Posts Tagged ‘research’

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 (http://www.ibop-asia.net), a partnership between the Ateneo School of Government and Canada’s International Development Research Centre (www.idrc.ca)

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.

Africa’s Middle Class: Development economics and marketing demographics conflating the holy grail

The most developed nation on the African continent, south of the Sahara desert, is considered to be South Africa with its financial and transportation infrastructure and systems, a legacy from history. In the first decade of the 21st century, the black middle class – known as Black Diamonds in marketer jargon – came into prominence on the back of numerous economic initiatives after the fall of apartheid.

The rise of the Black Diamonds was meant to be the signal of a changing rainbow nation, one whose peoples would finally be included in the social and economic advancements long enjoyed by a privileged minority. This emerging middle class was also among the first to be noticed as African consumers in their own right, and their discovery pioneered the subsequent search for the now mythical African middle class. Even then, their total number was under scrutiny for its aspirational inclusivity versus actual households fitting the conventional definition of a middle class. From The Economist writing in 2007:

The University of Cape Town’s Unilever Institute of Strategic Marketing says there are now 2.6m “black diamonds”, as it calls the black middle class, a 30% increase in less than two years. Included in the definition are working professionals; those who own things such as cars, homes or microwave ovens; university students; and those who merely have the potential to enter these categories. The survey estimates that these black diamonds represent 12% of South Africa’s black adults, and make 180 billion rand a year ($26.2 billion), or 28% of the country’s (and more than half of all black South African) buying power.

For some, such as Lawrence Schlemmer, a sociologist in Cape Town, this definition is far too broad to be meaningful. He agrees that numbers are rising fast but argues that they are still tiny. Last year, he says, only 322,000 black South Africans (less than 1% of the black population of 38m) could be deemed “core” middle class, a far cry from 2.6m black diamonds.

Still, whatever their size, the buppies are affecting the economy and the political landscape.

This week, a comprehensive new survey by the South African government shows the on the ground reality in 2016. The National Income Dynamics Study (NIDS)‚ launched by the Department of Planning‚ Monitoring and Evaluation (DPME) in Pretoria surveyed 28‚000 people who were tracked every two years from 2008 to 2015. Very similar in fact to the recent household panel survey completed in India. Even their conclusions resemble each other:

According to the study‚ those in the middle class have a tendency to drop in and out of poverty.

And the size has not actually changed much since 1993 – the year before the fall of apartheid and the election of Nelson Mandela.

The study also shows that the South African middle class is much smaller than estimated‚ sitting at around 14.5% of the total population in 2014. Women are more affected by poverty, and even those who manage to climb the ladder may slip down again.

“…It has not grown much since 1993 — growing its share by only two percentage points in the past 23 years…”

And, perhaps, the real challenge we face with the ongoing search for Africa’s middle classes is the conflation that took place back then between a consumer marketing segmentation and a socio-political demographic. By allowing the aspirational reach of the consumer marketing driven research to inflate the size of the segment classified as middle class, it has given rise to an ongoing and complex muddle across teh entire continent. As the AfDB’s former president Donald Kaberuka said last year:

“I think we are wasting too much time on the definition of the middle class and the cut off point, it is a sterile debate.

“A dynamic middle class that rises with the sea increases domestic demand, the diversity of the economy, [its] resilience, and they also stabilise the politics of a country as well, since they have a stake in the system.”

He has a point. But perhaps not the one he intended to make. Instead, if we consider disentangling consumption and demand for consumer products from the increase in political voice and “stake in the system”, we may in fact discover that there is indeed a sizeable bourgeoisie emerging even though they may not possess all the qualifying criteria traditionally attributed to a middle class per se. (Previous posts on this topic have been tagged informal bourgeoisie)

There’s the demographic segment which is the middle, and then, there’s the conceptual body of solid citizens invested in the democratic stability and economic growth and development of their countries. As Jacques Enaudeau wrote in 2013:

But fixated on wealth, the discussion on middle classes in Africa misses out on the other two pillars of social stratification: social status and political power.

