Community Finance in West Africa

Vasco Pyjama talks about community finance. The ROSCA is known as a “sou-sou” in west Africa, or at least in Nimba county, Liberia. Sousous run for a fixed term, based on the number of members. If there are 10 members and the contribution is $10, each month one of the members will get $90 (9 other members * $10 each). At the end of ten months, the sousou can either be restarted, or the membership can be renegotiated (for example, to drop people who failed to pay on time during the past sousou period). If the sousou is reconstituted with more or fewer people, it doesn’t really change anything, it just runs shorter or longer until the next restart. Sousous run best when they are between 6 and 12 people for social and economic reasons (a 5x – 11x payoff is manageable in a cash society). The order of the payouts is determined randomly at the startup meeting of the sousou. Sometimes people negotiate to trade their places in the payout order in order to assure that the sousou payout would arrive at a time that was convenient for them.

One thing Vasco forgot to mention about it is the very powerful social aspect to village finance. In a village environment, saving face is important. Failing to be a reliable member in a sousou is a pretty embarrassing. But the worse punishment comes when people are invited to the next sousou, and you are excluded. People who are trustworthy get the benefits of a community savings scheme, and those who don’t are excluded. Tough, but transparent. Those excluded from a sousou this time might get another chance with another sousou later. The basic fabric of village life means that everyone has a chance at redemption.

The proceeds of social investment in Nimba are used for things like concrete floors and new roofs. Some richer guys planned on buying a car by combining savings from their salary over the year and their sousou windfall. Then they paid their brother to drive it, making a small foundation of a family taxi company. Others would arrange for their sousou windfall to come in the same month as their vacation, so they could use the money to buy cement and work full time on a second house. After two or three years of this trick, using sousou windfalls every six months or so to advance construction, they’d be landlords — and that’s the real secret to getting rich in Liberia. (To be clear: landlords benefit from a transfer of wealth, they do not actually make new wealth by producing something. So it’s relative prosperity, not global GDP growth.)

There’s are some added systems that some sousous I learned about used. One had a loan concept, where members who wanted to be moved to the head of the line had to pay higher amounts in ($12 instead of $10) with the “interest” being accumulated into a long-term reserve pool. The reserve pool would then be paid out at the dissolution of the sousou to the non-borrowing members. Another sousou, this one with a large reserve after years of continuous operation, included a “compulsory loan month” in August. Each member was compelled to take a loan in August and to spend it in the local economy. He had to pay back this loan, and his normal sousou contribution during the rest of the year. They explained to me that the compulsory loan was intended to create demand in the local marketplace at a time when the local shopkeepers were normally seeing lower than average sales. Another sousou arranged their payout schedule to defer some of the normal payouts until December, to help buy Christmas presents.

As an aside… the business of a eastern Congolese motoman is interesting as well. I don’t remember the figures anymore, but it was a very tidy little business. I think the motocycle buyer could get his investment 100% paid off in 9 months by renting the moto to a motoman, and then for the remaining 3 year life of the motorcycle, he made $25 a month “moto rent”, and the motoman (usually a younger relative) got a steady job driving the motorcycle. The only problem was competition. In east congo, the business case for motos is blindingly obvious, and the right conditions exist: reliable supply of cheap chinese motos and parts from the port in Mombasa, capital ready to invest, and roads that are hostile to more comfortable cars. So there are 10 motos for every customer. The price does not collapse, because it tracks the running costs (gasoline) closely. Instead the weekly wage of a moto driver collapses, because the moto owners still demand their rent, no matter how bad competition gets.

Repair vs Replace

What are the economic effects of the repair vs replace decision? Interesting question, that.

If you missed “more local employment of the blue collar type”, go read this:

There is a slight diversion of purchasing strategy, repair rather than replace. This feeds a blue collar industry in the local region.

It used to be, when money was loose, replace with new was the norm. If the repair was 75 percent of the cost of replacement a new motor was ordered, the old motor was scraped, and the country of origin (Mexico, China, Taiwan) benefited. These beautiful USA built, 50 year old, 200 horsepower motors, were going to the scrap heap.

