The mechanization of donkey water, a symbol of economic progress

Bye-bye

There’s a snippet of interesting insight in this news article from Hargeisa City in Somaliland. Traditional donkey carts supplying water are being replaced by motorcycles and this has been framed as a sign of increasing development and economic activity by the journalist.

Bajaj Water tankers gradually negating Donkey drawn water distributors in Somaliland

Its a local invention, this “Bajaj Water Tanker” as its called, a prime example of the jugaad or ingeniously creative solutions to inadequate infrastructure and unreliable systems that one can see peppered across the developing world.

In his interview, Mr Fanax, shown above with his innovation above, answers a few questions on the difference between using this modern technology versus the donkey cart he used previously.

Q. is there any change in the price of water from your previous charges?

A. yes I used to sell a drum of water at 12.000 SL but now I sell at 9.000SL

Q. how long have you used the motor cycle, how many liter of water does the tank carry, how many liters of fuel do you use?

A. I have used the motor cycle for 3 months, the tank carries 400 liters of water equivalent to 2 water tanks. I use 4 liters of fuel per day equal to the food that is given to the donkey (grass and maize)

Q. how do you customers see the changes that you have done?

A. they are happy with the changes in terms of price, the faster way of getting water and even on the cleanliness

Q. what do you suggest to your friends who use donkey cart?

A. it’s a good question. Be ambitious and ensure that you change from using a donkey to a more modern way.

Interestingly, the price of water has come down, although one would imagine that a donkey might have been cheaper to maintain than a gas guzzling vehicle. On the other hand, he gets around faster and can make far more deliveries transporting double the volume of water and thus might still be making more money than previously.

What strikes me is how the concept of “modernization” and “progress” is perceived, in the context of the individuals daily life and operating environment, whereas to those of us accustomed to piped water, the need for water delivery might still be considered primitive or backward.

There’s a whole new vocabulary of aspiration evolving within the informal economies kickstarted by prosperity.

Posted in Africa, Bottom of the Pyramid, Business Models, Economy, Indigenous & Traditional, Urban, User research | Tagged , , ,

Prepaid services for water in Africa – survey

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An increasing number of African water utilities are turning to pre-paid metering in order to curb wastage, claw back lost revenues and extend service coverage. Do the rewards justify the high roll-out costs?

Chris Heymans, senior water and sanitation specialist at the World Bank, is currently undertaking a study of pre-paid services in eight cities in six African countries. He observes that while the investment is hard to recoup in domestic connections with low consumption volumes, PPS for public standpipes and large institutional clients are more likely to be financially viable because the high volumes of water sold can quickly repay the high installation costs of pre-paid meters.

The key constraints for institutional pre-payment meters are that governments need political will to stand by such systems, and some decision-makers have concerns about the ethics of putting strategic institutions such as schools, hospitals or police stations at risk of being cut off. In Lusaka for instance, LWSC made an exception for the city’s main hospital, which was simultaneously equipped with a PPS and a bypass system to ensure that it would not run out of water.

Source.

Posted in Africa, Business Models, Urban | Tagged , , ,

A design challenge for agric service innovation in rural Africa

Find a way to embed principles of sustainable good agriculture for the smallscale farmer in a socio-economically beneficial way.

drawing credit: herman weeda

drawing credit: herman weeda

How would we do this?

Where do we begin?

The answers to these questions and more will be forthcoming on this blog. I reach out and encourage you all to consider submitting your thoughts and opinions between 1000 to 1500 words in length. We will combine the thoughts of many voices together in this blog stream so you really should consider subscribing to the RSS feed.

Posted in Africa, Business Models, Buyer Behaviour, Cashless transactions, Culture, Design, Flexibility, Frameworks, Indigenous & Traditional, Informal & Flexible, Mobile platform, Rural, Rural Economy, Strategy, Sub Saharan Africa, User research, Value | Tagged , , , , , , ,

Part 4: The visual documentation of the original research on rural economic behaviour

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I have uploaded a PDF synopsis of the fieldwork conducted during the original Prepaid Economy research including approach and methodology.  Also documented are the different ways those in the rural economy manage their ‘investments’. These images support the observations documented in Part 2 and my thoughts on rural Indian cow ownership have been fleshed out here.

