By Julio Lavalle
The views on this post are based on my experience co leading the curriculum at the International Development Design Summit (IDDS) Kenya on Financial Inclusion, conversations with organizers, participants & community partners throughout our journey, as well as personal reflections after project development and continuity potential. The data on financial inclusion used as reference reflects the latest WB Global Findex unless stated otherwise.
The main learnings I share below in this post are:
Income generation as a prior (or parallel) step towards the use of financial services.
The power to design for gender.
Financial services as means to promote needed basic services.
Educate to bank.
The intersection of design and behavioral economics to make unfrequent users become power users.
A bit of context on the big picture of financial inclusion before the deep dive:
Overall 69% of adults (15y+) around the world have an account, being the vast majority of accounts at banks, microfinance institutions, another type of regulated financial institution, or a mobile money account. In Kenya, the financially included stand at 82% of the adult population [In contrast to 37% in Mexico, 43% in Peru and 70% in Brazil].
Moreover, 4% of the world’s adult population has a mobile money account (690 mi people). Sub Saharan Africa, represents 56% of this total. As the figure states, no other region accounts for such high numbers. More than half of it is represented by East Africa, led by Kenya (73%), Uganda (51%) and Zimbabwe (49%) where these percentages represenst the portion of adults that own mobile money accounts.
But what does mobile/digital money have to do with finclusion? Access to financial services is critical as it makes it easier to invest in health, education and business. Digital technologies also offer powerful ways to boost financial access based on the key features of digital financial services; such as (i) the ease of use through mobile phones, (ii) scalability, and (iii) user-centered design, promoting affordability and convenience. All of which promote adoption, financial access and inclusion.
To talk about finclusion and mobile money in Kenya is to talk about M-PESA. Since its launch in 2007 by Safaricom, M-PESA allows money to be stored on mobile phones and sent to other users via text messages and has been adopted by the majority of Kenyan households (59%), revolutionizing the way people spend, send and save money. I was personally amazed by the way M-PESA makes it easy to transact all over the country from buying a banana in the market, pay the bill at a restaurant, your ride on a matatu (the pituresque local mini buses if you insist you have no cash), and even the entrance to national parks. You can leave home without your wallet and make it easily throughout the day without a single Kenyan Shilling bill (no joke). [Other mobile money providers include Airtel Money, Equitel Money, Mobile Pay and T-Kash]
On the impact side, it is estimated that access to M-PESA has increased per capital consumption levels and has lifted 194,000 households out of poverty (or 2% of Kenyan households) in about 8 years. It has also enabled households led by women to increase their savings by more than a fifth; allowed 185,000 women to leave farming and develop business or retail activities.
We’ve known for some time that there is a correlation between mobile phone utilization and economic development. But although this digital revolution is on its way forward, there are still many challenges that need to be addressed.
17% of Kenyan adults remain fully financially excluded. Even with 1/3 of this population owing a cellphone, they do not have a bank account, use another formal product like mobile money, or even use an informal mechanism like a savings collective. For every 3 Kenyans that are underbanked, 2 of them are women.
There is also a gap between access in urban and rural areas, where 6 of every 10 Africans live: 8 out of 10 of the financially excluded are rural.
The digital mix of products that are currently offered may not solve the real challenges of the whole range of users as more than half (of the excluded) state that the services do not meet the needs they have to make their use worthwhile.
Productive activities such as farming, which employs more than half of Africa’s adult population, struggle with inefficient yields given that the majority of farms have no irrigation, no help with seed or fertiliser, no access to market and unclear ownership rights. This leads to unstable incomes and reduces the chances to benefit from financial services.
Despite of the expansion of M-PESA, cash is still king in Kenya. As many as 8 out of 10 transactions are still cash nowadays. This is because adoption does not necessarily translate into usage. It is estimated that only one third of mobile money users have actually used their accounts in the last 90 days. Inactive accounts [or "dormant accounts" as in the industry jargon] often exist due to a combination of inconvenient access, limited financial literacy of users, a mismatch between customer demand & product design and ecosystem creation.
