumer finance, and resource and infrastructure services in the core countries of Nigeria, Ghana, Côte d’Ivoire, South Africa and Kenya

While South Africa tends to be de facto in most continental investments, note the choice of the other four countries. Rewritten, we get Kenya, Ivory Coast, Nigeria and Ghana. Or, as was noted earlier, KINGs.

Watch this space.

The true size of opportunity in Africa

The Africapitalist Foundation’s most recent issue of their Africapitalist Magazine has a cover story on the true size of opportunity in Africa.

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Readers familiar with my exploratory user research and insights from the prepaid economy and the informal sector will recognize the key point being made – that we must look beyond the obvious when assessing the size and value of these opportunities.

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Africa’s emerging consumer markets will provide that challenge to transform marketing in the emerging future. Bridging the gap between the formal and the informal will be key to growth, as demonstrated already by the telcom operators with their prepaid business model.

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If this exciting new opportunity captures your interest, keep a finger on the pulse of this dynamic market by following hand curated news on African markets, innovation, enterprise and industry at @prepaid_africa or via RSS or tumblr at The Prepaid Economy: African Edition

Bridging the gap: boundary spanners in the informal economy

My recent diversion into exploring the increasing visibility of the informal economy in the developed world has been providing much food for thought on the perceived boundary between the formal and the informal. More so, than in Europe, does the need exist among the most economically challenged across the still developing world for ways and means the grassroots entrepreneurs can aspire to their economic ambitions.

This though then reminded me of some articles on the topic of boundary spanners – while they look specifically at different types of organizations, it struck me that the same concept could be used a lens by which to assess the ‘borderlands’ between the formal and the informal economy, especially in the developing world where a very significant proportion of the population earns a living from the unorganized sectors of society including subsistence farming.

What are some of the existing ‘bridges’ that I’ve seen?

Prepaid airtime for mobile phones
As the business model that made mobile phone ownership and usage viable, feasible and desirable for the mass majority in the developing world, this is the best known example of a transaction model that bridges the informal economy and the formal. Even subsistence farmers and daily wage labourers, living on a pittance, can purchase a service from some of the largest and most profitable companies in the world.

The flexibility inherent in this model transfers the control over time and money to the enduser, not imposing a payment amount and deadline like a monthly phone bill does.

Informal trade networks
Whether it is television sales in a rural African market or the initerant hawker with sachets of FMCG brands of consumables like coffee or dry cell batteries, when products are sourced from the erstwhile formal manufacturers in China or elsewhere, there is a natural bridge that spans the boundary between the two.

What are the touchpoints where this occurs and how and when it works is an entire area that needs a closer look in order to understand what works and why.

Small scale industrial (SSI) value chains
From agarbatti makers in rural India to artisans making crafts for sale in Kenya, this is the reverse situation from the above, yet again offering a bridge for cash flow between the formal and the informal. A well known example is the Amul brand of dairy products, which can be traced back to the cowherd in his village.

If a cooperative has reached formal status, does it naturally and automatically transfer that to each of the members or will the subsistence farmer or village entrepreneur still be considered an unseen member of the vast unorganized sector?

Essentially, it seems as though that at point point in the distribution network or supply chain, the locus of activity shifts emphasis from one to the other.  And at some point the red tape that separates the two begins to act as a barrier.  At least in much of the developing world, such as in India where close to 90% of those employed are classified to be working in the unorganized sector, this red tape comes with additional social and economic hurdles which seem too challenging to be crossed.

How then can the concept of boundary spanners help in this case? By framing them as those who go back and forth between the rigid and the flexible or as a semi-permeable membrane that can offer benefits to either side? This line of thinking will continue to be pursued.

Observations on emerging opportunities in upcountry Kenya

Louis Majanja is a photographer who maintains the wonderful ‘Daily Struggle‘ photoblog capturing life in and around Nairobi and Kenya and his latest post captured not only my imagination but also the changes he’s observed upcountry in his rural home region when he went back for the holidays.  Here, I want to share that insight with you:

Photo Credit: "Daily Struggle" by Louis Majanja

He writes:

The signs on the premise speak of 3 different phenomenons that are reshaping rural life in Kenya – Cycle parts, Mobile repair, and New Kinyozi (barber shop)  represent  3 businesses that would not have existed 10, even 5 years ago. The spread of inexpensive Chinese motorcycles, has improved rural mobility dramatically, cheaper cellphones have improved communication and rural electrification is is enabling new businesses and new businesses are growing around this new opportunities.

Internet penetration by population in African countries: mapping opportunity

Since we’re currently working on a market entry exploration study for Village Telco in Kenya, I’ve been taking a deeper look at the spread and adoption of internet use.  It struck me that the landscape is actually far more fragmented than it used to be – things have been changing so fast that gone are the days where you could look at the situation in one Sub Saharan country and extrapolate it reasonably accurately for many others.  This is particularly true for ICT as cheaper rates and smarter devices impact some locations before diffusing to others. While playing around with the numbers, some interesting observations emerged:

Data Source: www.internetworldstats.com (click for large) Chart: Semacraft Consulting Partners

I sorted the internet usage numbers by size of country – the chart above shows the top 10 countries in Africa by percentage of total population i.e. almost 15% of the continent’s people live in Nigeria, and then added on what percentage of that country’s population was online.

Data source: www.internetworldstats Chart: Semacraft Consulting Partners

The findings were surprising when you compare to this chart where I’ve sorted the countries by percentage of the population accessing the internet. (I’ve removed the French island Reunion  which showed up in 3rd place nudging Nigeria out of the top 5). Their proportion of the continent’s population is seen next to them.

The only countries that fall in the top ten – both by total population and percentage of population on the internet – are Nigeria, Egypt, South Africa and Algeria.  I had started out thinking that if I looked at internet penetration rates by population it would give me some clues about where the internet was being most rapidly adopted (and then perhaps, why). But instead, I found myself surprised by the gaps instead – Tanzania being the unexpected. The reality may be entirely different in Ethiopia and the Democratic Republic of Congo.  Maybe if the data is looked at again separating North African countries from Sub Saharan, a different set of clusters will emerge.  I’d also like to remove all the little island nations to see what happens.

Update:  I decided to take a look at the GDP based on PPP per capita for 2011 (IMF data) for selected countries (based on the earlier two sets) just to see if there were any correlations between that and the internet.

Now this starts to get even more interesting:- Morocco, Nigeria and South Africa show internet adoption figures very different from their relative position in the comparative economy chart. You’d think that greater economic strength would demonstrate a higher internet adoption and vice versa. But South Africa’s internet adoption is  too low compared to its economic standing while Morocco’s is outstanding compared to its economy.  In the East African region, Tanzania is still the internet laggard compared to its neighbors Uganda and Kenya.