Expanding Financial Inclusion in Africa SILC Meeting, Photo By Henry Tenenbaum, May 2016 SILC Financial Diaries: Case Study High-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 high 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: High-Earning and High-Variation Meet the Households The Mutale and Lubumbes are cases of households that had relatively high average weekly earnings that were also volatile. While both households earned income almost every week, the amounts that they brought in from week to week varied dramatically. The Lubumbe household had access to a SILC group to help manage Household Characteristics Name Mr. and Mrs. Mutale Mr. and Mrs. Lubumbe Group Comparison (non-silc) Treatment (SILC) Village Type Peri-Urban Peri-Urban Household Composition Highest Week of Earnings Average Weekly Earning Main Source of Income Coefficient of Variation Number of Weeks with No Income Married with four children Married with five children (four living with relatives) 2,150 Kwacha 3,349 Kwacha 203 kwacha 174 kwacha Maize Maize 2.5 3.2 2 0 this volatility while the Mutales did not. Cash Flow Management The Mutales On average, the Mutales earned 203 kwacha per week 2, but their earnings fluctuated from weeks with large sales worth several hundred kwacha to weeks with little or no earnings. For example, they earned no income during the second week of June 2015 but sold six bags of maize worth 360 kwacha the following week. They had more than 600 kwacha in sales the first half of November but earned only 33 kwacha during the next month. Most of their earnings came from the sale of maize, and they sold small batches of other crops like sweet potatoes and cassava. Earnings from these sources were irregular though, so the household relied on other sources to help fill the gaps. Mr. Mutale is a skilled brick-maker, and his work was in high demand. Kasama, the capital of Northern Province, was growing quickly during the study, and it is close to his home (only 5 kilometers away). During the study, he earned almost 900 kwacha selling his bricks, and the profit margins were good since his inputs were cheap. 2 The official exchange rate for 2015 was ZMW 8.63 = 1 USD.
Mrs. Mutale also started a business growing vegetables at the end of the dry season to harvest between January and March, a time of high food and economic insecurity. However, her limited capital resulted in a small yields and low sales. The household also had a phone charging business. The Mutales spent most of their money on food an average of 42 kwacha per week during the observation period. Other major expenditures included household items (11 kwacha per week) and investments in agricultural and construction-related items (27 kwacha per week). On average, their total expenditures of 124 kwacha were lower than their average weekly income. While they could cover their expenses on average, their irregular earnings meant they needed to rely on financial tools to smooth consumption. Figure 1: Mutale Household s Weekly Cash Flows 3 The Lubumbes The Lubumbes earned 174 kwacha per week and their income varied by large amounts from week to week. Much of the variation we see in the data is a result of Mr. Lubumbe selling the households maize harvest to the Federal Reserve Agency (FRA). He did this once in October 2015, earning 3,449 kwacha. This was his only reported earnings during the study. 3 In Weeks 45 and 52, the Mutale household did not complete interviews, explaining the gaps in these weeks.
Mrs. Lubumbe reported earning money more often. She styled hair, sold fritters, and engaged in casual labor. The fritters were a profitable business she earned almost 1,700 kwacha from two months of consistent sales. The Lubumbes spent 253 kwacha per week on average. Most of this spending was on food, household items (50 kwacha), basic services and transport costs (36 kwacha), and fuel (5 kwacha per week). There was a clear division in how the couple made purchases. Mrs. Lubumbe was responsible for food, household, and education expenses, while Mr. Lubumbe financed larger purchases, including inputs for his farming activities. This spending, though, far exceeded their weekly income, requiring the household to rely on financial tools. Figure 2: Lubumbe Household s Weekly Cash Flows Financial Tool Use The Mutales The Mutales made limited use of their home savings. They made a deposit once every 10 weeks and a withdrawal once every five weeks. The data suggest that they would withdraw money from their home savings when their earnings were low. When their earnings were high, they would invest in construction materials rather than save the money at home.
