Monday, September 8, 2014

Leveraging Mobile Value Added Services (MVAS) for the Growth of Women Micro-Entrepreneurs (WMEs) in Fiji

By IMTFI researcher Milind Sathye

The ever-increasing penetration of mobile phones presents enormous opportunities for women micro-entrepreneurs (WMEs) in developing countries, including Pacific island countries such as Fiji, to grow their businesses. Existing research by organizations such as the GSMA suggests that mobile services are being utilized by women to empower their lives. The Cherry Blair Foundation for Women cites several studies in countries such as Indonesia, Egypt, and Nigeria in which nearly 88% of the women interviewed desired mobile value added services (MVAS) to grow their businesses. Prior studies by the IMF in Africa have found that MVAS contributed significantly to the growth of micro-enterprises. Delivery of MVAS such as m-banking and m-enterprise services to WMEs is particularly important for business growth through access to information, payment services, advertising, communication, and is found to enhance social welfare leading ultimately to poverty alleviation.

Fast food/tea vendor (WME), Suva, Fiji (Photo by Milind Sathye)

A team consisting of Prof. Milind Sathye, Prof. Biman Prasad, Prof. Dharmendra Sharma, Dr. Parmendra Sharma, and Dr. Suneeta Sathye proposed to study the unexplored situation in Fiji and identify the challenges faced by WMEs in the use of MVAS so that suitable policy initiatives could be taken by the Fijian government for faster growth of this sector. We focused on WMEs because of their importance from the standpoint of inclusive growth. The International Centre forResearch on Women found that ‘improving women’s access to technology has the potential to spur their economic advancement and stimulate broader economic growth. Regrettably, technology has been underused in unlocking women’s economic opportunities’ (2010:2).

We found that most WMEs owned Nokia phones, followed by Alcatel; other brands such as LG, Sony, and Motorola were not used by many. Further, a substantial proportion of respondents had prepaid subscriptions. The average expenditure of respondents on mobile services was less than US$16 per month, which the WMEs consider to be relatively high. Few respondents used data service (such as emails, attachments, web browsing) on their mobile phone while most were using SMS in addition to voice. Availability of affordable data services would help access to information and communication.

The WMEs identified the following main challenges:

Access to information: The WMEs felt that government departments should provide information about programs for women over the mobile phones, and that it should also be possible for them to interact with the government via mobile. The government agencies in Fiji were not making use of MVAS capabilities, which is a major hurdle. It increases the transaction costs for WMEs as they are required to deal with these agencies in the traditional way, that is, by personal visits or through mail, which is comparatively costly and time consuming.

Access to training: The WMEs desired basic training on the use of MVAS applications from government agencies such as the National Centre for Small and Medium Enterprises Development (NCSMED). Younger entrepreneurs were more enthusiastic about the use of MVAS applications. Appropriate training by government agencies for WMEs would help them realize the potential of MVAS applications for the growth of their businesses.

Absence of a forum: Many WMEs stated that there is no forum available to discuss issues related to mobile phone banking or MVAS. Consequently, the issues remained unresolved. The Consumer Council of Fiji was unable to take up their cases as WMEs are classified as ‘businesses’ and not as ‘consumers’.

Over-regulation: WMEs were unequivocal in their opinion that over-regulation is the main problem that is hampering their growth. They are not allowed to operate from home, which increases their operating costs. For example, a day care centre can’t be run from the home of the WME, and so one has to rent separate premises which increase operating costs and also puts clients at a disadvantage.

Access to insurance, finance, and capital: The WMEs stated that banks are reluctant to provide finance and services like insurance to them. There are limited grants available to WMEs, and the NCSMED could play a more proactive role. Some of the WME respondents found the interest rates and bank fees to be prohibitively expensive. Furthermore, the WMEs stated that even small shocks from the market throw them out of business, but no policy is currently in place that could help them overcome such situations and revive their enterprises. Lack of capital was identified as the main hurdle in business expansion.

The respondents stated that if these challenges could be addressed through MVAS, they would be willing to use such services. Access to business tools, access to mentorship, and access to markets were the top three purposes for which the respondents would like to use MVAS applications. The WMEs were also willing to pay for such applications. When asked which platform they would be comfortable with for accessing relevant mobile services, the respondents indicated SMS, followed by IVR, WAP, and USSD.

