Thursday, November 20, 2014

Lessons from the Field: M-Shwari and the Jua Kali in Kenya

MSEA's Jua Kali site in Kisumu, Kenya (Photo by Ndunge Kiiti)
By IMTFI Researchers Ndunge Kiiti, Jane Mutinda, and Charles Nzioka

Out with the old, in with the new?
When it comes to new technologies, it’s easy to make the argument, “Out with the old; in with the new!” Well, in Kenya, that’s not quite true. The trend one sees is an increase of new mobile money networks and technologies to help complement the traditional microfinance institutions and banks. The ‘new’ usually comes with new products or services, and Kenya has had its share. M-Shwari is one of those ‘newer’ mobile-based services offered to M-Pesa customers, especially small-to-medium-sized informal businesses—or the ‘Jua Kali’ (‘hot sun’ in Swahili) sector as it’s called in Kenya. Launched in November 2012 by Safaricom, Vodafone, and Commercial Bank of Africa, M-Shwari is a paperless form of financial transaction that offers individuals the ability to save and borrow with their phones.

What was the research about?
The three researchers—Dr. Jane Mutinda (Kenyatta University, Kenya), Dr. Ndunge Kiiti (Houghton College, New York), and Professor Charles Nzioka (University of Nairobi, Kenya)—set out to discover the uses and impact of M-Shwari as a financial inclusion banking product in urban and rural areas of Kenya. We visited eight counties in four regions of Kenya—Western (Kisumu & Bondo); Coastal (Mombasa Town & Kaloleni); Nairobi (Westlands and Eastlands); and Eastern (Machakos & Embu). In each region, the first location listed represents the ‘urban’-based focus and the second represents the more ‘rural.’ The Micro and Small Enterprises Authority (MSEA) were our hosts in each of the counties. With an introductory letter in hand from the Director of MSEA Headquarters in Nairobi, county-level coordinator facilitated our access to the SME owners, and were each interviewed for the research as well.

In the end, what’s the value added?
There are numerous value propositions for this type of research. First, there is limited existing information and data on the use of M-Shwari in Kenya. Second, the understanding of this product, from the demand perspective—especially the Jua Kali sector—will provide insight for service providers, policymakers, and other institutions. The Jua Kali sector is a key part of economic growth in Kenya. Thus, mobile money technology that improves this sector’s business opportunities for both savings and loans will impact Kenya’s economic growth.

Piloting the research instruments with craft artisans in
Embakasi, Nairobi (Photo by Ndunge Kiiti)
What did the research entail?
A central component of this research was a training program for the fifteen research assistants who were recruited from several universities and programs in Kenya to help us with the field work. The students represented all the ethnic backgrounds of the eight counties where we were collecting data. The training curriculum included: mixed methodologies–qualitative (in-depth and focus group interviews) and quantitative; instrument review; field practice and piloting of instruments; and transcription. The workshop was facilitated in partnership with Dr. Monique Hennink of Emory University’s School of Public Health in Atlanta. One participant had this to say about the training: “Overall the content and the teaching method as well as the field practice were highly valuable. The notes given were also very appropriate.” The training paid off. The students were well-prepared in the data collection process, demonstrating impressive interviewing and facilitation skills with great cultural sensitivity and appropriateness. The process was also a great opportunity to reinforce IMTFI’s mission of building the capacity of individuals and institutions within their own countries so that they are capable of carrying out relevant research that informs policies and practices to ensure sustainable development.

What did we learn while in the field?
Interviewing research respondents at their place of work
(Photo by Ndunge Kiiti)
Well … a lot. But we’ll share a couple of lessons learned that were reinforced here. First, from the training aspect, it’s critical to have research assistants that speak the necessary vernacular and the national language representing the populations where data will be collected.  Additionally, using the methodologies in role plays as part of the training is essential before doing the pilot. From the actual data collection process, when working with the Jua Kali sector time is very important. Taking them away from their businesses often means income lost. Thus, even for research, it is important to meet them where they are and sometimes that means doing interviews at their businesses.

