The Prepaid Economy Blog

iBoP Asia 2008 Small Grant Projects - Part two

The Farmer and Rice Quality

Clean fuels for the Poor

Payment strategies for those with irregular incomes (this blog/project)

Bio-ethanol Value chain

Waste in fertilizer and fuel

iBoP Asia 2008 Small Grant Projects - March 2010 Jakarta

Exhibits of projects completed displayed at the Frontiers seminar on March 3rd in Jakarta, Indonesia. Click on photos to see details.

Waste Cooking Oil to Jeepney Fuel

Basic Science & Technology in a Box - Open source education

Business Development Services for enterprising BoP

Philippines Rice Institute

Isda.mobi - conserving fishing through mobile interface & Citizen scientists

Close up of isda.mobi interface

continued in next post.

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.]

iBoP Asia's Frontiers: Charting the future of S&T innovation for the poor in Southeast Asia

A bicycle-powered paper shredder that can be used to make environment-friendly charcoal. A new way of processing waste cooking oil that turns it into cheap fuel for vehicles. A web-based system that allows small-scale fishers to access marine data using mobile phones.

These are just some of the promising devices that will be showcased, along with other “base of the pyramid” (BoP) innovations, in a forum co-organized by iBoP Asia (www.ibop-asia.net) and the Dewan Riset Nasional (www.drn.go.id). The forum will be held on March 3, 2010 at the Grand Sahid Jaya Hotel in Jakarta, Indonesia.

The BoP refers to the 2.9 billion people in Asia (4 billion worldwide) living on less than 4 US Dollars a day. iBoP Asia, a collaboration between the School of Government of the Ateneo de Manila University in the Philippines and Canada’s International Development Research Centre that was launched in 2008, is a pioneering effort in the region that promotes and supports S&T-based approaches and solutions to poverty.

Aptly called Frontiers, the forum will gather experts and innovators in the sectors of water & sanitation, energy, agriculture, climate change, ICT and microfinance to tackle the pressing needs of the BoP in these areas and how S&T can provide viable and affordable solutions to these needs. Dr. Allen Hammond, Ashoka senior entrepreneur and lead co-author of ‘The Next 4 Billion’ is the forum’s keynote speaker. Putting the BoP at the heart of S&T development and innovation in the region is the underlying message, and what is called for is to harness the potential of Southeast Asia to become a knowledge-base and leader in S&T innovation for the BoP.

The innovation projects of eleven (11) organizations from the Philippines, Singapore, Indonesia and Vietnam supported by the iBoP Asia Small Grants Program will be the highlight of the forum. Apart from the innovations that were previously mentioned, also to be presented are studies on the spending patterns of the BoP and payment strategies for those with irregular incomes; the development of BoP enterprises; the improvement of farming practices and agricultural products; and innovative models for water service delivery in communities.

Last year, another set of grants were awarded by iBoP Asia to fifteen (15) organizations, including orgs based in Thailand and Cambodia. The results and outputs of these projects will be presented to the public in October 2010.

iBoP Asia is building partnerships not only with researchers and innovators but also with key agencies in government, the private sector and civil society. The Project has been recently cited as a “positive and inspiring” example of a pro-poor S&T research program by the Dewan Riset Nasional. DRN, under its Secretary, Dr. Ir. Tusy A. Adibroto, has taken on a key role in furthering iBoP Asia’s efforts in Southeast Asia by becoming the home of iBoP Indonesia, the official network of iBoP Asia in Indonesia. Ms. TikTik Dewi Sartika, DRN’s junior communication staff, serves as iBoP Asia’s Network Fellow and overall coordinator for iBoP Indonesia.

Visit www.ibop-asia.net to know more about iBoP Asia and its partners in the region.

(Dean Tony La Vina on the iBoP Asia Facebook page)

Prepaid pricing plans and the financially savvy BoP buyer: A discussion

Rural grocery shop, South Africa January 2008

While putting together my post on demanding BoP customers today, I came across this snippet from an article titled "Getting to know the sophisticated prepaid user" from The Philippines (one of the field locations for the user research documented on this site). Its a quote attributed to the CEO of Globe Telecom,

With the wealth of bucket-priced offerings at their reach, he said these users have learned to shop for the cheapest call and text promos, posing a challenge to profit-seeking telecommunications firms.
[...]
"It's important to know how our prepaid customers think. If you're a telco, how do you convince a farmer to spend his money on prepaid load over food? And how can you make him choose you over the other telco? How do you keep him spending? That's where the challenge is," Cu said.