The interviews with WMEs revealed that they were aware of the value of MVAS for business growth and were willing to pay for such services if their business challenges could be addressed.

Interestingly, despite the demand for MVAS, the providers of such services lagged behind. We interviewed key industry experts and policymakers to understand the supply-side issues. Seven major themes emerged from these interviews:

Licensing regime: It is important that Fiji prescribes a licensing regime for MVAS players, and such players could be brought under the license category of ‘other service providers’. MVAS needs to be accorded industry status for there to be an orderly development.

M-payments: While in some countries there is a resistance to m-payments as there are concerns that it may lead to tax evasion, the experience of China is different and such payments were found to have forced merchants to report more of their sales than before, which increased tax revenue. Fiji may like to consider similar measures.

Competition from mobile network operators: Financial institutions in Fiji are worried about competition from mobile network operators (MNOs). The banks contend that such operators are not considered as ‘banks’ and so are out of the purview of banking regulation, which is detrimental to competition. The Reserve Bank of Fiji, however, has concerns about the supply of money, including electronic money, falling off of the radar.

Infrastructure cost: Industry representatives pointed out that the high cost of setting up a mobile tower – anywhere between US$408,000 to US$489,000--is a major hindrance to the rapid spread of MVAS. Because of the competition between Vodafone and Digicell, the towers are not being shared. Given that the population of Fiji is sparse, it would help if either the government provided subsidies for tower construction or there was legislation mandating that MNOs share towers for a price.

Lack of interoperability: The CEO of South Pacific Business Development (SPBD) stated that mobile phone banking is still young in Fiji, with the major hindrance being a lack of interoperability.

Misleading statistics of penetration: The CEO of SPBD stated that the statistics of mobile penetration are computed as a ratio of the number of mobile phones or SIM cards issued to a population, but many Fijians have multiple phones and even tourists can have SIM cards. A more effective method would be to count the number of mobile phone accounts.

Which P2P model? Of the three P2P payment models--that is, the remittance service provider-dominated model, operator-dominated model and partnership model--industry representatives believe that the partnership model would work better for Fiji given the limited size of the market.

The view of the market where the fast food/tea vendor is located
(Photo by Milind Sathye)

Overall, MVAS can make valuable contributions to the growth of WME businesses in Fiji, but their deployment is hamstrung by the policy hurdles and industry challenges outlined above. Fijian authorities need to pay urgent attention to remove the barriers for deployment of MVAS to promote growth of WMEs, which in turn could help alleviate poverty. 

Read more about this research in a report by Milind Sathye and Biman Prasad.

Friday, September 5, 2014

Domesticizing Financial Economies: A Mini-Conference Report

IMTFI Fellow José Ossandón recently co-organized a mini-conference on "Domesticizing Financial Economies: Knitting Fibers of Transaction, Algorithm, and Exchange." The event was part of a meeting of the Society for the Advancement of Socio-Economics in July 2014. IMTFI Fellows Isabelle Guèrin and Magdalena Villarreal also participated, presenting results from their project on credit and wealth in India and Mexico, along with Lya Niño, who presented with Villarreal about their new research on the everyday economic practice of juggling currencies in trans-border contexts.

José and his co-organizers Mariana Luzzi and Jeanne Lazarus wrote about the event and several of the issues raised there for the Estudios de la Economía blog and the Charisma Network. They explain that presenters focused on both the work of credit scoring and evaluations and on the consumer side of finance, and they suggest that research that complicates our understandings of the poor's financial ecologies allows us to re-think models of financial inclusion as well.

Read the entire report here!

Monday, August 25, 2014

A Study on the Association of Social Capital with Microfinance and Local Saving Programs among the Muslim Poor in Hyderabad, Andhra Pradesh, India

By IMTFI researcher Rosina Nasir

Why do people trust each other? What are the characteristics of people who trust each other? Is it mutual trust which results in formation of groups, or is it self-interest which brings people together? How does the theory of rational choice relate to the concept of social capital?  The following discussion concerns the concept of social capital and its applicability, and argues that the sustainability of self-help groups (SHGs) does not depend only on social capital – trust, shared knowledge and reciprocity, important as these are – but also on the nature and extent of social relationships among (a) the group members themselves, (b) group members and program/credit officer(s) staff, and (c) each member's pursuit of self-interest. A central issue for understanding levels of trust in various societies is to grasp whether trust follows social capital of other kinds or whether it is itself a major category of social capital.