Also of interest maybe this paper from Purdue’s Agricultural Economics department on The multifunctionality of livestock in rural Kenya whose abstract states:

While many contemporary development programs with regard to Sub-Saharan Africa’s pastoralists promote improved livestock marketing as a way out of poverty, they also fail to take into account the multi-functionality of livestock within these communities, and thus are doomed to failure. While livestock are a main source of income for the pastoralist household, they also serve a purpose as a store of wealth, food source, and status symbol. Furthermore, cattle and smallstock (sheep and goats) fulfill each function to a different degree. Since livestock are so multi-functional, marketing projects could better achieve their objectives if they had a more accurate picture of what motivates household livestock sale decisions.

Posted in About, Africa, Airtime, Alternative currency, Assumption filter, Banking, Bottom of the Pyramid, Business Models, Buyer Behaviour, Cashless transactions, Culture, Economy, India, Indigenous & Traditional, Informal & Flexible, Livestock, Philipines, Project report, Rural Economy, Sub Saharan Africa, User research | Tagged , , , , , , , | 1 Comment

Part 3: Synthesis and Insights from original research on rural economic behaviour

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One can conclude from synthesizing the data collected across the geographies and the range of “BoP” income levels that rural households demonstrated similar patterns of behaviour in their management of household expenses on irregular income streams. These are:

  • the rapid conversion of cash into tangible assets such as goods or livestock,
  • the  subsequent storage of wealth in this form,
  • the ability to conduct cashless transactions by mechanisms both simple and sophisticated
  • shared or cooperative financial tools such as investments, loans, purchases and savings
  • the use of multiple resources allocated by cost and usage
  • knowledge and experience of seasonal ebb and flow influencing cash flow management

The irregularity of cash flow or income over time in the households studied can be said to be a combination of the known – such as the ebb and flow of income over the course of the year, either directly due to the natural seasons or due to other unnatural but predictable factors such as Christmas or vacations; and the unknown -  either the truly unpredictable such as a natural disaster or the simply random, such as not knowing how many customers will make a purchase on any given day.

The known component or the “reasonably predictable through experience”, is less a matter of the actual amount of income earned and more about knowing when to expect peaks and lows in cash flow. This element of seasonality would be a critical component of knowledge pertaining to a particular region or market for BoP ventures seeking to create value through successful introductions of products or services.

For example, in the rural region of The Philippines, January to approximately April or May (or until the rains begin) is considered the annual “summer” or “dry” season – unless a farm is very lucky to have access to sufficient water for rice growing regardless of rain, the farmers can only start planting when the rains arrive and are dependent on it for their second harvest as well. So overall, whether its tiny sari-sari1 stores supplying everyday essentials, snacks and cold drinks or some other business – even those selling necessities like food, all consider this a lean period.

Those who earn daily wages  helping farmers plant the rice have little work, farmers live on their stockpiled rice, everyone tends to spend less but along with the rains all of this changes and the pattern of spending increases until the annual Christmas peak. For some, wholly dependent on what they can earn locally (receiving no remittances from relatives abroad) this can mean a difference of 100% in their weekly earnings between the “wet” and the “dry” season.

The Indians and the Malawians were influenced in similar ways, only the actual timings varied due to geography. Whatever the reasons in any particular region, when evaluating the purchasing power of those who manage with irregular and unpredictable income, the first question to ask is if there are any known patterns of ebb and flow in their cash flow.

It is the unknown component that creates the unpredictable volatility that those on irregular income streams must deal with in order to manage their household expenses with any degree of control. The behaviours observed listed above, taken together, can be summarized to state that each household managed what could be called a “portfolio of investments” that acted as deposits maturing over time.

They either maintained multiple sources of income simultaneously since available cash was often converted into these investments, spreading the risk of any one source failing when needed or stored their wealth accordingly.  Maximizing available resources based on their cost and intended usage along with the tendency towards minimizing the need for cash based transactions all worked together  to smoothen the volatility of the household‘s income.

For example, one family in Malawi reared pigs for sales (or food in emergencies), grew vegetables and maize for their own needs, distilled wine from sugar cane for cash sales and also kept bees with a cooperative for annual harvest of honey. Cash was thus available in varying amounts from a variety of sources at different points of time.

In the Philippines, an extended household living together in one compound pooled their resources from a kitchen garden, stored fuel in the form of bamboo and dried coconut husk, kept chickens and occasionally a pig, as well managed on the small amounts of cash earned daily through running at small sari-sari store on the premises.

