Product Innovation that Provides Useful Services for the Poor

21 March 2012

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.



Submitted by John Gitau on
Dear Stuart, Your information is very helpful to those keen in designing innovative ideas of extending financial services to the poor in their backyards and at user friendly terms. From a financial education point of view, adults learn best when they are able to apply the knowledge in in theirs lives. Application makes learning faster. Attitudes and behaviour change is accelerated when results are visible. I am learning that P9 is a tool that supports debt management and savings, improving wellbeing. It is a practical and effective way of inflicting pleasurably financial literacy and behaviour change. I think it is a concept based on a clear understanding of human psychology. Everybody wants more inflow to meet needs and want. It is pleasurable to be able to access money, earned or borrowed. That is how the human mind is wired. Saving on the contrary is difficult because it entails sacrificing immediate pleasure. The human mind doesn’t like that. It likes getting away from pain. So, the brilliance in the P9 creation is linking a pleasurable experience of inflow through debt to another precipitate result of saving which is pleasurable when achieved.When it is achieved without undergoing the painful process, it is even better. Obviously, everybody is happy to hold cash for the future. Its only that the process is painful. Within a short time, a person will appreciate the saving and be happy and that motivates behaviour enhancement. That is a powerful indirect learning. In my country Kenya, deposit taking microfinance finance institutions use loans as carrots to encourage the poor to save. A customer is expected to save for six months before being eligible for a loan. Customers, with no other source of credit save unwillingly guided by the desire for a loan. It is not fast but it happens.The main motive for the institutions is not necessarily to encourage saving but to build cash as a hedge for the loans they give. Talk of them lending the customers their own savings! I am now thinking that if loand are given first with part of it retained as savings, more customers would be served. Perhaps there would be a graduated disbursement so that as a customer repays, a little more credit is disbursed and in the process, savings are build. This would call for the institutions to source funding from their development partners to roll out such products. By the end of the day, given that the institutions are in the lending business, they will be able to lend more money to more people. A six months delay in loan disbursement sounds like a six months loan turn around, which is slow. In any case, the institutions needs to be proactive in designing risk mitigation techniques to manage defaults while serving more customers. We as practitioners of microfinance and financial literacy need to always think of creative ways( some may be risky, but risk comes with its rewards)to improve uptake of our products and services which help more poor people in empowerment and as empowered customers consume more of our offering contributing to our growth. Perharps Stuart you are already thinking how to tie in Credit and saving with investing asa further growth option. If part of the savings can go into buying an income generating asset, that will provide tripple service. The income generated addresses the income pillar of financial education. In the whole process, the poor consumers will have learned by default how to spend prudently. This is practical financial education. Stuart, please help me here. The scale up buzz word, what is your take. I heard an expert say “without possibility of scale, no project is worth taking”. I thought that was perhaps not really correct but I didn’t have a counter argument. My basic thinking is that scale is not induced but develops over time. It is the increase of a benefit or practice. It is at times difficult to measure wellbeing and if scale is just about numbers then something is missing. I need help to understand. I would think any individual improvement is an element in scale for example moving from saving $2 to $ 10 to making an investment of $15 and so on.

Submitted by Dr V.Rengarajan on
Stuart Rutherford P9 and Jipanje Ku save are innovative products doing useful services for the poor. How ever while this (forced) savings linked credit would enable the poor to have financial access for their economic livelihood activities, the factors such as vulnerability to health risks and co variant risk at HH level also need to be addressed for protecting the human being and income generating asset (created out of micro credit) as well. Some time forced savings amount also may not be adequate to meet such vulnerable situation in poor household.For challenging these vulnerable factors, is it possible to further leap in the usefulness for the poor with the folding of micro insurance along with savings and credit perhaps calling ‘jipange ku insure’(S+C+I). Even ‘forced insurance’ is also not a bad idea so long it helps expansion of usefulness to the poor household for gaining sustainability in their livelihood activities. Dr Rengarajan

Submitted by lescuyer on
Dear Stuart, The idea behind P9 is interesting – However, you should mention at the very beginning that you are the founder of Safesave. That’s not only useful, but also ethical. Regards

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