As soon as those two are factored in, discussing the “African middle class” as a homogenous entity seems absurd, and so it should. Thinking that what separates the senior civil servant from the street hawker or the country head of a multinational from the shop owner is a matter of daily expenditure amounts to looking at their reality through the wrong end of the telescope: the bigger picture is that they live in different worlds.

In the developing world, the formal sector with its white collar jobs populated by university graduates may jostle cheek by jowl with the informal economy’s life lived on the street but that proximity might be on the only thing they have in common.

For here lies the rub: the material culture that the notion of “middle class” posits as shared consciousness is articulated to a strong sense of individualism, which is borderline contradictory with the idea of class. All the more reasons for the analysis to consider the representations which members have of themselves as a group and the historical context in which such groups are being shaped.

This, however, is not the post to unpack those complexities of self image and collective consciousness. It’s one which pauses to ponder the newest set of findings on the dynamic nature of poverty and wealth in the more uncertain and volatile operating environments of the still developing world. And considers the South African example introduced today:

There has, however, been considerable demographic transformation within that band of the middle class, with Africans now outnumbering whites by about two to one, the report said. Factors driving the surge include greater access to credit, improved education levels, BEE and improved economic growth until recently.

Transformation of societies is underway, just as the Indian researchers concluded in their analysis. This might be a much larger global trend underway, whose weak signals we’re just beginning to pick up now. I’ll be following up with these musings on the blog. The people with the real problem on their hands are the consumer companies looking to justify entering the African markets, and perhaps that’s a topic to take up in the next article.

Why I’m cautious about most mobile platform consumer research in Africa

StanChart’s price tracker rolled out in Nigeria is a great example of where and how mobile phones can really add value in understanding the African consumer market and add substantially to its scarce database. What concerns me however is the increasing promotion of the ubiquitous cellphone as the means to gather consumer insights for all sorts of polls, surveys and sentiments.

Why?

Surveys conducted online and through the phone may not, at this point in time, offer a representative sampling of the relevant population, no matter how random. Ironically, in this context, its this very randomness that creates skewed results. Unless the results and the methodology clearly specify the gender, age, income and education breakdown of those responding to their survey, there’s little basis to assume that they are representative of the population. Reliance on such results should very much be contextual – which country, what are they aiming to show, who exactly did they survey, rather than accepting results from any old location on face value.

Here are some recent stats that help explain why:

The Mobile Africa 2015 study, conducted from GeoPoll and World Wide Worx, surveyed five of Africa’s major markets; South Africa, Nigeria, Kenya, Ghana and Uganda finding that mobile Internet browsing now stands at 40% across these markets – Ghana: 51% Nigeria: 47% South Africa: 40% Kenya: 34% Uganda: 29%

And these are the top 5 markets.

Let’s say you get results via mobile surveys – you’ve already narrowed down your sampling base to less than one third of the population. If you’re not calling them up, then you’re narrowing it further than those who can read and write, and if your survey was in English or French, its narrowed further to those educated in the language. By the time you actually get to the people responding to the survey, you’ve effectively sampled a tiny unrepresentative slice of the national population.

If I wanted to know what young tech-savvy men think, I’d never hesitate to use the results of a mobile survey. If I wished to have a better idea of lower income or female heads of households, or even those in regional towns and cities, I would be sceptical of any research conducted without human intervention. There’s also a high risk of surveys being filled in for the nominal cash or equivalent rewards. There isn’t enough quality consumer research available on the African consumer market that we can risk further muddying the waters like this.

On the other hand, as this StanChart price tracking system shows, there’s a lot of untapped potential for the use of phones in consumer market research across the entire continent. It just may not necessarily be something that works in exactly the same way in the OECD world.