Were there any new discoveries? What do we know now that we didn’t before?
The research is still ongoing. We have collected all of the data, and currently all of the focus group discussions and in-depth interviews are being transcribed. Based on the questions that we asked, there will be insights about: the type of marketing approach that best communicates M-Shwari; patterns of product usage in terms of loans and savings; opportunities and challenges associated with the product; and dimensions of inclusion and exclusion in the process.

What are the next steps?
Some of the more immediate next steps include: completing transcription of the qualitative data; entering and analyzing the quantitative data; data analysis, synthesis, and writing up of findings; workshop for dissemination of findings to policymakers, service providers, the Jua Kali sector, researchers, various institutions, government, and other stakeholders; reports, presentations, and publications.

How will the research be disseminated?
Various avenues for dissemination include: stakeholder workshop, conference presentations, video and publications (reports and articles); etc.

We are excited about our research so far, and look forward to sharing our findings in the future.

Monday, November 17, 2014

Banking with the Patron: The Case of Patron-Client Relations in Makassar, Indonesia

By IMTFI researchers Tiar Mutiara Shantiuli & Salmah Said

There is a general acceptance that the growth of rural financial institutions in Indonesia will increase the access people have to formal banking. However, the growth of these rural financial institutions is developing alongside a (long-standing) informal lending system: the patron-client relationship. We examined to what degree this informal patron-client lending system persists. We found that these patron-client relationships still exist even in the areas with intensive rural-financial institutions in Makassar, Indonesia. From the sub-regencies of Pacinongan, Panakkukang, and Panampu, we select 6 patron-client relationships in different businesses including sea cucumber fish, game centers, calfskin crackers, land plot sales, garages, and fried shallots. The sea cucumber fish business has lasted for two generations, while the others are one generation old. The game center is new and is run by students. All are similar in the informality of their labor relations (recruitment, types of duties, hours of work, and wages). In general, there is a fixed wage directly related to the main job or revenue, with some additional wages related to additional tasks (e.g. housework). As Ahimsa-Putra (2007) noted, the presence of additional transactions is observed in all of these patron-client relationships. Recruitments could be based on: kinship, the origin of the business owner, recommendation by an existing worker, neighborhood proximity, or friendship.

Daeng Munding with son, nephew, and friend’s son
working at calfskin cracking business.
The patronage relationship begins with worker recruitment. The recommendation of existing workers, family ties, and friendship enables the business owner to connect with workers. Recruitment proceeds depending on the needs of the employer. It could be more swift and direct if new workers are found via family ties and the recommendations of existing workers. Or, it could take longer and require more processing because the business owner needs to ensure that the new worker will not disrupt the existing working environment. The importance of a workforce’s harmony is attested to by one game center worker’s statement that the joyfulness of working is the most important reason why they stay.

One of the cucumber sea fish workers told us that when they make their trip from Central Sulawesi to work on Kodingareng Island in South Sulawesi, they usually bring family members with them as new recruits. With permission from the employer, those family members are recruited to work as divers. Usually, it costs the employer around 10 million Rupiah (about $818USD) to hire a new recruit, which covers their transport and the living costs of the family back in Central Sulawesi. Even though this initial money is thought of as a loan, the worker never actually pays off the debt, making it harder for the employee to leave. 

Since the workers also live with the business owner and the main activities on the job do not absorb all of the workers’ time, they must be willing to take on a variety of unspecified tasks. However, the owner does not just add to the worker's duty, but also offers in-kind rewards such as shelter, food, holidays, and paying for other unexpected expenses. This helps to develop a mutual dependency between the worker and the business owner. The garage and the fried shallot businesses are an exception to this pattern, as the workers are the neighbors and do not stay with the business owner. Still, additional duties to the main labor tasks (or “additional transactions”; Ahimsa 2007) are observed in these businesses.

