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Posted on January 25, 2017

Studying shocks to identify opportunities for financial service providers

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 Maisha ni kungangana tu(life is a struggle)

Diversification of risk, not putting your eggs in one basket, hustling – whichever word or phrase you use, Robert, a boda boda (motorcycle taxi) rider, embodies this spirit.

How do people deal with shocks in their lives? How do they survive when their income is not enough to cover their needs? This is what we wanted to answer in our latest Field Friday outing, which took us to the bustling town of Kitengela, approximately 30km south-east of Nairobi.

Robert has been a boda boda rider for the past 7 years since he quit his job because it didn’t pay enough. With proceeds from the boda boda, Robert managed to purchase a tuk tuk (mechanised three-wheeled taxi) and a taxi, which he has employed drivers to run. So how does Robert survive during hard times? He confidently says, “Hakuna shida, (there is no problem). Being a member of several chamas, he borrows from them whenever he has financial problems that he is unable to meet. He says the chamas are attractive because they are accessible during emergencies and the members know each other. “If someone is creating issues, we know where to find them”.

Robert has enrolled with NHIF and he is happy he does not have to worry about medical bills anymore. Having invested in several properties and assets, he says if the worst happens, he would sell his assets and replace them later.

Susan, a shopkeeper in her forties, believes loans are a source of growth. She started her shop with loans from friends, family and M-Shwari. However, after failing to pay back her M-Shwari loan, she was negatively listed in the credit bureau.

Difficult times are inevitable and Susan survives through her networks. “What are family and friends for? Today if I am in a problem, they will assist me because I also help them when they have problems,” she says. This shows the power of social bonds and how they are important in building resilience and managing risks. Susan is a member of a ‘merry go round’ which helps members to accumulate lump sums. If one of the members has an emergency, she can ask the person whose turn it is to swop, so the person in need gets the payout.

As we moved around the town, we wanted to know how the situation was for those who were employed. We met Jackson, a 2015 secondary school graduate. He works in a small restaurant in the outskirts of Kitengela town. When we met him, he was recovering from an injury he suffered at work immediately after recovering from a bout of malaria. He self-medicated the malaria for two weeks, not having the money for hospital. He returned to work after recovering and suffered a severe burn to his hand. He was then off work for a month without pay.

So how did Jackson manage? “My boss gave me a soft loan on both occasions to buy medicine but it was not enough. My parents had to step in,” he said. For a person without a bank account, his only financial instrument is M-PESA, where he saves the little that he earns. He has never heard about the NHIF which, when explained, he said would have been handy had he enrolled.

The 2016 FinAccess household survey revealed that 76% of Kenyans cite lack of awareness and inability to pay as reasons for why they don’t have insurance. With solutions like NHIF being the most affordable in the market, the question should be: are people aware of its existence? If they are, do they know how and where to access it? Are there rules and regulations regarding employers enrolling their staff for NHIF? If there are, what are the challenges in implementing them?

Looking at the different profiles of the people we talked to, there are clear differences between their needs and levels of exposure to market information. Though some have stability in their lives and are prepared for emergency situations, others like Joyce are self-excluded and may need a different engagement model to encourage them to use what is available in the market.

Perhaps the greatest opportunity here lies with people like Jackson who are very exposed to shocks in their lives. They have little income with limited benefits from their employers.

There are clear opportunities for financial services providers to tap into, be it insurance companies coming in to offer risk based tools or banks exploiting the informal social networks to formalise them and give people more options. All of these would lead to greater stability in peoples’ lives and a more empowered society.

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