From number of beneficiaries to knowledge mobilization and use

In what probably signifies a new approach to achieving socio-economic development, a few policy makers and development agencies in developing countries are beginning to move from measuring success through the number of beneficiaries. Instead, they are reluctantly shifting to their focus to how the so-called beneficiaries mobilize and use knowledge associated with projects introduced in their communities.


Attention is turning to several ways in which communities understand and use knowledge to increase their incomes and cope with challenges like climate variability and market failure. As part of forging a new deal with poor communities, financial institutions are also realizing the importance of understanding the potential of poor borrowers at a granular level. Otherwise, banks would continue ignoring poor people and continue giving money to those who do not really need it merely because they have collateral. There is increasing interest to know what knowledge exists in a particular community. What knowledge is coming into a community, what is going out and what is being shared to address socio-economic challenges?

Socio-economic-political knowledge

Many communities define economic knowledge through economic skills and livelihood activities such as commodity trading, retailing and converting natural resources into income. There are people who can use local resources like water, wood and land to produce excellent goods and services for the benefit of the entire community. On the other hand, social knowledge is about how community members make sense of their collective identity and preserve it. Also critical is political knowledge through which local people try to express, interpret and access their rights. This encompasses how local politics enhances community development and how community members deal with political conflicts. Political knowledge also extends to how communities deal with issues like domestic violence and managing collective resources.

Additional ways in which knowledge is understood at local level include age, gender, location, economic status, level of education, cultural background and exposure to other communities, among other parameters.  This means the knowledge landscape is experienced differently. Within each community are knowledge hubs and holders who include elders, chiefs, opinion leaders, artisans, spiritual leaders and others.  These share knowledge at various levels such as household, community and district.

From hand-outs to knowledge-driven development

One of the major reasons why development actors have remained obsessed with measuring success through the number of beneficiaries is that development support has for a long time been framed in social welfare terms characterized by hand-outs like food, clothes and small livestock.  These have to be actually counted before being given out for free. Giving hand-outs is about numbers like kilograms of maize meal, litres of cooking oil, etc.  When dealing with numbers, organizations are less concerned with return on investment (ROI) which is often difficult to measure. They are also not steered by sales or market share but budget allocation. Providing hundreds of tons of beans is considered more important than understanding whether recipients are going to eat the beans or not.

Development actors also provide infrastructural benefits in the form of supporting government efforts, for instance, in dam construction and rehabilitating irrigation schemes. These are also other forms of hand- outs that are not being expressed through ROI. An important question is the extent to which communities cope with climate change using their own knowledge to improve livelihoods using established infrastructure. Since it is all about numbers, how do communities utilize their knowledge to maximize outcomes from the investments made by development partners?

Rural communities should not continue to be connected with poverty in the material sense

Most development actors are working in rural areas because they think they want to reduce poverty in rural areas. But rural areas a lot of knowledge which make them rich in their own ways. Before introducing a project, it is becoming very important for development agencies like NGOs, government departments and the private sector to understand how each community deals with knowledge. Within all versions of community knowledge are champions and knowledge pockets built within communities by age, among other connectors. What connects widows is not belonging to the same community but the fact that they share similar circumstances, experiences and passion.

Focusing on community knowledge will ensure structures left when projects end are fully utilized.  Investment in dams, boreholes, irrigation schemes or rehabilitation of roads through food for assets is not a complete value chain. Instead of positioning themselves in ways that complete the value chain, most development agencies and government departments duplicate each other. When farmers produce more commodities from all these assets, lack of investment in market infrastructure like warehousing and cooling facilities creates more challenges than solutions.

In as much as investments by development agencies are social welfare, what part is knowledge?  How can beneficiaries convert infrastructure investments into knowledge hubs for socio-economic development?  It is no longer about the number of dams or irrigation schemes but the knowledge hubs for socio-economic development through infrastructure. It is also no longer about the number of people to benefit but knowledge to be generated through using the infrastructure and other resources like dams. In a changing climate, to what extent does knowledge and information on dams, boreholes and irrigation schemes assist communities in managing climate change?

Devolution of power should be about devolution of knowledge

Investment in knowledge will enable local people to convert their natural resources into value added products. A community may benefit more from increasing the number of champions who can gather knowledge and evidence on production, consumer tastes, preferences and consumption patterns than from more dams and irrigation schemes.  Every community should have structures built around knowledge experts embedded within diverse actors.  If weather stations are set up within communities, information should be interpreted at local level through local champions. Otherwise it is just a weather station with no links to local socio-economic development.