Now the repair industry is swamped.

Africans have known this for a long time, though for them, the causality is the other way around. If you don’t have the communications, transport, logistics and capital it takes to access new products made in far off lands, then you take the next best thing, which is to keep what you have working by repairing it.

My favorite things, all at once!

Yay for old friends, economics, and technology! All at once!

kc wrote a blog posting with her humble ideas on how to use IP address space tax. Wait… there’s a tax on address space? Yes, because it has become a scare quantity, because people are too lazy to move to IPv6, IPv4 address space is running out. The best of all bad ideas about what to do about this is to make an open market for address space, as though network addresses were some kind of useful piece of property with any kind of useful value. (BTW: When the present econolypse is over, and the next bubble starts, it will be an IPv4 address space bubble. Mark my words…) Address space is bits. We can make more bits… Look! I just made some! But because the value of a network exists in everyone who is using it, not just your implementation of the network, you can’t just add bits in your IP stack and get any benefit. So, while bits are free, and address space could conceiveably be free, because we have a network with limited space, we have a scarce asset. And, of course, what do humans do with scarce assets? We make bubbles! Yay for bubbles!

OK, now that we’ve gotten kc and tech checked off the list for this post, what about economics? Well, actually I touched on economics above, but there’s something way more fundamental to economics. Fundamental questions tend to be hard to recognize because they seem so obvious. The world would be a lot more sane place if more people took the time to ask this particular question and understand (no… really understand) the answer:

What is money?

In case you are not following me and don’t see why this is a hard question, see if any of these wrong/incomplete answers are floating in your head:

  • Money is the paper with green ink and dead guys on it. And red discs with the other dead guy on them, but it takes 100 of those red discs to make one of the green papers.
  • Money is dollars, euros, and yen. It’s what you spend when you want to buy something. You can change it to the other kind of money if there’s a different symbol in front of the price on the thing you want to buy.
  • Money comes from the government. The Fed sets the rate and it goes into banks, then I get it from the ATM.

These answers are all wrong. Not just a little bit wrong… they are like “the earth is flat” wrong, or “the sun goes around the earth” wrong.

So what’s the answer? I’ll tell you what… the answer is so hard that I certainly can’t tell you. You could earn two PhD’s and not really know. Money is something that humans invented after we invented trade, but before we invented numbers. That means it’s something that’s fundamental in the human condition, and that it is as human as culture and art. You might as well give up on the money question and work on a nice simple one like, “What is art?”.

But it wouldn’t be very nice of me to bring you this far and dump you with no ideas of what money is. What lead me to write this post is this great quote I found in one of the papers kc linked to in her blog posting. Here’s the quote:

The Nature of Money

My very great teachers (Alchian, 1977; Brunner and Meltzer, 1971) taught that a society uses as money that entity that economizes best on the use of other real resources to gather information about relative prices and to conduct transactions. This makes clear that the common — but wrong — statement of Gresham’s Law about “bad money” driving out “good money” needs to be restated. What we have observed through the millennia is that high-confidence monies drive out low-confidence monies (Hayek, 1976, p. 29; Mundell, 1998).

That’s academic speak, and it’s easier to understand if you read it in context. But what it’s basically saying is that “a culture will chose as money that thing which minimizes the costs for them to participate in the market to find the correct price for goods”.

That is profound. It’s very far removed from what we think about money when we are at the checkout counter at Tesco (which for me is usually “Gee, this yogurt will be 37 pence, I hope I have exact change and can make my pocket lighter”).

