Posts Tagged ‘prepaid’

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.

Introducing The Global Prepaid Economy

This week, that venerable newspaper The Financial Times, published an original piece of writing on the World Economic Forum’s Agenda blog. Its not a reprint from their own publication. It proposes the end of “Emerging Markets” (EM) as we know them:

Now, commentators say, it is the world’s mental map that is in dire need of an overhaul, particularly when it comes to the practice of categorising countries as “emerging” or “developed” markets.

The current economic hierarchy, which places emerging nations at the periphery and developed markets at the core of world affairs, no longer accurately describes a world in which EM countries contribute a bigger share to global gross domestic product than their developed counterparts, when measured by purchasing power parity. Nor does the capacious category, which lumps together countries of such diverse economic strengths as China and the Czech Republic, serve to illuminate crucially different realities between these nations.

“The EM term has outgrown its usefulness,” says Michael Power, strategist at Investec, a fund management company. “The term today embraces big and small, developed and under-developed, industrialised and agrarian, manufacturing and commodity-based, rich and poor, deficit runners and surplus runners, and I could go on,” he adds. At issue are not merely the niceties of symmetry and order.

As someone who has been looking at emerging markets, one way or another, for the past 10 years, both in my writing as well as in my work, this comes as a welcome relief. These markets can’t still be emerging, I thought, when I was in New Delhi at the beginning of June this year.

Yet, in some ways, we need the conceptual means to capture their dynamic potential, as they’re still in motion. As the article concludes:

These contradictions threaten to consign the term emerging markets to the dustbin. But if it follows the likes of “third world” into virtual extinction, its passage will raise the question of what, if anything, should replace it.


The Global Prepaid Economy. (Data: GSMA Intelligence)

In November 1996, Vodacom South Africa was the first network in the world to introduce prepaid airtime on an Intelligent Network platform, which made it possible to debit customers’ accounts while they were speaking. Two years later, they went on to win the Global Mobile Award for the “Best GSM Service” for the VodaGo prepay system. Less than twenty years later, prepaid airtime is the dominant business model across the entire planet.

And, interestingly, if you look at the map above, the economies where the prepaid business model dominates are more or less those which were formerly known as emerging markets, frontier markets, developing countries and/or the majority of the erstwhile third world.

2014 prepaid data gsmaAcross emerging markets and developing countries, the preference for prepaid mobile services cuts across income range, socio-economic class or type of employment. Choosing to pay as you use seems to have little or nothing to do with regular paychecks, bank accounts, credit cards or age.  So vast is it that one can consider it an economic characteristic in its own right.

The global Prepaid Economy.

What do all the regions where the prepaid business model dominates have in common?

  • Cash intensive
  • Informal sector employs more than the formal
  • Still developing
  • More volatile
  • Higher uncertainty
  • Less social safety nets
  • Faster growth

What does the prepaid business model do for the customer?

It empowers them. Control over how much to spend (the amount), and its timing (the frequency and periodicity of purchases) is in the hands of the end user, the mobile subscriber. There’s no bill at the end of the month, to be paid by a deadline, for an as yet unknown amount. That is, there are no surprises.

Why does this matter?

In cash intensive operating environments, where expenses must be managed within the constraints of cash available on hand, the prepaid model offers manageable access to voice, text and data. Where the informal sector might be the source of employment for a greater majority of the population, uncertainty is a defining characteristic as incomes may be irregular, unpredictable and/or seasonal. That is, there is a greater degree of volatility to be managed. And, where there are fewer social safety nets to rely on, surprises in the form of a bill at the end of the month might make the difference between going hungry to bed or putting meat on the table.

In this series of articles, I’ll be taking a look at the nature of the prepaid economy and characteristics common across many geographies. Next part will look at the relationship between Time and Money.

A design challenge for agric service innovation in rural Africa

Find a way to embed principles of sustainable good agriculture for the smallscale farmer in a socio-economically beneficial way.

drawing credit: herman weeda

drawing credit: herman weeda

How would we do this?

Where do we begin?

The answers to these questions and more will be forthcoming on this blog. I reach out and encourage you all to consider submitting your thoughts and opinions between 1000 to 1500 words in length. We will combine the thoughts of many voices together in this blog stream so you really should consider subscribing to the RSS feed.

The Great Informalisation: About 50% of Indian GDP from unorganized sector

From a special report on India’s economy

It might surprise some to know that most of the debates on labour issues in India, including the provision of social security & workplace challenges, actually revolve only around 7% of the total workforce.

And yet, as India integrates with the global economy, its the 93% majority that in some ways providing the resources to keep the country competitive and productive. The term is informalisation. And with increased sub-contracting due to globalisation and liberalisation, there is the universe employers are increasingly turning to.


According to the National Sample Survey Organisation, in the year 2009-2010, the total employment in both the organised and the unorganised sector in the country was 465 million. Out of this, only 28 million (7%) were in the organised sector while the remaining 437 million (93%) was in the unorganised sector.

But on the other hand, the informal sector that provides employment to 93% of the work force accounts and accounts for, hold your breath, about 50% of the GDP.

Why prepaid business models work so well for the rural and informal economy

We broke down the basic concept of the ‘pay as you go’ or prepaid mobile plan – in general, discounting the details of the various different strategies and pricing/time plans of different countries as a way to begin understanding what is it about this model that makes it work at the BoP.

Could we somehow find a general principle that could then be applied elsewhere, seeing as how successful this model has been amongst the lower income markets?