It is worth debating whether the buying habits of your average prepaid customer have been learned or previously there, choosing to sidestep, at this point, the red flag raised by the question of whether snatching food from the mouths of farmer's families is the right choice for profit seeking corporations to make or whether there may be other value creating alternatives.

Can it be said that the prepaid pricing plans so prevalent now across the developing world have been influential in increasing the financial savvy of their BoP customers or whether this trait was already there, simply overlooked just as the BoP were as a demanding market in their own right?

Certainly, the skills required to rapidly evaluate the best value for the peso, rupee or kwacha have been honed by the almost daily need to top up and the over exposure such plans through saturated advertising and communications.

And that the influence of affordable mobile phone services has certainly been felt and measured. The phone has enhanced the user's span of control over their decisions regarding timing and amount of income and expenses, extended their reach and increased the speed of information flow, thus response time.

But as the interviewees themselves tended to demonstrate, this "financially savvy" ability - while not as frequently exercised as over airtime perhaps -  was a pre-existing trait as evidenced by their ability to compare interest rates due on loans and hire purchase or the price of fish, rice or wheat. This, in turn, is one of the qualities, coupled with their irregular income streams, that make them one of the most challenging customer segments to serve.

Traditional moneylending - informal, flexible, trust based and changing fast

Sawai Madhopur, December 30th 2008

As Microfinance Grows in India, So Do Its Rivals is the title of a recent WSJ article by Ketaki Gokhale which begins so,

The practice of making tiny loans to poor people, or microfinance, was supposed to help drive traditional village moneylenders from rural India.

Instead, traditional moneylenders, who typically charge high interest rates, are thriving, even in areas most heavily targeted by microfinance, [..]
Even as the government and nonprofit organizations came together to create the Indian microfinance market in the 1990s, traditional moneylenders' share of total rural Indian household debt grew to 29.6% from 17.5%, according to a government survey.
[...]
One potential reason for their growth: Some microfinance borrowers say they need village moneylenders to help them pay their debts on time. Some academic researchers believe the moneylenders are keeping afloat many microfinance groups.

Peer pressure to pay back microfinance loans is intense, because microlenders almost always require borrowers to join small, tightknit groups. If one member defaults, none can get another loan. Microloans have a stellar repayment rate -- close to 100% -- and some analysts believe a hidden reason is the stopgap provided by moneylenders.

Drive out the village bania, a caricatured movie villain whose like has not graced the silver screen for quite some time. Before we continue to look at the anecdotes in the WSJ article, it behooves us to take a fair and balanced view of the village moneylender in India

There are 34,000 money lenders – and they have lent money to more than 2,00,00,000 farmers. They account for nearly 30% of the rural credit flows – and more credit than all the nationalized banks put together. They charge between 18% to 36% p.a. interest generally. Lesser than what most ‘educated’ credit card users pay – and what ‘modern’ banks charge their English speaking customers.

So much about ‘usury’ by money lenders.

even while the WSJ's own Indian arm loses all rights to call itself an objective observer of society.

The article seems to imply that traditional moneylenders charge far more interest than MFIs quoting the CGAP on this "fact",

But the rates are still lower than those offered by the traditional Indian moneylending industry, a chaotic jumble of pawn brokers, gold merchants and other private moneylenders -- some licensed, most not. For centuries they have monopolized rural Indian credit markets but have been accused of fleecing people who don't have access to formal banking by charging exorbitant rates and seizing all their belongings as collateral. They typically charge between 24% and 120% annually, according to CGAP.

I'm sure that no one had access to "formal banking" during those very centuries an extensive, sophisticated yet simple system of indigenous banking that extended credit and enabled trade to flourish across India.

I found it fascinating that this article set out to show why the informal economy had to be wiped out by the formal MFI one, in order to better serve the poor, only to support the exact opposite argument anecdotally. Perhaps its MFIs which need to be driven out of rural India's villages?

One lender, who wished to remain anonymous because his business is unregistered, gives borrowers short-term, collateral-free loans "as quickly as an ATM gives money," he boasts. Interest sometimes has to be paid on a daily basis and works out to an annual rate of 48%.

