Vijay Govindarajan on (frugal) innovation

Darthmouth Business School Professor, Vijay Govindarajan, on innovation and the "rivalry" between India and China:

M-PESA in a nutshell

Concise and nicely produced video primer from the folks over at CGAP:



Moobile banking's combination of reach and low costs is changing financial services in the developing world. I just hope financial services companies in industrialized countries are paying attention.

A tale of two Vehicles: the Jaguar and the Jugaad

This recent NYTimes op-ed highlights the ingenious Jugaad, a familiar sight in rural India:

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... Then there is the jugaad (pronounced jew-gaar), which is nothing like a Jaguar.

It is, for one thing, illegal: a truck tossed together, saladlike, in the sheds of northern India, beyond regulators’ view. Parts from old jeeps are cut and welded and combined with wooden planks to form a chassis. An engine commonly used for irrigation pumps is attached.
Actual bells and whistles may be added as adornments, and the wheels are painted by hand.

The truck gives India’s village dwellers a cheap ride: 10 cents for a half-hour journey with a few dozen others. So compelling is their business logic that jugaads have become popular in dowries.

The truck may be obscure, but the culture behind it is now a management fad. Jugaad, not as noun but as verb, is suddenly the talk of consulting firms like McKinsey and companies like Best Buy in the United States.

The slang Hindi verb “jugaad,” as translated for managers, means to make something much like a jugaad. It is to be innovative despite scarcity — a winning formula for hard economic times. Management gurus cite India’s ultra-low-cost creations as inspiration: the $800 electrocardiogram, the $24 water filter, the $2,500 car, the $100 electricity inverter, the $12 solar lamp.

But these represent only a sliver of what jugaad is. It is more than frugal innovation; jugaad is a way of life, here as elsewhere, that has anticipated important movements of the 21st century, from open-source technology to cultural fusion. From years of observation in India, some core tenets emerge, many of use beyond the business world.

FATALISTIC CREATIVITY: India is not an easy place, and to be fatalistically creative is to transcend its hardships. It is to chafe daily against the way things run; to resist the idealistic temptation to change all that; and to strive instead for success and solutions within the constraints.

... MARKET HUMANISM: Jugaad, as a truck and a way of life, involves a capitalism different from the market philosophy that informs the West — and one that prefigured the interesting new directions that capitalism is taking today.

... ANYONE SOURCING: The black-and-yellow Mumbai taxi, an exemplar of jugaad, was crowd-sourced before Wikipedia and open source before Firefox.

... BOTH-AND TRUTHS: A.K. Ramanujan, the late Indian folklorist, once asked whether there was a specially Indian way of thinking. His conclusion was that Westerners were more comfortable with truths applied universally to every case, while Indians resisted the universal, preferring situation-specific solutions. This is philosophical jugaad: an approach to human dilemmas that rejects the either-or.

mKRISHI: A multi-lingual platform for farmers

This innovative mobile platform lets farmers send data and images to experts and policy makers. In addition to benefiting individual farmers, the crowdsourced and technology-driven data collection has the potential to catch and quickly resolve problems that plague India's large agriculture sector:

mKRISHI is developed by Tata Consultancy Services Ltd (TCS) as an innovative platform to offer personalized and integrated services to farmers. TCS mKRISHI platform combines multiple technologies to bring vital information regarding local weather, fertilizer requirements based on soil conditions, pest control, and current food grain prices in local markets in a rich content format to the farmer’s low-end mobile handsets. It allows farmers to send queries in their local languages, as well as images and voice activated SMS through a mobile phone and provides personal responses with advice or relevant information in these languages.

... Some of the key benefits to farmers are:

* Advice on pesticides/fertilizers, such as how much and when to spray
* Advice on when to harvest in relation to weather to limit crop damage
* Combining yields allows efficient collection of goods
* Market prices made available so they can choose where and when to sell
* Current pricing information for NCDEX, future prices and global rates
* Bankers can use the mKRISHI programme – enabling more rapid loan payments to farmers
* Useful information such as rural Yellow pages, as well as bus times and railway reservations could improve farmers’ activities.

