This is something I’ve been struggling with now for most of February. Can we segment the undifferentiated mass known as subsistence farmers or just BoP farmers by their sense of food security?
That is, during the course of the original Prepaid project fieldwork conducted in late 2008 early 2009, I’d figured out a rough way to obtain a representative sample of the rural economy. This was by
Organising the informal sector and recognising its role as a profitable activity may contribute to economic development. This can also improve the capacity of informal workers to meet their basic needs by increasing their incomes and strengthening their legal status. This could be achieved by raising government awareness, allowing better access to financing, and fostering the availability of information on the sector.
Authorities’ awareness: Policy-makers in Africa should recognise the important role informal sector companies play in the economy. Associating the informal economy to criminal endeavours or tax evasion is not a good way to formalise the sector in Africa. There is a need for African governments to coordinate their policies and strategies in order to support the formalisation of the sector. Effective regulatory framework, good governance, better government services, improved business environment, and improving access to financing, technology and infrastructure are essential in this process. In that regard, development partners have pledged their commitment to support the formalisation process. This includes mainly the promotion of social protection to workers in the informal sector and support to small and medium-sized companies, which account for the bulk of Africa’s informal economy.
In addition, African policy-makers should be aware of the heterogeneity of the informal sector. According to a recent study on West Africa, governments should distinguish between small and large informal firms. The latter category plays an important role in the economy comparable to the role of major formal firms. Thus, African governments should adopt specific policies to bring large informal firms under formal regulation. For this, a systematic approach should be adopted in order to enforce a comprehensive regulatory regime including, for instance, registration for a formal tax regime.
Better access to financing: Limited access to funds is one of the major factors explaining the development of the informal economy. Facilitating access to formal financing channels such as micro-credit could be an overriding step to encourage informal entrepreneurs to shift toward more formal economic activities. However, raising the awareness of large conventional commercial banks of the potential of the informal sector is also essential.
Improving access to information: The fact that the informal sector has for a long time been neglected by policy-makers has not helped in generating knowledge on this sector. For instance, informal activities are often invisible in official statistics. In order to analyse the contribution of the informal sector in the economy, it is important to collect and maintain relevant information. This includes a wide range of information, such as the characteristics of actors, tax collection, impact on employment, working conditions, and productivity of informal companies.
Mthuli Ncube is the chief economist and vice president of the African Development Bank
The fifth most important barrier to financial inclusion is individual level informality, a constraint cited by 15 percent of the unbanked population in Nigeria. Respondents who cite informality reasons for financial exclusion tend to be more educated and rurally based but do not display any greater levels of informality than the wider unbanked population. This suggests that education helps individuals understand the role played by formality in access to banking services and, as a result, it is reasonable to conclude that informality is an unnoticed constraint for many other respondents. ~ Michael King, The Unbanked Four-Fifths: Informality and Barriers to Financial Services in Nigeria
It is time to reengage the severely impoverished field of economics with the economy. Market economies springing up in China, India, Africa, and elsewhere herald a new era of entrepreneurship, and with it unprecedented opportunities for economists to study how the market economy gains its resilience in societies with cultural, institutional, and organizational diversities. But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists. ~ Ronald Coase, Saving Economics from the Economists
The aim of the paper is to contribute to the empirical analysis of the process of transformation in traditional rural societies using a network perspective. A unique database on economic networks (land, labor, inputs and credit) collected in 60 villages of rural Gambia, where traditional non-monetary economic exchanges -gift economy- prevail, is used to study the behavior of households involved in market transactions.
The empirical analysis is conducted at both household- and link-level … In all the econometric specifications I find support for the two main hypotheses: (i) Substitutability between internal and external exchanges, i.e. households with external economic links are less likely to be involved in economic interactions within the village; and (ii) Reciprocation versus market, i.e. households with external economic links are less likely to be involved in reciprocated exchanges with fellow villagers. ~ Dany Jaimovich – Bakary Baludin
Part of the reason is that food products manufacturers, and in particular breakfast cereals companies, find it is cheaper to pack dry ready-to-eat (milk or water to be added) portions in strips of single-use sachets than in a plastic containers. The prices at which these are sold are in simple multiples – 5, 10 and 15, with the grammage being adjusted for these prices. This is the ugly side of the ‘bottom of the pyramid’ market, a foul term that ignores the mis-nutrition these food companies are responsible for in their pursuit of the price-conscious consumer (rural and urban alike). It also ignores the environmental aspect of such packaging, the costs of which are borne by towns and cities in the form of increasing per capita loads of plastic, packaging and laminated sachets. ~ Cornflakes and oats invasion, 10 rupees at a time.
