I was recently invited to a workshop on Financial Diaries (FDs), involving financial inclusion (FI) practitioners and experts in the field of FI research and programming. The workshop marked an important juncture for the field to come together to reflect and discuss the FD value proposition, and offered an opportunity to consider ideas for how FDs can be used in the future.
What are Financial Diaries?
FDs arose in 2009 out of ‘Portfolios of the Poor’, a major multi-country initiative to understand the financial practices of the poor, funded by the Ford Foundation, the Bill and Melinda Gates Foundation, and Financial Access Initiative. The main principle underlying FDs is that simply measuring average income is not sufficient to understand the individual and household economy of the poor. The global threshold for income poverty at $2 per day is an average, but the poor have erratic incomes and are exposed to more frequent shocks.
FDs allow us to understand inter-household, intra-household, and wider economic exchange over a sustained period from the perspectives of the poor themselves. FDs capture varying types of cash and in-kind income and expenditure, cash flow, assets and liabilities of individuals and households, and then allow us to understand their financial strategies, including in response to shocks.
Why capture the financial lives of the poor?
By understanding the financial lives of poor clients, formal Financial Services Providers (FSPs) and informal/community financial services providers can design client-centric financial and other products and services to improve individual, household and community welfare.
- In Malawi, Opportunity Bank used FDs to design products for informal agricultural workers
- Financial Services Deepening Trust Zambia (FSDZ) integrated FDs with Finscope data to develop flexi-pay, education, and finance products for low income families
- At the MasterCard Foundations Symposium on Financial Inclusion we learned that M-Kopa, a mobile technology-enabled household solar power provider, used FDs to better understand their clients, to design through multiple iterations new products and services
FDs can be used as a data collection tool for monitoring, evaluation and learning.
- CRS uses FDs to measure progress and impact against their theory of change of supporting Savings and Internal Lending Communities (SILCs).
- MFO uses FDs in Kenya to understand the impact of the peer to peer (P2P) money transfer technology M-Pesa’s influence on the household and individual economy, and the associated network effects.
What do FDs capture, and how?
FDs comprise quantitative data, specifically attributes and transactions of the household economy, and dimensions of these transactions: when, how, with whom, where. FD quantitative data collection is mixed with other methods, e.g. follow up focus group discussions or interviews, to then understand these transactions, the meaning and behavioural attributes, preferences, why and how. Collecting data over time involves a trusted long-term relationship between researcher(s) and the individuals/households.
What have FDs shown us?
Some interesting findings have emerged from analysing data from FDs in a number of countries.
- In Mozambique, BFA found that FDs showed the hunger season before harvest is actually the sick season: the poor have sufficient food resources, however have insufficient cash to visit a medical professional when disease frequency increases with the rains
- In Zambia, CRS/MFO observed that in some poor communities there was low social capital, and a reluctance to trade and exchange outside the household.
New developments in FDs
Since 2009, FDs have been modified and improved in response to new technological developments and new user demands:
- Use of ICTs: collecting data using tablets in the field means the researcher can clean the data in real-time, and transmit the data to the database using a USB modem, significantly reducing time and cost associated with data entry, and improving accuracy.
- Add-ons and modifications to respond to demand: BFA added a risk assessment module to their Mozambique diary work, to assess the financial risks of keeping crops as a store of wealth (such as rot, fire, insect and rodent damage). MFO, in partnership with the C&A Foundation in India, Bangladesh and Cambodia included a module to report on workplace conditions for garment workers.
The participants of the workshop broadly agreed FDs have been shown to be a valuable tool to understand the financial lives of the poor and support the design of client-centric products and services. Since 2009, multiple FD projects have been rolled out in multiple countries, and we now have a large global dataset at our disposal, presenting a significant opportunity for cross-context comparison and analysis of the FD data by a range of stakeholders.
The participants also identified three major areas of work to enable scaling up the use of FDs, particularly broadening the uptake by FSPs:
- Bring the FD datasets global, and open: By posting FD data publicly, the intention is to link FSPs and product strategies more quickly and easily with data on poor clients. The proposed platform is Insight2Impact, set up in 2015 to respond to the disconnect that still exists between the decisions being made for financial inclusion and the data.
- Build sustainability, local ownership, and reduce overall cost: By embedding dissemination in local research companies, and equipping researchers with an FD research app, the intention is to minimise fly-in, fly-out researchers and reduce cost.
- Build user-friendly front end software for easier data analytics: By making FD data easier to analyse, the intention is to make data analytics much more accessible for analysts, particularly in FSPs.
What next for Itad?
We can support learning from, and use FDs in three main ways:
- Support organisations with making sense from the large FD dataset collected through their programmes, and drawing lessons learned
- Use for source data to evaluate the impact of programmes intending to improve poor people’s financial health
- Understand the use of FDs by FSPs and others, and evaluate their contribution towards improving client centric design of savings led-financial and other products and services