For those who have access to mobile accounts, mobile loans have become the largest source of lending in Kenya outside friends & family and Savings & Credit Cooperative Societies (SACCOs) [There are up to 25 independent mobile lending apps in Kenya which disburse between Ksh 50 (US$ 0,50) and Ksh 100,000 (US$1,000) loans]. As a matter of fact 4 out of 10 Kenyans rely on mobile loans for credit, against 1 of 10 taking bank loans. Currently, banks can only charge customers 13.5% per year on loans, but through apps, this percentage rises to up to an average of 138% per year (7 to 10% per month). Because of this, many Kenyans are now caught in several mobile loans to pay, forcing them to jump from one provider to another. Other than the 37% of farmers and entrepreneurs who borrow for business, most of the digital borrowers use the money for daily needs, including buying personal items, leisure and phone credit.
At IDDS Kenya, our goal was to understand through the design process, what is it that is missing in this revolution and why is it that households (especially in rural settings) may not use or optimize the use of this wave of growing services. In this sense, pay more attention to the demand side to identify the structural design factors that keep people out of the formal financial system.
These are some of the learnings I was able to identify during the process:
1.Income generation as a prior (or paralell) step towards the use of financial services. In a country where 36% of the population live under the poverty line (US$1.90/day) and ranks amongst the top ten unequal countries, people do not wake up looking for an account to store their money in, they are looking how to make that money first. As a matter of fact, the main reason that both men and women cite for not having a financial account is that they simply are not earning enough to open one.
At IDDS Kenya 2018. The team Msitu Ni Fedha took this learning into account by promoting high yield seed planting to improve current income generation activities in local farmers that work with Kenya Forest Services (KFS) towards forest sustainability.
Through a gamified feature phone app based on a data mapping platform , farmers will be able to gather information on the best seeds to plant in a given season and be challenged to advance levels of planting (that will be agregated through geolocation) to accumulate points that could later be exchanged by rewards [sent to their mobile wallets to push the use of FinServs] such as improved cookstoves, high yield seeds, environmentally-friendly charcoal, among others.
When talking about income generation, is it useful to ask if the target user is near a tipping point, and only needs slightly better incentives to start using today’s financial services?
2. The power to design for gender. As transformative as products like M-PESA may be, they don’t overcome every obstacle. The limits to a woman’s financial power and prospects range from cultural and family restrictions to actual laws and policies. Different products and features impact men and women differently and that is why we need to encourage ourselves as impact designers to internalize that although both men and women show same ability levels when using financial services, there are different mindsets, awareness, risk aversion and price sensitivity levels to take into account. For instance:
Lower awareness and high risk aversion means rural women are often less likely to try new services.
Transaction fees appear to be a bigger barrier for women than men.
Women face challenges receiving farming income through mobile money. For rural women, cash is the best option for day to day expenses.
A timing factor is also a variable to consider when assessing when in a woman’s life certain products and services will be most effective. In this setting, some may be ideal for before a woman gets married. After marriage, her responsibilities may change dramatically, and, therefore, so will the kind of product mix she needs.
At IDDS Kenya, the savings platform team Chama Kuza understood that because of this lack of awareness and education, specially on fund managament and investment, most rural chamas [traditional savings groups led by women] are not able to grow and see the return on their investments; instead they stay in vicious cycles of debt and stagnation.
Through a feature phone mobile platform the team aims to connect these rural chamas with profitable investment sources. The platform will also help to create planning and group management skills in the different contexts of these women’s lifes. Through their work, the team is also highlighting that current product offering is not well suited to savings groups [and women are more likely than man to use savings groups]. At the same time, current products are not well suited for the informal economy [and women are more likely than men to have informal income sources]. Individual savings and loan products seem not to fit with women’s savings group culture.
One additional fact that caught my eye about gender-centered design is the finesse when working around traditional social structures. In Kenya it is very common to hear stories about women being part of chamas for 15 or 20 years, some of them even belong to more than one savings group [with amazing and touching stories of progress and life-changing experiences]. Just like in Peru and Brazil, in the rural setting, people live more communal lives, tied into social obligations such as financial support to your neighbors/family members and other type of exchanges. Although this group-think mentality and practices must be very valued, it should also be questioned when resource and information poor environments are identified, since heavy reliance on word of mouth and trust on the other can lead to negative group financial decisions and outcomes.