Here’s a related story from when I worked as an administrator in Liberia for Doctors Without Borders. A rumor was going around the country that “little head” dollars were no longer accepted by the bank. “Little head” dollars? This is Liberian shorthand to describe the difference between newly designed money with the large heads and other security features in them. The rumor, as they usually always are, was based in fact. When currency circulates outside of its place of origin, counterfeiting is easier to get away with. In Liberia, from time to time, I noticed bills that, if they’d been given to me as change in the USA, would have made me call the manager. But as long as the staff accepts them, it’s not my problem. Why do they accept suspicious money from me? Because they have no fear that the guy selling cement bags at the corner will refuse it. That guy in turn doesn’t know or care about counterfeit US dollars, and so the bill moves on through the system.

Banks who do international business don’t feel the same way about counterfeiting. Afterall, if a Liberian bank sends some counterfeit currency to London or New York, it’s not going to get passed on. It’s going to get subtracted from their total deposit amount. It won’t be investigated as a crime if it’s just one bill here or there, because it’s a drop in the ocean and the trail to the original counterfeiter has already gone cold — it was likely introduced by North Koreans into Kenya by way of India and made it’s way across to Liberia overland. There’s a certain cost of accepting money from areas with endemic counterfeiting. It’s perhaps 0.1%, but it’s there. That’s $1 per $1000, and it adds up.

Banks don’t just eat costs like that, they pass them on. One place that cost has showed up is in the exchange rate between USD and other currencies. The exchange rate between USD and Euros is different depending on the bill. Little heads low rate, big heads full rate. I don’t know who actually takes the fall for the fake bills — who’s account is debited when they are removed from circulation. But whoever loses that money is not bothered, because they’ve already covered the cost (and more) on the spread between their “little head exchange rate” and what the true exchange rate should have been that day.

OK, so back to Liberia. When the Liberian banks started charging a differential exchange rate (the same as their partner banks were doing in London), that reality-based fact morphed in the street into “the banks don’t take little heads”. The US Embassy put out a press release to try to stop the rumor. It said, “Dollars are dollars, big head or little. Every dollar anywhere on the planet can be exchanged for any other, and they are all dollars.” Which would be true, except it’s not. If you try to bring $10,000 from Liberia and spend them in the US, the odds that you have a counterfeit bill in there someplace are high enough that you’ve probably brought (on average) $9994 instead of the $10000 you thought you did.

In any case, a press release from the embassy certainly wasn’t enough to stop this story. Whether because they believed the rumor, or because they just didn’t want to be the only one not believing it (the musical chairs effect), within a few days the vendors stopped accepting little head notes. This was a few days before payday, and several staff brought the story to me, worried I would pay them in little head notes that they could not spend in the local market. I showed them the newspaper, and told them a dollar is a dollar. They told me, “a dollar I can’t spend isn’t a dollar”.

I’m going to repeat that, because it’s part of the answer to the question, “what is money?”

A dollar I can’t spend isn’t a dollar.

So, what to do? I called my boss in Monrovia, who’d had the same complaints. She made a quick decision: starting that moment, little head dollars no longer existed in the MSF system in Liberia. I was to find every little head dollar I had (a few hours work, in the end it was about 50 notes totaling about $550) and send them to her. She would send me back big head ones (thereby balancing our books). She’d send all of the little head dollars from the entire mission back to Geneva, and we’d change them there into francs and put them back into the budget at headquarters. Presumably she only chose non-suspicious bills to send back to Geneva, lest “MSF counterfeits dollars” were to show up in the newspapers the next day!

Problem solved. The staff loved me because I paid them in big head dollars. And I learned, first hand, a little bit more about what is money.

PS: Think rumors are funny? Managing rumors and knowing when to give up and get out of the way is serious business for humanitarian aid workers. Here’s an article about 3 Red Cross workers killed due to a rumor. My boss didn’t make the decision she made because she’s a nice lady. She decided this wasn’t a rumor that we were going to kill, and we needed to get the heck out of the way of it.

Malaria Medicine Advice

A friend sent me this question:

Speaking of healthy, when you’re in Africa, do you take malaria medication the whole time you’re there? Is 45 days too long to take it?

First, taking it 45 days is no big deal. It’s taking it for months on end (9, 18, 60) that is not recommended — not because of actual risks, but because of not enough study.