Dynamic vs Static Metrics: Attributes for an African Measure of Competitiveness

“No Data Available Gray Area”

For analysts everywhere, the challenge of considering each economy in its own right seems to be far too much trouble, and so they tend towards sweeping generalizations which lump all metrics under one label – “Africa”. Some find even that far too exhausting and aggregate Africa along with Europe and the Middle East.

These regional groupings might be fine for executive Vice Presidents responsible for regional sales in a globe spanning multinational but for anyone seeking to assess and evaluate the emerging opportunities sparking interest in the continent, these aggregate metrics only serve to obfuscate and confuse the issue.

Static vs Dynamic

What distinguishes the majority of the emerging African economies from the more established ones is the prevalence of informal business activities, in addition to agriculture.

As I wrote previously, from my research on the underlying rhythms of the informal, there are two forms of income – one that is static, and thus predictable, like a regular monthly salary, and one that is dynamic i.e. volatile, such as the irregular cash flows that those in the informal sector tend to rely on for their household expenses. For many households, their cash flows have a combination of both forms – a predictable static paycheck from formal employment as well as bits and bobs from informal livelihood activities.

One can extrapolate the presence of this dynamism into the larger context of the entire operating environment – when there is a significant component that is irregular and unpredictable i.e the cash flows from the informal sector, and consider this as a key attribute that distinguishes these economies.

That is, instead of seeking metrics which maybe static, could we perhaps instead seek those that convey a measure of the dynamism that’s best characterized by the hustle of the informal marketplace?

Acceleration and Growth Trends

A great example is the rate of mobile phone penetration. Here is a snippet of data extracted from the GSMA’s statistics showing just a couple of years of change in phone penetration. Can we see how fast Ethiopia’s subscriber numbers grew, almost doubling in just 2 years?

Here’s another chart that truly visualizes this dynamic activity

And if this doesn’t suffice to convey the rapid pace of change happening on teh ground, then lets take a more detailed look at trends related to this mobile phone penetration activity.

The point is that measurements that are static, or slow to change over time, aren’t conveying dynamism of the African markets nor their opportunities. With such a low base of development, static measurements lead to African nations being ranked low on indices. But when we consider the rate of change or the acceleration of growth, we see entirely different trends than if we were looking at absolute numbers alone.

I chose these measures because mobile phones are rapidly evolving into powerful and portable computing devices, while the proliferation of mobile money solutions reek of business activity, transactions, payments and the flow of cash circulating in an economy.

In this table, for example, both Egypt and South Africa lead the pack in terms of size but are they the leaders in terms of opportunity for growth or ROI?

Nigeria’s e-commerce sales grew 400% in the same time period as it took for South Africa to double and for Egypt to grow by 80%. Ghana and Ethiopia grew 300% while Kenya came in close enough. Where would you place your bets for e-commerce investment?

Connectivity and Communications

The final attribute that emerges from the patterns I’ve seen in the ‘prepaid economy’ and the informal and rural markets is that of flexibility and facetime. This isn’t the post to get into those details, which are available on demand, but the point here is to look at local and social activities, fuelled by the phone, that are hallmarks of the increasingly connected emerging consumers.

Source: http://www.biztechafrica.com/article/mobile-africa-2015-african-phone-use-decoded/9962/

“You’ll find me on Facebook” is the de facto business card of the African informal sector and/or startup, SME, telco or bank. The ability to communicate, thus negotiate, is key to the flexibility of the informal, and the perceived intimacy of social media mimics the hyper-local, social trusted networks of transactional flow and culture. As I write these sentences, I realize that embedded within each is volumes of densely packed insights that I promise myself I’ll return to in subsequent posts and articles.

These are the trends that drive adoption of Uber in Lagos and Nairobi, and the emergence of local variations for informal services. These are also connected to increasing visibility of geek culture and tech savviness among that favourite metric of demographers – the African youth.