The main question in this is case is how to find ways to navigate users -through design- to both stronger collective and individual decision-making, given more realiable structures and channels of information?
3. Financial services as means to promote needed basic services. When cheap IoT technologies are mixed with easy-to-use digital payments, companies can lead the way to provide consumers with products that were previously expensive and enhance their everyday lives while simultaneously including them financially.
This is how the Pay-as-you-go (PAYG) business models work. In Kenya, for example, there has been a rapid spread of (PAYG) solar-generated power [56% of kenya is connected to the grid] in which customers buy electricity with mobile money for as little as US$ 0.50 cents a day and panels are deactivated remotely if payments stop. As a matter of fact, solar energy providers have been early adopters of PAYG, expanding electricity access to underserved communities through flexible payment plans. PAYG not only promotes the jump from having no electricity straight to green power [leapfrogging]. But also opens opportunities for people to build a credible payment history, which unlocks their ability to connect to other financial services.
These systems have spread widely in sub-Saharan Africa from potable water ATMs to health insurance such as M-TIBA by Safaricom, a platform to save, send and spend funds specifically for medical treatment. Not only are you able to save [in your MPESA mobile account] for your own insurance but you can also save for your relatives, friends or staff and assure access to licensed healthcare facility whenever needed.
But it doesn't stop there, PAYG systems can go as wide as telecommunications [allowing users to buy smartphones in stallments based on mobile psychometric data such is the case of Payjoy in Mexico]; agricultural capital-intensive equipment like Hello Tractor does [by allowing farmers to rent their idle tractors in South Africa]; sanitation such as the work that Sanergy does in African slums with toilets with mobile-connected IoT sensors that monitor the fill level of the facilities and alert their collection agents whenever waste needs to be removed; cookstoves like the work of PayGo Energy that accelerates the use of LPG in contrast to traditional biomass and charcoal. And the list continues from transportation to irrigation, cold storage, education, etc.
Although most of the solutions mentioned above use mobile payments as a means to deliver their services, PAYG are also innovating on payment systems with other means such as prepaid, debit, virtual cards, and digital vouchers. Certainly a space for innovation to look at!
In this context, at IDDS Kenya, the Solar Chama team built on this model by identifying that affordability and accessibility of solar energy in slums is still a challenge [by 2017 61% of Kenyans living in cities live in slums]. Despite of the advance of PAYG systems, these have been designed for individual households for better control.
Given this scenario, the team took into account the component of 'communal lives' mentioned above and designed a system that integrates the savings groups chamas to a technology similar to a PAYG solar systems but this time to be shared by a group of neighbors. The idea is this group gets together to save for a collective solar plan that would allow 4 to 6 houses to share the system.
Key challenges involve payment default that could be worked around micro-insurance packages that would cover for missing payments. Another challenge also revolves with the fact that a big proportion of slum houses are rented and dwellers may not have the incentive to pay for complementary services but landlords could have an incentive to uptake the model to provide a differential on their offering by an increment in rent.
The added value of having energy, amongst slum dwellers is clear, as they not only recognize the importance for education and safety but also as a means for income generation. Women specially are interested in what could become a distribution income generating activity that could provide for their families. Is there space to tweak current PAYG systems to expand access and diversify payments schemes for needed basic services?
4. Educate to bank. A recent study on education and financial inclusion at the school level in Kenya suggests that only 6.2% of 16 to 18 year olds in their sample had banked in a traditional bank while 33.8% had banked when mobile banking was included. Concluding that digital financial services could be a crucial complement to education in efforts to improve the financial outcomes of youth. But does correlation imply causation in this case with education improving financial outcomes of youth?
Wealth is clearly a better predictor of financial exclusion than location (urban or rural), gender, marital status or age [as stated in the previous paragraphs]. Yet there is one characteristic that easily beats out wealth: education. A Kenyan with no formal education is 26 times more likely to be financially excluded than someone at the top of the education ladder. Being 'education' not technological know-how or financial training but formal primary, secondary and university education.
Financial outcomes tend to improve as education levels rise and although this positive correlation suggests that increases in schooling could improve financial well-being, unobserved factors such as individual ability or family resources could also explain this relationship.
