Posts Tagged ‘philippines’

Financial Behaviour Patterns Observed Among Households in Rural Informal Economy in Asia

This is the original working paper of the research conducted on rural household financial management, in developing country conditions, pioneering the use of methods from human centered design for discovery, during Nov 2008 to March 2009, aka the Prepaid Economy Project. It was peer reviewed by Brett Hudson Matthews, and I have incorporated his comments into the PDF.

This research study was carried out with the aid of a grant from the iBoP Asia Project (, a partnership between the Ateneo School of Government and Canada’s International Development Research Centre (

The abstract:

The challenge faced by Bottom of the Pyramid (BoP) ventures has been the lack of knowledge about their intended target audience from the point of view of business development whereas decades of consumer research and insights are available for conventional markets. What little is known about the BoP’s consumer behaviour, purchasing patterns and decision making tends to assume that there are no primary differences between mainstream consumers and the BoP except for the amount of their income – pegged most often between $2 to $5 a day.

In practice, the great majority at the BoP manage on incomes earned from a variety of sources rather than a predictable salary from a regular job and have little or no access to conventional financial tools such as credit cards, bank accounts, loans, mortgages. This is one of the biggest differentiators in the challenge of value creation faced by BoP ventures, particularly among rural populations (over 60% of the global BoP population lives in rural areas).

Exploratory research was conducted in the field among rural Indian and rural Filipino populations in order to understand how those on irregular incomes managed their household expenses. Empirical data collected by observations, interviews and extended immersion led us to identify patterns of behaviour among the rural BoP in their management of income and expenditure, ‘cash flow’ and ‘working capital’ and the significance of social capital and community networks as financial tools. Practices documented include ‘conversion to goods’, ‘stored wealth’, ‘cashless transactions’, and reliance on multiple sources of income that mature over different times.

This paper will share our observations from the field; identify some challenges these behaviours create for business and also explore some opportunities for value creation by seeking to articulate the elements that BoP ventures must address if they are to do business profitably with the rural ‘poor’ based on their own existing patterns of financial habits and norms.

The Conclusion:

In sum, it can be concluded that the challenges for value creation can be quite different for BoP ventures interested in addressing the rural markets. From the observations made in the field, we can highlight three key implications for business development. These are:

  • Seasonality – with the exception of the salaried, everyone else in the sample pool was able to identify times of abundance and scarcity over the course of natural year in their earnings. Identification of a particular region or market’s local pattern of seasonality would benefit the design of payment schedules, timing of entry or new product and service launch, for example.
  • Relative lack of liquidity – The majority of the rural households observed tended to ‘store wealth’ in the form of goods, livestock or natural resources, relying on a variety of cashless transactions within the community for a number of needs. Conventional business development strategies need to be reformulated to take this into account as these patterns of behaviour may reflect the household’s purchasing power or income level inaccurately.
  • Increasing the customer’s span of control over the timing, frequency and amount of cash required – Since the availability and amount of cash cannot be predicted on calendar time, this implication is best reflected by the success of the prepaid mobile phone subscriptions in these same markets. When some cash is available, it can be used to purchase airtime minutes for text or voice calls, when there is no money, the phone can still receive incoming calls. Models which impose an external schedule of periodicity, frequency and amount of cash required may not always be successful in matching the volatile cash flow particular to each household’s sources of income.

Part 2: The Observations made during original research on rural economic behaviour

One can roughly consider the relative income (or wealth) across three regions where observations were conducted on a continuum where the Indian village was the ‘wealthiest’ while the Malawians were living closest to the edge. However, on synthesizing the combined data collected across geographies, patterns of financial behaviour emerged that showed similarities of intention and goals.

For example, non-perishable food grains such as wheat in India or rice in the Philippines were considered a form of wealth that could be stored, acting as savings or insurance. A portion of the harvest would be held back, to be either sold on demand for cash, over the course of the year or as a source of food. Wealth was also stored, as security, for the longer term, in the form of silver ornaments (in India) or as an investment, in the short term, as livestock – pigs, chickens or a milch cow.

Also, people rarely held on to money in the form of cash for any length of time, for the most part due to lack of access to banks and/or the high cost of maintaining an account proportionate to their incomes.  Available cash was usually converted to “kind” – either goods or livestock- the choice of which reflected careful prioritization. These tangible purchases then acted as financial tools depending on their “convertibility”-

  • long-term security (silver);
  • planned savings (buying building materials on a piecemeal basis over time until a house could be built);
  • insurance or a “cushion” against shocks (a pig that could be sold to raise cash or eaten as food) and finally,
  • investments (milk bearing cow, young piglets to rear to maturity, culling high margin ‘fighting cocks’ from chicks).

