> Posted by Eric Noggle, Research Director, Microfinance Opportunities
In 2014, Financial Sector Deepening Zambia and Microfinance Opportunities (MFO) began the Zambia Financial Diaries—a 52-week study of the financial lives of 352 low-income Zambians. The study included 92 smallholder farmers—individuals who own small plots of land on which they grew crops or tended livestock for sale and/or subsistence.
The Zambian smallholder farmers represent only a tiny fraction of the estimated 500 million smallholder households worldwide. Smallholder farmers are a large livelihood group and addressing their diverse needs—from crop diversification to market integration—is a strategic priority for the World Bank Group, country-level governments, and non-government organizations.
Understanding smallholder farmers’ income patterns is critical for designing financial services that meet their financial needs. The common perception of farmers’ income patterns is that they are lumpy and linked to agricultural cycles, but the income patterns identified in MFO’s Zambia Financial Diaries challenge this perception.
Income Patterns
The farmers in MFO’s study had lower and more variable incomes than respondents who earned the majority of their income from informal, off-farm sources (“informal workers”). The farmers had 4.3 income sources on average, often relying on casual labor or running informal shops to supplement their agricultural activities, while informal workers had 3.3 sources. Farmers’ average weekly earnings were low—only about $19 per week on average compared to $50 for informal workers (based on June 2015 exchange rates). The farmers also experienced more week-to-week income variation, as measured by the coefficient of variation (COV), than other respondents who work in the informal economy.
One of the fastest, most efficient ways to promote financial inclusion is to make sure that regulators create policy that encourages innovation and collaboration. Because regulators can singlehandedly affect everything from microfinance institutions to financial technology startups to credit bureaus, helping them make the best possible decisions is one of the best ways to help the two billion financially excluded people access savings accounts, credit, checking, insurance, and more.
What are microfinance clients’ thoughts on fair treatment from financial services providers?
In Latin America, where 70 percent of people do not have a bank account, both the public and private sectors have honed in on financial inclusion as a strategic objective for growth. Mobile financial services for the unbanked have flourished in the region since 2007—there are nearly 40 live mobile money platforms, with five new launches in 2015. However, while mobile money efforts have been successful in Africa, uptake is dismal in Latin America, despite concerted efforts by every major telecom and bank to push such services out to users. Of 480 million adults in Latin America, there are a mere 15 million registered mobile money users (3 percent penetration), of which, only 6 million were active in the past 90 days.
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