While in the Indian village, even the silversmith who made ornaments only during the harvest peak, used his metalworking skills and workshop the rest of the year to make doors, windows and grillwork.

This portfolio management approach to household expenses* implies the manipulation of their span of control over elements of time such as periodicity and frequency as well as currency, i.e. cash or goods, in order to decrease the volatility of their cash flow, improve their ability to plan and while decreasing the variance between expenses and income.

Across the board, the particular characteristic that most stood out during conversations with the rural populace in India and The Philippines, echoing  prior experience in the field elsewhere, was their undeniable pride in their degree of self reliance, and thus, their level of independence from the formal or cash based economy.

Over and over, people would proudly point to assets like firewood, livestock, kitchen gardens etc and emphasize that these resources were ‘free’ and didn’t need to be purchased for cash, often in the same breath pointing out how everything needed to be bought if you lived in the city. Whether it was a nanny goat kept just to provide the daily cup of milk for morning tea or an extra sack of rice held back from the harvest sales, there was a distinct sense of achievement for every penny that didn’t have to be spent.

This trait of minimizing the need for actual cash money also cropped up in other patterns of behaviour including the storage of wealth in the form of ‘kind’ or ‘goods’ (that could be liquidated when and if required); cashless transactions within the community, from the simple to the sophisticated; and the rapid conversion of surplus cash into goods or ‘kind’ (livestock, for example, as investment or planned savings in the form of silver or bricks for a future house).

Expensive resources that required cash outlays such as fuel – diesel for irrigation pumps; liquid petroleum gas cylinders for cooking; or airtime minutes purchased on prepaid plans for the ubiquitous mobile phone, would be stretched out for as long as possible before the need for replenishment. For example, a common behaviour was the choice of cheaper or ’free’ fuel such as firewood or dried cow dung for cooking food which took a long time to cook such as beans or stews, saving the use of the more expensive gas stove for fast cooking items.

All of these behaviours, taken together, imply a challenge for businesses seeking to serve rural populations effectively since their relative lack of liquidity places them in a challenging position as future customers. Conventional business development methods include the use of market research to evaluate the disposable income or purchasing power of the target audience. When considering rural BoP households, these tools may not supply any meaningful data, skewing the perceived income levels or earnings of those studied.

In sum, it can be concluded that the challenges for value creation can be quite different for BoP ventures interested in addressing the rural markets. From the observations made in the field, we can highlight three key implications for business development. These are:

1. Seasonality – with the exception of the salaried, everyone else in the sample pool was able to identify times of abundance and scarcity over the course of natural year in their earnings. Identification of a particular region or market’s local pattern of seasonality would benefit the design of payment schedules, timing of entry or new product and service launch, for example.

2. Relative lack of liquidity – The majority of the rural households observed tended to ‘store wealth’ in the form of goods, livestock or natural resources, relying on a variety of cashless transactions within the community for a number of needs. Conventional business development strategies need to be reformulated to take this into account as these patterns of behaviour may reflect the household’s purchasing power or income level inaccurately.

3. Increasing the customer’s span of control over the timing, frequency and amount of cash required – Since the availability and amount of cash cannot be predicted on calendar time, this implication is best reflected by the success of the prepaid mobile phone subscriptions in these same markets. When some cash is available, it can be used to purchase airtime minutes for text or voice calls, when there is no money, the phone can still receive incoming calls. Models which impose an external schedule of  periodicity, frequency and amount of cash required may not always be successful in matching the volatile cash flow particular to each household’s sources of income.

Conclusion

Broadly speaking, there was evidence of far more sophisticated cash flow management than has either been expected or assumed among the rural BoP households in the sample pool. In fact, one future task would be to parse out whether the terms ‘irregular’ or ‘unpredictable’ can be be applied. Certainly, income was not as predictable and regular as a salary, but on the other hand, neither were they totally random and unknown. At this point, it seems far more accurate to say that the rural BoP households do not manage their expenses on a “fixed amount arriving on a known day or date”.

Also to be reconsidered is whether those in the rural communities in developing countries should simply be lumped together with their urban brethren as an undifferentiated mass called “the BoP” or “the poor” – for one, living on $2 a day has an entirely different meaning where much of the hyper local economy may not even be based on cash transactions, or else, few daily requirements need to be purchased.

