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Lessons from the Financial Diaries research with women traders in Kenyan open-air markets and cross-border trades

Posted on by MSC

Janet and Rebecca count among the 2.7 million women entrepreneurs who work across Kenya. Janet is an open-air market trader (OAT) who deals in secondhand clothes in Gikomba, one of the country’s largest open-air markets in Nairobi. Rebecca is a cross-border trader (CBT) who operates across the Kenya-Uganda border daily. She supplies agricultural products to customers in the border town of Busia. Both women share several commonalities—they have regular customers, prefer cash payments, rely on informal financial services, and experience severe income volatility. Rebecca and other CBTs contribute to 30-40% of Africa’s regional trade, which is informal and women-led.

The cost and complexity to obtain permits, licenses, and registration push traders like Janet and Rebecca to operate informally. This exposes them to harassment from local authorities. Moreover, CBTs also face risks related to exchange when they manage multiple currencies. The lack of secure options to make cross-border payments exposes them to fraud and theft. As a result, multiple constraints prevent these traders from being able to use a range of digital financial services effectively.

Despite their contribution to economic development, we know very little about the financial lives of women OATs and CBTs in Kenya. This blog unpacks the financial lives of women OATs and CBTs.

Findings from financial diaries

The financial diaries approach is a famous research method within the development community. It tracks people’s personal and financial behavior to provide deep insights into their lives. It unpacks their economic realities, income sources, savings preferences, consumption patterns, and usage of financial services. Financial diaries have improved financial record-keeping among women and unlocked insights into the barriers informal urban women entrepreneurs face in Uganda. Moreover, diaries have increased women’s financial literacy and well-being in Bangladesh. The diaries method has been used extensively in the US, Kenya, and multiple other regions after its introduction in the Portfolios of the Poor.

MSC conducted financial diaries research with 100 traders, both OATs and CBTs, between April 2022 and June 2023. The research sought to unlock the economic and financial realities of women OATs and CBTs in Kenya. During this period, traders kept daily written records of their total income, personal and business expenses, savings, and loans. Field researchers visited these diarists every two weeks, performed quality checks, and digitized the records for analysis. Three months after the research was completed, we found that 49% of the traders continued to keep such records. This finding reinforces the idea that diaries can improve financial habits in low-income settings.

Our analysis led to several interesting insights. We have highlighted some below:

Business volatility

On average, women OATs, such as Janet, generated 31% more revenue than their CBT counterparts. However, their expenses are similar. OATs gained huge revenues in December due to the festive period, but CBTs did not. In contrast, CBTs experienced a slump in business activity, aggravated by the country’s worsening economic conditions. Other factors that explain the income and expense variation include geography, seasonality, business size, type of business, and captive customer base.

Variations in business income and expenses lead to higher net income for women OATs than women CBTs. Moreover, the decreasing trend in the net income for Janet and other OATs is significant based on the Mann-Kendall Test but not for women CBTs.

Janet and other OATs also cite various challenges that limit their business expansion, which are linked to the worsening economic conditions. These challenges include price volatility due to inflation, insufficient credit, and low customer volumes.

Rebecca and other CBTs struggle due to competition from men who are more established, supply-side shortages, price instability due to exchange rate volatility, income seasonality, insufficient credit, and inflation. They also face strict border restrictions, requests for bribes, and harassment by public officials at the border checkpoints.

The Kenyan Shilling has depreciated by 15% to the US dollar in the past six months. This is an example of exchange rate volatility, which makes it difficult for Rebecca and other CBTs to set suitable prices for their goods. Given their small size, CBTs cannot hold sufficient foreign currency to cushion themselves against exchange rate loss. CBTs rely on customs offices, informal money changers, and forex bureaus, which are unlikely to offer competitive rates due to the exchange of low amounts.

Savings behavior

Janet, Rebecca, and other traders heavily rely on informal savings mechanisms, such as chamas, to meet financing gaps. Chamas are informal savings groups where the members collectively pool their resources and rotate funds among the group. They must hold liquid assets, mostly cash and mobile money, to meet their personal and business needs. This discourages long-term savings or investments in other asset classes, such as fixed savings accounts, money market accounts, and treasury bills. This limits their growth potential.

Women OATs and CBTs face a high temptation to spend cash. So, they adopt various self-imposed measures to ensure financial discipline. They lock their savings with mobile money operators to prevent premature withdrawal, save via their chamas, and repay loans whenever they have extra cash.

Access to credit

Liquidity is a major challenge. Janet, Rebecca, and others access credit from formal and informal sources. Most prefer informal sources for their accessibility, convenience, and affordability.

For example, women OATs and CBTs borrow between USD 14-28 from friends and family. They repay these short-term advances on the same day at zero interest. Beyond friends and family, other sources of informal loans include women’s groups that charge interest rates of 10-15% per month (10% being the mode) and moneylenders who charge as much as 15-20% per week.

