Posts Tagged ‘rural’

It’s way past the time to consider the Informal Economy as a distinct commercial environment

Brand stickers on avocados displayed for sale on a highway, Kenya. April 2013

Regardless of continent, it is now high time we accepted the informal economy (unformal or unrecognised or unorganized sectors) as a commercial operating environment in its own right.

The continued oversight is rapidly coalescing into a gaping void of hiccups and failures, by large companies, non profit institutions, and startups, alike. This issue goes far beyond “understanding the informal” or recognizing the fulltime professional status of the service providers that I’ve written about before.

It’s about the problems created by continuing to assume every individual is poverty stricken and struggling to make a livelihood simply because a significant portion of their commercial activity operates outside what is rarely defined but is assumed to be the formal, structured economy held up as the pinnacle of economic development.

It’s why academics can barely conceal their flabbergasted surprise that a person has a better quality of life, and a reasonably viable revenue stream in [gasp] informal market trading, or even agricultural work.

It’s why @pesa_africa questions the continued transplantation of e-commerce business models directly from Seattle to subSahara given that they’ve tended to wither on the vines.

It’s why market women and traders pay the price of daily harassment and abuse by those given authority over their peace of mind.

And, it’s also why the freshest produce gets to you first thing in the morning in Nairobi or Cotonou or Kinshasa.

This is not meant to be a paean to the hardworking women and men who keep the engines of commerce and trade humming in the harshest of environments with scarce resources and inadequate infrastructure.

It’s the first step in acknowledging yet another holdover from a colonial past that decades later still hampers and hinders the social and economic development that should have happened by now, by all rights.

It’s also the necessary counterpart to the recognition of agency required for design interventions to succeed once donor funding ends.

This theme is consistently covered in this blog in the category Biashara Economics and hashtag #biasharaeconomics

Creative ways to financial inclusion, inspired by observing practice

Needless to say, mobile money has been a wild success in scaling an expansive agent network for converting cash to e-money and enabling person to person money transfer. Speaking at a recent conference, John Staley, Chief Officer – Finance, Innovation and Technology at Equity Bank had this to say:

“We should move the conversation from mobile money to mobile financial services.”

Absolutely! My takeaway from his comment was ”how do we get there?”

You see, with a mobile phone in (almost) everyone’s pocket, coupled with ubiquitous mobile money, conventional wisdom quips “to each his own bank.” Building on this assumption, focus quickly shifts to tweaking mobile money functions and pushing mobile based financial products to market. While this strategy may work for affluent, educated urban consumers, already familiar with banking functions of a modern economy, is it a fit for others who do not meet these criteria?


Banking Outside the Box

Often cited as the ‘unbanked’, lower income segment groups found amongst rural and informal sector demographic, aren’t as helpless as we imagine them to be. In fact, they have devised creative ways to exercise parallel banking functions: group savings, insurance, social reputation based credit scoring and loan systems; mechanisms oblivious to outsiders and at times, even subject to misinterpretation.

One instance, from Kenya’s Kiambu County, in part rural part urban Ruiru, a young goat grazes idly, unmanned and tethered to a pivot stone. For the family that owns it, this is their way of saving; it costs little in terms of management and input, with a future expected value that can be reasonably estimated. This practice is not unique to East Africa, evident from similar field observations in rural parts of India and the Philippines.

“The comparative affordability of a calf is such that the value of the mature animal is considered a worthwhile return on investment. In an emergency, livestock is a walking fixed deposit, to be sold for ready cash.” – Niti Bhan

The way I see it, in order to succeed, financial inclusion efforts need to draw insights from the people it seeks to enable, be considerate of their culture, observe their behaviour and get a better sense of their environment. Like the domestication of animals common in rural, for example.

Which is why I was rather pleased when I came across this headline on an unconventional approach to credit, Ng’ombe loan; much closer to the realities of a rural operating environment in my opinion.

“[Murang’a] Youth will receive high-yielding, pregnant dairy cows on credit [from Muramati and Unaitas SACCO] and repay the loan through milk deliveries to processors.” – Business Daily

An expectant cow as the loan principal, with repayments priced in daily milk deliveries.


Putting People first

So how do mobile financial services fit into this picture? What will mobile financial services for the ‘unbanked’ look like in the future? Is mobile even a consideration for servicing the ‘unbanked’?  I won’t pretend to know.