Solar powered ATM's

A series of energy efficient ATM's that rely on biometric authentication, Vortex Gramateller ATM's are currently deployed in just under 100 locations in rural India. The ATM's can accept and dispense soiled (or "teller-grade") notes, a must-have feature in rural India:

The Talking Machine from Literacy Bridge

At this year's Foo camp, I attended a session led by Literacy Bridge founder Cliff Schmidt. Cliff demoed the Talking Book, a device they developed after extensive research in Africa:


Aid workers and NGO's working in the developing world have information spanning many topics (best practices and tips in areas like health, agriculture, education, etc.), that could dramatically improve the lives of residents in many remote areas. Areas where cell phone and other communications technologies are unavailable and/or are unaffordable, tend to coincide with lower literacy rates. Valuable information thus gets forgotten and never used.

The Talking Machine is a recording device with an intuitive user interface and navigation model. It's like going though directory assistance, with fewer buttons. The idea is that the devices come with pre-recorded relevant tips and information for local residents. The recording capability means the content can be easily updated. To pass useful content between Talking Machines, two devices can be easily hooked up together.

Craig mentioned a few success stories as well as challenges. He highlighted a small sample statistical study they conducted where a group of farmers in Africa who used the device ended up increasing their yield by over 40%!

Mobile Banks are cheaper than traditional Banks

A recent study by CGAP provided a price analysis of simple financial services (targeted at the unbanked) in 10 countries. In particular they studied several use cases including sending/receiving money transfers, short-term safekeeping, medium-term savings and bill payments. The primary goal of the study was to compare costs of conducting transactions through mobile banks and traditional banks. The researchers used data from 16 mobile banks (in 10 countries) and 10 traditional banks (in 5 countries). If you don't have time to read through the 60-slides, I summarize some of the key findings below.

Adjusted for PPP, the average cost for the use cases studied was $3.9 per month (the average is computed across the 16 mobile banking services).


Mobile (or "Branchless") banks are 19% cheaper on average: prices are in US$ and are based on one-month usage of a given service.

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The vast majority of unbanked users conduct low and medium size transactions, for which mobile banks are cheaper options. As transaction amounts increase, traditional banks become more competitive. In fact, for transactions that exceed $200, traditional banks were 45% cheaper.



The graph below details the cost differential for money transfers. The lower the transfer amount, the larger the gap between mobile and traditional banks. At a certain transaction size, money transfers cost about the same whether one uses mobile or traditional banks. For larger amounts, traditional banks are cheaper to use:

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The researchers found that mobile banks were 54% cheaper than the "informal" money transfer services found in many developing countries. The cost of money transfer averaged about 3.1% of the funds transferred for mobile banks, and 6.7% for the "informal" providers.

The researchers also compared costs for what they defined to be "high-usage" accounts. These are accounts that included the following transactions on a monthly basis: at least 2 deposits, 2 money transfers, 2 withdrawals, 2 bill payments, 2 balance inquiries, and 2 airtime top-ups. The "high-usage" accounts would be mobile bank users who "transact like typical bank customers" and as such are reasonable as proxies for financial inclusion. The researchers found that compared to a mere 11% for mobile banks, 89% of bank fees are fixed monthly fees! Since most low-income and/or unbanked customers prefer the pay-as-you-go model, most of them gravitate towards mobile banks.

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One could argue that traditional banks have different costs structures that prevent them from competing with mobile banks in acquiring large numbers of low-income customers. The danger is that they may lose such customers "forever". In a recent survey article, I noted that as mobile banks offer more sophisticated products, they stand a good chance of retaining customers who normally would migrate to traditional banks.

In closing, anyone interested in mobile banks should peruse this study. There are several slides that compare the transaction costs AND usage patterns for the 16 mobile banks covered in the study.

The Jeepney and the Tuk-tuk

The jeepney and the tuk-tuk are popular modes of (low-cost public) transport in the Philippines and Thailand respectively. In both cases the open air design is a double-edged sword: the outside breeze alleviates the tropical heat, but you're also exposed to smog and dust. Air-conditioning is out of the question, unless you want more expensive alternatives like a cab or bus. More recently, there are a few fully electric jeepneys ("E-jeepney") plying the streets of Manila.