An African Index of Competitiveness

Biashara is teh Swahili word for business, and a better descriptor of the informal trade and business sectors, as it covers the smallest livelihood activity that every family must conduct. A Biashara Competitiveness Index that could reflect the true picture, incorporating as it would the dynamic aspect of the informal sector, one that has failed most other attempts to measure and define.

Are the metrics I’ve displayed necessarily the ones that would contribute to this index? I don’t know, at this point, but I do know that when we look at the opportunity space and overlook the changes taking place and the innovative solutions in industries like financial services, cross border transactions, e-commerce etc we’re missing out on the ground reality by relying on metrics more suited for formal and/or developed economies for comparison.

If we can find a way to convey the pace of change, the acceleration of innovation and the flux, to capture and communicate the dynamism of the operating environment, we’d be better able to assess which markets offer us the best opportunities or where future growth may lie than static indicators. I’ll continue working on this.

Human centered design for financial inclusion: Lessons from fieldwork in rural India, The Phillipines and Kenya

Introduction

Financial inclusion has become mainstream thinking in economic development. The vast majority of the unbanked live in the developing world, and a significant proportion of this population are rural residents. One can easily surmise, without recourse to statistics, that the bulk of the target audience for institutions seeking to offer them affordable and accessible financial services are part of the rural economy.

Now, the role of human centered design and its toolbox of methods and processes is being recognized as mission critical for successfully enabling these initiatives. So little is understood about the rural economy, particularly that of the developing world, that without the insights that design ethnography (also known as user research or more broadly, exploratory user research) among the end users can provide, barriers to adoption will remain unaddressed.

With this in mind, I thought to share lessons learnt during the past 6 years of experience in the application of human centered design processes in order to observe and understand household financial management behaviour in rural Africa and Asia.

Human Centered Design

Human centered design traditionally applies the insights from user research to inform and inspire the design of a product or service. At the Institute of Design, IIT Chicago, there were scores of methods and frameworks for every step of the entire process. In particular, the analysis and synthesis phase after fieldwork was completed was considered critical in identifying the actionable insights that would drive the conceptual design and subsequent development of solutions. All of this required that we frame the problem correctly at the very beginning, in order to ensure that our findings would be relevant and appropriate. Here’s a diagram that captures the entire concept:

Adapting human centered design for understanding rural household financial behaviour

Back in late 2008, when I first began framing the original problem statement for the iBoP Asia Project’s first Small Grants Competition, I quickly realized that the methods and tools as developed and disseminated in Chicago, could not be directly applied without adaptation to the distinctly different operating environment, and, the then unusual objectives of business model design.

Firstly, the tools and techniques for user research developed and refined in a first world sophisticated consumer market accustomed to decades of market research, telemarketing and surveys of all stripes wouldn’t work among lower income rural residents in a developing world context. They had little or no exposure to market research or design research of any sort, and surveys and questionnaires tended to imply government census takers or some kind of social study by an NGO. After all, it is only now that we are taking the “financially excluded” seriously as potential customers with wants and needs in their own right.

Secondly, back then, nobody had yet applied human centered design methods for intangible outcomes such as insights on household financial behaviour or the conceptual design of a payment plan for a community. User research conducted as part of the human centered design process was for consumer facing client companies looking to improve existing products or develop new ones i.e. very tangible outcomes. My research question was:

What insights can we derive from observing and understanding how those at the BoP currently manage their household budgets to inspire new transaction models or pricing strategies for businesses wishing to serve the poor more effectively, yet profitably?

Thus, I found myself not only having to adapt the methods and tools available to me, but also develop frameworks to sample a representative segment of the rural economy given the conditions and criteria of the operating environment. This I will share now for everyone else who will now be using the human centered design approach for financial inclusion.