Daeng So’na working at her fried shallot business 
with her neighbor. 
The inexact working hours, and the closeness of habitation, build up trust between the business owner and the worker. In addition, the closeness of their habitation and the informality of their contract make the relation less like an employee-employer relation, and more like a family one.  Even in the case of exact job descriptions, the informality still endures in the rewards/payment aspect of the relationship. Such an informal relationship between the workers and the business owner can also be observed in the case of young businesses. Even though their connections might not be as old and living as close, the kind of duties they do are not always related to the main business.
Nahar, the game center owner, said that the business does not have a fixed work schedule. It depends on who has spare time, as they are university students. There is no fixed salary, as it depends solely on the everyday rental income of games. Yet, he told us, “In spite of the uncertain income they get everyday, they do enjoy working in this game center because of their friendship and they are willing to offer any help to me whenever I need them inside or outside of the games center.”
In all of our selected cases, the business owner is a resource that helps solve the financial needs of the worker. As with the informality of the working relationship, lending and borrowing are also carried out informally. Even though the rotating savings association, local cooperatives, and banks are familiar to them, the workers prioritize the employer as the primary lender from which to borrow. It seems that the flexibility and mutual aid attached to the loan and its repayment are the key reasons for those preferences.

In the land plot selling business we were told that the basic salaries for the marketers is a weekly payment between 200.000-250.000 Rupiahs (about $16-$20USD), plus daily pocket money of either 20.000, 30.000 or 35.000 Rupiahs (about $1.60, $2.45, $2.86 USD). As a bonus, the marketer earns a fee of around 2.500.000 Rupiahs ($204.50USD), if the buyers pay in cash, and around 1.000.000 Rupiahs ($81USD) if the buyers pay in periodic installments. While the workers stay in their boss’s house, she provides for daily expenses (food, cigarettes, etc.). Doubtlessly, these workers also do housework. The informality also persists in cases where workers need extra money. Borrowing is always to the boss. It is not clear how the marketers pay her back, but we gather from our investigation that she acts almost like a mother to them.

In the fried shallot business and the game center, banks are used for saving and for transferring payment. When the game center business grows, the owners plan to use workers who have more formal contracts. Thus, when the informality and mutual aid motives fade, the likelihood of using formal banking institutions increases. 

You can read Tiar Mutiara Shantiuli & Salmah Said's full report here.

Wednesday, November 12, 2014

Fall Newsletter

It’s been a busy year for financial inclusion, mobile money, and IMTFI. Our latest newsletter has a wrap-up on all our work on money, technology, and financial inclusion. With 21 new projects funded in 2014, we now have a total of 123 projects in 41 countries, with support for over 160 researchers since our founding in 2008. Our researchers have published new books, tons of articles and reports, and are exploring new formats for the dissemination of their research results as well as for the provision of financial education. Take a look at our new executive summary of our research to date on gender and financial inclusion, "Snapshots of Gender and Financial Inclusion". We were also recognized by The Guardian as one of the top ten financial inclusion Twitter streams—so, if you’re not doing so already, please follow us!


If you didn't get the newsletter sent to your inbox but would like future notifications you can subscribe here. 

Friday, November 7, 2014

Michael Joyce on the launch of G2P e-payments in Indonesia

Michael Joyce—Mobile Money Policy Advisor with TNP2K—reported this week about Indonesia’s launch of G2P e-payments, in what is being heralded as one of the country’s largest pushes yet toward financial inclusion. We look forward to Michael sharing his insights with us at the IMTFI Sixth AnnualConference in December.

To read more about these exciting new developments, click here for Michael’s post at Mobile Money Asia.

Monday, October 20, 2014

"Standing on One Leg": Making Decisions in Troubled Times

By IMTFI Researcher Gianluca Iazzolino

"Hal lug ayeynu ku taaganahay," Somali refugees say. “We stand on one leg.”

This effective metaphor conveys the precariousness and volatility that permeate the daily experiences of refugees. Standing on one leg implies the possibility of falling, but also the potential to move. It is a state of suspension, where every signal must be caught and decoded, because from that may depend safety and survival, for oneself, one’s family, one’s livelihood. Indeed, the idea of contingency was at the centre of my research proposal when I first came to Eastleigh, the Nairobi estate dubbed Little Mogadishu for the conspicuous presence of Somali people, either refugees or Kenyan citizens. I was thinking of the contingency which has been defining Somali mobility patterns since the Somali state collapsed in 1991. Yet, in the months ahead, the concept acquired a dramatic actuality.