In the present project, several SHGs were studied which differ in their composition and methods of formation. An attempt is made to determine the degree to which the concept of social capital has penetrated these groups, and its outcome as financial inclusion and development in the microfinance model. Field surveys were conducted in two phases. The first phase was used to identify different SHGs and private players in microfinance in Hyderabad and establish a working relationship with them. After visiting three SHGs, one was selected to pursue further study as it was formed voluntarily two years before its association in 2008 with Roshan Vikas Mutually Aided Cooperative Thrift Society. During the second phase information was collected through interviews and focus group discussions from SHGs – both homogenous and heterogenous – in the Charminar Area of Hyderabad with respect to their caste and religious-based affiliations. There were more than 15 groups, for an approximate sample size of 130 women in total. Photographic and voice-recording techniques were used for informal talks with the SHG team leader, loan officials and other members of the SHGs.

The Concept of Self Help Groups (SHGs) in India

There are numerous types of self-help groups in low-income countries. The group formation may be facilitated by an NGO, by a Microfinance Institution (MFI), by a bank, or it may evolve from a traditional rotating savings and credit group (ROSCA). In the Indian context SHGs are largely referred to the SHG Linkage program initiated by the National Bank of Agriculture and Rural Developments (NABARD) as a pilot project in 1991-92 to promote rural access to banking services and target credit at some specific activities and certain disadvantaged groups. This program emphasises that financial inclusion is crucial for poverty alleviation, gender equality and empowerment. An SHG is an informal organisation of up to 20 people and is supposed to be homogenous with respect to class, caste and status to maintain group solidarity and to prevent clashes. They voluntarily and regularly create a pool of savings. These small savings are accumulated to serve as an internal source for lending to group members at a mutually agreed upon interest rate. This process teaches them financial discipline, organizational skills, and bookkeeping, and enhances their capability of managing their funds adeptly. With a good track record of financial and credit performance, SHGs are provided with loans by banks in response of their savings. Need acts as a magnet which attracts members to form groups, either to smooth their consumptions or to finance investment projects with extremely short gestation period. One may couple the concept of SHG with women and the poor predominantly of low caste as 90% of formed SHGs are composed of such individuals. SHG meetings help to expand trust wherein women engage in conversation with each other thus, strengthen social capital.

Women gather to attend a weekly SHG meeting. Photo: Kabeer (researcher assistant)   
This program initiates linkages processes in two dimensions: institutional linkages between SHGs and banks and financial linkages between savings and credit. Most NGOs act as facilitators for initiating the forming SHGs and then nurturing them until they mature. Once mature, the group is linked to external sources of credit by the NGO. Two other models exist. The first is one in which SHGs are financed directly by banks. The second is one in which SHGs are financed by banks using NGOs and other agencies as financial intermediaries. The latter are rare in practice. SHGs with bank linkage programs are an advanced form of ROSCA as their aim is not limited to accumulation and distribution of the savings pot. Here, groups are connected to banks either through NGOs or directly trained to handle financial transactions and other elements of financial inclusion to make them capable to earn a livelihood. However, these SHGs work internally as ROSCAs wherein interest rates and other modalities are set according to members’ convenience.

Case Study: Trust in Social Relations

A SHG was locally organized in 2008 with the efforts of its present leader, Mrs. Saleema, who works as a trainer in a seamster's centre. This group consists of 12 mostly lower-class Muslim women. Before, it comprised 15 members, but three members withdrew to either form or join another SHG. The leader also reported that these former members had not attended monthly meetings or made regular contributions, and thus with the unanimous decision of this group they were removed. However, these three women had been with the group for six months – the minimum period to show sustainability and solidarity and to become eligible for receiving of loan – and yet two months after they had left the group one by one. What were these women’s reasons for leaving? Were they discontented with the functioning of this group? Or was it due to intra-group problems, disputes with loan officers, or non-conducive interest rates on the loan product offered by Roshan Vikas?