The tuk-tuk has equivalents in many developing countries, and is generically referred to as the auto rickshaw. In the Philippines there is a slight variation ("tricycles") where passengers are in a cabin adjacent to the driver.




For the uninitiated, here is a funny how-to guide for riding jeepneys in the Philippines:

The behind-the-scenes logistics of M-PESA

The Economist has a brief article on how money flows so smoothly through M-PESA's network of agents. The challenge is to make sure that agents in remote villages are able to regularly swap the cash they receive from customers, for the mobile bank's virtual currency:

... The basic idea of M-PESA is that the 100,000 small retailers in Kenya who already sell mobile-phone airtime, in the form of scratch cards, can also register to be mobile-money agents, taking in and paying out cash. More than 17,600 retailers have signed up as M-PESA agents—far outnumbering Kenya’s 840 bank branches. When a customer is registered with the system, paying in cash involves exchanging physical money for the virtual sort, called “e-float”, which is credited to his mobile-money account. E-float can then be transferred to other users by mobile phone, and exchanged for cash by the recipient, who visits another agent.

It is simple enough for customers. But agents in cities, where most transactions are deposits (see chart), accumulate cash and risk running out of e-float, at which point they cannot take any more deposits. Agents in rural areas, where most transactions are withdrawals, accumulate e-float and risk running out of cash. Keeping the system running requires the agents to manage their liquidity, by regularly swapping cash for e-float, or vice versa.

Exchanging cash for e-float means visiting a bank affiliated with Safaricom, and the whole point of systems like M-PESA is to reach where banks cannot. Accordingly, M-PESA relies on a system of intermediaries (including Mr Eijkman’s firm, PEP Intermedius) between agents and banks. These middlemen have their own distribution networks, and take on much of the work of ferrying cash around the country. But individual agents still handle the “last mile”.

... Rather than many individuals moving money around by carrying it physically, as they had to in the days before M-PESA, the movement of money can then be handled in larger quantities by a smaller number of individuals, which is much more efficient. Safaricom, says Mr Mas, “understood this like no other mobile operator really has”. As well as orchestrating the emergence of the intermediaries, it monitors its agents closely, typically visiting them every two weeks to see how they are handling the growing volume of transactions (on average, each M-PESA agent now handles almost 100 transactions a day).

Emerging Markets - Some key statistics

A recent report from the Economist on innovation from Emerging Markets contains some interesting statistics and charts. The growth in the middle-class that followed the steady rise in GDP's, combined with the growing optimism and entrepreneurial spirit of residents of the developing world, means we should expect many more creative products from companies that are based (or invest heavily) in emerging markets.

Manufacturing and design innovations are bound to happen. Competition for consumers' wallets is intense in many emerging markets: winning products have to target local needs and tastes, and be affordable.

... The United Nations World Investment Report calculates that there are now around 21,500 multinationals based in the emerging world.

... The number of companies from Brazil, India, China or Russia on the Financial Times 500 list more than quadrupled in 2006-08, from 15 to 62. Brazilian top 20 multinationals more than doubled their foreign assets in a single year, 2006.

... Multinationals expect about 70% of the world’s growth over the next few years to come from emerging markets, with 40% coming from just two countries, China and India.

... Companies in the Fortune 500 list have 98 R&D facilities in China and 63 in India. Some have more than one.

... No visitor to the emerging world can fail to be struck by its prevailing optimism, particularly if his starting point is the recession-racked West. The 2009 Pew Global Attitudes Project confirms this impression. Some 94% of Indians, 87% of Brazilians and 85% of Chinese say that they are satisfied with their lives.

Semi-regular Dimes: Freegan edition

Prompted by a recent NY Times article, I decided to share some articles on the fascinating (and inspiring) world of Freegans. Growing up in the developing world, we always saw the U.S. and Western Europe as the ultimate lands of plenty. By exposing the amount of wasted food and stuff that end up in our collective trash bins, Freegans bring awareness to the related issues of over consumption and the fair distribution of resources.

The Freegan Establishment: A long Jun/2010 feature from the NY Times Magazine.

I Love Trash: A 2008 documentary (viewable online) chronicling two friends 3-month experiment in dumpster diving.