One thing seems certain though, if the plan is to expand these services to our target audience, then just tweaking won’t cut it. It could be because the people involved are far removed from our daily experiences, interactions, notions and concepts of money or banks. Whatever the reason, when the customers are people, it behooves us to better understand their POV, even if seemingly unorthodox, so as to inform design of financial products – mobile or not.

The importance of the agent/customer relationship for successful financial inclusion

The role of agent networks in East Africa’s mobile money and mobile banking roll-outs is widely documented; as an intermediary, a kiosk exchange point – accepting deposits for e-money/ withdrawals for cash and usajili (registration).

“. . .as the first point of contact, human agents help bridge the gap between a high-tech service and low-literacy clients.” – CGAP

But, most research falls short of exploring the subject in its entirety, specifically, the relationship between customers and human agents  – a recent example is the just released Agent Network Accelerator Survey – Kenya Country Report 2014 by Helix Institute of Digital Finance. To sum it up, I would say it was a numbers driven top-down approach to the subject (most likely focusing on what is best for the service provider), that failed to explore the human touch-points that make mobile money relatable.

“A lot these findings, I’m noticing, do indeed do all the research, but leave their underlying assumptions on people unquestioned [. . .] researchers go in & see behaviour – the What & How – but assume a lot on the Why”@prepaid africa

As I see it, there is a subtly rich layer to the mobile money agent and client relationship that is readily observable in close knit communities; frequent micro-transactions lead to conversations beyond basic transactions, off-the-cuff inquiries, and thus reinforce continued trust. For people not well acquainted with the intricacies of mobile money, or tech for that matter, these human intermediaries – the agents, most of whom happen to be women – are your trusted guides to the technology and face of the service providers.

Which is why, this assumption in a post by Mondato, hit a nerve.

“In the long run, as more fully developed digital payments ecosystems develop, there will be less need for agents . . .”

When talking about Africa’s markets, in mobile financial services or whatever context, research reports which disregard the qualitative nuance of local, social and communal interaction, lead easily to such assumptions. The  Helix report for example, grouped agents into 2 categories: rural and urban. On the ground however, these are polar extremes on a scale. If we go by strict definitions, this frame of reference doesn’t translate on the ground ; more common is a mix of both, or peri-urban or even rural folk who commute to their place of work in peri-urban. Perhaps a measure of cash intensity or ‘unbanked-ness’ in immediate contexts makes for a better framing?

My point is, the agent – customer relationship on Moi Avenue in Nairobi’s CBD, is markedly different from Githurai’s packed informal market place despite both located in Nairobi. In this cash intensive ecosystem, in the thick of all the chaos characteristic of informal micro-economies, human agents sit right next to mama biashara and boda boda guys. Here is where, you are likely to find the unbanked, underbanked and lower income segments.

I can’t help but think there is a larger role for mobile money agents in financial inclusion; one that resonates with commonly observed themes in this segment – social groups, local, face to face, trust. Like Monica, a cyber cafe attendant in Maai Mahiu whose role in the local community extends beyond simply offering internet browsing services. Jan Chipchase aptly describes this as symbiotic : customers, agents and service provider.

“The careful use of real world analytics combined with contextual qualitative understanding has the opportunity to reveal not only what people are doing, but also the nuances of how and why . . . this in turn will lead to the next round of service innovation insights”

Loyalty cards to incentivitize vaccinations – service innovation from Kenya

Dr Benson Wamalwa displays the bar-coded vaccination card that tracks vaccinations and rewards mothers with discounts on farm products. PHOTO | DIANA NGILA

Dr Benson Wamalwa displays the bar-coded vaccination card that tracks vaccinations and rewards mothers with discounts on farm products. PHOTO | DIANA NGILA

We most commonly tend to associate loyalty cards with grocery shopping at our local supermarket chain – swiping the card for the occasional discount on milk or eggs.

Now this same concept is being used in an entirely different context in order to lower the barriers for rural Kenyan mums to invest in the time and effort required to vaccinate their babies.

From the rural economic perspective, Dr Wamalwa seems to have hit the nail on the head with identifying the pain points – that is, the actionable insights we seek from qualitative research among the target audience that helps inform and inspire the design of a new service or business model.

Dr Wamalwa noted that mothers are prudent with the way they use their resources— be it finances or time. He said majority of women come from low income settings where every shilling counts.

“A mother will therefore find it a waste of time to leave her part-time job and go to a clinic far away, then have no money for buying food to feed her family in the evening,” he told Digital Business.