This is where the financial education team Finsomo at IDDS Kenya comes in. To work on the underlying mechanisms that can transform individual ability into causal effects for financial outcomes. As a matter of fact in a 2016 survey in Embu county [where IDDS was held], fewer than 1 in 3 people were rated financially literate when leaving school. In this context, the team built a solution that aims to integrate the 3 key stakeholders that influence youth learning at school: teachers, parents and kids themselves.
Learning from previous educational approaches that promote financial education at schools, and by undersanding key insights such as the reluctance of teachers to teach outside curriculum, fear to teach something they're new to, and specially the time-poor conditions; the team came up with a platform that mixes storytelling and gamification to (i) empower teachers to discuss and put in practice financial literacy (ii) leverage the student's natural curiosity (iii) reach parents through a complementary text-based storytelling platform to go beyond the material shared with children at school with a mix of storytelling and practical advice.
It has been proven that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time. Which is why, it is recommended to develop tools that promote 'just-in-time' financial education tied to specific behaviors it intends to help, as information tends to be internalized more when practiced by the user in these 'teachable moments' just like team Finsomo proposes.
Additionally, tools that keep information on top of mind in given [consumption, saving & planning moments] such as reminders organized in well-informed architectures, can make a difference in savings, just like MGovis doing in Brazil with low-income government programs beneficiaries & industry workers to promote healthier financial decision-making.
In the age where younger generations are quickly becoming digital borrowers due to seamless access to growing financial services that bring the convenience where funds are disbursed to users within minutes, it is, therefore, important to build better mechanisms to educate, communicate and protect the consumer against over-indebtedness. How do we design the environment to create those decision-making or teachable moments to make this real practice on financial services use stick at an early age?
5. The intersection of design and behavioral economics. As mentioned above I learned that is it always useful to ask if the target user is near a tipping point, and only needs slightly better incentives to start using today’s financial services. This was a provokation [on the financial inclusion component] that we tried to keep on top of mind on teams throughout the design process and project development journey.
It happens that even with the available access to the wide variety of financial services, to move the user over the funnel from unfrequent to power user is still a challenge, specially when talking about trying brand new services. [In lines above I shared that despite the very promising figures on financial inclusion, cash is still the main means of payment, and adopted mobile accounts are used only by 1/3 of the users].
In this final learning and reflection I bring the importance of understanding the key architecture of behavioral economics or as we have been using it 'Design for behavior' in order to (i) undestand what are inherent behavioral biases related to specific field [in our case in the use of financial services] and (ii) what are those biases particular to a specific population [urban vs rural, men vs women, middle income & low income and so on]. It is in the understanding of these two key steps that we can start thinking and design what could be the interventions that could better work on those biases to promote, reduce or maintain a specific behavior.
[Behavioral biases are mental shortcuts used — by all of us — in our decision making processes. These could be motivated or unmotivated by psychological, behavioural, emotional, and social factors. And most of the time represent errors in information processing, given our limited mental bandwidth].
As a matter of fact, IDDS Kenya brought for the first time a teaching component on Behavioral Design and IRR (Incentives, Rewards and Recognition theory) in the development context to complement the strong design process methodology based on co criation and co design, shaped by Amy Smith at MIT's D-Lab. The idea behind was to advance the outcomes of the creative, generative, explorative approach to problem solving brought by the design process with a more scientific, measurable, analytic approach on how people make decisions.
A couple of examples:
Last year Kenya came up with one of the most drastic plastic bag bans in the world with threats of up to four years’ imprisonment and very high fines of up to $40,000 for anyone producing, selling or even just carrying a plastic bag. There are two sides of this story. The manfactures, exporters and even street vendors [such as fried chips or rolex — a delicious chapati + scramble eggs wrap] that use plastic bags as important packing material have clearly been affected since buying alternative material bags in scale could become a hardle. On the other hand, clear positive effects have been found in the short term. According to locals, streets and waterways look cleaner, and even the practice of flying toilets, common in slums [which is the act of defecating in plastic bags and throw them into the roofs with the risk of them falling during rainy days] has decreseased.
Overall it puts a greater emphasis on creating a new mindset of environmentally friendly practices and on the improvement of waste management. The question to be answered is whether this economic incentive is actually driving behavior change to shift mindsets or simply change the trends of use, in this case of plastic bags.