Pre-paid minutes can be swapped for cash or spent in shops most easily in Côte d’Ivoire, Egypt, Ghana and Uganda, says Chris Chan of Tranglo, a Malaysian firm that facilitates “airtime remittances” to mobile phones. Airtime is commonly used as money in Nigeria, too. Hannes Van Rensburg, Visa’s boss for sub-Saharan Africa, says this is partly because regulators there have made it difficult for banks to offer the newer form of mobile money. ~ Airtime is Money, The Economist in January 2013
Irregular income streams from a variety of sources pose their own challenges to both buyers and sellers but offer an opportunity through the flexibility designed into business models for the informal economies where this pattern of cash flow tends to be much more prevalent.
Flexibility is key, as well as the ability to negotiate on “time” – frequency, periodicity, duration and “money” – amount. This works in the highly personalized transactions negotiated in most of the “developing” world but the challenge arises when those dependent on volatile cash flows meet “the system”, which cannot be negotiated with.
Between time and money in the equation of the underlying principle of flexibility is the “trusted network” or human beings. Facetime and financial flexibility have proportionate relationship to the success of a business model in such an environment.
It was when attempting to clearly distinguish between patterns of cash flow in the formal vs the informal economy, using the concept of the degree of control granted to the end user over the variables of time (duration, frequency, periodicity) and money (amount, cash or kind), that it struck me what kind of difference does control over timing mean for money.
That is, there is a complex value processing underneath each of the decisions on allocating available cash money, particularly in rural areas where cashless transactions can tend to be more common.
When one can control the timing of one’s payments – such as the advance purchase of airtime minutes to use a mobile phone – one’s income could be called dynamic. Within any particular set of calender based time eg a week or a month or a quarter; a vast majority of the lower income bracket cannot predict their total cash income nor feel confident enough to claim it. It can be affected by seasonality prevalent in their region, or it can be purely random volatility, one’s workshop burns down in an accidental fire. Uncertainty in the daily environmental conditions in which the majority of the informal economy operates is manifest in individual’s unwillingness to take risks.
Innovation is a risk. I trust my wealth in the form of a tangible cow that moos than some electronic numbers on a screen.
Though this is changing, its an interesting side note to see how its due to the establishment of the mobile phone and the prepaid business model’s enabling even those on irregular income streams without paychecks and the paraphernalia of formal structure that has lowered barriers to trusting mobile money systems.
Static income is that which is stuck, such as a fixed salary paid every calender period, regular in frequency, amount and periodicity. While its a boon for security, it does not allow for the “jackpots” of chance to make that big enough difference to overcome the moment of inertia and leap for one’s aspirations.
For one of the most powerful commonalities among the lower income segments across the world is the power of their aspirations for the future. What may be an incremental change in the quality of life of someone in the developed OECD world – a better model car or a more exotic holiday – can be a windfall of opportunity applied towards some income generating activity. Even the peon who scrimps and saves to send his children to English medium schools, or whatever passes for them in small town India, sees this as an investment in the future. A better job. More perks. His wife begins to sew or embroider, ready to start the dynamic income flow. Its unreliable for daily life but will provide the necessary extras when required.
Farmer Pedro by Jeroen Meijer, JAM visual design
If we were to arrive at a synthesized view of your average subsistence farmer, lets call him Pedro, how would we describe him? What is Farmer Pedro’s story?
He grows enough to keep body and soul going, his first priority is always feeding his own family before selling any grain to the market.
Perhaps this is the biggest difference in mindset between the funders, initiators and implementers of sustainable agricultural programs for the Bottom of the Pyramid and the farmers themselves.
Nobody in the fancy airconditioned rooms where people debate on the social and economic futures of milions has ever had to do something so fundamental for their family and their own survival. Farmers are entrepreneurs and businessmen in mainstream consumer culture whereas subsistence farmers are fathers and husbands first, who must take care of their family’s needs.
This is true even if the “farmer” in question is a woman.
The values gap concept is one from my consumer research among the Bottom of the pyramid or BoP markets, where the value propositions of the producers may not always translate across the social, cultural and geographical divide. When locals speak of the introduction of foreign ideas as “alien matter to be rejected like an organ transplant gone bad” that is a signal to listen, not to brush it off as “co-creation”.
Top down empowerment is a non sequitor.
Perspective