The main goal of the innovation is to make mothers view vaccination as something worthwhile.

We wanted them to feel that they can gain something by taking their children to hospitals for all recommended immunisations.”

This digital innovation, whose pilot phase was funded by a Sh9 million ($100,000) seed grant from Canada, increased the uptake of vaccination services from 55 per cent to 95 per cent in Bungoma and TransNzoia counties where it was piloted and is still being used up to date.

In rural Africa, livestock and produce markets exemplify local, social, mobile ecosystem

Mama Mercy taking a call during our visit to her farm. Her new cow is brown & white. April 2013 Kenya

If we can find and support the key enablers of the shamba’s day to day needs, I believe we could assist with increasing the pace of market reach and spread (new market creation). I suspect that we will find patterns identifying these 4 or 5 key actors – a transport owner/manager; a reputable agrovet; something related to animal feed or health but a stall in the market run by an informal trader with a regular market town circuit; someone who overlaps showing up in livestock markets and produce markets (brokers? transporters? aggregators?) – and people matching this description will show up in most regional population centers.

The next question would be whether this “hyper local market” can be assisted by any technological intervention?

I remember discussing something like this with Erik Hersman about 5 years ago, maybe  6 – his words were hyper local and we were musing upon the commercial application of the Ushahidi engine as a hyper local classifieds a la what @chiefkariuki has already begun doing, btw of note.

What are our user interface design constraints, conditions and criteria?

Part 1: Why are we publishing our original research on rural economic behaviour in 5 parts online?

A recent article in The Economist on the economic value of owning cattle in rural India made me to realize just how little is understood about the rural economy.  Here’s a snippet:

That is because most people find spending easier than saving. Immediate pleasures are easier to grasp than future joys—and so people make spending decisions that they later regret. Economists refer to this as “myopia”. Cows force people not to be myopic. Compared with money held in savings accounts, cattle are illiquid assets. Taking cash from a cow is harder than taking money from an account. As a result, temptation spending is trickier.

The paper has implications for poverty-alleviation strategies and for financial services in developing countries. Aid programmes that try to reduce poverty by distributing livestock may be ineffective at raising incomes, if the returns from owning them are so poor. If cows are used as a means of saving, the spread of mobile banking in places like India will provide another, better option. Even then the problem of temptation spending arises.

This discussion makes quite clear that the underlying assumptions being made by the learned authors of this study are not only implicitly wrong but based on their own perspective of life in the concrete jungle with access to easy credit enabling impulse purchases and conspicuous consumption. Milk, for their morning cereal, tends to come from a tetrapak in the extra large refrigerator and electricity provides the means to warm it.

Since the Prepaid Economy project has been immersed in rural household economic behaviour for some 5 years now, perhaps its time to share the basis for better understanding the why behind the what that is being so fervently discussed. The final report as submitted to the funders of the original fieldwork will be shared in 3 parts:

1. The Abstract – scroll down after the cow for this extract.
2. The Observations
3. The Synthesis and Insights
4. The visual documentary of the above with annotations.
and finally
5. My thoughts on the role of the cow in the rural economy, supported by references to research previously linked to on this blog as well as additional fieldwork in Kenya.

Buffalo, Village Rewal, Rajasthan, January 2009 (Photo: Goverdhan Meena)

Buffalo, Village Rewal, Rajasthan, January 2009 (Photo: Goverdhan* Meena)

The challenge faced by 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.

*It just struck me that even the name of my local guide in Rajasthan was Goverdhan, which means “to increase the wealth (value creation) of a cow”.

Reflecting on this blog’s genesis after 5 years

I started this blog in late December 2008, in earnest and every day during the first prototype fieldwork for The Prepaid Economy project, one of the iBoP Asia Project’s first batch of Small Grant winners from the ASEAN region. For the first 5 months of 2009, this blog was on the mainpage of my website as I felt my entire enterprise – Emerging Futures Lab – was being entirely supported by this grant.

It was only in April 2009 that I began my next phase in advancing my experiential knowledge of preparing, planning and programming research using design ethnography tools from the field of user centered design (UCD) when I moved to Helsinki, Finland on a project with the then Helsinki School of Economics (HSE) and now a part of Aalto University. This university is the result of an academe-led innovative merger of the independent schools of business, design and engineering (science) which was manifest tangibly in the form of an experimental platform for interdisciplinary innovation research and pedagogy known to all as the Design Factory.

