The New Microfinancing: SMS-Based Layaway To The Rescue

KickStart has introduced an innovative layaway program to African farmers so they can invest in low-cost irrigation pumps.


Microfinance, the Nobel Prize-winning initiative to turn aspiring Third World entrepreneurs into self-sustaining CEOs, has long been the only game in town when it comes to offering developing world entrepreneurs a viable and sustainable form of funding. But other financial instruments may work just as well–if not better–at supplying small farmers around the world with capital and a path out of poverty.

a nonprofit that sells human-powered irrigation systems for
entrepreneurial farmers, has successfully introduced an SMS-powered
layaway program in Kenya, forcing buyers to set aside tiny increments
into an electronic bank, rather than store cash under a mattress where
it’s prey to poor business practices, demands from relatives, impulse purchases,
theft, and emergency needs–all of which contribute to the “poverty trap.”

Unlike financial banks, which are often located far away from many
Africans, cell phones are ubiquitous. Citizens
can transfer secure payments through M-Pesa,
a Vodafone transfer service that has helped blanket the countryside
with stations that dole out security shortcodes for individuals to use
during financial exchanges via SMS.


Fisher says that, ironically, Africa may follow the United States in its resurgence of layaway.
Both countries experienced a gluttonous relationship with credit: While we put it on credit cards, Africans experience it from amassing microloans. Now
with credit less reliable or nonexistent, buying appliances with long-term incremental
payments is making a comeback in both places.

The end game for KickStart is to wean Africans off the
volatility of “rain-fed” agriculture.
Seasonal produce super-saturates the market with too much of a product
at the same time, driving down prices, inducing spoilage of unused crop,
and perpetuating a cycle of hunger and poverty. “Doing rain-fed
agriculture, you can make a little bit of money,” says CEO Martin Fisher. “They
just don’t really make enough money to get out of poverty.”

KickStart’s tiny pump can irrigate
up to 2 acres with its foot-powered version (roughly $100, plus $35 for
accessories), and 1.25 acres with a cheaper, hip-powered version (roughly
$70 with all attachments).


KickStart’s revolutionary idea was to use M-Pesa transactions as a kind
of electronic bank, where the company would hold on to tiny incremental
payments until the pump had been paid for. “Really what we’re providing
is a secure savings environment,” says Fisher. “They can’t save it in
their mud hut by hiding it under their mattress.”

Nathan Fiala, a consultant for the World Bank, says he’s cautiously optimistic about KickStart’s layaway program. Microfinance, meanwhile, may not always bring people out of poverty because it does not plug the hidden hole draining the poor’s pocketbook: atrociously bad savings [PDF]. “There is some evidence,” he says, that simple savings accounts do, in fact, increase savings. Indeed, the poor have known this for some time, and have developed low-tech solutions, like buying furniture, to avoid the stigma of having to deny a family member’s request for cash for schooling or weddings. “If you have cash on hand, you’re normally expected to contribute some money.”

Like microfinance, Fiala says layaway could have problems later on, with the potential, for instance, for predatory organizations to ensnare buyers with high usury fees (or, it could face a host of other unforeseen problems that development projects encounter as they scale). But, at first blush, he thinks “it sounds like a step in the right direction.”


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