If we’re to seriously evaluate business development for BoP ventures, then a far more nuanced understanding of local culture, buyer behaviour and segmentation of these emerging consumer markets is required.

* Given the similiarities in findings, it should be noted that these insights emerged from a workshop conducted in Helsinki, Finland in April 2009, prior to the release of the now famous book, Portfolios of the Poor.

Posted in Africa, Assumption filter, Bottom of the Pyramid, Business Models, Livestock, Project report, Rural Economy, User research | Tagged , , , , , , , , , ,

Part 2: The Observations made during original research on rural economic behaviour

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One can roughly consider the relative income (or wealth) across three regions where observations were conducted on a continuum where the Indian village was the ‘wealthiest’ while the Malawians were living closest to the edge. However, on synthesizing the combined data collected across geographies, patterns of financial behaviour emerged that showed similarities of intention and goals.

For example, non-perishable food grains such as wheat in India or rice in the Philippines were considered a form of wealth that could be stored, acting as savings or insurance. A portion of the harvest would be held back, to be either sold on demand for cash, over the course of the year or as a source of food. Wealth was also stored, as security, for the longer term, in the form of silver ornaments (in India) or as an investment, in the short term, as livestock – pigs, chickens or a milch cow.

Also, people rarely held on to money in the form of cash for any length of time, for the most part due to lack of access to banks and/or the high cost of maintaining an account proportionate to their incomes.  Available cash was usually converted to “kind” – either goods or livestock- the choice of which reflected careful prioritization. These tangible purchases then acted as financial tools depending on their “convertibility”-

  • long-term security (silver);
  • planned savings (buying building materials on a piecemeal basis over time until a house could be built);
  • insurance or a “cushion” against shocks (a pig that could be sold to raise cash or eaten as food) and finally,
  • investments (milk bearing cow, young piglets to rear to maturity, culling high margin ‘fighting cocks’ from chicks).

Cashless transactions, thus, were frequently observed. These behaviours were most complex in India; where a sophisticated mechanism allowed a group of farmers to negotiate the annual retainer for the services of a carpenter in the form of a number of sacks of wheat to be paid during the harvest and the local shops would set a ‘currency’ conversion rate of a kilo of wheat to the rupee to be used for buying sundry provisions. The shop that insisted on cash only transactions priced its goods about 10% cheaper than the rest. Barter was far simpler in Malawi, where a mobile phone could fetch its equivalent price in goats.

Here, it must be noted that very often each household’s resources such as a store of fuel (cow dung in India; firewood elsewhere), chickens or a kitchen garden and assets like milch goats or cows, would be pointed out with pride.  For their possession implied an independence from cash money – in almost every interview, people would emphasize how little they needed to purchase in the store or nearest town for their daily needs as they were self sufficient in these demonstrated requirements. Often it would be added that in a city, you had no choice but to purchase everything you needed.

Thus the use of purchased resources were optimized for maximum cost/benefit and  their use extended as much as possible before replenishment. For example, if a household had access to cooking gas, they would still use firewood or charcoal for foods that took longer to cook while the more expensive fuel was used for foods that cooked quickly.

In the Philippines, cashless transactions were rarely in the form of goods but tended to involve time or physical labour, primarily as a form of social capital in the community. These complex webs of the rural community’s social networks of trust were obvious in the patterns of sharing and cooperation seen in every country. Groups would invest and save together, for example, the extremely sophisticated cooperative ladies lending circle which had expanded over time to include the services of a local bank in India; or the beekeepers cooperative in Malawi where half the annual profits were saved in a common account while the other half was equally shared.

In addition to the behaviour patterns mentioned above, an external factor was observed to be of great significance in the management of rural household expenses.  While it naturally differed in timing and reason from region to region, every household and profession could predict, within reason, the ebb and flow of income based on the seasons of a natural year. In fact, many other observed behaviours were often directly linked to these expected peaks, such as the harvest season, and lows, for example the dry season when fields lay fallow.  This pattern of expected ups and downs or seasonality in income flow was seen to affect even those who were not directly involved in agriculture, as the local economies were closely knit and interdependent.

Note: This blog was begun as a way to publicly share my thoughts during fieldwork, so much of the raw data and immediate observations are available under the category “user research” as well as blog posts written during January 2009 to April 2009 as seen in the archives available on the right hand sidebar.