Everything that I came to understand about the patterns at play in the informal rural economies of the developing world was in one way due to conversations and whiteboarding exercises with the wide variety of people accessible to one in the factory. It was only later that it received the formal name of Aalto Design Factory, for most of its first year of existence it was simply “the df” or “df” to all of us early adopters and believers in removal of barriers and silos to effective communication, cooperation and collaboration.

In retrospect, I could have analysed a lot more with the rich deep dive of data I had gathered after my immersion in the field. I had spent 10 days off the www in a rice growing barangay in Iloilo, The Philippines and a similar amount of time but less direct inhome experience in rural Rajasthan, India. On the other hand, in the numerous projects since then, the layers of understanding the balance of flow – the give and take of transactions of value between trusted referrals, juggling the factors of “time” and “money” in order to smoothen the volatility between in the incoming cash and outgoing for daily needs and other expenses – have only deepened in nuance and understanding.

This research path was set upon in late 2008 – just around now, in fact since the deadline for applying for the iBoP/IDRC’s Small Grant was the first week of September. It has been 5 full years on wondering about the inherent conflict between periodic, calender based payment plans, monthly subscriptions and other regular inflows of cash, often paid as a bill of unknown amount due in the near future or as hire purchase payments AND the irregular and sometime unpredictable income streams from a variety of sources relied upon by the vast majority of the world’s households for managing their household finances.

Why the prepaid business model works so well for the informal economy, the base or bottom of the pyramid (BoP) and the seasonal ebbs and flows of the rural economy can all be explained by simply pointing out the fact that this pay as you go system hands over the control over amount to be paid and date it is due to the end user – something that Donald Norman, father of user centered design (UCD) has also pointed out as a factor in user satisfaction with a product and its design.

About 12 months ago I completed fieldwork that took my original primary research on the prepaid economy and its decision making behaviour in order to better inform business models and payment plans and went a few steps further into comparative analysis of experimental results. I was able to compare the sales results of a product line across 4 different variations of payment plans being pilot tested among rural offgrid residents in 2 East Africa Community countries.

This was almost as good as a direct test of the original hypothesis that the greater the span of control over time (duration, frequency, periodicity) and money (amount, cash or kind) a business model offered a member of the informal economy, the better the long term chances of sustaining the enterprise. In fact, I was able to add one more factor to the equational mix which was not considered when I first began this work.

This is what I call “Face time” or combination of social capital, daily proximity and interpersonal relational mix – that which allows you to negotiate on terms of payment such as time and amount with someone to whom you owe this cash or payment and the limits of this negotiation are bounded by the limits of trust between the two of you.

Face time  and Flexibility were the two main attributes of the 4 business models being pilot tested that seemed to capture the range of responses, performance and feedback, yet allow us to distinguish what was different in each model, thus what might have influenced a change.

None of this research was quantitative but completely qualitative groundclearing work to discover insights that would inform more relevant and appropriate business models and other market entry tactics to maximize, within constraints, the adoption rate of innovation (a new venture, a service or business model, an invention) among the population without regular paychecks and easy access to consumer credit. This work has also validated my hypothesis that the tools from user centered design could be used to advantage to grasp and make sense of more complex and wicked problems than could be understood by simple numbers alone.  The methodology being part of product development process also allows for company’s to reach a faster path to market with an innovative product or service or revenue stream in entirety.

The original fieldwork in agriculture dependent rural economies in ASEAN and South Asia and the early work in Africa, all looked at the bulk of such a population, the lower income segments at the BoP. But now with the rapidly emerging global middle classes i.e. those displaying regular patterns of consumption, this knowledge gained can also help assess the worldview and consumer mindset of the emerging consumer markets of sub Saharan Africa.

There is so much yet to be learnt and every single actor is breaking new ground, whether its Econet Wireless and MKopa with their airtime or mobile money pay as you go solar lights and charging or whether its every social enterprise trying to sell a cookstove, a lantern or a water pump to the subsistence farmer. We need to document every instance of success so that patterns of what worked might be of help to better refine and improve our models for market creation at the very end of the global value chain.

Some concerns about ‘pay as you go’ lighting solutions in rural markets

Daily chores, rural Kenya 7 February 2012

Having just got back yesterday after immersion in an arid part of rural Kenya, it struck me after coming across yet another solar lighting solution with a pay as you go or prepaid business model that this may become a barrier for many subsistence farmers, most of whom are off the grid and so, are a potential market for such solutions.