Fundamentally, all prepaid plans had one lumpsum upfront amount for the starter pack/activation and thereafter could be kept ‘alive’ by a minimum additional recharge or top up accordingly.

That is, this payment plan is flexible – it allows you to decide how much you wish to pay and when, though the absolute minimum frequency does depend on the provider’s rules and this decision making thus puts you in control of how much you spend and when; based on your incoming cash flow and current priorities for your discretionary spending.

Just for comparison’s sake, a mobile phone subscriber on a post paid model would have to pay the amount on the monthly bill by a certain date in order not to fall behind or incur penalties. That is, there is little flexibility (other than making actual changes to which plan you’re on) and the control of when to pay, how much to pay and the frequency of the billing is all in the hands  of the service provider. The user (customer) has little control over time and money.

Now, bringing it back to our findings from the workshop on the financial planning behaviour observed among those at the BoP where we see that it is their ability to control the elements of time – periodicity & frequency; money – cash or goods and also social capital or in this context “trust” that in fact allows them to increase their ability to plan their ‘cash flow’ and ‘working capital’ across their multiple sources of income and resource allocation, thus decreasing the variance between their income and expenditure.

We can already see the fundamental reason why, then, the pay as you go model has been successful for those at the BoP, it is one of the very few that essentially puts control over time and money in the hands of the user (customer) rather than the provider (business). One could, at this point, say that the element of trust or social capital is also involved – just as Ram Babu’s neighbour who loaned him Rs 1300 was willing to let him pay it back in small sums from the money he earned daily from his wheat mill until the total was paid off, the prepaid model does not impose fixed amounts and payment schedules on the user. The transactions occur at the customer’s discretion.

In sum


Irregular income streams from a variety of sources pose their own challenges to both buyers and sellers but offer an opportunity through the flexibility designed into business models for the informal economies where this pattern of cash flow tends to be much more prevalent.


Flexibility is key, as well as the ability to negotiate on “time” – frequency, periodicity, duration and “money” – amount. This works in the highly personalized transactions negotiated in most of the “developing” world but the challenge arises when those dependent on volatile cash flows meet “the system”, which cannot be negotiated with.

Between time and money in the equation of the underlying principle of flexibility is the “trusted network” or human beings. Facetime and financial flexibility have proportionate relationship to the success of a business model in such an environment.

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.

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:


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?


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


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.

Spain’s woes show behaviours reverting to patterns from pre-formal economies

This recent WSJ article on the emergence of coping mechanisms among the economically challenged in Spain caught my attention today for a couple of reasons. What struck me first was the fact that time (labour) was becoming a viable alternate to money (cash) and this made me come to this blog to look up the cashless transactions category to see if there were any patterns I could spot or unearth any previous posts on barter systems from the erstwhile first world. I did not.

However, what I did notice instead was far more of a revelation.  The behaviours that have been documented by the WSJ are not dissimilar to the existing patterns of fiscal management as seen in many rural parts of the developing world. In fact, one could go as far as to say that people are reverting to the way things were before the formal economy with its credit cards and financial tools came along.  For example:

Cooperative economy based on community networks

Ms. Martín, who doesn’t own a car and can’t afford taxis, has relied on other time-bank members to give her lifts around town for her odd jobs and errands, as well as to help with house repairs. In return, she has cared for members’ elderly relatives, organized children’s parties and even hauled boxes for a member moving to a new house.

The time bank not only saves her cash, she says, but also lifts her spirits by making her feel “part of a community that’s taking some positive action during hard times.”

This research project documented something very similar back in The Philippines where community members volunteered their time and labour to help a member build a house, earning “credit” against the day when they would need the same.

Alternative currencies, barter mechanisms and REculture

Besides time banks, they include barter markets springing up in barrios, local currencies designed to spur the flagging retail economy, and charity networks that repurpose discarded goods.

And of course, the community as insurance

“We are inside of a pressure cooker, and all we can do is let some steam off so it doesn’t explode,” says Francisco Romero, head of the municipal employment office in the town Totana, which has launched an urban gardening project, a barter market and a local currency to help its jobless youth.

Carlos Bravo, a 35-year-old information technician who helped launched a small bank in central Madrid this year, says time banks have a different sort of value: helping urban Spaniards rekindle a sense of closeness among neighbors that facilitates asking for favors and other forms of mutual assistance.

“They’re people you can count on,” he says. “And in this time of economic crisis, for people who lack the resources to get things on their own, they know there are people here to give a helping hand.”

In the meantime, the formal economy strikes back, attempting to bite the hand it cannot feed, with mechanisms that have already shown their limitations.

“It’s a step backward not only for a euro country, but also for a developed country,” says José García Montalvo, an economics professor at the University of Pompeu Fabra in Barcelona.

Banks and social currencies, he says, can backfire on the broader economy since the income received from such arrangements often goes undeclared, therefore depriving the government of tax revenue. Social currencies and time banks also preclude taking on debt, adds Mr. García Montalvo, which in moderate levels can help people start businesses and access beneficial goods and services that they can’t afford upfront.

Can we, honestly, in today’s world, look around us and say, with a straight face, anymore, that “Debt is good”? The Spaniards, however, have their heads on their shoulders.

Ms. Martín, the unemployed 22-year-old, says she has struggled to find work in the career she studied for, caring for the physically incapacitated, and has had to settle for temporary jobs. But she sees hope in projects like the time bank and thinks they are the wave of the future in Spain.

“There has to be a change in the mentality for there to be a change in the country,” she says. “We can’t continue to spend resources we don’t have. We have to learn to live with less.”

Perhaps we can all learn something from Spain’s painfully earned experience.