Indeed, these are tough times for Somali refugees in Kenya.

Kisenyi. Photo by author.
Since the Kenyan government became embroiled in the Somali conflict in 2011, the whole Somali community in the country (encompassing both Somali Kenyans and refugees) has been increasingly portrayed by politicians and media alike as a potential fifth column of Al-Shabaab, an Al-Qaeda affiliated Somali organization. After invading Southern Somalia, officially to prevent terrorist infiltrations, Kenya has conjured up the very demon it aimed to exorcise: a spat of terror attacks (culminating with the raid of Al-Shabaab gunmen in Nairobi’s Westgate shopping mall in September 2013) that has shed blood and triggered ethnic profiling, and given free rein to corrupt police to abuse and extort money from refugees. Refugee mobility has increasingly been restricted to camps and a massive security swoop, operation “Usalama Watch,” has lead to round ups and deportations to Somalia. Many, particularly the youth, are moving to Uganda, where a progressive refugee act allows refugees to circulate freely. 

Financial practices have a crucial role in decision-making strategies against this volatile background. The long-established hawala system enables businessmen to move capital to new areas where trade opportunities are flourishing, such as Kampala, Kigali in Rwanda, the DRC border and, until recently, Juba in South Sudan. At the same time, the usage of Safaricom M-Pesa mobile money across borders facilitates the transfer of small amounts to sustain students and small businesses between Kenya and Uganda. The way the two infrastructures are used and interwoven reflects the importance of cultivating multiple financial options to respond to unpredictable situations.   

Eastleigh. Photo by author.
The story of Abdiqadir Cali is a vivid example of how this combination occurs in practice. I first met him in the Bangkok mall, one of the many trade centres that are the landmarks of Eastleigh. He was 26 years old, had a refugee card and a reputation as a computer wizard. He had flown to Kenya in 2009 after the Islamist militias of Al Shabab had captured the city of Baidoa, in Bay region, Southern Somalia, where he was born and where his family still lives. He spent a few months in his cousins’ house in Mandera, on the Kenyan side of the border, and then, driven by the desire to get formal education, moved to Eastleigh. Once again, some relatives offered him hospitality and a little financial help with which he enrolled in a technical institute. After a year, though, his funding dried up and he was forced to withdraw. Yet, he had discovered that he was particularly talented in resurrecting laptops and computers. “Let’s ask Abdi” became the immediate reaction to a crashed system, and his name – and mobile number – started travelling via word-to-mouth or SMS. It thus spread outside Eastleigh, Nairobi and eventually Kenya, spurring a flood a job offers from as far as Mombasa and Kampala. His customers were mostly Somalis and a few Kenyans and Arabs from the coast, all wanting him to fix their apparently dead devices, packed and shipped by bus to Eastleigh. Abdiqadir Cali became busy dismantling and reassembling laptops and PCs, constantly informing his customers about this or that spare part to purchase, payment upfront. The money was sent through M-Pesa and Abdiqadir Cali used his mobile phone as a wallet, through which he received payments and where he stored his monthly allowance. In fact, he had his savings somewhere else: each month, he transferred a sum to his family back in Baidoa using Dahabshiil, a major hawala company. He thus converted the KSh received through M-Pesa in USD and deposited the amount in a local branch of Dahabshiil, which made it immediately available to the designated recipient in Baidoa. “I keep tab of my transfers and my mother takes care of my money”, he said. “One day, I will use it to start a business.” In the meantime, though, his savings were shoring up his family’s livelihood and fostering his siblings’ mobility aspirations: one of them was set to move to Kampala, tapping into his older brother’s little wealth to fund his journey.

I got in touch with him after the Kenyan police launched the crackdown. He told me that he had been arrested by the police and forced to pay the equivalent of 50 USD to avoid deportation to the Daadab refugee complex. Now, he was planning to follow his brother to Kampala, where in recent years a new Little Mogadishu has grown in the slum of Kisenyi. He was confident that in Uganda he would be able to rely on his hawala account and even to expand his customer base in the country and in neighbouring countries.