Posted in Africa, Alternative currency, Assumption filter, Banking, Bottom of the Pyramid, Business Models, Buyer Behaviour, Cashless transactions, Culture, Economy, Indigenous & Traditional, Informal & Flexible, Livestock, Project report, Rural Economy, User research | Tagged , , , , , , , , , , | 1 Comment

Part 1: Why are we publishing our original research on rural economic behaviour in 5 parts online?

A recent article in The Economist on the economic value of owning cattle in rural India made me to realize just how little is understood about the rural economy.  Here’s a snippet:

That is because most people find spending easier than saving. Immediate pleasures are easier to grasp than future joys—and so people make spending decisions that they later regret. Economists refer to this as “myopia”. Cows force people not to be myopic. Compared with money held in savings accounts, cattle are illiquid assets. Taking cash from a cow is harder than taking money from an account. As a result, temptation spending is trickier.

The paper has implications for poverty-alleviation strategies and for financial services in developing countries. Aid programmes that try to reduce poverty by distributing livestock may be ineffective at raising incomes, if the returns from owning them are so poor. If cows are used as a means of saving, the spread of mobile banking in places like India will provide another, better option. Even then the problem of temptation spending arises.

This discussion makes quite clear that the underlying assumptions being made by the learned authors of this study are not only implicitly wrong but based on their own perspective of life in the concrete jungle with access to easy credit enabling impulse purchases and conspicuous consumption. Milk, for their morning cereal, tends to come from a tetrapak in the extra large refrigerator and electricity provides the means to warm it.

Since the Prepaid Economy project has been immersed in rural household economic behaviour for some 5 years now, perhaps its time to share the basis for better understanding the why behind the what that is being so fervently discussed. The final report as submitted to the funders of the original fieldwork will be shared in 3 parts:

1. The Abstract – scroll down after the cow for this extract.
2. The Observations
3. The Synthesis and Insights
4. The visual documentary of the above with annotations.
and finally
5. My thoughts on the role of the cow in the rural economy, supported by references to research previously linked to on this blog as well as additional fieldwork in Kenya.

Buffalo, Village Rewal, Rajasthan, January 2009 (Photo: Goverdhan Meena)

Buffalo, Village Rewal, Rajasthan, January 2009 (Photo: Goverdhan* Meena)

The challenge faced by BoP ventures has been the lack of knowledge about their intended target audience from the point of view of business development whereas decades of consumer research and insights are available for conventional markets. What little is known about the BoP’s consumer behaviour, purchasing patterns and decision making tends to assume that there are no primary differences between mainstream consumers and the BoP except for the amount of their income – pegged most often between $2 to $5 a day.

In practice, the great majority at the BoP manage on incomes earned from a variety of sources rather than a predictable salary from a regular job and have little or no access to conventional financial tools such as credit cards, bank accounts, loans, mortgages. This is one of the biggest differentiators in the challenge of value creation faced by BoP ventures, particularly among rural populations (over 60% of the global BoP population lives in rural areas).

Exploratory research was conducted in the field among rural Indian and rural Filipino populations in order to understand how those on irregular incomes managed their household expenses. Empirical data collected by observations, interviews and extended immersion led us to identify patterns of behaviour among the rural BoP in their management of income and expenditure, ‘cash flow’ and ‘working capital’ and the significance of social capital and community networks as financial tools. Practices documented include ‘conversion to goods’, ‘stored wealth’, ‘cashless transactions’, and reliance on multiple sources of income that mature over different times.

This paper will share our observations from the field; identify some challenges these behaviours create for business and also explore some opportunities for value creation by seeking to articulate the elements that BoP ventures must address if they are to do business profitably with the rural ‘poor’ based on their own existing patterns of financial habits and norms.

*It just struck me that even the name of my local guide in Rajasthan was Goverdhan, which means “to increase the wealth (value creation) of a cow”.

Posted in Alternative currency, Assumption filter, Banking, Bottom of the Pyramid, Buyer Behaviour, Cashless transactions, Cattle, Culture, Economy, Expenses, Flexibility, Income, India, Indigenous & Traditional, Livestock, Project report, Rural, Rural Economy, South Asia, Strategy, User research, Value | Tagged , , , , , ,