The poor use his loans as a stopgap when they can't make their weekly microfinance repayments because their income was less than expected, he says.
[...]
The difference, however, is that the moneylenders give loans faster, without asking the women to form groups and serve as each other's guarantors, as microfinance lenders do in order to ensure a higher repayment rate. They also charge significantly more than the four microlenders serving the neighborhood.

"Group pressure makes us go to moneylenders" to cover their microfinance loans, says Baleshwari, who goes by only one name, as does her sister. "We get small loans for 15 days to fill the gaps when we can't pay. If you lag behind, the rest of the group members can't get new loans."

This dynamic is why some analysts believe the village moneylenders are actually floating the microfinance lenders.

The inherent conflict between the schedule of payments and the irregular income stream of income is the crux of this research. Rural MFI consultant and CGAP consultant  Brett Matthews had pointed out over many emails that MFIs prefer not deal with seasonality yet it was an overwhelming aspect of rural life,

But here in Mahabubnagar, few women have started their own businesses. Some of those in business have to rely on moneylenders. Microloan repayments begin the week after the loan is disbursed and continue with weekly payments. Most businesses don't produce instant profits, and many are seasonal, so moneylenders can help when funds are tight.

This challenge was observed in The Philippines during fieldwork and discussed here  - specifically pointing out that MFIs expect repayment to start the week following the loan, an additional burden if the business for which the loan was secured needed some lead time to get going. One wishes the author had shared her source for this insight as it would have been interesting to follow up and explore other findings in this subject area in greater depth, if available.

Where microlenders, relative newcomers to rural India, rely on peer pressure for repayment, private moneylenders have historically been conservative in their practices: extending loans based on an intimate knowledge of people's finances, and building their client bases over many years,

Trust.

The most critical element of doing business within rural communities everywhere as well observed among the urban BoP. What are the odds that your neighbourhood moneylender would be open to negotiation on smaller payments made as and when cash was in hand since he knew how and where you made your money?

But since microfinance took off in Mahabubnagar, he has seen moneylenders start to "adopt the methods of microfinance" -- small loans, large volumes and regular repayments -- "to scale up their business."

In summary, it seems that traditional ways and means which offer speed, flexibility and trust are definitely in danger from their rivals, the microfinance organizations but not that of being pushed out. Instead we find they too are taking on the practices of high volume micro loans to scale and compete with these newcomers.

Introducing Meena Kadri

New Zealand born Meena Kadri has an undergraduate degree in Anthropology and a Masters in Design. She has taught at design schools globally, notably for two years at the National Institute of Design in India. She currently resides in New Zealand from where she explores the intersection of communication, culture and creativity via her research consultancy Random Specific. Notable projects at the base of the pyramid have been Creative Waves (Kenya) for Omnium Group and investigation of Coca Cola's visual marketing in urban and rural India for Melbourne's Royal Institute of Technology. She is confident in ethnographic fieldwork and switches between micro- and macro-perspectives with ease.

Extending the research proposal on how those on irregular incomes at the bottom of the social and economic pyramid manage their household expenses, Kadri is now wrapping up her fieldwork in South Asia's largest urban slum and hotbed of thriving industry, Dharavi in Mumbai, India. You can also follow her insightful observations through her flickr stream as well as the REculture blog in addition to her ongoing contributions on this site.

Savings Circles

 

Sudha makes and sells floral garlands at Dharavi and as our conversation turned to savings she told me that she used bishi. I've spoken to a number of people at Dharavi who participate in bishi schemes (bishi = money matters in Marathi). Bishi is a kind of informal and voluntary local savings club which has a long history in India and has been employed rurally to also save and credit rice and grains. Bishi schemes constitute a type of Rotating Savings and Credit Association (ROSCA) – which are found across the world in base of the pyramid communities under a number of various names.

The schemes have various forms but at Dharavi basically go something like this example: a voluntary group is formed of 12 women within a particular community nominate an amount that they will each put into the scheme each month. (eg. Rs. 500) providing a monthly total of Rs 6000. Every month they will draw a saver's name on a lottery system to be awarded the collective Rs 6000. Then that person will be removed from the list so that they cannot claim the full amount twice within a 12 month cycle. On occasion one of the participants may require credit from the group rather than waiting for their name to be drawn (eg. their cooker broke and they need to purchase a new one) They can appeal to the group and together they decide whether to award the full amount to them that month instead of using the lottery system. 