Although the leader of the group gave me her explanations for why the women had either dropped out or been forced out, I was still interested in the perspectives and opinions from the other side. I tracked down one of the women who had dropped out named Rehana. After an in-depth investigation I discovered that kinship and social relationships are closely interwoven with the loan approval process. Rehana is the leader’s paternal cross-cousin, and she suspected that her application had been rejected as a repercussion for tensions in the family over financial matters. However, the loan officer explained that her application had been turned down because of her irregular attendance at group meetings and lapses in monthly savings. Rehana was unconvinced. Eventually she came to the conclusion that her loan application would never be entertained, and so she quit the group in disgust. Discussing Rehana’s case in the group leader’s absence, group members supported Rehana’s story that she chose to drop out due to continuous denial of her loan application, but the group leader explained that group members could not always speak their minds out of fear that their relationship with the loan applicant might sour as a result. After many meetings the group leader finally disclosed the truth that Rehana's financial condition was not sound and that lending her credit was a risky proposition that may have imposed a burden on the group if she defaulted. “Moreover,” she continued, “being my relative I would be held responsible for her default.”

SHG women engaged in papad (papadam) entrepreneurial activities to earn livelihood.  Photo: Kabeer (research assistant)
The negative aspects of the SHG’s kinship-based, horizontal structure of relationships to some extent support Bastelaer’s observation that perfect strangers may be able to establish trust more easily than people with histories of complex relationships with each other (Bastelaer 2000, 5)[1]. Mechanical trust through social capital is growing as members learn to trust strangers more in financial transactions irrespective of risk and uncertainty. This indicates that social capital enables people to trust rationally, and that an element of rationality is the key which inserts trust into social capital. Human beings usually demands unsaid cooperation in social relations which is invariably considered. The crisis arises when the impact of social relations on economic life is negative, is transformed into social friction and creates conditions of distrust. Establishment of trust demands embedded agreement within the structure of personal relations and social networks based on rationality which may prosper or ruin trust if not followed diligently.

Trust in financial institutions like banks is comparatively less. The question remains as to why SHG members distrust financial inclusion instruments like banks. Further exploration revealed that social capital in the present study is not constituted simply by trust but rather through ongoing need-based relationships whereby the trusted has substantial incentive to be trustworthy. The essential aspect of this ongoing relationship is instant fulfillment of financial contingencies, if they arise, without any collateral or documentary compulsions. This facility of acknowledging contingencies does not exist in banks. On the contrary, local moneylenders (LML) endure risk by showing trust in people after screening clients' portfolios, and lend money at an exorbitant interest rate. However, LML uses coercive recovery practices for delay in payment.

Trust is invariably associated with an element of risk, and the degree of risk is higher in the informal financial system (IFS) than in the formal one. Does high reliance on the informal financial system demonstrate the risk-taking abilities of people? Why are people keen to take risk particularly when formal financial institutions provide safer products? Can one connect the practice of informal saving to maxims suggesting that wealth and women should be masked as they are prone to get ruined if they come in contact with the evil eye? In other words, do people make use of informal financial system to multiply and hide wealth? I achieved insight regarding this question while researching the social representations of saving. I started with the assumption that the notion of “living for the moment” or the notion that material things can lead to happiness encourages consumption and retards saving behaviour in a society. I cannot deny the impact of this notion in my study. However, I found something otherwise. 

Informal saving is predominantly found in nuclear families and does not discriminate as to class. It was found that educated and high income families prefer informal financial system for saving, too. Compulsion to use informal savings in low income families is understandable as they have to accomplish everyday sundry needs and maintain social status. Their purpose to participate in IFS is limited and is practiced to ease out their consumption. On the other hand, there is no such compulsion on high income families. Instead, they rotate money in informal market and multiply it through exorbitant interest rates. Their sole purpose is to accumulate savings and further lend money at high interest. In IFS people lend money at interest rates ranging from 5 to 10 percent per month on every dollar. One may infer that trust facilitates the creation of wealth in informal financial system but with a caveat of risk. Trust should not be seen in isolation. Definitions of trust change with needs. People give priority to their needs and pivot trust around it. Due to this reason, people prioritize the need of making high profit and exhibiting trust around instruments and systems that do so despite of financial insecurity and uncertainty.

