kenya financial diaries project: making ends meet in the land of m-pesa & branchless banking

1 A project of FSD Kenya, 2014 A project of FSD Kenya, 2014

Kenya Financial Diaries

Project Making Ends Meet in the Land of

M-PESA & Branchless Banking

Julie Zollmann

September 2014

2 A project of FSD Kenya, 2014

3 A project of FSD Kenya, 2014 3 A project of FSD Kenya, 2014

Today’s Agenda

1 • Background & Methods

2 • Livelihoods

3 • Financial Tools

4 • Social Networks

5 • Going Digital

6 • Applying Insights


A few opening clarifications

• Chama: Savings group, generally of two forms—rotating (ROSCA) or accumulating (ASCA)

• Resources Received, or “RR”: Contributions and remittances from friends and relatives

• US$ 1≈ KSh 85

1 Background & Methods


Why Diaries? New insights into money management and

financial service needs

Large, one-time surveys

Financial Diaries

Small-scale qualitative studies

Complementary

methodology

Systematic

&

Deep

Enables deeper triangulation

Ex: FinAccess Ex: Financial Landscapes


Sample selected to include

diverse households in different

livelihoods zones.

Kenya Financial Diaries Sites

Eldoret Vihiga

Makueni

Nairobi

Mombasa

Aim=300 Households

(Ended with 298)

Equally distributed across the five areas

Urban

Rural

31%

69%

32%

68%

Diaries Census


At the core of methodology is

capturing “cash flows,” in

Kenya, at transaction level.

3000

(100) (30) (20) (30) (35) (20) (20) (20) (10) (20) (100)

(400)

(1000)

(500)

0

500

1000

1500

2000

2500

3000

3500

Transactions for One Day, Business Owner in Vihiga

Income—

business revenues & expenses

Expenditures on household food, gas,

groceries, mobile credit/airtime, "kitu kidogo"

Financial Flows--

Payments to chamas

500,000 transactions in the

database

US$ 847,000 in financial

flows


2 Livelihoods: Diverse & Volatile


We had an explicit focus on

the low-income segment.

$5 per day line$2 per day line

01

02

03

04

0

Pe

rcen

t

0 5000 10000 15000 20000av_adj_mo_cons_pc

Per Capita Household Monthly Consumpton

72%

95%

Average Per Capita Monthly Consumption

Median Monthly Household

Income: KSh 7,120 ($84) Median Monthly Per Capita Income:

KSh 2,167 ($25.50)


1% 8%

27% 2%

1%

16%

20% 18%

8% 25%

17%

30% 27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

At Screening Actual Cash Flows

Distribution of households' main income source (%)

Self-employment

Casual

Agriculture

Regular

Other

Resources Received (RR)

Non-employment

We sampled for diversity in main

income source. Respondents under estimate

reliance on RR and overestimate agriculture.


01

02

03

0

Pe

rcen

t

0 5 10 15 20 25income_count_worr

But, most households have

MANY income sources.

05

10

15

Perc

en

t

0 10 20 30 40 50income_count

Median=10 Median=5

Total Income Source Count Income Source Count, Without RR

South Africa Comparison Median = 4

South Africa Comparison Median = 3


Example, Mary’s Household

• Lives with husband and 4 children (ages 5-19) in Mombasa;

• 15 Income sources for household: – 8 resources received, mostly in

kind

– 3 casual jobs for Mary and husband: winnowing beans, construction labour, building contracts

– One business—fried potatoes (“bhajia”)

– 2 charity resources: hospital, children’s fund

– Campaign contributions

For example, consider

“Mary’s” household.


That can mean, that income is a

constant patchwork of sources,

like it is for George’s family.

0

5000

10000

15000

20000

25000

30000

Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13

George's Monthly Household Income (KSh) Temporary--Veterinary officer

Temporary work--Contracts forconstructionSelf-employment--Carpentry

Resources Received (6 sources)

Other--campaign gifts

Other--Research gifts

Agriculture--Tea

Agriculture--Milk

Agriculture--Beans

Agriculture--Maize

Agriculture--Vegetables


Or that livelihoods strategies

are frequently shifting.