While women OATs rarely sell items on credit, some women CBTs extend credit to trusted customers. However, they face additional liquidity challenges when customers fail to repay on time.

Use of digital channels

The use of digital channels has observed slow growth, driven mainly by mobile money. In the first six months of this year, Janet and other women OATs received payments for goods and services, primarily in cash. The income received via digital channels stood between 2%-9% (average 4%).

Between May and June 2023, the share of income from digital channels tripled from 3% to 9% for OATs. The growing trend in which financial service providers (mainly banks and mobile network operators) actively onboarded them onto merchant payment codes supported this growth. Alongside their simplicity, merchant payment codes offer speed, security, and convenience. This permits OATs more time to serve customers than they have to spend when they count money and refund change.

Women CBTs, such as Janet’s share of income through digital channels, are higher than that of women OATs—these range between 10% and 12% (average 11%). CBTs rely on digital channels for cross-border receipts and payments, mostly via mobile money.

Market segmentation

Women OATs and CBTs are not a homogenous group. We observed at least three personas that fall within the agile segment. They learn quickly, transact across multiple channels, have bank accounts, and earn more than USD 84 monthly. Following is a brief description of these three personas:

  • Hustlers (28% of our diarists), such as Janet and Rebecca, earn USD 251 monthly net profit on average and are relatively new to business. They struggle to meet ends and need credit to balance their household and business finances. They use the credit mostly for consumption smoothing.
  • Strivers (33% of our diarists) earn an average of USD 380 monthly net profit. They are experienced entrepreneurs. They borrow to grow their businesses and smooth personal consumption.
  • Thrivers (39% of our diarists) earn an average of USD 669 monthly net profit. They are experienced entrepreneurs. Their businesses are stable, and they generate sufficient revenues to meet their personal and business goals. They borrow to expand their businesses.

Recommendations to financial service providers

Financial services providers struggle to develop cheaper, long-term credit to unlock productive credit for these entrepreneurs. Despite the challenges, they can still attract traders, such as Janet and Rebecca, if they:

  • Design products that allow savings automation and entice customers toward goal-based savings (For example, through lock-in features and higher interest rates, among others);
  • Offer affordable, accessible, and convenient credit alongside non-financial services, such as business advisory and financial literacy training;

  • Build solutions that allow customers to track their finances and provide linkages to formal borrowing;
  • Generate data trails based on repayment activity and empower borrowers to graduate from Hustlers to Thrivers;
  • Build platforms that provide access to financial products, exchange rate information, and support timely settlement of cross-border transactions.

We cannot understate how critical informal traders, such as Janet, Rebecca, and others, are to drive Africa’s trade. However, financing their businesses at scale requires that providers offer viable financial solutions. These solutions should address liquidity challenges, encourage long-term savings, support customer graduation, and facilitate cross-border payments.

 

 

Women and credit

Posted on by MSC

MSC partnered with SEWA Bharat to research women entrepreneurs’ credit journey and experiences. The report “Women and Credit: Access to Credit for Micro and Small Female Entrepreneurs in India” delves into micro and small women entrepreneurs’ credit journey and explores demand and supply-side factors. The study shares insights on credit requirements, experiences, challenges, and credit success determinants for individual and collective women-led enterprises. This report also identifies five key personas of female borrowers. It shares the supply-side experiences of bankers and other organizations who directly or indirectly lend to women entrepreneurs. It shares some novel methods and good practices supply-side stakeholders implement to mitigate and distribute credit risk. Ultimately, it provides key recommendations to enhance access to credit for women entrepreneurs.

 

Empowering micro, small, and medium enterprises: The influence of microfinance group lending

Posted on by The Helix Institute at MSC

This article by MSC and Financial Sector Deepening Uganda explores how microfinance group lending boosts the growth of micro, small, and medium enterprises (MSEs). It highlights the advantages of group lending over individual lending, particularly for those who lack traditional collateral. It focuses on the empowerment of women and youth. The article explains how group lending has expanded financial access effectively through a case study of a successful microfinance institution. Additionally, it shares a client’s story to underscore the positive impact of this approach on marginalized groups.

Read here for more details.

Atmanirbhar “Naari” for an Atmanirbhar India

Posted on by MSC

The article was first published in the Economic Times on 11th September 2023.

The role of women is sacrosanct for the growth and development of the MSME segment in India. The participation of women in Indian MSMEs has been considerably high in comparison to other sectors.

After the inception of the COVID-19 pandemic, the MSME segment in India suffered a crash in the supply chain. Several small-scale industries were not able to procure basic inputs and raw materials, majority of the MSMEs suffered from a capital crunch as most of the women entrepreneurs didn’t have a proper credit score to avail loan from a bank and other formal institution.