“When you are standing on one leg, you need to move,” he said, “if you don’t want to fall down.”

Read more in Gianluca Iazzolino's final report, "Contingency Routes: Somali Flows and Transnational Spaces between Kenya and Uganda."

Wednesday, October 15, 2014

The Socio-Political Context of the New Financial Architecture and Public Electronic Money System in Ecuador

By IMTFI researcher, Javier Félix

A proposal for a “New Financial Architecture” has emerged in Ecuador as a response to the previous neoliberal financial model, to reclaim the role of the state in financial regulation. It aims to strengthen the state’s monitoring system and its institutions and build a financial safety net to avoid catastrophic events in a crisis, like the one experienced in Ecuador at the end of the 1990s, which resulted in the adoption of the U.S. dollar as Ecuador’s official currency. Furthermore, this proposal seeks to adjust the monetary and financial framework of the Central Bank to the country’s system of dollarization. An additional and equally important component, which reflects a political economic strategy, is the inclusion of the so-called “popular and solidarity financial sector” (sector financiero popular y solidario)—which includes credit unions, savings and credit cooperatives, community banks, and so on—as a focus of this new domestic financial architecture. The proposal thus seeks to expand financial services, in particular, to the rural sector.

Central Bank of Ecuador’s stand of the Electronic Money System
at the 2014 Campus Party in Quito (Photo by Javier Felix)
One of the most groundbreaking components of this New Financial Architecture is the implementation of an electronic monetary system, operated mainly through mobile phones, for which the Central Bank of Ecuador (CBE) will serve as the issuer and administrator. Officials at the CBE consider money to be a public good and see the electronic money system as a way to democratize its use. This is a unique proposal in the global context of other mobile money deployments. There have been many experiences in the private sector, which have shown that there are a variety of factors influencing the success and failure of a project, as well as a variety of ways to measure the impact of mobile money on financial inclusion and the household economies of its users. In many examples, partnerships between financial institutions and mobile network operators have resulted in privately run initiatives, oriented primarily to profit by directing users’ consumption to particular companies.

However, this would be the first state-owned experience of public mobile money.

The proposal responds to Rafael Correa’s left-leaning political project embodied in the National Plan for Well-Being (Plan Nacional del Buen Vivir), which serves as a guide to the implementation of public policy for the coming years. The participation of the Central Bank, as the leading authority for the implementation of electronic money, corresponds to the government’s objective to reclaim its role as regulator and administrator of public goods. As a consequence, public policies and regulations have been created to limit and restrict the participation of the private sector, including companies and non-governmental organizations, in the interest of consolidating governance. Furthermore, this political agenda includes reforms to the financial sector in order to strengthen the entire system, especially the “popular and solidarity financial sector,” and, it is often argued, to prevent financial crisis.

For the implementation of the system, the state had to amend the Monetary Regime and State Bank Law (Ley de Régimen Monetario y Banco del Estado). One of the main provisions of this regulation is that “electronic money issuance must be an exclusive function of the state, which ensures and gives confidence to the carrier of this payment method, its free availability, and its condition as legal tender.” This limits the development of private projects of mobile money in Ecuador. With the imminent implementation of the electronic money project, which will most likely be rolled out by the end of 2014, there have been objections and arguments questioning to the proposal, especially coming from some representatives of private banking, financial analysts, and the press. The main concern was that the Central Bank could issue electronic money without backing, thus bypassing dollarization and enlarging the supply of money in the country. However, some of these doubts were assuaged after a new manual for the operation of the electronic money system was issued in June 2014.

The electronic money system, as defined by the Central Bank team in charge of implementation, is a set of operations, mechanisms, procedures, and regulations that facilitate the flow, storage, and real-time transfer of monetary value between different economic agents. These transfers will be made ​​through the use of electronic means such as the Internet, mobile devices, smart cards, and others. Like elsewhere in the world, the objective of implementing an electronic money system in Ecuador is to improve the inclusion of marginal sectors to financial services and use financial inclusion as a mechanism to ameliorate poverty. But the Ecuadorian Central Bank wants to set a precedent in the world, that such systems should ensure the open and democratic participation of all stakeholders. In creating a public system, it seeks to be broad in terms of the interaction and the relationship between the state and the actors of the financial system, whether they are public, private, or belong to the “popular and solidarity” sector.

