1. An Exploration of Frugal Technologies Impact on Users and Governance Mobile phone applications, productivity and public service provision. Centre for Frugal Innovation in Africa The Hague, 26 th November 2015 Dr. Ir. Mónica A. Altamirano Professor Cees van Beers

2. Table of contents Centre for Frugal Innovation in Africa 1.Theoretical background 2.Research questions 3.Overview of cases 4.First wave of applications: M-Pesa 5.Second wave of applications – in the water sector: Kilimo Salama 6.Preliminary conclusions 7.Further research

3. Theoretical background: types of Frugal Innovations Centre for Frugal Innovation in Africa 1.Innovative processes or products – used in constrained economies = supply of products/ production processes 2.Processes, products or systems  affect the constraints in the local economic environment = opportunities for increase in productivity of economic activities Our focus: 2 nd type – particularly relevant due to recent IT developments Direct impact on user + indirect impact on local economic environment

4. Analytical framework for the analysis of cases Centre for Frugal Innovation in Africa 1.Change in the infrastructure (technology) environment 2.Affect users directly = access to information/ allowing larger set of action 3.Indirect effect on governance system of the particular sector (market failures, transaction costs) 4.Change in users’ behavior  systemic change 5.Results in a)Increased productivity (private economic activities) b)b) Increased efficiency (provision of public services)

5. Research questions – applications in the water sector Centre for Frugal Innovation in Africa Impact of mobile telephone on: 1. Efficiency in provision of public services 2. Universal access of the poor to public services 3. Good governance of the water sector including impact on informal institutions, transparency and public participation How? Through addressing market failures in the nature of the exchange and on the nature of the goods - changing non-excludable nature – are public (infrastructure) services natural monopolies - becoming more and more suitable for private service provision?

6. Cases to be investigated: Centre for Frugal Innovation in Africa First Wave of Applications: 1.M-Pesa, Kenya, Financial sector. Money transfer. 2.E-Wallets, Nigeria (Uganda & Kenya), Financial sector. Agricultural subsidy. 3.M-Farm, Kenya, Agriculture sector. Market prices and linkages. Second wave of applications – water sector: 1.Kilimo Salama, Kenya, Rwanda and Tanzania. DRR– insurance for floods and droughts for small farmers. 2.Tam Tam, Bangladesh. DRR – Flood Early Warning System dissemination to communities 3.Smart Water Systems, Zambia and Kenya. WASH + IWRM – smart water metering and mobile baking to achieve water security and sustainability.

7. First-wave: M-Pesa General description Centre for Frugal Innovation in Africa Application name CountriesSector Service/ goal/ functionalities Users (% poor)Leader Clear Business Model to ensure financial sustainability? M-Pesa (2007) KenyaFinancial (Money Transfer) Mobile transfer solution that enables customers to transfer, deposit and withdraw money. 17 million, app 25% of Kenya’s GNP, 70% of households > 50% of poor, unbanked and rural population Developed by Vodafone and launched commercially by its Kenyan affiliate Safaricom (Private company) Yes. Paid services Clear incentives built for agents -offering the service. Pricing designed to achieve widespread adoption.

8. First-wave: M-Pesa Centre for Frugal Innovation in Africa

9. First-wave: M-Pesa Investigation of the case Centre for Frugal Innovation in Africa App name Direct effectsIndirect Infrastructure effect Impact on productivity Benefits experienced by user Change in user behavior Past system performance/ Initial conditions/ situation before innovation Change in governance of the sector (Market failures or governance problems dealt with) M-Pesa (2007)Reduction of transaction costs due to: -Faster –instant transfer (1 minute) -Cheaper (1/5 th of instant sending through formal challenges) -More reliable (nearly 100%) -Changed savings behavior and patterns of remittances  ability of households to smooth risks  11% in bank use  use of formal saving instrument – shift from informal tools to M-Pesa Prior to M-Pesa the options to transfer money were: 1)Friends travelling back home – slow, not reliable 2)Bus companies ($ 3 dollars for $100 transfer) - slow 3)Postal money order ($6/$100) 4)Money Gram ($12/$100) 5)Bank wire transfer ($20/$100) – limited access to the poor Most Africans were excluded from modern financial services  Transparency  number of intermediaries   Information asymmetry  Transaction reliability   Transaction Costs  Poor’s access to financial services (banked the unbanked)  Higher market competition for serving the poor  Efficiency of banking system (speed  Costs of money transfer  number of transactions  Share of resources going to productive activities  Scarcity of cash in rural areas   rural livelihoods  growth rates of (small- scale) firms in rural communities  farm employment  Market activity (especially outside cities)