Freegans and FreeCycling Gain Fans: An Oct/2008 feature article from Businessweek magazine.

Writer Becomes Freegan for a Month: An Oct/2007 NPR interview with Newsweek writer, and undercover Freegan, Raina Kelley, about her month-long experiment "recycling and reusing" instead of "buying".

"Freegans" Live On Garbage: An Oct/2007 feature on the CBS Early Show.

Free-lunch foragers: A Sep/2007 front page feature article from the LA Times.

Not Buying it: A Jun/2007 feature article from the NY Times.

Freegan send political message by dumpster diving for meals: A Feb/2006 MSNBC interview conducted by conservative pundit Tucker Carlson.

Dual SIM Mobile Handsets enter the mainstream

In many developing countries, many mobile phone users have long had multiple SIM cards to juggle phone numbers and groups of buddies (work, friends, home). In recent years, local handset makers started introducing models that could accommodate 2 or more SIM cards.

The largest mobile handset maker, Nokia, just announced their own set of dual SIM handsets. It's only a matter of time before smart phones have this feature as well. Yet another example of innovation driven by knockoff artists!

... Why is Nokia doing this now? In part, I think, it's because it doesn't want to be out-innovated by pirates. But it's also because Chinese vendors that start out producing knock-offs quickly learn the ropes and then start to produce increasingly competitive products. We've seen this happen with network gear and cars in the past decade, and now it's starting to happen with phones

Large-scale Labor Training programs

Of all the countries that depend on the foreign currency earnings of its expatriate workforce, the Philippines stands out. First the scale is second to none: a quarter of the workforce are employed overseas. College graduates are willing to go abroad to work low-level service jobs, to earn salaries way beyond what they could earn domestically. Second, a legacy of the American colonial presence means most people speak English. Third is diversification: Filipino workers are trained to go after many types of jobs ranging from domestic/hotel work, merchant marines, drivers, construction, ... And as many ex-pats in Asia and the Middle East, Filipinos are the musicians and nightclub entertainers in many parts of the world. No wonder the NY Times recently reported that:

... Despite the world’s sagging economy, the country set records last year for the number of workers sent abroad and the sums they returned.

Every Philippine government makes a concerted effort to market and promote Filipino workers in all corners of the world. More importantly there are many government and private programs that not only place workers overseas, but prepare them for the challenges they'll face when they go abroad. It's not surprising that other countries don't have similar programs in place. Doing so is an admission that the local economy can't absorb its own citizens. But the benefits are compelling. These programs designed to send workers abroad, have proven themselves time and again, through many economic slowdowns. At the end of the day, they're able to get large numbers of people employed, at rates that few employee re-training programs can match.

... On every corner of this jeepney-jammed capital, someone seems to be coming from or going to a job overseas. At the Magsaysay Training Center, beside Manila Bay, college graduates scrub replicas of cruise ship cabins, hoping for housekeeping jobs that can pay four times the local wage. A park across the street doubles as a sailors’ bazaar, a reminder that the Philippines supplies at least a fifth of the world’s seafarers.

In government seminars a mile away, throngs of outbound maids learn to greet future bosses in Arabic, Italian and Cantonese. Some cry through a film about a nanny who wins an overseas job but loses the love of her children.

... Elsewhere on campus, women learn to fix cars, sew skirts and set banquet tables. Posters celebrate alumnae overseas. (“Marjury Briones is now working at the Pars Hotel in Bahrain as a flair bartender.”)

... Mexicans are closely tied to one place (the United States), and one industry (construction). Filipinos work across the globe in dozens of occupations. Mexican migration is unmanaged and mostly illegal. Filipino workers are promoted by the state, and most go with contracts and visas.

... The Magsaysay Training Center in Manila feels less like a vocational school than a theme park of migrant trades, filled with replicas of foreign work sites.

Student sailors in a simulator room steer ships through high-tech storms. Student bakers in toques practice cream puff injections. A glass wall offers a view of a luxury hotel room, where instructors watch trainees wipe the marble bath and stock the minibar.