0

2000

4000

6000

8000

10000

12000

14000

16000

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

Jennifer's Monthly Household Income (KSh) Other--Research gifts

Resource Received--FormerMother-in-LawResource Received--Friend

Resource Received--Boyfriend

Resource Received--Friend

Other/RR--Prostitution

Casual-Barmaid

Casual--Canteen Attendant

Casual-Washing

Self-employment--Chapati


We quantify volatility into %

monthly fluctuation.

0

2000

4000

6000

8000

10000

12000

14000

16000

Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

Jennifer's Monthly Household Income (KSh)

=(𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛)/𝑀𝑒𝑎𝑛


Income fluctuates dramatically

from month to month.

55% 54%

64%

54%

0%

10%

20%

30%

40%

50%

60%

70%

Rural Urban

Median Income Volatility (%)

Total Income

Income withoutResources Received


Consumption also fluctuates

dramatically from month to

month.

54%

42% 45%

42%

0%

10%

20%

30%

40%

50%

60%

70%

Rural Urban

Median Consumption Volatility (%)

ConsumptionExpenditure Volatility

Consumption Volatility--Incorporating HomeProduction


Food is a major piece of the

expenditure budget.

Food 48%

Housing 8%

Education 11%

Energy 4%

Communications 2%

Water 1%

Transport 5%

Household items/ cleaning

supplies 2%

Other needs 19%

Median Share of Consumption (%)


3

Financial Tools for Liquidity & Investment


When your budget is tight and you

face volatility, lots of energy goes

to creating budget elasticity.

What you might be able to raise from social network

≈15% at median, but for some can reach ≈500%+

Minimum Budget

Extra depending

on ≈54%

income fluctuation

Possible credit ≈53% at

median, up to 200%+

Liq

uid

sav

ings

≈1

2%

at

med

ian

Somewhat secure stretch stretch


But, also need to generate

funds for investment.


Living on little money makes most

more active money managers. Different devices do different financial jobs

and help meet different liquidity needs.

Patrick Jua kali artisan worker in Nairobi

who supports three sons with him and wife and kids upcountry

Median HH=14 devices


-12000

-10000

-8000

-6000

-4000

-2000

0

2000

4000

6000

8000

Patrick's Daily Financial Flows (KSh)

Those financial devices are

used very actively.

Inflows—Withdrawals, New Loans, Payouts, Payments

from Clients

Outflows—Deposits, Loan payments

Median Total Flows Per HH (entire year):

KSh 88,307 ($1039)


While most value is held in physical

assets, we do not observe “saving” in

sellable assets.

225,750 ($2656)

2,425 ($29)

8,700 ($102)

Median Physical vs. Financial Assets (KSh)

Physical Assets--Illiquid

Physical Assets--Liquid

Financial Assets

Property (land/homes) accounts for 65% physical asset value at median.

The action is in financial devices.


Low income Kenyans are

serious savers.

8,700

3,288

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Financial Assets--Median ClosingBalance

Financial Liabilities--Median ClosingBalance

Median Closing Balances Financial Assets & Liabilities (KSh)

39 days’ income

16 days’ income


Especially compared to low income

people in other emerging markets. But high saving among poor can be consequence of

volatility, not always indicator of wealth accumulation.

Based on target markets below poverty line in each market and Diaries sample as whole. www.gafis.net

1 0 0

17 12

38 39

05

1015202530354045

SouthAfrica

Mexico India,Remittance

Senders

India,RemittanceReceivers

Colombia Kenya,GAFIS

Kenya,Diaries

Median Days of Saving Among Poor (Source: GAFIS Surveys Collected by BFA, 2011)

http://www.gafis.net/


Most financial asset value is

kept in informal devices.