Framing the problem correctly

This was the most important element in ensuring the successful outcome. Tina Seelig has written on how REframing a problem can unlock innovation, a valuable insight when you’re already immersed in your own environment like a fish in water. But when we step outside of our accustomed operating environment to one which is dramatically different – a poor rural region for example, we can so often be overwhelmed by the sensory overload that we are unable to contextualize the challenge from the end user’s perspective. We’re too busy noticing all the differences and unable to distinguish the important from the mundane or identify macro patterns of behaviour because we are distracted by the minutiae of daily life.

The impetus for this line of research came from observing the success of the prepaid business model as mobile phone sales took off across the developing world. So my initial problem statement had been “What makes prepaid mobile airtime work so well for this demographic and what can we learn from this successful adoption to inspire business models and payment plans for other products and services?”

That emphasis on the mobile phone and its attendant business model would have narrowed the focus of my research and thus, influenced my questionnaire and observations. On the other hand, by shifting the focus away from what interested me, and broadening it to encompass the challenges of daily life, I would be able to perceive the entire context within which any particular business model or payment plan worked. That is, I took a step back from just the mobile phone or any one particular payment plan to understand the rhythm and the patterns of the rural economy. I framed the research as follows:

The focus of our exploratory and user research in the field will be to understand the challenge of planning household expenses and budgeting when incomes are mostly irregular and unpredictable.

This allowed me look at the larger patterns at play in the rural economy and as I was find out later, provided a foundation for understanding the cash based informal sector prevalent in both urban and rural regions of the developing world. That is, it formed the basis for understanding what makes the informal economy tick, something that I wouldn’t have been able to do if I’d kept the original focus as narrow as why prepaid airtime enabled the rapid adoption of mobile phones among the lower income demographic.

Takeaway for framing the design research problem statement

When you approach your client’s particular interest area in the broad space of financial inclusion, don’t just focus on their specific interests without considering the entire ecosystem within which the intended produce or service will reside.*

Rapid prototyping to test research protocol and questionnaire

The beauty of the human centered design is that nothing is expected to work the first time its built. Prototyping and refining the design based on user feedback and observation is embedded in the iterative nature of the process. This is also part of design thinking – the willingness to experiment to see what works, usually with the participation of the end users.

Thus, when I first set out to use design methods in this wholly new way (seeking to understand household financial management among the rural poor), I insisted on a ‘prototype’ location first. This allowed me to test the questionnaire – it was completely thrown out right after the very first attempt to interview someone – as well as develop the framework for sampling uncertainty in the informal sector.

Don’t imagine that your carefully prepared questionnaire and the rest of your research protocol will hold up in the field. Be prepared to evolve it in order to see what works. That’s why its so important to frame the problem statement first so that you know what you’re trying to understand. We’re talking about sensitive topics when researching for financial inclusion, and our goal should be tread respectfully towards greater understanding rather than rigidly following research protocol.

User profile identification matrix for sampling a representative pool

Design ethnography aims to gather an in-depth understanding of human behavior and the reasons that govern such behavior. The qualitative method investigates the why and how of decision making, not just what, where, when. Hence, smaller but focused and representative samples are more often needed, rather than large random samples.

Since the object was to understand how those on irregular incomes planned and managed their household expenses, a variety of claimed income sources such as farming, shopkeeping, job or minicab driving was deemed important to be identified in each location.

In order to ensure that the sample best represented the local context and situation, a qualifying chart was developed ad hoc in the prototype location (India) as a method to approximately evaluate an individual’s ability to predict the timing and amount of their income, and thus plan their expenses.

This found to be useful in ensuring that the widest possible variety of local influences on cash flow were represented in the sample pool, not merely the majority of the population who were farmers, all of whose fields of wheat or rice would tend to ripen for harvest around the same time.

For example, in the Philippines, the representative sample pool, by primary stated source of income, included a rice farmer, a minicab owner/operator, a sari sari shop owner, a door to door frozen food seller and a furniture craftsman with his own workshop.

It was also ensured that the range of remittances (from zero to only for savings) received by the individuals was also varied. Individuals with full-time jobs were not considered nor were those whose sole source of income was remittence from abroad.

