Financial Services for China's Marginalized

Citizens at the bottom of the economic pyramid in China lack even the most basic means to save for their children’s education, make purchases on credit, protect their homes through insurance, and send and receive money.

Financial exclusion prevents many of them from realizing their potential and improving their livelihoods.

How can better financial services be designed to meet their needs? With the support of the Institute of Money, Technology, and Financial Inclusion at the University of California at Irvine, Reboot undertook a study to understand the daily lives of China’s marginalized and answer this question.

Pantha Lee of Reboot writes about her IMTFI-funded research on China's informal financial sector at the Center for Financial Inclusion's blog.

Reboot's work is making waves, and has been featured recently on both Tech in Asia and the World Policy Journal's blog.

The thoughtful and visually stunning Reboot report will be launched with a public event on Thursday, February 28th in New York City.

Researchers at frog design ask: do you want to live?

In the next week, frog design researchers will be publishing a series of posts on Core 77 design magazine.  Make sure you take a look! These posts (and the incredible photos that we know the frog team for) will focus on researchers' experiences working for commercial and non-commercial clients in places like Afghanistan; post-revolution Egypt; Rwanda; Burundi; Brazil, Ethiopia; South Sudan; India and China.  Coinciding with the publication of their new report, In The Hands of God: A Study of Risk and Savings in Afghanistan, they will take on topics of financial inclusion, healthcare, automotive, fast moving consumer goods.

 Core 77  announces the plan:

The series starts on Tuesday (tomorrow) with a deep dive onto the streets of Kabul and Herat with a post on how to mitigate risk. On Wednesday we'll be donning more conservative clothes and covering issues around researching extreme gender dynamics. On Thursday we'll publish the report itself, putting these issues into the context of what the team learned and how impacts future designs in Afghanistan and beyond. On Friday we'll shift gears and look at the emotional highs and lows of conducting this kind of research. In the following week we'll look at how to manage expectations in your organisation that understandably is a tad nervous as what you're getting up to in field; and turn out attention to conducting rural research.

Be sure to click through.  The project was co-funded by frog design and IMTFI, and the posts and images are going to be truly incredible.

A lot of hope and some hiccups with M-Shwari

By guest bloggers John Gitau and Ignacio Mas 

In December 2012, Kenyan mobile operator Safaricom and its partner bank, the Commercial Bank of Africa (CBA), issued a new banking product, M-Shwari (Swahili words: shwari, meaning ‘calm’ or ‘cool’). M-Shwari was established to serve as a separate interest-earning non-transactional savings account operated through M-PESA, the successful mobile-phone based money transfer system in East Africa (see here for further details). The dramatic take-up of M-Shwari among M-PESA customers is testament to Safaricom’s strong brand and its nose for nailing customer pain points. For most people, its seductive appeal comes from the possibility of instant credit. Outsiders might feel like the 7.5% fee on a month-long loan is on the higher side. However, most Kenyans know that’s lower than the available informal alternatives and some short-term bank loans too.

For heavy M-PESA users, M-Shwari also represents an effective doubling of the M-PESA balance ceiling; you can now transact much more without having to visit an M-PESA agent to cash in or out. Safaricom wants most people to see their M-Shwari account as a modern mobile piggybank. We are curious to see whether people see M-Shwari as a less liquid version of M-PESA, one over which they can exercise more self-discipline. The sobering reality everywhere is that the bulk of electronic accounts held by the informal majority, including M-PESA accounts themselves, have meager balances. Should we expect M-Shwari accounts to be any different? Only time will tell.

We are happy to see such innovation at the heart of the M-PESA proposition. But we do have some regrets about how M-Shwari works. They relate to some concrete aspects of usability, transparency on loan terms, and competitive positioning within the M-PESA menu.

The two of us decided to give M-Shwari a trial run. Applying for a loan was quick and easy, we did it right from our mobile phones, and got an answer within minutes. One of us was immediately rejected. One can handle being turned down for a small loan, but it was dispiriting to get a text message with the opening sentence: “Failed.” Then the message continued: “Your M-Shwari loan request was unsuccessful.” It wasn’t clear if there was a technical failure or if the loan was rejected for creditworthiness reasons, and in fact some people we talked to applied again only to get the same rejection message. The message then concluded with: “For more information please contact M-PESA Customer Care,” without providing a phone number.

The other one of us got approved for a loan, and the SMS confirmation announced “Confirmed. Your M-Shwari loan request is approved.” A follow-up text message (why not the same?) provided the details: “Dear customer. Kindly note you have an outstanding loan balance of KSH 2,150 due 26/2/2013.” That’s the loan amount of KES 2,000 ($25) plus a 7.5% fee, due in 30 days.

Fantastic news, except that if you make the mistake of saving money into your M-Shwari account while you have an outstanding loan with Safaricom/CBA, they will freeze the amount of new savings up to the value of what you owe them. If you intended to park that money there for only a few days you won’t be able to access it until you repay the loan. Safaricom/CBA have just, in effect, repaid themselves out of your new savings.

The impression in the market is that loans are for 30 days, whereas the reality is that if you save into M-Shwari the day after getting the loan, you will have received an overnight loan at 7.5% (to be precise: less the couple of decimal points of interest you would earn on the frozen savings over the month). But before we cried foul, we checked and discovered that this practice of freezing savings even during the first month of the loan is in fact consistent with the fine print in M-Shwari’s Terms and Conditions. But still, there’s a gap between how the product works and how it’s generally understood to work. That’s not good. By creating an incentive to suspend savings activity while you have a loan, Safaricom and CBA are subordinating the savings function to the lending service even though Safaricom markets M-Shwari first and foremost as a savings product.

The final point to note is the positioning of M-Shwari within the (updated) M-PESA menu. It shines by itself, below “airtime” and above “payment services” – a new grouping for bill and merchant payments. The fact that M-Shwari has its own line item and not grouped under a “banking services” provides yet more evidence that Safaricom’s approach is to design and promote its own services rather than to aggregate third-party services. Interestingly, for those with a ‘legacy’ M-KESHO account, the ill-fated joint offering of Safaricom and Equity Bank, the M-KESHO item on the menu is below “payment services,” two positions down relative to its proprietary version, M-Shwari. No pretense of equivalent treatment there.

M-Shwari has raised great expectations in the market, and that makes it even more important that it fulfills people’s expectations in terms of loan terms, usability and customer choice. 

John Gitau is a financial education consultant/trainer and CEO of the Kenya Financial Education Centre. Ignacio Mas is an independent consultant on technology-enabled models for financial inclusion.