Two low-cost Water Purifiers

A recent Economist special report on water noted that 1 billion people "... have no access to piped drinking water or safe taps or wells." Over the last few years, companies have rolled out products to make safe drinking water more affordable, and in this post I'm highlighting two new purifiers from India.

Tata Swach:

Company's description of health benefits: "... removes harmful bacteria and viruse"

Filters 3,000 liters per cartridge

Depending on the model, the retail cost is $16 to $22. For a family of 5, the company estimates the cost of using the Swach will be less than $1 per month.

Hindustan Unilever's Pureit:

Company's description of health benefits: "... removes harmful viruses and bacteria and removes parasites and pesticide impurities, giving you as safe as boiled water".

Retail cost is about $43

The Mahindra Gio

While the Nano low-cost compact sedan justifiably gets a lot of press, the less well-known Mahindra Gio, a new compact truck from India, is just as impressive. The price and features makes it an affordable option for budding entrepreneurs in the developing world. I hope the product is successful enough that we start seeing similar products from other companies.


Here are a few factoids about it:

1. At a starting price is about $$3,525, it can handle a payload of up to 1,100-pounds in its 5-foot cargo box; fuel consumption is about 64 mpg.

2. It uses a 2-cylinder diesel engine manufactured by Kohler.

3. The engine is mounted in the rear, below the cargo box.

Keeping the engine in the rear ensures a lower noise level inside the cabin and moreover the heat from the engine does not enter the cabin. Thereby keeping your cabin cooler, and more comfortable even in hot weather.

Two Brain Surgeons

I'm amazed by what neurosurgeon Henry Marsh has accomplished in the 15+ years he's been going to Ukraine. Along with his Ukrainian colleague Igor Kurilets, Marsh has established a clinic that is the leading neurosugery practice in Ukraine. They put their patients first, payment is minimal with some complex surgeries done essentially for free.

There are so many moving moments in this film, as well as humorous scenes involving the banter between Henry and Igor. After minimal retooling and tuning, they use discarded tools and equipment that Henry brings over from the UK. I loved watching Henry and Igor geek out over recycled surgical equipment.

While the film focuses on Henry, Igor is the full-time hero in their longtime collaboration. Kurilets is an innovator trying to survive in a medical system that values uniformity and collectivism.

The Microfinance business environment in 55 countries

This first-ever report from the Economist, looks at the commercial viability and sustainability of microfinance in 55 countries. An objective scoring of the business environment for microfinance is probably correlated with overall environment for low-cost entrepreneurs in each of the 55 countries. In this particularly study, the researchers appear to have covered a very wide set of factors:

The institutional and regulatory framework for microfinance: Regulation of microcredit operations; Formation and operations of regulated/supervised specialised MFIs; Formation and operation of non-regulated MFIs; Regulatory and examination capacity

The general investment climate: Political stability; Capital market stability; Judicial system; Accounting standards; Governance standards; MFI transparency

The level of institutional development: Range of MFI services; Credit bureaus; Level of competition

Each of the countries in the study were assigned a score (0=worst to 4=best) for each of the factors above, and a composite (index) score was computed:

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Bangladesh, home to Grameen Bank, is smack in the middle of the pack. The report also ranks the countries using scores for Regulatory Framework, Investment Climate, and Institutional Development. Of the the three areas, Institutional Development seems to best capture the sophistication of the financial services infrastructure. Some might find it surprising that Credit Bureaus are starting to take hold in many countries in the developing world, including the top three ranked countries Peru, Bolivia, and the Philippines.

Many countries in the developing world are full of aspiring entrepreneurs. Microfinance was historically designed to help meet the most basic needs, but nowadays Microfinance institutions are rolling out more sophisticated financial products. I hope the Economist refreshes this study on a regular basis.

Kitchen Appliances: A Portable Refigerator and Stove

Featured in the pages of the WSJ late last year, the $70 ChotuKool portable refrigerator is the opening salvo in the intense competition for India's consumer appliance market. The market is large enough that Indian firms are investing R&D money to come up with low-cost alternatives to traditional household appliances. $70 is still a steep price for many of the world's poor, so many will have take out microloans or pool their resources in small collectives to afford these products.