Formal 9%

Informal 91%

Share of Financial Assets that are Formal, Median


But money not

immediately on hand.

Liquid 10%

Illiquid 90%

Share of Financial Assets that are Liquid, Median Strategy of

channeling savings to less accessible vehicles=

Intentional Enables investment via assets.


Money should be WORKING! Ex. Collins, Nairobi businessman

Assets Value Active? Restricted Savings Account 1,200 No Mobile Money 1,230 No Savings Account– Bank 12,670 Enables loan Savings Account—SACCO 12,000 Enables loan M-SHWARI 1,450 Enables loan ASCA #1: Firewood Group 65,600 Enables loan, provides capital to members ASCA #2: Glory Group 31,000 Enables loan, provides capital to members ASCA #3: Twendane Hai 36,000 Enables loan, provides capital to members ASCA #4: Karimu 6,750 Enables loan, provides capital to members ASCA #5: Wamama (Women’s Group) 3,000 Enables loan, provides capital to members Shares in Muramati 5,200 Enables loans Stocks in Kengen 200 Seen as investment, earning returns Stocks in Safaricom 1,700 Seen as investment, earning returns Wage & rental arrears owed to him 1,250 Owed back to him, while helping others Lending to family and friends 15,000 Owed back to him, while helping others Credit given to clients 2,870 Owed back to him, while helping others

Liquid money 2,430 Illiquid, working money 194,690

Liquid, but not working

(US$29)

(US$2,290)


The result, is that—even when

people save—money is not always

available when it’s really needed.

38%

57%

25%

0%

10%

20%

30%

40%

50%

60%

Foregone medical care Child sent from school Hunger

Share of households that experienced at least once during study


And barriers to things like medical

treatment can be really small!

$0.82 • Christine paid for consultation, but did not have $0.82

for medication.

$0.59 • Two children were sent from school lacking an exam fee

of $0.59 each.

$0.59

• There was no money for food. A customer came late at night to buy tomatoes for $0.59, but the shops where they could buy unga were already closed.


While at the same time, investment

comes slowly through chamas. Loans

with appropriate sizes and terms may not be available or

feel too risky for investment.

Generates $2.35 per day Repair of $388

3 month delay in repairs


Large sources of liquidity are not

available to most from savings.

600

1,500

290

600

1,525

5,000

Mobile money

Saving in a ROSCA

Saving in the house

Friends and family lending

Saving in an ASCA

Checking or current account

Median Withdrawal Value (KSh)

Most used FINANCIAL ASSETS

($7.06)

($3.41)

($7.06)

($58.82)

($17.65)

($17.94)


And borrowing is more for

smoothing than investing.

500

30

1,000

2,000

18

500

Borrowing from friends and family

Credit at the shop

Arrears payable (rent, school fees)

Borrowing from a chama

Okoa Jahazi (airtime credit)

Acting as money guard

Median New Borrowing Value (KSh)

Most used FINANCIAL LIABILITIES

($5.88)

($0.35)

($11.76)

($23.53)

($5.88)

($0.21)


Staying stable is bad. The goal is to “develop.” Fewer than half feel they are on that trajectory.

46% 41%

13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total

How has your economic situation changed over the past 5 years (%)

Better

Worse

No change


Serious Tradeoffs Between Two

Important Financial Management

Jobs.

Short-term Liquidity

Longer-term Investment

Falling Short on

Both


4 Social Networks: Filling a Gap


The social network fills an

important gap, particularly in

coping with risk.

53%

60%

32% 35%

31% 31%

0%

10%

20%

30%

40%

50%

60%

70%

Health Need Destruction ofhome/land

Divorce orSeparation

Most Important Coping Mechanism for Top Shocks (%)

Resources Received (RR)

Borrowing from Friends &Family

Working More


Social network can provide more

financing than savings/borrowing alone.