Takeaway for developing your own matrix for sampling the local populace

This chart formed the basis for sampling across various income streams. The employed have a regular salary, they are able to say with accuracy exactly how much money to expect and on which day. The odd jobs labourer, at the other end of the spectrum, cannot predict if he will get work on any particular day nor how much work. The farmer (generalized here) is able to estimate approximately when the harvest will be ready for sale and its value, though naturally not as accurately as a regular paycheck.

If you are only looking at farmers’ incomes then consider a spread across cash crops, size of harvest, crop mix and produce sales patterns. There are high potential farms and low potential ones. The idea is not to end up with your entire pool of people with similar patterns of cash flow. If you’re looking at a village or rural population cluster, consider agribusiness services such as shopkeepers and transporters, as well as other service providers such as water delivery, small kiosk, market traders etc.

The reason for this is due to the variance in people’s ability to plan for savings, loans, mortgages, credit or other financial products based on their ability to predict their cash flow. The more uncertain your income stream, the more risk averse you’re likely to be.

Locations in country

Choosing locations to sample depends on the aim of the design research study – are you looking at the entire country? Or just one particular region? Based on geography, different parts of the country may have more or less food security, so again it makes sense to sample from at least two if not three distinctly different areas based on their economic standing.

From the perspective of financial inclusion, it doesn’t make sense to only look at two similar economic regions with cash crops, unless your study’s focus is a middle or higher income level demographic.You may also wish to consider a spread of profiles based on their distance to the nearest market town or financial services institution. Patterns of behaviour will differ based on time and money it takes to travel. For instance, even if your income streams gave you the confidence to consider a loan, the cost of travel may not make it worth the effort.

Final thoughts

The informal and rural economies are far more sophisticated in their financial management than we are able to perceive in the first instance. Designing solutions that work with the rhythms of the natural seasonality are more likely to be adopted than those which impose calender schedules. Negotiable flexibility and trust based webs of cooperation are part and parcel of the hyper local rural economies. How can we retain these pillars of community life and resilience in the face of adversity and uncertainty even as we seek to include the marginalized with our modern tools and technologies?

* See the problems with introducing Google’s Beba Pay design without taking entire ecosystem into consideration

Reflecting on The Informal Economy, October 2012

John Keith Hart, who first saw the economic activity of the “unemployed” in Accra, Ghana back in the beginning of the 1970’s, almost exactly 40 years ago, opened the symposium with the statement that the informal economy had gone mainstream. After all, he said, here was a gathering of folks from around the world, ready to discuss a concept he’d observed and named in some dusty research paper from so long ago.

Meeting him was the highlight of the day for me. Having him come up to me after my little talk on the principle of flexibility, to say that he’d appreciated my insights, was the icing and the cherry on the cake. It makes all the hard work worth the while when you learn that you’re on the right track and not simply on a wild goose chase of speculation. Thank you, Keith Hart, for giving me that extra bit of encouragement.

From the first panel, Richard Tyson’s presentation on the dark side of the informal economy, from Somalian pirates to Sahelian terrorist networks, made a big impact. His key point, however, was that this particular flavour of the complex adaptive system that is our global worldview/economy is out of date now and very badly needs a refresh in order for more accurate responses to the challenges ahead.

From the second panel on the future of money, I was struck by Ignacio Mas’ presentation which focused on disabusing us of the assumptions made on the role of mobile money within the informal economy and how little of a real impact it has made beyond the social network of the individual in areas such as financial inclusion or small business.

And finally, the last panel, where it was Timothy Brown of the Shanzai blog who opened my eyes to the real thinking behind the business models of what we tend to assume as simply “cheap Chinese fakes”.

Finally, all the food for thought provided by the myriads of conversations with old friends and new like Cordy Swope, Ben Lyon, Scott Smith, Steve Daniels, Aldo de Jong, and John Thackara himself.

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.