A community is just like a company with divisions or departments such as production, logistics, sales and marketing.  All these departments should be visualized in communities and conceptualized into soft skills.  Everybody has hard skills like production but soft skills and knowledge are scarce. Unfortunately, in most rural communities, knowledge remains trapped in silos with no clear pathways of knowledge sharing from rural to urban and regional levels. Without proper characterization of knowledge demand and supply pathways, it is easy to continue sending market information to livestock farmers when the farmers are taking livestock more as a store of value than a commodity to be sold any time.  / /

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More reasons for decolonizing banking systems in developing countries

While some developing economies are evolving rapidly, local banks are clutching onto colonial identities. For instance, in most African countries banking as a practice has kept colonial labels such as Commercial Bank, Merchant Bank and Building Society, among other categories whose meaning and differences are not clear to ordinary people. This identity crisis, with colonial origins, is visible to ordinary people who continue to raise questions like: What is a savings bank? What is a merchant bank?  Is a building society only concerned about housing?  If agricultural traders are merchants, why are they not getting financial support from existing merchant banks?


Unmasking the dilemma in African financial systems

A major dilemma in most African countries is the prevalence of several financial institutions whose roles, responsibilities and differences are not clearly understood by ordinary people and potential borrowers.  Conversely, the financial sector has not done much to clarify and explain distinctions between diverse financial actors in ways that inform intended beneficiaries and potential clients.  Each financial institution continues to market its products and communicate its mandate separately. Financial authorities do not sufficiently share financial policies with different target groups, leading to many unanswered questions.  In most countries, major sources of finance include government through the fiscus, the reserve bank, different types of banks, development agencies like the UN system, international NGOs, Micro Finance Institutions (MFIs) as well as Internal Savings and Lending (ISALs), among others.

Unfortunately, there is no clear definition or explanation for potential entrepreneurs to make sense of all these institutions from a financial policy perspective. As if that is not enough, most African countries have not built pathways along which the financial sector can adequately inform socio-economic development. Boundaries and overlaps are not clear. For instance, government can finance farmers directly through input schemes instead of empowering an agricultural bank to do so. The reserve bank can also be seen financing some economic activities directly through its subsidiaries. Not to be outdone, UN agencies, international NGOs, the World Bank and MFIs are also often seen extending different forms of funding directly to diverse classes of beneficiaries. Besides lacking coherence, such interventions by several financial actors are not based on consistent pathways for financing growth patterns. Gaps and opportunities are often not clear.  Many financial institutions end up competing to give loans to formerly employed civil servants on the basis of a pay slip.  Traders and other economic actors with more authentic need for finance are denied finance due to absence of pay slips although their businesses are viable.

 Shifting mandates and the power of clear identities

Traditionally, banks were meant for safe-keeping money.  Depositors would take their money to the bank mainly for safe-keeping. Banking money was also an investment opportunity because depositors earned interest. Banks were also conduits for building official business performance transactions, for instance, through gathering records on sales. Such evidence of a business’ performance was part of a transaction  history that would later be used to get a loan since the records spoke for one’s business, showing how much your business was worth.

Clarifying financial categories and identities can enable strong synergies between financial institutions and active economic actors like Micro, Small and Medium Enterprises (MSMEs).  With proper definition and clustering it becomes possible to arrange financial facilities in line with each category. That way, smallholder farmers do not waste time applying for loans from financial institutions where chances of getting loans are close to zero. Traders and processors can be aligned with appropriate sources of finance.

Currently, African banks do not seem to have their own formulae for developing their SME departments. For instance, the difference between a bank’s SME department and an independent MFI is not clear. There should be a distinction or link between these institutions given the fact that a bank’s SME department and MFIs are often fishing from the same pond – try to serve the same clients offering similar services. On the other hand, development organizations that want to support SME growth through youth and women in agriculture seem to lack friendly channels for extending such facilities without attaching their facilities to formal banks’ conditions. Funds from development organizations targeting socio-economic development are forced to pass through formal banks where they attract all conditions for private funds. Once this happens, it is no longer development finance. Given that development finance comes at concessionary rates, banks do not often prioritize it, preferring their own expensive commercial funds. Since banks are for profit while development agencies are for development, it is a conflict of interest to expect profit-oriented banks to offer non-profit development finance.

Socio-economic transition and death of benefits

Over the past few decades, in countries like Zimbabwe, people have lost trust in banks because depositors can no longer earn interest from their deposits. Instead, interest earnings have been converted into bank charges, to the benefit of banks. There is no longer any incentive for depositors like MSMEs to bank their money in formal financial institutions.  On the other end, a performance history is no longer enough for a business to secure a loan as banks now emphasize other stringent conditions like collateral in the form of immovable property, which may not be related to the business at all. For instance, a house has no relationship with trading in agricultural commodities. The collapse of large corporates has also given birth to a robust SME sector that is detached from banks which no longer provide traditional benefits.

Banking as a practice and profession is dying a slow death and in its place a new fluid financial economy that responds to immediate cash needs has germinated. SMEs no longer see the need for their business performance evidence to be institutionalized in banks. MFIs have come in to fill that gap by starting to engage MSMEs from scratch, building transaction and business track records that enable active enterprises to get loans without having to produce bank statements. In addition, MFIs and MSMEs are forging their own business performance evidence through internal systems.  They have realized, they do not need to save or bank their money but money has to be kept within the enterprise so that loans are repaid as income is generated within the enterprise.