In addition to home savings, the Mutales relied on informal loans from friends and family to purchase food and household necessities in weeks in which they had no or low income. During the observation period, the Mutales took 10 loans from friends and relatives, ranging from 8 kwacha to 106 kwacha. The Mutales tended to increase their spending in weeks when they received a loan from their informal network, combining the loans with earnings and other financial tools to purchase a greater quantity of household necessities. The Mutales also made regular use of cash transfers, receiving eight cash gifts from family and friends. Once, in June 2015, part of a cash gift helped finance a large purchase of maize, but otherwise they used the cash gifts to help finance regular household purchases. Only one cash transfer (from their son) was electronic. They received it via Zoona in October 2015, marking their first interaction with a formal FSP during the observation period. Figure 3: Mutale Household s Use of Financial Tools Mr. and Mrs. Mutale have seen other mobile network operators (MNOs), like MTN and Airtel, transition from towns to their village. There are now kiosks just a few kilometers from their home. Mr. and Mrs. Mutale plan to continue working with MNOs to send and receive money from their relatives. Mr. Mutale and Mrs. Mutale differed in their preference for financial tools. Mr. Mutale would prefer to take loans from banks or other FSPs rather than friends and family, but the banks are far away and charge fees. Ideally, the institution he would work with would be less than 30 minutes from his home, provide
loans with an interest at or below 10%, and have minimal fees and charges, but no bank meets that criteria. Mrs. Mutale s preferred financial tool does meet those criteria. She is more interested in working with a savings group, like a SILC, to save money and access larger amounts of credit than her friends can offer. Mrs. Mutale said that she could save in her SILC account and access loans to cover household expenditures when income is low or make productive investments for their agriculture business. The Lubumbes The Lubumbes used their home savings account regularly, making a deposit about once per month and withdrawing money about once every two weeks. They used it primarily to deal with weekly mismatches in income and used their SILC group for long-term savings. The Lubumbes were active participants in their SILC group Mr. Lubumbe was the chairperson and Mrs. Lubumbe was the money counter. They regularly deposited 45 kwacha into the group. The Lubumbes said that the services their SILC provided made it easier to save money. When they keep excess cash in their house, they would sometimes spend it on unplanned items. With SILC, they cannot access the money until the share-out, unless it is a loan, in which case they are motivated to invest the money wisely so they can pay back the loan with interest. The Lubumbes had a friendly competition with one another as to who could save more. In August 2015, when the SILC group shared-out, Mrs. Lubumbe was proudly announced the winner. She had saved 1,293 kwacha against her husband's 1,208 kwacha. Mrs. Lubumbe used this money to purchase several household assets such as a food warmer (300 kwacha), a carpet (150 kwacha), a phone (265 kwacha), and two TV stands (520 kwacha). Mr. Lubumbe used his share-out to finance agricultural inputs. He purchased 100 kwacha worth of empty bags to package his maize and paid 250 kwacha to a driver to transport his maize to the FRA shed. Later in the week Mr. Lubumbe gave his wife 510 kwacha and deposited the remaining cash, 423 kwacha, into his home savings. In the following weeks he would regularly withdraw small sums of money and give them to his wife, who would use the money to make food and household purchases. The Lubumbes used SILC loans too, but they would make a budget before accessing them in order to calculate the timing of loans carefully. During the observation period, Mr. Lubumbe took out four SILC loans for 1,315 kwacha and Mrs. Lubumbe took out three SILC loans for 1,486 kwacha; they would often take out loans during the same week to maximize the cash they had on hand. Mrs. Lubumbe took out her
first SILC loan in May 2015. She used the 1,000 kwacha to buy ingredients to make fritters. This large investment in her fritter business resulted in the high volume of sales reported early she earned 1,673 over eight weeks. In the first week of November, Mr. Lubumbe took out a SILC loan for 195 kwacha and used this, together with his home savings, to pay an agriculture laborer 300 kwacha in wages. Figure 4: Lubumbe Household s Use of Financial Tools In addition to the loans from SILC, Mr. Lubumbe accessed loans from friends during the study. He took out a loan in October 2015 from a friend for 300 kwacha and used the money to finance a bus ticket to and from Lusaka. Mrs. Lubumbe did not record loan activity involving any sources other than SILC. Cash gifts were an important financial tool for the Lubumbes. During the study period, the Lubumbes received 26 cash gifts, approximately one every three weeks, for a total of 4,784 kwacha. Many of these were from Mr. Lubumbe s family he received seven cash gifts from his brother, sister, and mother, for a total of 2,036 kwacha. The Lubumbes used Zoona, their preferred mobile money service two times during the study period. They prefer Zoona to other MNOs because they do not need to have an account to send or receive money. Apart from mobile money services, the Lubumbes have not used FSPs like banks or microfinance institutions.