Senegalese research on innovation processes in their informal ICT sector

I came across some excellent research by Dr Almamy Konte and Mariama Ndong of Senegal. While I’m sure the original working paper in French must be far better than this drafted English translation, their key points are nonetheless something to make us sit up and listen, particularly with regards to innovation in the informal economy.

Research has shown that the informal sector of ICT is a sector that has recently developed (since 2000). This sector has evolved to meet the specific needs of the ICT society. Coping mechanisms in this sector spend by taking into account the social and economic populations.

Taking into account these social realities is the basis innovations noted in the sector. These innovations (social innovation, organizational innovation, and marketing innovation) are a reflection of the Senegalese society and its organization. These innovations are based on values and thus Senegalese distributive logic versus the logic of profit prevails in the capitalist system. ~ from their abstract

They have found that the innovations observed among the informal ICT sector (covering all aspects of information and communication technology such as the repair and repurposing of old equipment, sales of new and refurbished including scratch cards and accessories etc) are those that have emerged in response to cultural and social needs inherent in Senegalese society and many of the core values of the businessmen reflect this localization.

A snippet from page 10:

In Senegal, the informal sector provides enormous potential and capacity for innovation that justifies his place in the Senegalese economy. The emphasis is on using knowledge rather than the production of knowledge. Innovation has always been viewed as a transgressive action individually or in groups to improve unsatisfactory situations, or at least solve problems.

However, innovation is not a simple problem solving but it contains within itself the seeds of creativity and originality, it acts on the margins of freedom of the actors when dealing with operations increasingly demanding control (CROS, 2007, 9). Any characteristic of the informal sector in Senegal who works in the “lack of structure”, but who is under enormous pressure and intense competition in the modern sector.

Innovation is meeting a need (real or potential), a market and workable solutions. It is important to link the needs to the requirements because the informal sector in Senegal follows the demand and adapts itself. It has a great capacity for innovation and responsiveness that the modern sector itself has not.

I have highlighted the sentences that stood out for me – while I had not been able to comprehensively address this topic as well as the authors have managed to do – it was back in the Autumn of 2010 that we’d conducted a field study among the jua kali workers in Kenya to take a closer look at innovation under conditions of scarcity among the informal manufacturers and fabricators based on the same logic.

That here, the informal sector’s responsiveness to customer needs was of a level entirely different to that of the formal industry – that their inventiveness and ingenuity was partly a demonstration of their ability to make and offer for sale exactly what their market wanted. There was little or no scope for errors in an environment of resource scarcity and irregular incomes. Products sold were incomes earned, a direct correlation that Konte and Ndong observed as well:

we try to show that the innovational act in this area is beyond the theories of innovation. Indeed, here the imaginative character of the actor is based on a sense of survival. With a highly developed competition, the human being must be creative and resourceful to get a place in the economic market.

While the PDF as a whole is a treasure trove on the informal ICT sector in Senegal and related literature, this last part from their sampling exercise did also stand out for me. It is the identification of the core values that helped increase their revenues, by the participants of the study, that is the informal ICT business owners:

Social values that contribute most to the increase in turnover of UPI are honesty (Jub ak ngor), courage (Diom), solidarity (ndimbaleunté) and hospitality (téranga). Indeed, the arguments advanced by respondents in the UPI to justify the choice of social values are numerous.

Honesty for these IPU (Informal Production Unit) respondents is the value that leads to success. It helps to establish trust, to secure and retain customers. An insured customer always comes back and you can even get other customers.

Courage is an essential value for a person who seeks a horizon. For them person must be selfless in order to survive in this business. It is not easy to get up early and be present every day for a long duration (12 years for some). Thus, only the courage and perseverance can help them to move forward.

Solidarity for them is a national value, Senegalese, because Senegalese feel affection for helping each other. It serves to reinforce the links in the sense that these UPI are family so everything happens in families. This solidarity is reflected in contributions, loans among themselves and participation in happy events as unfortunate. Furthermore, this solidarity allows IPU meets their limits by complementarily. Solidarity also fixes and maintains customers (make loans). This social value is often instilled in them their religious associations(Dahira).

