Posts Tagged ‘social’

Lessons for Formal Finance from Informal financial services

 

On one of my many field explorations on rural financial services,  I found out, that for one mama biashara, as soon as payment checks in, she withdraws all her funds from her local coffee SACCO account, and spreads it out via micro-deposits across her more than 5 local informal savings groups (from right to left on diagram).

 

Choice of Informal Formal financial services – continuum

 

A report conducted across East Africa using data from [Finaccess, Fin survey – ’09,’12,’13] Kenya, Uganda, Tanzania, Burundi and Rwanda, found that on average, 60% of survey participants saved with informal groups and places – ASCAs, ROSCA, SECRET place

 

“Determinants of Household Savings Mobilization across EAC Countries: An Exploratory Analysis.”

 

Even M-Shwari – “a new [mobile] banking platform that enables customers to save, earn interest, and access small amounts of credit instantly via their mobile phones”, on paper an ideal tool for banking the unbanked, faces the same challenge as per CGAP’s How M-Shwari Works: The Story So Far Report (pdf).

“The main competition to M-Shwari as a place to deposit and store money temporarily comes from informal savings groups and banks”

There is mounting evidence of widespread use of informal and semi-formal financial services, despite efforts to shift to digital financial services (DFS). While in formal circles they may be perceived as ‘a risky place to borrow/put your money’, based on evidence, there is an allure that does not readily lend itself to be seen. Often, what is lost in countless narratives, is the fact that before banks (B.B.), people weren’t necessarily unbanked per se. As creative social beings, they devised ways to meet typical banking functions  eg credit, saving, credit rating etc Not devoid of shortcomings, but filled a role all the same.

How, do they [informal financial services] compete so well with formal finance with nil marketing budgets?

 

Consider Financial Historical Data

In the formal world of finance, any unrecorded financial history before Banks or Telcos proprietary mobile phone spending history is non-existent. Mobile phone history instead, is preferred as a surrogate for credit history. In turn, the bank provider

“partners with Safaricom (telcos) to use one’s mobile phone usage data and Mpesa transaction data as a credit score for how much in instant loans you qualify for”

Here, there is a rather obvious disconnect. For starters, majority of transactions in rural and informal economies (where the poor, unbanked and underbanked likely found) occur in cash – forms of savings, micro-loans and micro-transactions! Secondly, rich peer to peer (P2P), business to consumer (B2C) and business to business (B2B) credit exchanges, occur frequently in this domain, based on social ties, trust and familiarity in rural and informal economy transactions. Both inherently valuable credit histories.

Yet, all these financial exchanges that take place in these groups and the informal cash intensive economy are not considered as valid credit history.  If we consider mama biashara’s alternatives (as per my formal -informal continuum diagram above), for emergencies, she is likely to turn to her informal devices for plugging her short term credit needs – P2P credit, B2B credit, Business Self Help group etc than say a bank. As a function of trust therefore, these informal devices, rank favorably in her implicit trust continuum scale seen here.

 

Trust Continuum – informal and formal financial services

 

Takeaways from Informal

If by their own admission, telcos and banks admit informal savings groups are their biggest competitors, shouldn’t the first step be to understand the competition ?

by Damien Newman https://revisionlab.wordpress.com/that-squiggle-of-the-design-process/

Cash intensive rural and informal domains are a rich data mine semblance of spaghetti balls, unlike digital data that lends itself to direct measurement. The nature of this data is more qualitative – the kind collected from exploratory research, people, immersion, observing behavior, cues picked up from dialogues, and time spent interacting in environments. While we focus on readily measurable metrics, we are missing out on an even bigger source.

 

 

Glossary:
ASCA –        Accumulating Savings and Credit Associations
ROSCA –     Rotating Savings and Credit Association
SHG –          Self-help group of mamas with common business interest
Chama –      Informal cooperative society used to pool and invest savings
P2P credit –     peer to peer credit eg mama to mama
B2C credit –     business to consumer credit eg mama to her customers
B2B credit –     business to business credit eg a supplier to mama
MFI –          Micro Finance institution
SACCO –     Savings and Credit Cooperative

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”

Importance and value of Africa’s informal food markets

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

There’s a new book released by the International Livestock Research Institute (ILRI) and partners — Food Safety and Informal Markets: Animal Products in Sub-Saharan Africa—that probes the complicated world of traditional or ‘informal’ markets in livestock products. Here are some unexpectedly juicy findings:

Research by ILRI and partners shows that in most developing countries, more than 80 per cent of livestock product purchases occur through informal markets — and in places where there is no ‘formal’ alternative, like a western-style supermarket, close at hand. And the studies find that this situation is unlikely to change for decades to come. Also, even where supermarkets are an option, studies in East and Southern Africa have found that, due to a poorly patrolled chain of custody between producer and seller, milk and meat sold in supermarkets may pose a greater health threat than what is sold in traditional markets.