The Central Bank’s cutting-edge proposal to create a public electronic monetary system still needs to answer the question of how can it generate a more significant impact than privately run systems. Since the project hasn´t yet been implemented, it is unknown how Ecuadorians will respond to the system. Will they trust in this new means of payment? Are people from rural areas and marginalized urban neighborhoods willing to use their mobile phones for daily purchases instead of cash? Money, as a social agreement, needs people’s trust and approval to be part of their lives. Is electronic or mobile money going to herald a new kind of social contract? How will it unfold in Ecuador?

Monday, October 6, 2014

Ghanaian Rural Women Traders' Cognitive Understanding and Perception of Mobile Phones and Money Systems

By IMTFI researchers Dennis Chirawurah, Deborah Elzie, and Seidu Al-hassan

Mobile technology has gained prominence in the development agenda of the government of Ghana. This is because mobile technology has the potential to reduce poverty by providing access to financial services like savings and money transfer to users. This research employs a participatory approach to examine local self-sustaining eco-systems, cognition, and perceptions about mobile money systems as a means of enhancing livelihoods in Ghana. The study was carried out among one hundred rural women traders, randomly selected and interviewed from the Kasena Nankana Municipality in the Upper East region of Ghana. The study results showed that 90% of the traders interviewed rely on home savings for both trade transactions and household sustenance. About 77% of the traders interviewed use mobile phones and have done so for a period between 1-5 years. The MTN mobile network (the local mobile service provider) was reported as the most commonly used communication network. Poor network connectivity remains the biggest challenge to traders, and 82% still have no idea about mobile money or its perceived risks. Almost 81% of the traders reported that they do not use a barter system in their trading. Mobile money systems are still largely unknown among rural women traders. This may be attributed to the fact that rural areas lack the necessary communication infrastructure to support efficient money transfer. Only 2% of the respondents use mobile money and their use is only limited to sending money to their wards in schools as well as receiving assistance from relatives but not for trade.

Traders in the market. Photo by authors.
We spoke with a rural woman trader dealing in millet and pito malt who put the value that mobile phones bring to rural trade in perspective. Speaking in the local language (Kasem) she said:

“The coming of the mobile phones have significance for us as rural traders. I for one, I am trading in millet and process and sell pito malt to pito brewers. I will usually join the lorry to Fumbisi and Gushegu where I buy the millet on the market days. Most of the market trucks that usually ply on these routes are not road worthy and at times we can spend two days on the road due to truck breakdowns. With the mobile phones it has made my trade transactions a lot easier and cheaper to do. Now I can call the millet sellers from the markets prior to the market day to discuss prices, quantities I need and to introduce a person who will deliver my cash or even arrange to buy on credit. With this prior arrangement, the seller is able to arrange for the millet to be loaded and delivered to me on Navrongo Market day in Navrongo. The phones have therefore helped us cut down on the cost of doing business and by that increase our profits. It also helps us to save time by not traveling to distant markets to buy food. This way the time is used to engage in farming and household chores. The only dark side of the phones too is when the network is bad and you try several times without success to connect to your trade partner from the distant markets.”

At the interface session, where the concerns of rural traders were presented to mobile network service providers and local authority officials, she reiterated the need for the service providers to seriously address the challenges so identified and to make their services more reliable and accessible to rural women traders.  

Traders in the market. Photo by authors.

Nevertheless, given the high mobile phone usage among rural women traders in the study area, and the reported transportation of cash in rural trade transactions and the potential risk associated with bulk cash handling across long distance trading markets, the need and potential for mobile money usage is high among rural women traders. The focus of subsequent research will need to be targeted at designing mobile money systems that are appropriate, inclusive, and responsive to the savings and trade transaction needs of poor and marginalized rural women traders.

The final report from the project can be viewed here.