The pandemic has revealed many ruptures in the current system and it is imperative that we should learn the lessons that the pandemic has taught us so that we don’t repeat the same mistakes again. It is imperative to address the digital and financial divide in India as merely 32% of women own a mobile phone in India compared to 60% of men.

Digital payments are growing at an unprecedented pace. According to the National Payments Corporation of India (NPCI), UPI recorded over 7.82 billion transactions worth Rs 12.82 trillion in December 2022—a new record since it was launched in 2016. 44.63 crore Pradhan Mantri Jhan Dhan Yojana (PMJDY) accounts were opened, with deposits amounting to INR 158,713.30 crore, in seven years till 26th January 2022.

But even after these steps taken by the government, there is low usage of UPI among women (especially those women belonging to Tier 2 and Tier 3 cities). There is also a problem of account dormancy and zero-balance accounts among women, where the majority of accounts opened during the PMJDY are only being used to receive Direct Benefit Transfers from the government.

According to the white paper published by MicroSave Consulting and NPCI, there are three barriers that continue to inhibit the adoption and usage of digital payments in India:

1) Customer Level barriers: behavioral and structural barriers faced by customers that inhibit their adoption of digital payments

2) Provider level Barriers: Lack of customer-centric solutions for low- and middle-income (LMI) people in the country to adopt digital payments

3) Ecosystem level barriers: lack of frontend and backend systems to enable digital payments.

The women in tier 2 and tier 3 as well as the MSMEs majorly fall prey to the first two barriers (i.e., the Customer level barriers and Provider level barriers). The literacy rate among women and some pockets of urban areas is as low as 67.77% as compared to 84.11% in urban areas due to which there is a high level of apprehension and fearfulness among women in rural areas to make digital payments.

The reason for their apprehension is that they fear that they may send the money to the wrong person after which they will never be able to retrieve the money back. The majority of the women in tier 2 and tier 3 cities had also developed some degree of bias against digital payments because some of their family members and relatives had a bad first experience (when the family members made the transactions for the first time) because of which the women developed a perception that digital transactions are unsafe.

As mentioned at the beginning of the article, women’s participation in the MSMEs has been high in comparison to other sectors in India, however, most of the women employed in the MSMEs in the tier 2 and tier 3 cities, receive their monthly salary in cash which is another hindrance for lack of adoption of digital payments among women.

Building the overall financial and digital resilience of women provides a paramount substructure for the overall growth and development of the MSMEs which will bolster the overall boost of the village’s economic growth. A high degree of digital resilience of women will further boost the technological innovations in the field of finance to achieve Integrity, Inclusion, Innovation, Institutionalisation, and Internationalisation strengthen the digital payment ecosystem in India according to the Payment vision document of the RBI.

In order to achieve the payments vision of the RBI and increase the financial readiness of women we have to increase the Awareness, Accessibility, and Usage of digital payment services among the women.

To build awareness we have to rope in local bodies like panchayat workers, self-help groups, and other institutions like State Rural Livelihood Missions (SRLMs) so as to increase the awareness and importance of digital payments among women. The local NGOs and government can also collaborate with the micro-influencers in the local villages to increase the awareness of digital payments among women.

To increase the accessibility of UPI applications among women, the provider of the digital payment services should ensure a seamless and smooth onboarding experience for the women. The first few experiences of using the digital payments should provide a delightful experience to the women (who would be using UPI for the first time).

A significant number of fintech players are heavily dependent on the bank infrastructure because of this the banks are not able to process and handle the excess payment request demands from the customers. Heavy reliance on bank infrastructure is the primary reason why there are transaction failures while conducting a digital transaction.

There are increasing challenges for the fintech companies related to cyber security and data privacy as all the major fintech companies collect and store sensitive financial data because of this these companies are more vulnerable to any potential cyber-attack.

To enhance the usage of digital payment applications, the product developers of the applications should synthesize and harness customer-centricity tools to increase the usage of the UPI apps. Developing subtle nudges in the app and adopting a model like that of “BC Sakhis” by the fintech players in the local communities can provide assistance to women and increase the usage of digital financial services among women.

Financial inclusion is still an unaccomplished target, especially among women belonging to the lower and middle-income groups. There are not merely demand-side challenges but supply-side issues as well that abstain from the overall digital and financial ecosystem of the county and in the Amrit Kaal we should make sure that all the women in our country are financially included so that they can play an equitable role in the overall growth and development of India.

Conversational Payments on UPI: Unlocking new frontiers for next-generation payments

Posted on by MSC

Artificial Intelligence (AI) has grown and transformed remarkably in recent years. AI’s proliferation in the payments industry will likely transform how we process payments in the digital economy. Currently, most payment solutions primarily cater to digitally savvy users who own smartphones and have Internet connectivity. This leaves out many underserved users who lack smartphone access and is, thus, not inclusive. This white paper, developed jointly with the National Payments Corporation of India (NPCI), highlights a solution to improve inclusivity and become a game changer in the payments space.