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Informal & Social Measures in the Kadogo Economy (Photo Credit: Niti Bhan)

Moreover, small producers have many attractions for poor consumers. They are typically within walking distance for people who lack cars and they offer the opportunity to purchase fresh food in small amounts — part of what is known in East Africa as the ‘kadogo’ economy. (Kadogo is street slang for ‘small.’) In addition, many sellers in traditional markets will extend credit and typically offer the traditional foods their customers prefer.

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Uchumi Supermarket, Ngong Road, Nairobi, Kenya (Photo Credit: Niti Bhan)

Many policymakers mistakenly believe that food-borne illness in developing regions will rapidly decline as the modernization or ‘supermarketization’ of food sales steadily supplants informal markets. But the ILRI studies show that Africa’s supermarket food is not necessarily safer than food in informal markets and also that informal markets are unlikely to disappear — and could even become stronger — in the coming decades.

Indeed, the research shows that consumers prefer informal to formal markets, and not just for their lower prices, but also because traditional markets tend to sell fresher food. They also sell local products and breeds, which many consumers continue to prefer — and those preferences seem to intensify as incomes rise. For example, in Africa and Southeast Asia, consumers often prefer local chicken breeds over cheaper imported breeds.

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Informal markets are growing, not shrinking, across the developing world and in many ways mirror the “locavore” trend occurring in wealthy countries’, said Grace.If we are going to improve food safety in these markets, we need policies that are guided by an understanding of producer and consumer behaviour, local diets and customs, and interventions that can reduce illness without imperilling food security or increasing poverty.’

 A deeper understanding of the entire value web (chain doesn’t apply as the rural ecosystem is as unstructured and informal as the markets) of  these informal markets for meat, milk, vegetables and other foodstuffs will offer greater value than towards informing policy alone.

Informal retail is expected to grow, and “supermarketization” will neither come fast enough to change this any time soon, nor be able to replace the complex role the bazaar plays in both rural and urban contexts. This is worth remembering for consumer facing brands, especially in the FMCG sector, as well.

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?

More or Less: the flexibility of the informal

One of the things that stood out for me during the recent household consumer behaviour study was the lack of weights and measurements used to sell foodstuffs and commodities in the market. There were no weighing scales at all, unless they themselves were for sale. Instead, some form of “socially accepted” measure was used to display various quantities and their price.

Shelled green peas can be purchased by quantity displayed, and similar containers can be seen for dried fish and ground coffee as well. When asked, the shopkeeper may refer to each measure by “weight”, saying this is “half a kilo” or that is a quarter but in reality, these are simply approximations.

The dried fish has been more generously piled than the shelled peas, and this too is an interesting variance – primarily across product category rather than different shops. In a market, shopkeepers with similar products act like a cartel and offer similar quantities for similar prices (unless bargaining brings down the amount or a lagniappe is thrown in.)

Note how the ground coffee, which is slightly more expensive, is displayed in far small containers, catering to the purchasing power of the consumers frequenting the market.

This is called a ‘deben‘ and it is a standard measurement for charcoal across the entire country of Kenya. Prices naturally fluctuate between rural regions and city centers, but the container itself is ubiquitious though the actual amount piled on top might change according to the frugality of the seller.

This bagging was a surprise though, as I’d only seen it otherwise in rural Philippines (in informal markets, not supermarkets). This is not common.

These so called “social measurements” are intriguing to me. They are rough estimates and approximations and no two piles or containers will ever be alike, yet customers are quite willing for them to be priced the same. There is no pressure to measure exactly or purchase by weight of commodity, something so common in the wet markets of Asia. It seems to me there’s a link between this behaviour and the level of informality of the local market, as well as a greater willingness to accept that something might be “more or less” okay. How does this relate to local perceptions of time and money, the two key uncertainties in these challenging operating environments?

Your thoughts?

Published! Pathways Out of Poverty by iBoPAsia Project

Innovating with the BoP in Southeast Asia.

The iBoP Asia Project has published the complete set of small grants funding innovation projects for those at the Bottom of the Pyramid in the ASEAN region. One of the first projects to win the Small Grants competition in 2008 was The Prepaid Economy Project: Understanding BoP household financial management.