September 27th, 2016

Can digital innovations replicate the “three-padlock” concept of the money box?

I recently made a research field visit to western Kenya, where FSD Kenya, in partnership with Care Kenya and CRS Kenya, is facilitating savings groups (SGs) to digitise their financial records using an app called e-Recording, available on the Google Play store. Typically, the records include a one-time registration of member details and subsequently all financial transactions like savings, loans, loan repayments, fines and penalties as well as social or welfare contributions, for each member. Meeting dates and times are automatically recorded. The hope is that by having a digital version of the financial records, the SGs will have transparent and reliable records as e-Recording has internal checks to ensure the correctness of entries in addition to having a secure backup in the cloud.

As SGs are part of the general financial system, the app presented an opportunity to link SGs to the formal financial system, and, as such, to position SG members to increasingly participate in the wider formal financial system. Again, this belief is founded on the premise that the financial system is the connective nerve in the intricate network that is human interactions. The groups using the e-Recording app expressed, among other benefits, reduced time when holding meetings, easy computation of share-out at the end of the cycle, accuracy of records, respect for constitution (fines, leverage, etc.), back-ups, and protection of records against tampering.

Other than digitising financial records, the financial inclusion community is also trying to facilitate the digitisation of money itself. This is the point at which the theory is put to the test; and SGs are not exempt. In the minds of many financial inclusion pundits, the fate of money is to become digital, just as more and more information flowing through computer networks becomes commodified. This assumption emerges as a consequence of considering money’s long journey alongside mankind, a journey whose origins are in the ancient past. Throughout this journey, money has continuously assumed an abstract notion, devoid of money’s original physicality.

However, the very last traces of physical money are proving hard to overcome, at least going by recent findings from the SGs field visit in western Kenya, one of the countries considered by many to be at the forefront of digital payments. Hence the question, how “moneyful” is digital money? While the adoption and usage of the e-Recording app was found to vary from region to region, with some areas adopting faster than others, what is indisputable is the persistence, or, if you like, the stubbornness, of money’s physical form.

Indeed, mobile money usage is nearly universal in Kenya. One of the value-added services on top of mobile money, since inception, is group wallets. For instance, M-Chama, a project facilitated by Kenya’s Postbank, allows SGs to open a group account, and safely keep their money in the account between meetings, instead of in a money box. The groups and members can either use Postbank branches, agents (Postbank Mashinani) or M-PESA to deposit money into the account. As such, the members don’t have to bring physical money to meetings, as they can pay it directly in to the group account using any of the channels. In addition, the group can disburse money to members directly from the account, either to a member’s individual mobile money wallet like M-PESA, or transfer it to the member’s Postbank account.

Aside from M-Chama, Equity Bank also offers a group account on its Equitel network. One would, therefore, have expected the SGs to have, at least, a mobile money wallet dedicated to the group, if not a bank account. This is disappointingly, not the case. All the groups make their contributions in hard currency, and almost all the groups keep their contributions in a secret place in the treasurer’s house, in a money box, similar to the one pictured above.

But it is the unwritten rules around the money box that are even more interesting. As can be seen from the photo above, the money box is usually locked with three different padlocks, one on each side of the box except the rear side. The box is kept by the treasurer, who doesn’t have any of the keys to the three padlocks. Each of the three keys to the box are kept by different members, preferably living far away from the treasurer, and as far as possible from each other. And again, during meetings – usually held once a week and lasting about an hour or less – there must be no attempt to open the box until all the three members with the keys are present. It is against the rules of the box to open, say, two padlocks, as they await the third key!

Inside the pictured money box, there were four pouches; the first pouch for savings contributions, the second for the social welfare fund, the third for loan repayments and the last one for fines and penalties, e.g. fines for being late for meetings. This ensures that the monies don’t mix unnecessarily. Secondly, the box also holds the group’s calculator, used for computing various financial obligations. Thirdly, inside the box, there is a ruler for marking straight lines in the ledger book as needed, and a group pen, the ledger book, and a rough book.

One of the cardinal rules of digital innovations is that for better adoption of digital innovations, the innovation should not necessitate immediate change of behaviour amongst the adopters. Rather, it should be intuitively simple to use, and at all times replicate the users’ behaviour with minimal user effort to change behaviour.

Digital innovations have started to replicate some of these features. For instance, both the M-Chama and Equity bank’s group account require three PINS for approval of pay-outs. In fact, for M-Chama, the group can define more than three members to require approval of a pay-out and each would need to key in their PIN for the transaction to be effected. This effectively replicates the “three-padlock” concept of the money box. That said, the question remains, to what extent can digital innovations disruptively replicate all the interesting SGs’ operations and security safeguards?

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