Cashless transactions, thus, were frequently observed. These behaviours were most complex in India; where a sophisticated mechanism allowed a group of farmers to negotiate the annual retainer for the services of a carpenter in the form of a number of sacks of wheat to be paid during the harvest and the local shops would set a ‘currency’ conversion rate of a kilo of wheat to the rupee to be used for buying sundry provisions. The shop that insisted on cash only transactions priced its goods about 10% cheaper than the rest. Barter was far simpler in Malawi, where a mobile phone could fetch its equivalent price in goats.

Here, it must be noted that very often each household’s resources such as a store of fuel (cow dung in India; firewood elsewhere), chickens or a kitchen garden and assets like milch goats or cows, would be pointed out with pride.  For their possession implied an independence from cash money – in almost every interview, people would emphasize how little they needed to purchase in the store or nearest town for their daily needs as they were self sufficient in these demonstrated requirements. Often it would be added that in a city, you had no choice but to purchase everything you needed.

Thus the use of purchased resources were optimized for maximum cost/benefit and  their use extended as much as possible before replenishment. For example, if a household had access to cooking gas, they would still use firewood or charcoal for foods that took longer to cook while the more expensive fuel was used for foods that cooked quickly.

In the Philippines, cashless transactions were rarely in the form of goods but tended to involve time or physical labour, primarily as a form of social capital in the community. These complex webs of the rural community’s social networks of trust were obvious in the patterns of sharing and cooperation seen in every country. Groups would invest and save together, for example, the extremely sophisticated cooperative ladies lending circle which had expanded over time to include the services of a local bank in India; or the beekeepers cooperative in Malawi where half the annual profits were saved in a common account while the other half was equally shared.

In addition to the behaviour patterns mentioned above, an external factor was observed to be of great significance in the management of rural household expenses.  While it naturally differed in timing and reason from region to region, every household and profession could predict, within reason, the ebb and flow of income based on the seasons of a natural year. In fact, many other observed behaviours were often directly linked to these expected peaks, such as the harvest season, and lows, for example the dry season when fields lay fallow.  This pattern of expected ups and downs or seasonality in income flow was seen to affect even those who were not directly involved in agriculture, as the local economies were closely knit and interdependent.

Note: This blog was begun as a way to publicly share my thoughts during fieldwork, so much of the raw data and immediate observations are available under the category “user research” as well as blog posts written during January 2009 to April 2009 as seen in the archives available on the right hand sidebar.

Kenya’s Kadogo Economy

Charcoal seller Margaret Nyambura, a widowed mother of four, used Sh100 we had given her to shop for food and household goods that would last her family three days.

Her priority was cooking oil and maize flour, which cost her Sh20 and Sh10 respectively. Each was measured in portions to fit her money. She bought twenty spoons of sugar worth Sh15, although in lean times she can get a small ration for Sh5. She bought tea leaves worth 15 and Rice worth the same amount, then left the rest for sukumawiki (kales), tomatoes and onions.

Everything is sold according to the amount of money one has. Things that go for one shilling include one slice of bread, five match sticks, a spoon of tea leaves and sugar, half a spoon of cooking oil, a quarter candle stick and a slice of bar of soap. Indeed, one bakery based in Industrial area now supplies half and quarter loaves of bread to Mukuru slums. ~ Every coin counts in slum ‘kadogo’ economy, The Standard, Feb 2010

When I read this detailed description of Mrs Nyambura’s shopping behaviour, I was immediately reminded of the way customers would shop in Ma Fe’s little sari sari shop in the Filipino village, right down to the ‘finger’ of sugar they would buy for 2 pesos. Intrigued by the similarity, I dug up a little more about the so called Kadogo Economy of Kenya and here’s a 3 minute video from the news as well as a few more articles from last year.

Whats interesting is that The Philippines is the other country well known for having pioneered a successful mobile money platform in GCash although their airtime tends to expire at the smallest loads within 24 hours.

The next question then is, what would be the buyer behaviour and decision making amongst this demographic when it came to purchases on the mobile platform or made via the phone? And thus, how does it map on to the insights derived from the original rural research on the prepaid economy that could influence the design of more relevant business models and payment plans meant for this mass majority market?

Something that I would like to follow up on while I’m in Nairobi next month. Watch this space.