Budding entrepreneurs, vendors, and everyday people in emerging economies are creating new ways of benefiting from the internet, using their own ingenuity in ways that go beyond the original intended use of many web-based platforms. A recent slideshow from Yiibu, a Scotland-based design and consulting firm, offers a dizzying array of examples of how people use the mobile web to sell and pay for anything you can think of, mostly in Asia along with the Middle East, Africa, and Russia.

The growth in traffic from growing economies is a familiar story (Yiibu mentions that Chinese, Indian, and Russian sites now make up almost half of the Alexa “top 20”). What’s new is how the mobile internet has opened up new ways of doing business for anyone with a smart phone. Individuals, small businesses, and major corporations are selling a jumbled mix of products and services, from cars and iPhones to handmade crafts to travel visa services.

Most of us may think of Instagram as a platform to show off our exotic travels to make our friends jealous, or to take selfies on a night out. But as the slideshow illustrates, by taking a photo of goods you want to sell, adding your phone number and price on the photo, Instagram becomes an immediate way to sell goods – even livestock. Facebook is also a way to set up a business site quickly and for free. Who needs web designers, hosting platforms, and domain registries when these platforms already exist for free and with a huge built in audience? And who needs brick and mortar stores when you can sell for free online to a much broader range of people? The market stalls become Facebook pages.

One of Yiibu’s key messages is that mobile isn’t a popular, convenient alternative to other mediums now. Rather, it is the primary, and increasingly, only way, to do business and access the web around the world. What all these examples have in common is that the mobile web is a user-led space. This is transforming the informal economy. Characteristics include:

• Ad-hoc adaptability: People adapt existing platforms as needed. An example: Facebook doesn’t take payments (although that may be changing)? No problem. Just list your account name for a popular local social messaging app and take orders directly.
• Broad reach:  YY.com in China, for example, has 300 million users and mixes the reach of video channels like YouTube with payment platforms that integrate virtual currency. Virtual currencies are used to pay for virtual gifts to give to Karaoke singers or other performers with videos on the site.
• Ease of use: Social media platforms that are popular in China, such as WeChat, allow users to text, chat via video or audio, send photos, set up their own mini-sites to sell goods, and send or receive payments – all on the same platform.
• Rural and urban users: Yiibu points out that people in rural Thailand are benefitting from mobile marketplaces and sellers in Chinese cities don’t have to worry about setting up physical stores.
• A globalized network: The presentation gives the example of an American baker who buys her supplies from individuals in China and then sells her cakes on Etsy and a small family-run fashion design firm in China that sells to Western markets on Etsy.

The lesson from all this seems to be that there is a huge amount we can learn from how people are adapting the mobile web to use financial services and sell products and services. We can find out about customer needs from how they adapt these services. The world is changing very fast and it’s hard to keep up with the variety of new platforms, technologies, and services out there. Along with innovation from above to reach more customers with financial services, we should also make sure to spend time learning from what’s happening on the ground.

Check out the full slideshow from Yiibu:

Image credit: yy.com

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Urbanization, the Informal Economy, and Microfinance

It has always been my unexamined belief that as economies mature the so called “informal sector” will shrink and with it the microfinance market. Sometimes unexamined beliefs based on instinct or intuition turn out to be right when subject to a fact-rich inquiry. But not this time. Upon investigating I uncovered growth trends in the informal sector and in urbanization, suggesting a refocusing for microfinance.

The informal sector is growing everywhere in the world. This segment of the economy, though its definition varies, includes activities of the working poor that are unrecognized, unrecorded, unprotected, or unregulated by public authorities. In more developed countries, also considered part of the informal economy are employment positions that have tenuous connections between the worker and formal structures and few, if any, labor rights or benefits. Globally, estimates for the total informal economy vary between 50 and 60 percent of the world’s population. According to Gallup’s 2012 World Survey, only about 40 percent of adults around the world, across all countries and income groups, have a fixed income for over 30 hours per week.

In India, when looking at the non-agricultural sector, 71 percent of workers in rural areas and 67 percent of workers in urban areas are operating in the informal economy. Some poor countries have informal economies that include over 80 and even 90 percent of the population. Not surprisingly, self-employed women make up the majority of informal sector workers. Much of informal work is done from the home.

In wealthier nations where formal sector employment and its benefits have been more the rule than the exception, the environment is changing. In France, for example, 86 percent of new hires are temporary workers. In Japan, the percentage of temporary staff is about 38 percent, with more than half of the female working population holding such positions.

A backdrop to this growth is the rise of urbanization. The urban population in the developing world is expected to nearly double in size between 2000 and 2025, from almost 2 billion to more than 3.5 billion. It is projected to surpass the rural population by 2020. Conversely, the rural population in developing countries is projected to stop growing after 2020, at about 3.1 billion. About 90 percent of the world’s population growth out to 2025 is expected to come from urban areas in developing countries. Beyond these forecasts, the urban population and urbanization are expected to continue increasing.

The implications of urban informality for the microfinance industry are self-evident: the services microfinance offers will continue to be relevant and their market will grow.  MFI strategic plans should factor in an ever growing urban client base and the proportional shrinking of the rural one. If this happens, how might the industry landscape reshape? Investors in regulated institutions will surely be happy that densely populated cities mean lower operational costs and therefore higher margins than in rural areas. But if such dense client bases are available, perhaps this wealth could be leveraged to enable institutions to expand service for the harder to reach rural clients. Through the changes, it will remain essential that the industry strives to adequately serve both urban and rural client segments.

Image credit: uusc4all

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