Product Innovation that Provides Useful Services for the Poor
Mobile money’s first big success in serving poor people came when Kenyans discovered how useful it was to be able to “send money home” safely, quickly and cheaply through M-PESA. As mobile money moves from transfers into savings and loans, it will need to demonstrate a similar leap in the usefulness of its products. One attempt to make that leap is Jipange KuSave, a mobile phone service that folds savings and credit together into a single easily-managed tool for poor people to create the sums of money they need to manage their lives.
Jipange KuSave is based on the ideas behind P9, a savings and loan product for poor people in Bangladesh managed by SafeSave, a local MFI. In contrast to Jipange KuSave, P9 is not mobile-enabled: its field workers visit clients daily. But P9 illustrates the drive towards product usefulness that will characterize the next generation of good financial services for poor people, whether they are delivered traditionally or through mobile devices.
P9 is useful because it answers a basic money management problem that poor people constantly face – how to squeeze usefully large sums of money out of small, irregular and often unreliable incomes. Every day brings the need to ensure that there is food on the table, not just on days when income comes in. Many days bring the need for sums of money to buy things that cost more than is currently on hand – for birth, education, marriage and death, for home-building and furnishing, for festivals and clothes and fans and bicycles. And any day may bring an emergency that needs a big chunk of money to overcome – health crises, floods, cyclones, theft and the many other disasters that disproportionately affect poor people. The book Portfolios of the Poor shows that these problems are real for the poor, and not just assumptions made by SafeSave’s financial product designers.
So how exactly is P9 useful? It offers instant liquidity in the form of interest-free loans, helping clients deal with everyday money management needs. Because loans can be “topped up” at any time, this liquidity is always available, and repayments happen at the speed the borrower chooses. But each time a loan (or top-up) is taken, a proportion of it goes into the client’s savings account, building reserves for big expenditures and providing an immediately available resource when a disaster strikes. Once one loan is paid off, the borrower qualifies for a larger sized loan, with a similar proportion going into the savings account. Detailed product rules (and an answer to the obvious question of how this product be offered sustainably) are on the SafeSave site.
Research shows that often P9 loans and savings withdrawals simply enter the household’s cash flow stream, helping them manage money on a day-to-day basis. This may not be dramatic, but it is eminently useful, just as the ability to send cash to a distant home through M-PESA is a modest but thoroughly useful service.
But sometimes P9 makes a big difference to a poor household’s fortunes. Nitam, a landless rickshaw-driver, saved his wife’s life by paying for an emergency operation with a P9 withdrawal taken the day she was admitted to hospital. Shika saved money in P9 and secured her fourth daughter a much better marriage partner than her older sisters had managed. Abul Hossain had given up on the land he had mortgaged out years ago until he saw that P9 was just the right device to build up enough money to get it back. Rafique, who runs a cycle repair shop, found that P9’s flexible repayment terms made it much easier to borrow from P9 than from conventional credit MFIs. As a result, he doubled his turnover after he started borrowing from P9.
Products like P9 do well when measured against some of the problems that have worried the microfinance industry recently. A P9 client can borrow or build large sums quickly, but cannot fall into over-indebtedness because by the time her loan balances have grown large, her savings balance is even larger. By working with both borrowing and saving, P9 multiplies the chances that one or the other can have real impact on the client’s welfare. P9 is not expensive: clients pay a modest loan disbursement fee to enjoy both the loans and the savings. So they never have to commit to future streams of interest payments and can exit their account debt-free at any time they wish. P9’s flexible pay-as-and-when-you-wish plans eliminate stress.
Useful microfinance means providing poor people with the tools to do more cheaply and easily what their lives require them to do anyway. Useful innovations in product design, like P9, and useful innovations in mobile technology, like Jipange KuSave using the M-PESA rails, have the potential to create real value in financial service delivery for poor people.