Eleven Design Principles for Financial Services for the Poor

Design Principles for Financial Services for the Poor

Following is an enumeration of different design principles that are useful when designing financial services for the poor.

First the enumeration, then a discussion of the background where these principles apply with an indicator of their areas of impact; Product, Technology or Policy and more importantly where to use them.

1) The 11 Design Principles for Financial Services for the Poor

1.  Design for Social Obligation
2.  Design for Social Rank
3. Flexibility with Sanctions
4. Structured Illiquidity
5. Change the Iconography, Design with Local Values
6. Design for Convertibility
7. Help Calculate Convertibility
8. Design for Relative Volume, not Increment
9. Lucky Numbers
10. Tranches and Tiers
11. Design for Cyclical Events

2) Social Obligations and Social Rank

Poor people’s existing savings behavior involves social obligations and commitments, not just individual self-discipline or planning for the future.

New savings systems should be designed to allow people to meet their social obligations as a means toward enhancing their individual savings behavior.

Social obligation does not just mean trust or commitment. It can mean patron/client relationships, quasi-feudal fealty, a “networked self” that is defined not by an individual but by a network of relationships.

It has long been known that social obligations are important.

Still, however, existing products for the poor do not adequately take social obligations into account and are modeled on individual savings accounts, or on pooled accounts modeled on ROSCAs that treat groups as aggregations of individuals rather than focusing on social relationships.

Social obligations, however, are not merely a matter of an individual’s commitment to others. In several of the contexts studied by IMTFI (Institute for Money, Technology & Financial Inclusion) researchers, people are operating within systems of rank that differentiate people from one another.

By rank, we refer to a naturalized hierarchy reflected in ritual relationships as well as everyday practice – such as walking single-file in rank order down the road (senior men of high status first, then junior men of high status, then senior men of lower status, then junior men of lower status, then women of high status, etc., as is still done in many parts of southern Mexico).

Savings has the potential to level rank distinctions, but this might not be the best starting point for promoting a new product or system.

A product that helps people escape hierarchical rank will be seen as promoting selfishness or anti-group sentiment, or even as going against the gods or saints. People often do not want to escape rank or patronage relationships: they provide security, predictability, and order.

Design Principle 1: [product; technology]

Foster Earmarked Income Outside of Rank:

Develop an alternative income stream outside of ritual or social obligations, specifically for “saving” toward a particular social end.

One IMTFI researcher is in the process of a participatory design intervention to attempt to do just that: to develop an earmarked, unique revenue stream collectively envisioned for infrastructure development that “helps everyone,” while also bolstering savings activity outside of traditional relationships of rank.

Such an income stream might come from marketing part of a community’s agricultural produce as “special” and for community needs, pricing it higher and tapping into an alternative market – the organic foods market, the sustainable trade market – and then earmarking the profits for community uses that individual members of the community can tap into.

Design Principle 2: [product, technology]

Design for Rank:

While not pleasing to our own democratically-attuned ears, different products for people of different statuses which allow them to be “good” members of that status may be appropriate in situations where patron/client relationships or rank are important.

3) Flexibility with Sanctions & Structured Illiquidity

Poor people’s informal practices of lending and saving, whether in a rotating credit association or in a ritual or religious context (i.e., making a contribution toward a seasonal festival), are often negotiable and flexible.

There are informal mechanisms for making up for a missed payment or for putting saved funds toward other uses if necessary.

The social sanctions that befall a defaulter or non-payer are strong enough to ensure eventual payment, since people will often place their social or ritual obligations above their own personal goals.

Design Principle 3: [product]

Flexibility with Sanctions:

New systems to encourage savings need to provide this element of flexibility, together with social sanctions.

Such a new system might start with the ritual leader who collects alms or offerings rather than the individual saver. Convincing the ritual leader to allow people to “borrow” against the money they have provided for ritual purposes may help create a new kind of savings account.

Several of IMTFI’s researchers are in the process of documenting elaborate ritual practices that combine with social and religious sanctions and revolve around a ritual leader or a site of ritual significance. As the research progresses, these researchers will be pushed to highlight the design implications of their research findings.

Design Principle 4: [product]

Structured Illiquidity:

Existing savings products vary with respect to the relative liquidity of savings.

More illiquid products – tied to time or goals – are generally viewed as helping people control their behavior through self-discipline.

In contexts where other forms of discipline or belief are operating simultaneously, however, illiquidity might be tied to different temporal cycles or goal structures, such as religious ones.

For example: A saving account structured to help people save toward a religious festival or pilgrimage would disburse a percentage of a pre-determined profit or interest payment based on how close the clients comes to the predetermined goal.

Clients who reach their full goal receive 100% of the profit or interest payment, and special recognition on a wall or board placed near a religious site (modeled on existing haj savings accounts and Buddhist temple “donation walls” or “money trees” that record people’s contributions to the temple and earn them “merit).

4) Iconography & Convertibility

Poor people use multiple standards of value.

In some contexts, state-issued currencies are used as the measuring rod against which other goods and services are evaluated.

In other contexts, but in the same society, cattle, agricultural commodities, or ritual titles or offices are used as the standard of value.

New systems for savings need to be attentive to these different and co-existing standards: either encouraging savings in state-issued currency by compensating people in other “currencies” like cattle, or allowing savings in multiple “currencies” to be counted as savings or as collateral.

Design Principle 5: [policy; technology]

Change the Iconography:

Design with local values.

Change the iconography of savings and/or state currency itself.

In marketing its new currency to the people of Papua New Guinea, the PNG government incorporated images of traditional shell valuables and birds whose feathers are important markers of renown (see Foster 2002).

