User-Centered Financial Services Build Household Resilience
When you get sick, it may not always hit you in your wallet. If you have health insurance or live where social protection schemes cover the majority of health costs, you are able to get medical treatment when you need it, at the time you need it, and without making yourself worse off. This is what we researchers like to call “resilience.” But if you live in a poor rural household in Burkina Faso and became ill, you would need to deplete your savings, cut back on food or sell a chicken to cover treatment costs.
Resilience, as a development concept, is complex and multi-faceted. At its simplest, it is a household’s or community’s ability to anticipate, respond and recover from shocks: like a crop failure, a debilitating illness or a climate event like a drought, a flood or an earthquake. We, at Freedom from Hunger, used “resilience diaries” with 46 households in Burkina Faso to see whether financial services could play a greater role in building household resilience.
Photo Credit: Jeni Abramson, 2014 CGAP Photo Contest
For the poorest households, their poverty status alone is a reoccurring shock. If money is not available to cover expenses at the right time, children are pulled from school or the family goes to bed hungry in order to keep the children in school. There are constant trade-offs. Households must use different coping strategies in tandem. While short-term costs can be covered by patching together coping strategies, the long-term consequences of reducing food consumption, relying on low-nutrition foods or even forgoing healthcare, lead to continued cycles of vulnerability and entrench them deeper in poverty.
If government support (like food aid or cash transfers) does not arrive in time and in sufficient amounts, social protection does not really benefit households. Tim Frankenberger, President of Tango International, made this key argument at the May 2016 CORE Group Spring Conference, which focused on Multidimensional Programming. Social protection, like the health insurance or taxpayer-funded health care you probably rely on, needs to be timely and be enough to make your household resilient.
Our research, looking at the role financial services play in building household resilience, drew similar conclusions. If financial services are not timely and not substantial enough to cover a shock, a household has to patch together multiple coping mechanisms.
Households in Burkina Faso tend to rely on using family savings, reducing their food consumption and selling livestock to cope with a shock, in that order. But this order of use is not what they would prefer. They would prefer to sell livestock first, then borrow from a savings group and then reduce food consumption.
Overall, we found very little use of formal financial products for coping with shocks. For many reasons this lack of use of formal financial services makes sense, as most products being used are designed for investing in income-generating activities. The financial sector could design better services to help these households anticipate and respond to shocks.
There is also an opportunity to design discreet financial products that respond to women’s needs in particular. Lack of physical mobility and the pressure to honor one’s husband and to protect the privacy of the household’s finances also drive women to reduce food consumption before asking others for help.
As a result of this research, four papers have been published that aim to:
Describe the characteristics of resilient and nonresilient households.
Predict through an economic game how health savings and loans protect household resources.
Share findings about how a financial product designed for health shocks 10 years ago benefitted from this research through better understanding how households actually anticipate and cope with shocks when they occur.
Only by understanding how and why households use the coping strategies that they do, can useful and useable financial services products work. User-centered design and application of case studies or effective monitoring on use and nonuse of financial services are crucial.
A health insurance or a social protection scheme may work for you because it offers you enough help and is there when you need it. Financial service solutions for rural households in Burkina Faso need to be different, but they still need to do the same job. They need to build resilience.