Useful Lump Sums: Microenterprise Revenue Management And Its Potential For Banks
Microentrepreneurs in central Malawi frequently experience the need to amass what scholars have termed "usefully large lump sums" (Rutherford, 2000) of cash to finance inventory purchases and other business expenses. At the same time, these microentrepreneurs cycle through large amounts of cash, handling $2 to generate every $1 of income. Ideally, these two phenomena — the routine handling of large volumes of cash and the equally routine need for usefully large lump sums of it — would be synchronized. But a recent study by Microfinance Opportunities (MFO) shows that this is not in fact how the flow occurs.
The microentrepreneurs in the MFO study routinely experienced both "good" weeks with strong sales and income and "bad" weeks without. They also frequently experienced weeks with no income at all. But they could seldom predict whether any given week would be a good one or a bad one, much less time the need for the "usefully large lump sums" to coincide with the good weeks. They also faced significant challenges in setting aside the surplus from good weeks as savings. The MFO study suggests that a market opportunity exists for banks to develop financial products that could help resolve the chronic mismatch between cash in and cash out.
MFO's study ran from July 2008 — December 2009 among hundreds of low-income Malawians. It used the Financial Diaries methodology, tracking every transaction for 172 households and 257 individuals each week over that 18-month period. The Financial Diaries yielded almost 231,000 records documenting the economic behavior of the participants in great detail — every purchase, sale, and exchange of goods and services, inclusive of all financial services transactions.
