Kenya Financial Diaries Project: Making Ends Meet in the Land of M-PESA & Branchless Banking

1
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

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3
Today’s Agenda
1
•Background & Methods
2
•Livelihoods
3
•Financial Tools
4
•Social Networks
5
•Going Digital
6
•Applying Insights

4
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

6
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

7
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

8
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

9
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Livelihoods: Diverse & Volatile

A project of FSD Kenya, 2014 10
We had an explicit focus on
the low-income segment.
$2 per day line $5 per day line
0
10 20 30 40
Percent
0 5000 10000 15000 20000
av_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)

11
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.

A project of FSD Kenya, 2014 12
0
10 20 30
Percent
0 5 10 15 20 25
income_count_worr
But, most households have
MANY income sources.
0 5
10 15
0 10 20 30 40 50
income_count
Median=10 Median=5
Total Income Source Count Income Source Count, Without RR
South Africa Comparison
Median = 4
South Africa Comparison
Median = 3

13
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.

14
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 for
construction
Self-employment--Carpentry
Resources Received (6 sources)
Other--campaign gifts
Other--Research gifts
Agriculture--Tea
Agriculture--Milk
Agriculture--Beans
Agriculture--Maize
Agriculture--Vegetables

15
Or that livelihoods strategies are frequently shifting.
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)
Other--Research gifts
Resource Received--Former
Mother-in-Law
Resource Received--Friend
Resource Received--Boyfriend
Resource Received--Friend
Other/RR--Prostitution
Casual-Barmaid
Casual--Canteen Attendant
Casual-Washing
Self-employment--Chapati

16
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)
=(푆푡푎푛푑푎푟푑 퐷푒푣푖푎푡푖표푛)/푀푒푎푛

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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 without
Resources Received

18
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 (%)
Consumption
Expenditure Volatility
Consumption Volatility--
Incorporating Home
Production

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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 (%)

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Financial Tools for Liquidity & Investment

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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%+
Liquid savings
≈12% at median
Somewhat secure
stretch
stretch

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But, also need to generate funds for investment.

23
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

24
-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)

25
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.

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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 Closing
Balance
Financial Liabilities--Median Closing
Balance
Median Closing Balances Financial Assets & Liabilities (KSh)
39 days’ income
16 days’ income

27
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
0
5
10
15
20
25
30
35
40
45
South
Africa
Mexico
India,
Remittance
Senders
India,
Remittance
Receivers
Colombia
Kenya,
GAFIS
Kenya,
Diaries
Median Days of Saving Among Poor (Source: GAFIS Surveys Collected by BFA, 2011)

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Most financial asset value is kept in informal devices.
Formal 9%
Informal 91%
Share of Financial Assets that are Formal, Median

29
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.

30
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
ASCA #3: Twendane Hai
36,000
ASCA #4: Karimu
6,750
ASCA #5: Wamama (Women’s Group)
3,000
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
Credit given to clients
2,870
Liquid money
2,430
Illiquid, working money
194,690
Liquid, but not working
(US$29)
(US$2,290)

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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

32
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.

33
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

34
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)

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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)

36
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

37
Serious Tradeoffs Between Two Important Financial Management Jobs.
Short-term Liquidity
Longer-term Investment
Falling Short on Both

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4
Social Networks: Filling a Gap

39
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 of
home/land
Divorce or
Separation
Most Important Coping Mechanism for Top Shocks (%)
Resources Received (RR)
Borrowing from Friends &
Family
Working More

40
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

41
But, it can fall short.
Support from the social network is HUGELY important for dealing with vulnerability.

42
•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.

43
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

44
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.

45
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.

46
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.

47
Formal offerings can be helpful tools.
Buying Home
Saving $176 slowly, privately, accessibly
Borrowing for Medical
Borrowing $118 privately to cover embarrassing health need

48
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 Value
Current Account
ROSCA
($59)
($18)
($18)
($5)

49
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.”

50
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!”

51
3. Informal also offer feeling that money is working, flexibility, and negotiability.

52
5
Going Digital

53
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+)

54
…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!

55
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

56
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)

57
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

58
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

59
Instead of widespread use, have smaller number of heavy users. Significant share of clients with access remain unconvinced of value.

60
Digital platforms are creating space for possibilities…

61
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 of
Interview
% 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

62
Big Question for Financial Inclusion: What is the sun in our solar system?

63
6
Applying Insights

64
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)+

65
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
Without
Electricity
Median Share on Electricity
Median Share on Other Energy
($20.73)
($56.00)

66
Upcoming publications
–Payments
–Savings Groups
–Risk
–CGAP brief on M- Shwari
–Capacities to Aspire (Dr. Susan Johnson)

67

68
Can you help fix Robert’s heart? Fliers available with link to new Kenyan crowdsourcing site.

69
Payment options
Visit Website: https://secure.changa.co.ke/myweb/share/3031

Kenya Financial Diaries Project: Making Ends Meet in the Land of M-PESA & Branchless Banking

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Kenya Financial Diaries Project: Making Ends Meet in the Land of M-PESA & Branchless Banking