When we launched Jipange KuSave – a mobile-only savings product – in Kenya in early 2010, our goal was to out-compete the mattress. Back then, Safaricom’s M-PESA service was in hyper-growth phase and ramping up to become the de facto national retail payment system. But even more exciting was M-PESA’s potential as a pervasive and low-cost delivery channel for a wider set of financial services.
With this in mind, we decided to attempt for savings what M-PESA had done for money transfers – get millions of Kenyans to abandon informal mechanisms and instead become our paying customers. But if Kenyans were going to save with us instead of the mattress, we’d need to solve two challenges.
First, a ‘traditional’ bank-type savings proposition would never work. Poor people have never abandoned the convenience and enforced discipline of informal savings services for a couple of percent interest. In Jipange, the combination of micro-loans and savings in a structured program met several customer needs, notably the need for cash when cash flow is low (liquidity) and steady progress towards a lump sum (a savings goal).
Second, our costs would need to be radically low. As ING Direct had shown, “pure” mass-market savings plays can make money, but only at high volumes and low margins. And that was in developed markets with larger account balances. For us to succeed, we would need to “throw out the rulebook” and design from scratch the most efficient and lowest-cost processes to manage relationships and transactions.
With our two “first principles” in mind, we gathered the essential ammunition for an attack on the mattress: a radical product design, drawing heavily from Stuart Rutherford’s work; a set of web-based processes to run the product solely via M-PESA (limited physical contact with customers); a stellar project lead to manage implementation; and passionate, risk-seeking funders in CGAP and FSD Trust Kenya.
Interested readers may find it useful to read more about our product development and trials here in MIT Innovations. Also, this evaluation produced by FSD Kenya. In short, the Jipange KuSave product gave customers small amounts of credit at zero interest, while placing a portion of the credit into a “forced” savings account. As customers repaid the credit at whatever speed and in whatever amounts they wished, they became eligible for a bigger zero-interest loan. By borrowing multiple times and being forced to save a portion of each loan, they gradually accumulated savings.
The short version of our battle report is this:
1. Customers are hungry for better ways to save. They deal with cash flow complexity everyday and use a range of high cost / high risk methods to achieve liquidity. Some product designers would consider blending credit and savings as too complex – that was not our experience. Clear, structured program, yes – but too difficult for customers to grasp, no.
2. Silicon Valley-style discipline and lean startup principles are keys to success. This starts and ends with customers. We quickly acquired a first trial cohort and modified and iterated the ‘offer’ on the back of real evidence from users.
3. A brand-new, mobile-oriented deposit-taking institution has the best chance of beating the mattress. This is perhaps the most difficult stumbling block on the way to scale. Only a regulated institution can take deposits — but hungry, highly innovative regulated institutions are rare beasts.
Gautam and Nick
This is brilliant. We shouldn’t be discouraged by scale up though it is necessary. I think the development of an idea with remarkable success even to a few is a good start. This is a very creative method of motivating saving and much as deposit taking is an exclusive domain of banks and Deposit Taking Institutions, the M-pesa platform through such creative interventions toward inclusion should bulldoze a bit like happened at inception. Remember Nick the resistance that M-pesa got from the Minister of Finance then and even the banking fraternity saying oh, only banks can handle money oh, this is a breach of the banking law etc. But Safaricom didn’t cower. It pushed it through until we have the phenomena that the same banks are making profits from. So, my take is that you as developers need to push your intervention through or partner with a deposit taking microfinance bank accessible to the poor clients
Gautam and Nick: This is very exciting and seems to be a real “disruptive innovation” based on solid research and insights from Stuarts work in a number of countries.
We generally know that “under the mattress” amounts in most developing countries are still high. However, it is unfortunate that not much effort has been done to quantify these amounts in many countries. UNDP/UNCDF did some ground-breaking work in Lao PDR many years ago and provided interesting numbers on various forms of informal savings. What was really exciting was not that many people save in-kind such as in livestock and jewelery etc, but keep cash. When you look at the aggregate amounts for the economy as a whole they are substantial.
I hope funders would take more interest in this area of research to provide greater incentives for innovators to come up exciting and useful products that can be scaled up.
Century is a recently licensed deposit taking microfinance in Kenya. This has definitely caught my attention and I want to hear more. We are ready to be one of those rare beasts..