Initially I had to work hard to put aside my assumptions about the inadequacies of bishi schemes. Yet after talking with a number of women I came to realise that they provide a local savings mechanism in which community participation creates a social pressure to save within a trusted environment with no transaction fees. The potential to fluctuate between emergency credit and the lottery system suits the flexible needs of investors. For some women I spoke to it wasn't their only form of saving yet seemed to nurture a social platform on which to discuss money matters between women. Many were proud of what they had purchased via the scheme. (fridges, school fees, sewing machines, etc)

Some mentioned that even children run small bishi schemes, putting in Rs 2 each a day amongst 30 kids and drawing on a lottery system weekly to win Rs 420 – providing them more motivation to save than merely putting aside money alone which creates too much temptation to spend. Such incentivising to save is mentioned by all women I spoke to though others mentioned that the tendency to spend immediately on winning doesn't support planned investment. Some told me it was an effective way of drawing some money away from male control of household finances. 

The widespread and trusted nature of bishi schemes have indeed evolved into a number of more complex community run micro-finance models, some of which even intersect with more formalised banking. Merits and demerits aside – bishi highlights the social aspect common to many savings and credit schemes at the base of the pyramid.

Coping Strategies as Food Prices Soar

 

Surging food prices, partly due to the lowest monsoon rainfall since 1972, are being widely reported in India this month. I've been asking  female informants and neighbours at Dharavi how they are managing the pressure on household expenses. 

Many tell me that they are adding more water to some dishes – making thinner dhal for example. Some pitch in together between a few households to make weekly trips to larger wholesale vegetable markets by train. Most of them already buy onions in bulk locally and have noticed a sharp increase in current prices so are now using less per meal. Larger families reported that they are cooking without coriander and with less chilli as these items used to be thrown in by vendors for free with a decent purchase but with recent price increases this practice is being curbed. One woman told me she had been experimenting with cooking the leaves of cauliflower which she used to discard.

During earlier price hikes many mention that they would add potatoes to other vegetables to make them go further – but most women I spoke to seemed well aware that potatoes in particular have gone up a lot in the last month. News about the price increases have been widely reported across news channels and most people I speak with have access to television. And for those who don't – this kind of locally relevant news travels quickly through the community.

Banking on Trust

 

Following up on the Reserve Bank of India announcement mentioned below to allow small shops and phone kiosks, etc to handle basic services on behalf of banks – I directed questions around potential receptivity today. 

I spoke to a woman who runs a terracotta pot making business. It is unusual in this area for a women to do so but her husband is an alcoholic so she manages the operation herself. She currently uses a local community savings scheme on which she receives interest if she makes regular payments for 5 years. She can also take a loan from the scheme to cope with seasonal fluctuation in earning – at slightly lower rates than banks. I carefully described the upcoming developments and her response was that she wouldn't use shops, etc for banking as a few years back many people in her area got burnt after using outside middlemen for banking services for 6 years and lost all their money. One imagines that perhaps over time she would use such a scheme but she certainly wouldn't be an early adopter. 

This raises the issue of trust in new banking ventures... and indeed any new services. I noted in the white paper from the CGAP blog about their initiatives in Malawi that they have: "found that catering to local opinion leaders, developing a road show to build brand awareness, and utilizing radio as a key medium of communication are important components of their strategy that have evolved through their experiences."

 These communities are very close knit and trust is not won easily but is essential to adoption of new services. A further concern was access to her money anytime – which she has with her savings scheme if an emergency arises and is another reason she cited to not wanting to use a formal bank in its current capacity. My informant also mentioned that she preferred her private savings scheme as she fears a bank account could be accessed by her husband (Indian banks probably need to a better job of countering this assumption if indeed it is not the case). She seems quite successful in keeping her family's money safe from him but he does menial work at a local liquor store in exchange for alcohol. 

Although she doesn't own a mobile phone... many men and women in the area do. One notes that Indian mobile banking does not include as inclusive initiatives as M-Pesa. It seems that this is partly because the RBI approved banks over mobile network operators to conduct services. The resulting offerings haven't effectively reduced barriers for the unbanked at the bottom of the pyramid.