10. Second wave: Kilimo Salama General Description Centre for Frugal Innovation in Africa Application name CountriesSector Service/ goal/ functionalities Users (% poor)Leader Clear Business Model to ensure financial sustainability? Kilimo Salama (2008) Kenya, Rwanda and Tanzania DRR- insurance (floods and droughts) Agricultural micro- insurance through mobile phones, for maize and wheat farmers –inputs against drought and excess rain. Weather index based insurance possible to insure one acre farms by replacing costly farm visits with measurement from weather stations as indicator of drought/flood conditions. Farmers pay 50% of the insurance premium and Syngenta (input supplier company) covers the other 50%. Largest agricultural insurance program in Africa. By the end of 2013, insured 187,000 farmers in three countries. Previously, few of them could afford such cover because of the high costs. Smallholders scattered throughout rural areas. Syngenta Foundation (Private company) and the Global Index Insurance Facility (GIIF). Yes. Input supplying companies have an intrinsic incentive to offer the service as it earns them client loyalty and also translates in higher long term sales. Farmers get used to pay for their own insurance premium – less dependent from disaster relief help. Technology is the key to the micro insurance product’s affordability and the model’s scalability

11. Centre for Frugal Innovation in Africa

12. Second wave: Kilimo Salama Analysis of the case Centre for Frugal Innovation in Africa App name Direct effectsIndirect Infrastructure effect Benefits experienced by user Change in user behavior Past system performance/ Initial conditions/ situation before innovation Change in governance of the sector (Market failures or governance problems dealt with) Kilimo Salama It reduces the impact of severe weather in farmers’ income. Food security and reduction in income volatility due to weather variability. Access to affordable Insurance products regardless of farm size. Insured farmers able to buy certified seeds and fertilizer instead of planting relief seeds and forgoing investing in soil nutrients, in the year after droughts/floods. By reducing their risks, encourages farmers to invest in their farms. This way, they can raise their yields. Findings from impact survey (2012) - insured smallholders step up their farm investment 20%. No agricultural insurance available, especially not for small scale farmers. Accordingly farmers and their families were highly dependent on disaster relief help (including seeds) to recover after disasters. Additionally the distribution channels of such help had limited reliability as could also be subject to corruption. Citizens, scattered (poor) smallholders have been empowered by the possibility to take insurance on their inputs and hereby become less dependent on state/ international aid. -  Transaction Costs (no need for traditional claim processing process) -  Access of the poor to insurance products

13. Second wave: Kilimo Salama Impact on service provision Centre for Frugal Innovation in Africa 1.Efficiency: disaster relief is becoming a shared responsibility, where citizens and insurance companies are taking a greater role. Notably more effective and efficient than traditional disaster relief help. 2.Access: A new insurance market for small (poor) farmers has been created   service provision for the poor  affordable through a "risk sharing arrangement" - that is easier and more transparent to manage due to IT.  ‘premium sharing arrangement’ entails that each party pays part of the premium according to his vested interest. 3.Good governance. Farmers are being empowered and enable to take own responsibility for their wellbeing; and know the full price of their risk premiums.

14. Preliminary conclusions Centre for Frugal Innovation in Africa Mobile phones applications are game changing  Mobile application leading to spawning of frugal innovations due to the technology and the impact on governance  If the institutional infrastructure and the governance of the sector are constrained– then productivity cannot take of  These innovations reduce the constraints and are changing slowly the attitude of citizens in the developing world  making them less vulnerable and empowering them to have a positive contribution (data/ money/ in kind) in public service provision

15. Further research Centre for Frugal Innovation in Africa  Improvements in governance due to 3 mechanisms: 1.IT and mobile technology = automatic registration –> + Traceability –> + Transparency  ( - ) Information Asymmetry & Transaction costs  (-) room for corruption 2.Eliminate the need for middleman/ reduce their power  (-) Transaction costs/ room for corruption 3.Greater access to information  empowerment of citizens  (-) power asymmetry  (+) demand for accountability  Long term triggering a virtuous cycle: professional/ transparent management of public utilities/services  better governance  greater confidence  willingness to pay for services  Greater well of information generated by citizens  professional asset management  greater efficiency and effectiveness  Universal access for water services

16. Further research Centre for Frugal Innovation in Africa  Exploratory framework that poses new questions – about the impact of IT innovations on public service provision Efficiency Access Governance  Aspects that need further research: Impact of innovations in transaction costs and solution of market failures Change in citizens role in the provision of public services Regulation of public services – and role of private sector in the procurement  How to develop further and test this framework with CFIA cases?