Hospitality is value of any good Senegalese in their opinion; some of them had to receive it in their career. A welcome to the customer saves his confidence by putting them at ease and that sometimes happens with a smile, buying fruit drinks to customers. Therefore, a client welcomed, always returns.

Women Together: Incentivising Savings

Prema Salgaonkar has been working with Mahila Milan for over 20 years and now heads a group of local facilitators of a daily savings scheme for Dharavi residents. Mahila Milan means “women together” and provides a decentralised vehicle for the empowerment of women via leadership roles and advocacy alongside its pivotal daily savings collection. Prema visits around 450 households each day, of which a third will deposit anything between Rs 5 to 200, with almost all households banking something each week. Such a savings mechanism is ideally suited to the irregular nature of earnings at the base of the pyramid which we have been widely discussing here.

The deposits from a number of collectives are formally banked but rather than paying interest Mahila Milan provides community and emergency support in a transparent manner. For many, without this daily visit which both incentivises and protects savings, surplus cash would not even be conceived of – let alone put aside. Savings are readily accessible and members of the scheme can apply for credit if required. If loans are requested the local Mahila Milan leaders will assess the need and ability to repay, possibly consulting with neighbours as to the borrower’s situation. Repayment terms are negotiated on a case-by-case basis around the borrower’s earning patterns, with consideration given to the maintenance of some savings alongside repayments. Loans – usually for up to Rs 500 at 2% interest – have helped with school fees, medical bills and entrepreneurial start-ups from tailoring services to coconut vending.

Beginning in Mumbai in the eighties, initially Mahila Milan had many more illiterate members and developed a system whereby coloured squares of paper would be exchanged for deposits and kept by the saving member in a plastic bag: red for one rupee, yellow for two, green for three and so on. This way members could always check how much money they had access to and plan accordingly. Now this system has been largely disbanded and replaced with passbooks which members were proud to show us and explain the context of various peaks in savings and withdrawal. Currently Mahila Milan constitutes a networked federation of nationwide woman’s collectives encompassing 60,000 women

The system is not just about collecting money but also about daily contact which deepens the understanding of various issues facing Dharavi residents. Contributing to a consensus of community priorities, this information is often passed on to other support groups in the area such as the local community council (panchayat) plus used to inform a number of Mahila Milan initiatives. One of our informants (above) who used the scheme conveyed that even on the days when she has nothing to deposit that its was reassuring to be visited by a trusted outsider with sound financial knowledge and that she sometimes used the opportunity to discuss issues such as how rising food prices were affecting those beyond her own neighbourhood. She notes that watching her savings grow has allowed her to start imagining and planning a better future for her family – with her mother and sister also active members in the scheme.

We were told of numerous success stories like the woman who saved towards buying a second-hand sewing machine which allowed her daughter to leave a gruelling job at a local garment factory to start her own now-flourishing dressmaking business. Another woman with six children and an alcoholic husband saved Rs 5-10 a day till she had Rs 5000 with which she bought a machine to process heavy duty plastic for recycling and now boasts a much higher standard of living for herself and her family. Others access their savings on a more short term basis to counter income fluctuations – still signalling a heightened life standard. And significantly most continue with their savings schemes while servicing their loans.

Micro-credit has been commanding a fair amount of attention surrounding poverty alleviation of late – including voices of caution as have featured on blog posts below. Mahila Milan seeks to strengthen financial assets primarily through savings-led services with micro-loans being offered as a secondary and complimentary service. Last year’s brief article Putting the Microsavings in Microfinance from the New York Times makes the highly relevant point that “only some poor people will benefit from the chance to borrow, but almost all will benefit from the chance to save.”

[Check out more photos from fieldwork at Dharavi.]