-10000

0

10000

20000

30000

40000

50000

60000

70000

80000

Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13

Breakdown of composition of George's income

Business income Agriculture Income Resources Received Casual income

Wife sick Wife dies

Waiting for surgery


But, it can fall short.

Support from the social network is HUGELY important for dealing with vulnerability.


• Isaac is fisherman in

coast.

• Wife needed $270 to

remove tumor.

• While resting and

“looking for money”,

wife saw healer, who

charged $212, but

accepted the $70 only

from Isaac’s sold phone.

• She died a few days later

• Immediately after,

FLOODED with

contributions worth

$388 & more later

1. Network doesn’t always

come through on time.

SOURCES OF FUNDS

$59 Borrowed from brother in law

In Kind ($60)

Goat borrowed from neighbor

$270 Contributions from family and friends

$470 Another 40,000 received from friends and family for Tsunza, 40 days after death

The social network worked, but imperfectly.


2. Social networks are

exclusive.

• Though main source of income for 27%...

– 11% of households receive nothing

– For 30% of households, RR very small (<5% of income)

• Fewer than ½ of men receive RR


Net Givers Net Receivers

Av. HH monthly income per capita $116 $53

Share of income received from others 3% 33%

Share of income given to others 11% 3%

Percent <$2/day 49% 72%

3. Giving can take a toll on the

upwardly mobile/slightly better off.

• 23% of respondent households were net givers. • RR relationships appear somewhat redistributive. • Net givers are better off than net receivers, but not rich.


William’s savings wiped out by helping

brother’s child. • William’s brother put him through

college as electrician;

• He saved Ksh 68,000 ($800) in one year attachment.

• When brother’s child fell in hot mandazi oil, incurred bill of Ksh 180,000 ($2,118). – William withdrew his entire savings

and handed it over to his brother.

• Now, William survives on patchy contracts, lives with roommates who are not always a great influence, somewhat stagnant. – $800 might have given a cushion or

helped him set up a stabilizing business.


4. Some needs require even

larger pool of risk sharing.

• Robert, 4, has heart defect,

KSh 500,000+ ($5,880) for surgery.

• Entire household earns

≈KSh 5000 ($59) per month. • Already held a harambee to

raise money for his treatment.

Totaled KSh 15,000 ($176),

which only gave diagnosis. • Medical care accounted for

25% of their total spending in

the study.


Formal offerings can be helpful

tools.

Buying Home

Saving $176 slowly, privately, accessibly

Borrowing for Medical

Borrowing $118 privately to cover embarrassing health need


But, formal devices not preferred

for many needs. Why? 1. “I don’t have enough money to save.”

Median Monthly Individual Income of Banked

Median Monthly Individual Income of Unbanked

$77 $25 63% of Unbanked in FinAccess say it’s because they don’t have enough money to bank.

400

1500

1500

5000

Median Closing Balance

Median Withdrawal ValueCurrent Account

ROSCA

($59)

($18)

($18) ($5)


2. Reliability in formal falls

short of expectations.

• 7% of bank users lost money

in the last 10 years

– Ex: ATM does not dispense, but

still deducted (lost $24)

– Ex: Unexplained withdrawals of

Ksh 10,000-11,000 (≈$120)

– Don’t understand problem

– No recourse

– Advantage of bank supposed

to be reliability, trust with big

money “In the bank you do not have a right to explain your views or grievances. But in the chama, it is a free world.”


There is a higher tolerance for

losses in informal products, where

the value proposition is different.

• 29% of ROSCA users lost money in the last 10 years – Members pay

late/default

– But, default works both ways

– Advantage of ROSCA is supposed to be flexibility, regularity, build a sum

“I dislike when it’s my turn and people have defaulted. But, I have also defaulted so many times!”


3. Informal also offer feeling that

money is working, flexibility, and

negotiability.