MFIs and MSMEs now innovating collaboratively

In the spirit of building relationships, MFIs have responded by adjusting interest rates in line with the rate of business in the MSME sector.  For instance they have structured repayment period to within a week to six months. This is in line with the speed of transactions among MSMEs which generate quick turnaround for loans. MFIs have also reduced bureaucracy by processing loans quickly unlike banks where it can take at least one to two months for a borrowers to get a loan. By the time such a loan is availed, opportunities and original intended purposes for the loan will have evaporated – leading to the burden of defaults.

MFIs are also warming up to the fact that innovation is no longer about business history but recognizing an innovative idea. Where banks use terms like green field as an excuse for not funding new business ideas, MFIs embrace green field ideas as opposed to supporting copycat businesses that are preferred by formal banks. New ideas or green fields are found within Communities of Practice (CoPs) such as informal markets. Instead of focusing on an individual enterprise, understanding the new economy is about assessing the potential of the entire business cluster or sector. Whereas banks are more interested in loan repayments with little attention to value added services, MFIs are providing additional benefits like training in entrepreneurship, financial literacy and business management. This enhances business performance and reduces default rates.

Unfortunately, policy makers are reluctant to recognize this new economy. Frustrated by the rigidity within formal banking systems, many bank executives are forming MFIs through which money from banks is being channeled to innovative business ideas. Insisting on financing already existing enterprises and traditional forms of collateral in an economy where over 60% of enterprises are dominated by women and youth is to completely miss the mark.  Supporting old businesses and ignoring active economic actors whose only limitation is lack of collateral in preference for financing businesses that have exhausted their economic runway and are on the verge of phasing out due to lack of innovation is failure to predict the future. Financiers that refuse to recognize and support green field businesses are blind to the importance of building a base for future socio-economic growth. Such decisions are also tantamount to unwillingness to tap into innovations by women, youths, MFIs, ISALs and others at grassroots who are critical sources of socio-economic business models free from colonial appendages.

Mobile money is accelerating the demise of traditional banking

Although the proliferation of mobile money is being celebrated in many African countries, it is creating more challenges than solutions for banks and ordinary people.  There is currently no clear justification for one to have a bank account and a mobile account. If SMEs can keep their money in a mobile wallet and transact anytime, what role does a bank account play? Why should someone transfer money from a bank account to a mobile wallet and what are the advantages of such actions?  Rather than creating a false sense of convenience, there should be one form of keeping money and transacting. SMEs are realizing that there is incentive for keeping the same money in the bank and in the mobile wallet. Costs of moving money between a bank account and a mobile wallet eat into the amount of money that should be circulating in the business.

Since banks no longer keep business performance records for clients, SMEs now keep their business records in their mobile phones. Banks are becoming increasingly irrelevant to the business needs of MSMEs. They urgently need to find ways of reviving their role in anchoring business growth patterns. The new economy is forming its own new roots different from the former colonial roots. It is building its own foundation starting from the micro levels anchored on MFIs which are part of the socio-economic context. Most SMEs and MFIs tend to be confined to their niches due to lack of resources. Supporting such institutions will spur more outreach. Where MFIs where only financing smallholder farmers, with the right pathways, they can start extending their tentacles to other business levels like processors, restaurants and others. As long as they remain micro, their clients will also remain micro.

Upward economic mobility

Traders are initiating upward mobility, growth and transition for most MSMEs.  It is the trader or buyer whose activities are pushing farmers to produce more as the market increases its capacity to trade.  That is why the market should finance production. When government and financial institutions start by financing agricultural production, they create gluts and mismatches between demand and supply – leading to frustrations among farmers. On the other hand, financing the market creates and broadens demand. Those who access finance through the market have entrepreneurial mindsets. That way the market becomes a screening process where levels of participation in the market determine how much an actor gets from US$100 000 circulating in the market.

Building a medium scale market requires a robust screening process that enables traders to be reliable  aggregators for processors and for exports. Most market traders have stories that can inform appropriate financial inclusion pathways. They can also be pacesetters in financial inclusion from the market. For instance, they can support building of contract models from the market since they are powerful off-takers whose role is not understood by the formal economy. In the new MSME-driven economy, deep knowledge goes beyond a series of facts or information compiled in a brochure by banks. Critical knowledge embraces economic actors’ true knowledge of their role and new business processes. Such knowledge leads to mastery of the entire business ecosystem. On the contrary, banks and other formal institutions continue to confuse knowledge sharing with road shows and conferences that are based on showing and telling. A road show trying to persuade traders to open bank accounts is a waste of resources without first understanding and articulating the concerns and needs of potential clients.  / /

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