Here's a related example from the same WSJ piece: First Energy's Oorja (biomass) stove. The stove costs $23 and the pellets needed to use it, cost about $5.50/month.

Low-cost Toilets

Having enough clean toilets is a major problem that plagues most developing countries. Growing up I remember walking through slums in the Philippines and being taken aback by where people "did their business". To a much lesser extent, homeless people in the US face the similar problem of lack of public restrooms.

A recent article in the Economist puts a spotlight on the social and public health impact of the absence of latrines. Having to go out in the open is an embarrassing experience for most of us, but for poor people in developing countries, out in the open is their only option. Add the fact that socioeconomic class consciousness is much more pronounced in developing countries, one can understand why having to do so regularly becomes a traumatic experience (especially for women).

... Surprisingly, some of those who have to defecate in the open do not mind. Some rural men, and even women, quite enjoy a social squat in the bushes. But for many, and certainly for those who must live with its consequences, it is a disagreeable practice. Women and, especially, girls often find it embarrassing. Many women in South Asia contain themselves by day and wait till nightfall before venturing into the shadows. Girls at African schools without latrines often drop out rather than risk the jeers of their male contemporaries. Slum-dwellers in Nairobi have to pick their way through streams of sewage and take care to avoid “flying toilets”, plastic bags filled with excrement that are flung with desperate abandon into the night.

Without piped water to wash their hands with, let alone to drink, the open-air defecators and another 800m people with access only to primitive latrines are inevitably carriers of disease. If they could wash their hands with soap and water, they could block one of the main transmission routes for the spread of both diarrhoeal diseases and respiratory infections. As it is, patients with water-related diseases fill half the hospital beds in the poorest countries, and dirty water and poor sanitation kill 5,000 children a day.

The article mentions two low-cost alternatives a non-profit dedicated to improving toilet and sanitation conditions worldwide, and Peepoo -- a single-use, personal, and biodegradable toilet alternative.

... Outfits like the World Toilet Organisation, based in Singapore, now believe you have to make lavatories “as sexy as mobile phones” if you are to get people to accept them, and that means literally selling them. Once people have invested some of their own money in a loo, they will use it. The World Bank confirms that the most successful sanitation projects involve only a small subsidy.

Where building a fixed latrine is not possible—slum-dwellers seldom own the land they live on, or have much incentive to improve a site to which they have no legal rights—entrepreneurs may help out. The Peepoo is a personal, single-use bag that the Swedish founder of the company, Anders Wilhelmsen, describes as the hygienic version of Nairobi’s flying toilet, intended, to begin with, for the same Kenyan users. Sealed by knotting, it acts as a micro treatment plant to break down the excreta. Since the bag is made of degradable bio-plastic, when it has served its primary purpose it can be sold with its contents as fertiliser. Indeed, the hope is that a market will develop in which the same people will trade in the bags before and after use. Each will sell for 5-7 cents, about the same as a conventional plastic bag, and though a subsidy will be needed at first, the operation is meant to become self-sustaining, and indeed profitable.

Below are videos that explain the vision behind both Peepoo and the World Toilet Organization. Mark your calendars, World Toilet Day is on November 19th!

The Peepoo


World Toilet Organization (the other WTO)

UPDATE (6/1/2011): PRI's The World interviews Arno Rosemarin of the Stockholm Environment Institute, on the importance of low-cost/sanitary, ecological toilets.

Semi-regular Dimes

(A list of recent articles and other links.)

KQED Forum show on the state of Microfinance:

Winners of the 2009 CGAP Photo Contest: I stumbled upon this slideshow a few weeks ago and am still enjoying some of the stunning images from the most recent 4 contests (2006-2009).

A tour of Experimental and Development Economics: My recent survey of test-and-learn (experimental design) methods to measure the efficacy of development/aid programs.

Conversations for a Better World

Conversations for a Better World is a new site sponsored by the UN Population Fund. A "shared blog on population, gender, and health", this week's theme is Cell Phones and Social Change. They kindly asked if they could reprint a post I wrote for the O'Reilly Radar -- I enthusiastically said yes!

In "Mobile banks in the developing world prove simpler is better" I argue that frugal innovations like mobile banks have much to teach financial services companies in developed countries.