5 Going Digital


M-PESA is very far reaching… 90% of Diaries households; 53% adults

62% of adults nationwide (FinAccess)

Median personal monthly income among users is just $57/month (compared to $24 per month across sample, among those 18+)


…and has taken bite out of

distance RR flows.

15%

32%

2% 4%

55% 59%

43%

24%

48%

29% 26%

19%

42% 44%

50%

67%

19% 21%

0%

10%

20%

30%

40%

50%

60%

70%

By volume By Value By volume By Value By volume By Value

Overall Within community Outside community

Resources Received Transactions, including in kind receipts (%)

Electronic

In kind

Paper

WOW!


Bites in other areas of exchange

are really just nibbles.

94% 89%

6% 17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

By Volume By Value

Share of INCOME Transactions that Are Electronic vs. Cash (%), Kenya

electronic

paper

By Volume By Value

paper 95.9% 94.9%

in kind 0.3% 0.4%

electronic 0.7% 2.2%

credit 3.2% 2.5%

3.2% 2.5% 2.2%

95.9% 94.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

EXPENDITURE transactions by mode (%), Kenya

paper

in kind

electronic

credit


Those expenditures are a tough

nut to crack, particularly with low

transaction sizes.

30

20

50

40

0

10

20

30

40

50

60

credit electronic in kind paper

Median transaction size by mode (Ksh), Kenya Airtime accounts for

86% of e-purchases. E-purchases of

airtime account for only 8% of airtime

purchases.

($0.35)

($0.24)

($0.59)

($0.47)


Agency banking is inviting smaller

transactions in the formal banking

system.

0

2000

4000

6000

8000

10000

12000

14000

16000

AVG DEBIT MED DEBIT AVG CREDIT MED CREDIT

Transaction value of banking transactions by channel (Ksh)

01=Bank, MFI, SA

02=ATM

03=Agent's place

04=Mobile phone


But, most transactions are still at

the branch among ordinary folks.

43%

1%

42%

49%

9%

19%

3%

9%

2% 3% 0%

17%

0%

10%

20%

30%

40%

50%

60%

Percent of DEBITS Percent of CREDITS

Share of banking transactions by channel in actual Diaries data (%)

ATM

Branch

Agent

Direct Deposit/Deduction

At home/mobile

Group Meeting


Instead of widespread use, have smaller number of

heavy users. Significant share of clients with access

remain unconvinced of value.


Digital platforms are creating

space for possibilities…


But, digital attributes alone

are not inherently helpful.

60%

70%

15%

71% 71%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

% Wanted Now--Beginning of Interview

% Wanted Now--End ofInterview

% Changed Mind

Share of respondents who chose not to save at the beginning, end, and those who changed their minds (%)

M-PESA Group

Cash Group


Big Question for Financial Inclusion: What is the sun in our solar system?


6 Applying Insights


PROVIDERS: Value proposition

needs to be both competitive &

compelling. Features • “Working” savings • Flexible borrowing • Clear & reliable services • Negotiability • Recourse

Product Directions:

• Reinforce & complement

social network

• Facilitate informal

• Gap on larger sized saving &

borrowing ≈KSh 10,000

($118)+


Provider engagements:

1) Topic X 2) Provider Y

Example: Can a low income family—with appropriate

financing—afford to connect to the electricity grid?

4760

1762

0 1000 2000 3000 4000 5000

Have electricity

Don't have electricity

Median Total Energy Spending (project), KSh

1.9%

0.5%

3.1% 3.2%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%

With Electricity WithoutElectricity

Median Share on Electricity

Median Share on Other Energy

($20.73)

($56.00)


Upcoming publications

– Payments

– Savings Groups

– Risk

– CGAP brief on M-

Shwari

– Capacities to Aspire

(Dr. Susan Johnson)

67 A project of FSD Kenya, 2014


Can you help fix Robert’s heart? Fliers available with link to new Kenyan

crowdsourcing site.


Payment options

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kenya financial diaries project: making ends meet in the land of m-pesa & branchless banking

Economy & Finance