The New Microfinancing: SMS-Based Layaway to the Rescue

Wednesday, July 20, 2011

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.

KickStart, 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).

Source: Fast Company (link opens in a new window)