At IDDS Kenya, the Valuing Waste team worked to contribute to this challenge. They found that urban communities which make up 8% of Embu county population suffer from the environmental and health consequences of burning mixed waste. Additionally only 20% of urban communities in kenya get private waste magement and removal since the public system is unable to cope with current demand. In this sense there was a missing piece to create the right incentives to contribute to this challenge for (i) behavior change on waste management for those communities that are unable to pay for private systems and at the same time (ii) to promote financial services.
The team's solution works around encouraging residents to value waste by educating them on the importance of waste segregation and using the creation of a source of income as an incentive to promote this behavior change just as shown in the image below. The way it works is that (i) households [specially the ones led by women] are assigned with an account number connected to M-PESA; (ii) waste is separated in the house according to the educational campaigns & reminders, and later placed in the designated bins (inside the houses); (iii) homes notifies collectors that waste is ready for pick up through SMS; (iv) collector arrives to the house and measures the waste and loads his cart for later delivery to the landfill (v) plastic waste is exchanged for Kenyan shillings and (vi) collector and generator split the money received in specific proportions. All information is meant to be stored in a CRM/potential blockchain system in the future.
By separating plastic out of the waste stream, the team is able to reduce and reuse plastic thereby providing cash incentives to both generators and collectos for waste.
Other complementary design for behavior strategies into making infrequent users become power users that came to mind, specially for women in the adoption of new services, lie on reliance of social networks or how to harness the power of the influencer, due to lower awareness and higher risk aversion [mostly in the rural settings]. In the same sense, if women are more price sensitive to fees, how about taking advantage of this sensitivity by offering discounts or loyalty bonuses?
It is clear that most projects work on the intersection of more than one learning & reflection shared above. And this is also true to any other project working in the financial inclusion field and beyond it.
These reflections also imply that expanding access to the financially excluded users in countries like Kenya will not be as easy as creating more mobile money services, giving access to mobile connections & phones or even designing smooth user experiences. Potentially, if a person is not an active mobile money user or financial service taker, there is a good chance that she or he has little money to manage, has little information about it and believes the product does not solve his/her main pains or needs.
To reach and serve the unbanked and underbanked is costly. One thing that is inherent in the mobile money revolution in Kenya are the low distribution costs to get to that final user [through agents for example, that are already in the corner, in the market, in your frequent service store]. It would be interesting to rethink these distribution models to go one step beyond to reach those that can’t afford to engage with big institutions, who may not want those customers anyway.
Despite the growth of the market, digital credit is not reaching everyone. And considering productive activities like agriculture it is exciting to see more Juhudi Kilimo / asset financing type of offerings expanding across the region. Because this user-centered design for the population whose livelihoods are characterized by irregular cash-flows, such as farmers and casual workers require a deeper understanding of their financial lives, the key risks that they face, and the daily liquidity needs.
Excited about how this IDDS group started the conversation on clear challenges for the underbanked and unbanked in Kenya. How continuity will be shaped with participants going back to their communities and apply what they learned, with actual projects becoming ventures and with local communities empowered to know they have the resources to contribute to social change. And from my side how I'll be able to put in practice these learnings in my work on financial inclusion in Brazil and Peru.
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Appreciations to Roy, Daniel, Stella, Claudine, David, Nickson, Hamid, Alois, Shem, Eric, Karl, Rohini, Chebet and Flora for making this IDDS a reality with your wonderful contributions and local hospitality. Special thanks to both Krista Nordin and Mansi Kakkar! To Krista for bringing her strong passion and experience on financial inclusion to make finclusion sessions digestible as well as her meticoulous care to move projects into strategic paths. And to Mansi, my co lead curriculum for the wonderful time spent shaping and refining the curriculum plan on the design & behavioral components. And most importantly her energy to make those late night convos fruitful and productive. To all of our local and international participants for accepting the challenge to be out of their comfort zones and deal with different cultures, ways of work & learn, and attitudes to life. Without your incredible humility, energy and strength none of these outcomes would've been achieved! Last but not least to IDIN, all our partners, sponsors, donors and supporters from around the world. You played an inmense role making this happen!
If you are interested to know more about the projects developed at IDDS Kenya and contact their team leads please email us at email@example.com