Expanding Financial Inclusion in Africa SILC Meeting, Photo By Henry Tenenbaum, May 2016 SILC Financial Diaries: Case Study Low-Income, High-Variation Household October 2016
Authors This case study was authored by Samuel Beecher of Catholic Relief Services (CRS) with significant support from CRS' Julie Lawson-McDowall and Microfinance Opportunities' (MFO) Eric Noggle and Conor Gallagher.
Expanding Financial Inclusion in Africa In 2014, Catholic Relief Services (CRS) with funding from the MasterCard Foundation launched the Expanding Financial Inclusion (EFI) program in Burkina Faso, Senegal, Uganda, and Zambia. The goal of EFI is to expand financial service access to vulnerable households to improve their resilience. CRS expands financial service access through the creation of Savings and Internal Lending Communities (SILC), also known as SILC groups. From July 2014 to September 2016, a team of enumerators conducted weekly interviews with 134 SILC households and 135 comparison households in seven villages between 5 and 50 kilometers from Kasama, the capital of Zambia's Northern Province. 1 During each interview, the enumerators gathered data on all cash, electronic, and in-kind transactions the households performed. This case study presents an analysis of two households, one SILC and another comparison, that had relatively low average weekly earnings that were also volatile. 1 CRS selected SILC comparison households via a modified matched-pairs approach that sought to match households based on age, livelihood, household structure, and food-security level.
Case Study: Low-Earning and High-Variation Meet the Households Mrs. Chimba and Mrs. Chipelika both earned the majority of their income from the sale of beer. They had similar per capita earnings, and both households lived on less than a dollar a day per person when adjusted for purchasing power. 1 Their coefficients of variation (CoV) were higher than other households in the sample, meaning they often experienced significant earnings fluctuations from week to week. Mrs. Chipelika had access to SILC s financial tools, while Mrs. Chimba did not. Meeting Family Needs Mrs. Chimba Mrs. Chimba began brewing and selling beer in 2014 in the hope of using the profits to start a food-selling business at the local market. She knew that brewing beer required minimal inputs but was surprised at the difficulty she had attracting customers and the low profit margins. Her inability to make consistent sales and the low margins have made it difficult for her to expand her business and made it all but impossible to shift to a more profitable enterprise. Household Characteristics Name Mrs. Chimba Mrs. Chipelika Group Comparison (non-silc) Treatment (SILC) Village Type Peri-Urban Rural Household Composition Highest Week of Earnings Average Weekly Earning Main Source of Income Coefficient of Variation Divorced, lives with one child Married, lives with husband and five children 143 Kwacha 800 Kwacha 21 Kwacha 52 Kwacha Beer Sales Beer Sales 1.6 2.67 To get by, Mrs. Chimba supplemented her income with agricultural labor between February 2015 and November 2015 she reported earning a total of 240 kwacha from this activity during this period and sold avocados and mangoes from the trees in her garden. She earned a total of 47 kwacha from these fruits. There were many weeks though when she earned no income from mid-april 2015 to mid- December 2015, there were 12 weeks when she reported not receiving any income. Mrs. Chimba regularly purchased maize, cooking oil, and dry fish, and household necessities such as soap, and she rarely purchased other items like airtime, clothing, or cooking fuels. Her spending on these 1 CRS and MFO used the official exchange rate for 2015 (ZMW 8.63 = 1 USD) and PPP conversion factor (2.94) provided by the World Bank and accessed on October 6, 2016.
necessities outpaced her average weekly income she spent 42 kwacha per week on average on these items but only earned 21 kwacha. To finance the gap, Mrs. Chimba had to use financial tools, which we discuss in detail in the next section. Figure 1: Chimba Household s Weekly Cash Flows 2 Mrs. Chipelika Mrs. Chipelika also brews beer, but her business is more robust than Mrs. Chimba s. In fact, she acts as a wholesaler, brewing beer for sale in 10-liter containers to women who will repackage the beer and sell it in smaller quantities. Her prices vary depending on her inputs, but she reliably charges between 35 and 65 kwacha per container. During harvest season, when farmers are flush with cash, she will sometimes sell retail, but she prefers selling in bulk, she says, because of the access to large sums of cash it provides. Mrs. Chipelika has other sources of income too. She sold maize in bulk to the Federal Reserve Agency (FRA) in October of 2015 for 600 kwacha. She sold smaller quantities of maize to other villagers, but like with beer, she prefers to sell in bulk because she receives a lump sum ofcash. In addition to beer and maize, Mrs. Chipelika and her husband relied on the production and sale of charcoal to supplement their earnings during the dry season. Charcoal is labor intensive, but it requires no external capital and allows them to exploit their large piece of land with many trees. Mr. Chipelika 2 In Weeks 40 to 41, Week 44, Week 49, Weeks 57-61, and Week 65, the Chimba household did not complete interviews, explaining the gaps in these weeks.
