Informal payment plans offer flexibility and convenience

By | February 18, 2012

Rural consumer electronics shop, Kenya 16 Feb 2012

Rural electronics shops in the North Meru region of Kenya are full of colour television sets, home stereos and DVD players as increasing electrification of smaller and smaller market towns takes place. How do aspiring customers pay for these high value items on their variable income streams?

Aspirational ownership and tangible evidence of savings

Since shop owners tend to know the great majority of their customers as members of the local community, as neighbours and friends, and are aware of the patterns of income flow in the local economy, they have evolved an informal layaway plan for these high ticket items.

Customers choose what they wish to purchase, not simply the brand, model or device but also the exact specific item in the store. While each shopkeeper has his or her own method of record keeping, the general pattern is to put the future owner’s name on the product, the total cost and start a page in a ledger to track payments made against purchase. Customers can pay as little or as much as they are able, whenever they are able and every so often, the sticker at the back (or whatever specific means each shop uses) will change to reflect this remaining balance.  Some customers can take upto 2 or 3 years to complete their purchase but none can take the device home until the full payment has been made.

This informal and simple method touches upon so many of the insights uncovered during the original ‘prepaid economy’ research conducted two years ago that it almost feels like the perfect solution that fits the needs of the customers and the shopkeepers. The elements are:

1. Increasing the span of control over time (periodicity and frequency) and money (amount) for the customer lowers the barriers to successful purchase and payments. There is no undue pressure on the customer to make a payment by any due date nor to pay any fixed amount. Like topping up your prepaid mobile phone account, you can come and pay any amount at any time towards this purchase.

2. Seasonality and its influence on the rural economy is understood by the shop owners and they know that even if payments may be small or slow during the relevant low season, there’s a high chance that the product will be owned by harvest time.

3. Tangible evidence of savings is demonstrated by the equivalent of the “Sold” sticker – even if the product stays on display at the shop until the price is paid in full, its a tangible reminder of perceived ownership that you have put your name on it and are working to take it home one day.

2 thoughts on “Informal payment plans offer flexibility and convenience

  1. Brett Hudson Matthews

    This is very interesting, Niti. It reminds me of the rather relaxed approach to time value of money shown by many ASCAs (and often by informal moneylenders as well). It would be interesting to know if shopkeepers charge a higher price when the customer wants to purchase on layaway (embedding an interest component). And if not, do they start penalizing customers who take a very long time to come and pick up their items? Is time-value of money built into this practice at all?

    1. Niti Bhan

      Hi Brett,

      Those are some very good questions. I have one more trip out and I’ll keep my ears open for these answers. If you have any more questions around this – as it seems to be common in different areas of the country, please email me your questions so that I can use them as basis for conversations.


Leave a Reply

Your email address will not be published. Required fields are marked *