Need alters people’s traditional perspective on financial matters. Due to prohibitions on usury, lending and borrowing is forbidden in Islam. However, Muslim SHG members challenged this restriction with an argument about rationality and contextuality. Even though usury exists in many financial instruments, Muslim women are not opposed to using them. According to them, survival and basic needs come first. This research concluded that the source of social capital does not exist in inherent trust cultivated through interaction, but rather in ongoing need-based relationships which shape an environment of trust and thus creates social capital. The concept of social capital in SHGs is interpreted as a medium of financial inclusion and empowerment of women. Real empowerment exists in financial independence and participation in work activities which can assure less instances of default and the sustainability of SHGs.

[1] Thierry van Bastelaer (2000): Imperfect Information, Social Capital and the Poor’s Access to Credit.

Monday, August 18, 2014

Juggling Currencies in Trans-Border Contexts

An introduction to an IMTFI-funded research project by Magdalena Villarreal, Joshua Greene, and Lya Niño (CIESAS-UABC)

The Mexico-US border tends to be tackled analytically as a boundary that separates and divides. This is not surprising, since it marks the dividing line between two nations with their distinct economies, languages, and legislations. Yet, we see La Línea (the line) as an axis of fertile interaction for those who cross it daily (physically or symbolically) in the operation of their economic and financial lives. Such interaction provides interesting windows through which to observe the complex nature of money and currencies, shedding light on the different forms of signification and valuation that take place in everyday financial practices.


People remit, buy, sell, lend, share, and negotiate in trans-border contexts. They do so in multiple directions. Money can be remitted to Mexico, but also the other way around: relatives send financial support to family in the United States whose houses are in danger of being foreclosed, for example. Such "reverse remittances" are hardly ever taken into account analytically. On the other hand, transactions within Mexico can be made in dollars, and exchanges in the United States can include assets in Mexico. Such activities not only entail the use of different currencies (the peso and the dollar), but also involve the mobilization of multiple meanings, expectations, and normative frameworks of value.

This project seeks to document the ways in which Mexican and/or bi-national families residing and/or working on both sides of the Mexican-American border experience and manage different monetary and social currencies. The 12-month ethnographic study is being carried out in two dissimilar localities: one involves commuters between Calexico in the US and Mexicali in Mexico; the other is the rural community of Sabinilla, in Jalisco, Mexico, which is closely linked to its diaspora in Hawaii.

In the case of the twin cities of Calexico and Mexicali, it is common for Mexicans or naturalized Mexican-Americans to live in one country and commute regularly to the other for work or other purposes. Wages, debts, taxes, savings, investments, insurance, and social benefits cross the border boundary, which is a lived-in point of linkage, translation, and communication. Some of these people live on the Mexican side of the border and work in the US. Others live in the US (because of work or because it is a legal requirement in applying for residence or citizenship status) but their families are in Mexico and their economic lives are framed within Mexican social and cultural contexts.

Currencies and transactions (Photo by authors) 
Some Mexican residents have a bank account in the US and many are indebted, be it by credit cards, or in having bought real estate, cars, and a range of everyday consumption items in the neighboring country. More than a few have lost their houses in the US due to foreclosure and are trying to make a new start in Mexico. It is not unusual for social security numbers to be "borrowed" between family members and friends. Tax returns can also be used in transactions, as can certain social benefits.

Sabinilla, on the other hand, is located in the state of Jalisco, Mexico. It is a very small and quite isolated community that lacks proper roads and only recently acquired electricity and piped water. It is interesting to our study because a significant percentage of its inhabitants are or have been working and living in Hawaii.

Building an improvised greenhouse (Photo by authors)
Here, the economy as well as important parts of social life are configured by practices, ideas, expectations, and normative frameworks that entail both local traditions and more "modern," urban lifestyles. This includes notions of wealth, poverty, and well-being as well as ideas concerning development, ecology, and entrepreneurialism.

These cases are thus promising for how they show the ways that currencies are signified—that is, given meaning—through different contexts. They also show the contrasts, accommodations, and conflicts between different social meanings and distinct practices. We are keen to observe forms of generation, accumulation, and transfer of value, as well as issues regarding safety nets, pensions, and other benefits. An analysis of the devices, procedures, and practices will hopefully reveal critical elements to reach a better understanding of the nature of money and currencies. 

Stay tuned to the IMTFI Blog for updates from the field and research results.