prepares the charcoal, but Mrs. Chipelika sells it, reporting nine sales totaling 555 kwacha. Most of these sales were small and near her home, but in at least one instance, she took charcoal to Kasama to sell in bulk at a higher price. Despite her multiple income sources, Mrs. Chipelika still reported six weeks when her household earned no income. Figure 2: Chipelika Household s Weekly Cash Flows. Mrs. Chipelika s most common expenditures were on food and household items. Expenditures on other items like airtime, transportation, and school fees were relatively small. For instance, her school fee costs were low 25 kwacha for a parent-teacher association fee. Mrs. Chipelika was ill once and required treatment, but the rural health post in her village provided her with medical assistance free of charge apart from the 1.5 kwacha record book and costs for a generic pain killer. On average, Mrs. Chipelika and her household would spend 33 kwacha per week, a sum that they could typically cover with their earnings. When in need of financial assistance, Mrs. Chipelika turned to her family, and she received support in the form of in-kind gifts such as food from friends or family. Unlike Mrs. Chimba, Mrs. Chipelika had access to her SILC group s financial tools where she could receive a loan or save her money when she had some extra.
Using Financial Tools to Manage Cash Flow Mrs. Chimba When Mrs. Chimba needed extra cash to afford her household necessities, she would turn to her network of family and friends for cash transfers, receiving nine such transfers. Sometimes she would get loans too. Most people are willing to give loans, she reported, because having a large social network increases the likelihood that they will also be able to access loans in times of need. Most of these social loans were interest free only those in the loan making business charge interest. Mrs. Chimba s use of financial tools offered by banks, microfinance institutions, or money transfer services was limited. She did receive a cash transfer from Catholic Relief Services for her participation in this project. For her, the sum was relatively large (128.5 kwacha), and she used the money to purchase sugar for her beer-selling business, gave 10 kwacha to her mother, and spent the remainder on household items and food. She used Zoona to receive money from her brother once and found the service straightforward, only requiring her national registration card, a mobile phone, and a PIN number. She was unaware of whether Zoona or other mobile operators provide savings plans or tools, but she would be interested in such services if they offered them since the operators are in her village and the service required little financial education to use. Mrs. Chimba was not familiar with SILC groups or savings groups generally. With her low-income and savings struggles, she was aware that she is not an ideal bank customer. Banks are not the most appealing to her anyway. Her informal credit providers would likely give her an extension to pay back the loan if she was struggling, which would not happen with a bank.
Figure 3: Chimba Household s Use of Financial Tools Mrs. Chipelika Mrs. Chipelika was an active participant in her SILC group, and she valued both the savings facility and loans the group provided. She deposited an average of 12 kwacha almost every week during the study. Over the course of her group cycle, she saved 322 kwacha, which she received as her share-out in November 2015. She used it to expand her beer business, making a large purchase of molasses, and deposited the rest into home savings. She drew down on the savings over the course of the next month or so, buying more inputs for her business, paying for transportation to Kasama, and buying a gift for a relative s baby. She also made frequent use of the loans her group offered, receiving one every three months on average. She would access loans both to make investments in her business and to cover shortages of cash. She would deposit any remaining cash into her home savings. She often accessed her loans in sequence. On five occasions, Mrs. Chipelika would repay her loan at the beginning of the meeting, make a cash deposit into her SILC savings account, and then access a new, larger loan from the group. This allowed her to pay for her brewing inputs consistently. The main benefit the SILC offered, she said, was access to a long-term savings account. The money she saved in the SILC was secure because she did not have access to it until the share-out. Money saved at home, however, was accessible. She struggled to accumulate large savings and, at times, spent the money in ways she had not intended.
Nonetheless, her home savings was an important financial tool. She deposited money in her home savings about once per week and withdrew money about once every three weeks. She used her home account similar to how an individual would use a checking account, withdrawing small amounts of money on a regular basis to purchase household necessities. Figure 4: Chipelika Household s Use of Financial Tools Mrs. Chipelika used a variety of other financial tools. She received a loan from a female friend in August 2015 for 110 kwacha, but preferred the SILC loans to informal loans like this one. In her view, loan repayments for informal loans were challenging because the loan repayment was normally undefined in that the lender normally requested repayment when he or she needed the money, even if this was before the agreed upon date. She does not plan to try to access formal financial institutions in the future she feels that the SILC and informal loans from her social network are lower risk, even if the informal loans are unpredictable. If she fails to pay back the SILC loan, the group can take the repayment from her savings while friends and family are flexible with the loan repayments. Mrs. Chipelika also thinks that her income is too low to open and maintain a bank account and that her literacy skills and lack of financial education would make the required paperwork challenging.