Why, when people are already accustomed to small top up amounts for airtime or for regularly charging their phone?

First, because the phone is the asset. Owned in full by the customer. Whereas, I am not yet clear whether the plethora of lights available for use with a mobile payment will eventually belong to the customer or not, and when.

Second, those who live on their land relying on farming to support their families tend to minimize their need for cash money for a variety of reasons. Often they can go without if they must as staples are stored after harvest and barest minimum for survival is usually assured – even if the phone goes uncharged or topped up.

Third, most mobile money transfer systems such as Safaricom’s MPesa, have a fixed percentage of commision on each transfer regardless of amount. This can hurt at the amounts that the majority tend to top up (for example it costs about 20 shillings to charge your mobile phone or your average top up might also be that amount) and I’m sure that the whole benefit of pay as you go business models is the small amount each time. To give context, see the photograph above of the lady of the house walking an hour or two with 20 litres (20 kg) of water in order to save 20 shillings paid to the water seller.

I have felt that this business model was important and critical but now I question it. I have been tracking such models for around 3 years now and can see its value but at the same time, I have begun questioning whether it can be applied in blanket form for any and every thing. Sort of like what happened with sachets – shampoo worked and so did margarine. Next thing you know everything was in a sachet. Not everything worked, there’s research to that effect out there from the Indian Institute of Management, Ahmedabad for those interested.

After this trip, it struck me that people like reaching goals and owning visible assets – be it a cow, a goat or a solar light. Layaway plans are extremely popular – they allow for the same flexibility of putting small bits of cash against a future asset but then, some day, you get to own it. The lack of clarity around when these customers will own all these solar products is disturbing. Why isn’t it being mentioned clearly? Where are the terms and conditions?

Pay as you go may make sense in the context of future ownership but I’m still curious to know how it will all work out in the context of usage, for you can do without your phone but you cannot do without your light at night and early in the morning. Many have said that if they had to choose what to charge first with solar or with available cash, they’d pick light over a phone. Will these products and their programs create such tradeoffs in decision making for their customers?

Convenience as a service

Shredded cabbage for sale, Wote, Kenya 3rd February 2012

Convenience can mean different things to the household consumer, depending on their location. In urban Chicago, its stocking up the freezer and pantry with a trip to a megastore like Costco while in Singapore it might be the ubiquitous neighbourhood hawker stand where rice, meat, two veg can be had for as little as $2.50 per person. Here in the mostly rural, arid Makueni district of Kenya where the concept of leftovers is moot and only bars and restaurants tend to have a refrigerator, convenience means stopping by the cabbage lady for just enough for tonight’s meal.

Kerosene sales, Wote, Kenya 4th Feb 2012

Purchasing patterns observed previously among those on irregular income streams have been clustered into  four major categories:
1. Prepaid or pay as you go
2. Bulk purchases of non perishables
3. Sachetization or as its called here in Kenya, kadogo
4. On demand, for immediate use

The shredded cabbage, being sold by weight or “amount” (half a cabbage or quarter) is a clear example of the last pattern and common across the world while the way kerosene is being sold could be said to be closer to a ‘sachet’ or small purchase as it tends not to be a daily or on demand purchase.

Interestingly, here I saw bulk purchasing for firewood or charcoal rather than foodgrains since most families have some land where they grow maize.  The maize is first and foremost for household use and only the surplus is sold.

So why have I called this ‘convenience as a service’?

There is a premium one is paying for the convenience – whether its the shredding being done for you or the difference in price of kerosene between the town and the village.  Someone has saved you the time and effort thus it costs money. There’s an entire economy around water and its supply chain that I’ll be taking a closer look in a forthcoming post.

Immersion in rural Kenya

Next week's office

We start the immersion phase of our project tomorrow and leave for our first location in rural Kenya today. Our focus is to better understand household consumer behaviour and our methodology is inspired by the early stage of the human centered design process.

Ukambani has been the traditional homeland of the Kamba people for at least the last four or five centuries. Although oral history acknowledges that the Kamba came from the south, in the region of Mount Kilimanjaro, the creation myth which is most popularly cited places their origins in the heart of Ukambani: Mulungu (God), who created the universe, also created the first Kamba man and woman, and placed them on top of Mount Nzaui in the fertile Mbooni Hills (roughly 20km north of Emali).

We’ll be based in the market town of Wote, capital of Makueni district.