In contexts where state currency is imagined as being for short-term obligations, while land or natural resources like forests or cattle are imagined as being for long-term savings or insurance, incorporate imagery and emotional associations from the latter in order to market the idea of money itself.

The FAO years ago promoted currency designs that promoted awareness of agricultural production.

Alternative currencies like Ithaca HOURS similarly evoke value through iconography related to landscape features that are locally valued.

Design Principle 6: [policy; product]

Design for Convertibility:

Create systems that work with, rather than against, different standards of value.

Allow savings accounts in “cattle” – notional currencies based on herds that can intermingle with state currency in one account, to encourage the commensuration of cattle with money.

5) Convertibility Calculator, Volume & Lucky Numbers

Poor people use multiple scales of value: in one context, they measure value in equal increments; in terms of whatever standard they are deploying (one dollar, two dollars; one head of cattle; two heads of cattle).

In other contexts, they measure in ordinal or categorical scales (“enough” or “not enough;” collective measures like “herds” or volumetric measures like “cups,” units within which there may be variability in the number of discrete objects).

Scales of value intermingle with each other depending on context and social use. A person might use an interval scale with one kind of person or transaction, and an ordinal or volumetric scale with another.

Designing new systems to account for these scales and their intermingling with one another may help re-frame how “savings” is presented to people: as saving discrete units, or as saving bundles or sachets with a range of units within them.

Several researchers reported elaborate numerological systems that structured how people made offerings of money (in multiples of 2s, 5s, etc.).

Design Principle 7: [product; technology]

Calculate Convertibility:

The co-presence of different scales of value is difficult to convey to people unaccustomed to it, and is also the topic of some of the most innovative academic research taking place in the anthropology of money (see Guyer 2004).

It is relatively straightforward where the scales are simply different national currencies. Here, researchers recommend systems that allow for quick currency conversions tied to savings products: e.g., a calculator that allows one to convert and to “keep the change” in a savings product.

Design Principle 8: [product; technology]

Design for Volume, Not Increment; OR Design for “Enough”:

In situations where the different scales have to do with incremental versus volumetric measures, the situation is considerably more complicated.

Imagine a world where people treat pennies as discrete and equivalent units of value, and a world where people treat pennies measured in terms of units of volume like a measuring cup.

Such worlds exist.

They are also not bounded from one another but interpenetrate, often with relationships of rank (people of higher rank getting a “rounded cup” and people of lower rank getting a cup “just shy,” for example).

Researchers will be pushed to think about design implications of these social realities.

For example: a set of savings products differentiated by rank; special “cups” for people of higher rank; a technology that allows a client to visualize when they have saved “enough” without specifying a cash-equivalent amount.

Design Principle 9: [product]

Use Lucky and Unlucky Numbers:

In contexts where numerological practices are common, use them.

There are informal Chinese practices around “lucky numbers.”

New incentives or delivery channels for savings could be structured around local numerologies.

Twos are important in several of the contexts studied by IMTFI researchers; 6s and 8s are important in areas influenced by Chinese culture while 1s, 4s, 7s and 14s are bad.

In Persian communities 2-dollar bills are given as gifts for New Year; in areas impacted by Chinese culture, money in auspicious denominations are given at New Years.

Devise products that exploit these numerologies by helping people save toward a multiple of these special numbers or that spur people to avoid bad numbers.

6) Tranches, Tiers & Cycles

Poor people’s existing savings systems are often tied to multiple, intersecting and overlapping temporal cycles – seasons, ritual cycles, secular and religious calendars, the life cycle.

New savings products can be pegged to one or several of these cycles in order to facilitate savings behavior.

Saving “toward” a goal, especially the end of a ritual cycle or an important marker in a life cycle, may be more effective than promoting “savings” in general, especially in contexts where people use non-incremental scales of value.

That is, if people understand money as volumetric (enough or not enough), they will be unwilling to “save” since if there is “not enough,” then there is nothing “left over” to save.

But if people are taught to frame savings activity in terms of markers in a temporal cycle – putting away money to help meet a ritual obligation – their volumetric scales of value may help them meet that goal.

Design Principle 10: [product; policy]

Tranches and Tiers:

Model new products on existing “haj savings accounts” in many Muslim majority countries.

One researcher reported on savings activity oriented around Muharram, the first month in the Muslim calendar.

These savings, however, are frequently completely expended on special gatherings that are so expensive and elaborate they often result in debt.

Create a two-tiered account: part of the savings is put toward the coming year’s celebration, but a percentage sequestered for the next year’s celebration.

Such a system may aid in financial planning and literacy, as well as provide a separate store of capital to offset future debts.

Design Principle 11: [product]

Design for Cycles:

Tie savings account use to prestige and special cyclical events.

Numerous savings products have been explored that employ a lottery to encourage savings.

This introduces an element of fun and chance.

Instead of a lottery, imagine a savings product that rewards people who meet ritual, religious or life-course savings goals and enhances a person’s prestige in the community in the process.

This may be especially relevant in cultural contexts where games of chance are forbidden.

 The END

And there you have them, so please go forth and implement systems and products that will enhance and grow your humanity, like a true business inventor, the ultimate solution provider.

Source:

IMTFI- Institute for Money, Technology & Financial Inclusion

First Annual Report Design Principles 2010,

Monetary Ecologies and Repertoires.

http://www.imtfi.uci.edu/files/imtfi/articles/IMTFI_FirstAnnualReportDesignPrinciples.pdf

http://www.imtfi.uci.edu/