The white paper was first launched at the Global Fintech Fest in Mumbai, India, on 7th September 2023.

Charting new heights: What does it take for women to work in the formal economy?

Posted on by MSC

India’s female labour force participation rate (FLFPR) has increased marginally from 32.5% in 2020-21 to 32.8% in 2021-22. But is this pace fast enough? How can women’s participation in the labour force increase to match the global average of 47%?

While India continues to have one of the highest increasing GDP per capita growth at 6.3% in 2022 as compared to other South Asian counterparts, some neighbouring countries like Bhutan (53.8%) and Nepal (40%) have a higher female labour force participation rate as compared to India in 2022.

Women can have a tremendously positive impact on India’s economy. By 2025, if the FLFPR of women increases at the same rate as men, it can add USD 770 billion to India’s GDP. But how close are we to achieving this goal?

Policymakers have increasingly emphasised bringing women into the workforce through policies and programs to build their skills while addressing normative barriers that deter women from taking up jobs. Some barriers result from higher dropout rates among girls, limited job opportunities, and wage discrimination. Moreover, social norms around mobility, decision-making, and household responsibilities can also hinder the extent to which women seek employment in the first place. And after childbirth, re-entering the workforce becomes even harder.

Oxfam India research suggests that while similar norms persist in other South Asian countries, there are far more barriers that hinder women going to work in India. A pertinent example is the correlation between increased development rates and higher household income in urban Indian settings, which paradoxically impacts a woman’s ability to pursue work opportunities outside her home. This trend is fueled by societal preferences for women to remain in domestic roles, particularly as their status advances. Alongside challenges related to safety and mobility, additional factors such as the limited availability of white-collar positions for the growing number of educated women contribute to these barriers. In contrast, countries like Bangladesh offer more formal avenues for women’s employment, particularly in expanding international trade sectors

Moreover, the informal nature of many Indian industries, especially manufacturing, inhibits women’s participation in the burgeoning job market, leading to a predominantly male-dominated environment. A significant factor contributing to this situation is that women in India often experience their first pregnancy before the age of 22, assuming primary responsibilities for childcare, especially in urban areas. Consequently, women are often forced to leave their jobs, opt out of the workforce, or navigate the challenge of providing unsupervised care for their children. This emphasis on early years childcare supersedes career pursuits, and urban women, distinct from their rural counterparts, lack the robust community support systems that enable them to balance work and child raising responsibilities effectively.

While women have access to institutional support, it remains limited to rural programs for pregnant women and post-childbirth care. The Pradhan Mantri Matru Vandana Yojana (PMMVY) is a wage compensation program that provides financial support to pregnant and lactating women to improve maternal and child health. Meanwhile, the Janani Suraksha Yojana (JSY) offers financial support and resources to pregnant women for safe delivery and post-delivery care.

Additionally, India has policies that mandate employers to provide on-site childcare facilities under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS). The country also has several policies that authorise childcare for organisations with 50 or more employees. However, most such provisions focus on women in rural areas. Inadequate support in semi-urban and urban spaces remains a missing link for women when they attempt to reenter the workforce post-childbirth.

So, what is the way forward to galvanise women’s labour force participation? One way is to formalize the care economy by investing in the childcare system. Although crèches under the National Creche Scheme understandably reduced during COVID-19, from 18,000+ in 2017-18 to 6,000+ in 2020, available data does not explain if these numbers have shifted between 2021-2023. Increasing crèches at scale will require more childcare professionals, teachers, healthcare professionals, and other associated people. Moreover, if the number of crèches increases, it would enable convergence between upskilling women through government programs, such as the Swarna Jayanti Shahari Rozgar Yojana (SJSRY), which supports women’s self-employment.

Government policies  can prioritise encouraging initiatives, such as starting local childcare crèches. Upskilling programs, such as the National Urban Livelihoods Mission, can train women in specific areas, such as health, nutrition, and education, to evolve them as childcare professionals as a career starting point. India can take note of countries, such as Mexico, that run large-scale subsidised childcare programs to encourage women to return to work.

Another approach would be for the government to incentivise private firms that employ more women with tax rebates and other forms of recognition. Some industry players in the manufacturing sector have 100% women employees. Female employment enables government involvement while allowing industries to direct their corporate social responsibility ventures to benefit their output and productivity rates.

Investing in the childcare ecosystem, building engagements with the private sector and civil society, and creating policies that enable women’s participation in the formal economy can help overcome existing normative barriers and limited economic opportunities. Together, these interventions can chart new heights for women and build milestones for India’s growth story.