Second, here’s Jeff’s “cut-through-the-crap” guide to malaria meds:

  • Doxycycline: It’s an antibiotic which means you can get the side effects of long-term antibiotic exposure — development of resistance in the bugs, GI problems, and for women, yeast infections. On the other hand, those aren’t common, are easy to recognize, and switching off the doxy is easy. And the side-effects of low-level exposure to anti-biotics are also useful: you don’t have to worry so much about eating street food! For fair-skinned people, the most dangerous side effect is light sensitivity, but it’s not a common problem.
  • Lariam: This has a bad reputation because of side effects. 9 in 10 have no side effects. Of the 1 in 10 who have side effects, 9 in 10 overcome them in a couple weeks. The reason it has a bad reputation is that the side effects are psychological, not physical. So people get wigged out about it a lot more. If it works for you, it really works, and it’s better than the others. If it doesn’t work, it really doesn’t work, and the process of finding that out is a little bit scary (sleep problems, depression, even risk of suicidal thoughts). But when you do the math, you see it’s 99% likely you’ll be in the first group. Taking it only once a week is a little hard to remember, but it less hassle than every day.
  • Malarone: It is expensive. It has less drawbacks than the others. Consider it the last choice — because it is guaranteed to work out nicely, but the others have useful features you should consider  before giving up and accepting the drawbacks of malarone.

I’ve taken all three. Right now, I use Lariam.

Third, no matter which you decide: TAKE IT. Malaria in white people ranges from a small case, which makes you completely useless for 1 to 2 weeks, to a major case which makes you completely dead for the rest of your life. It is easy to get confused, because malaria often presents itself in native Africans like the flu — a little under the weather, but they can still go to work. So you get confused and can’t remember why you are supposed to be taking your medicine for this thing that is only a minor inconvenience for your colleagues.

And to drive home point #3, two anecdotes:

  • A USAID official who worked in Ghana told me that every year in West Africa, Peace Corps has two or three volunteers die from malaria. Why? Because the kind of people attracted to Peace Corps are young, invincible hippies who are too cool to take their medication (and don’t believe in it anyway), and too cool to ask for help when they feel sick. So they get malaria, get complications, are too far from medical help, and die.
  • I once met an MSFer who told me he told his coworkers he was feeling a bit bad and left the dinner table early to get to bed. He woke up, 3 weeks later, in Paris, recovering from cerebral malaria. His colleagues found him comatose in the morning and arranged for his evacuation.

But to calm you back down now that I scared you, let me make this final point… when treated, malaria is not deadly to healthy people (neither to Africans, nor to whites). The complications from malaria (anemia, cerebral swelling, liver failure) are deadly, but they are not guaranteed, nor do they set in immediately. If you are pregnant or living with HIV/AIDS, then complications can rise much quicker. If you have a fever in malaria endemic areas, you must start Artemisinin-based combination therapy (ACT) as soon as possible. Don’t wait for a test, and do not wait to get to high class medical treatment. Find anyplace that has ACT and start yourself, even if they disagree and won’t start you. If you don’t respond in 24 hours, start the trip to find the best treatment you can (and keep taking the ACT during the trip).

PS: Best quote ever from a guy who did deadpan humor well: “Wow, I’m really having trouble sleeping… I don’t know why… I’ve been taking my Lariam every night before bed, and for some reason the side effects just aren’t going away!”

The Skills Exist, Use Them!

One of the headlines that came out of my trip to Freetown was “The Skills Exist, Use Them!”

First, a bit more about what I was doing there. I was on a contract with the Health Metrics Network, which is a project running under the auspices of the World Health Organization, but funded by the Gates Foundation. HMN is supposed to go around building a network, not of routers and switches, but people who understand the challenges of constructing and running health information systems. Those people should be researchers, technologists, and public health people. And those people should be a mix of those talking about it (easy to find in Geneva, they are douze pour une centime) and those doing it. The latter are a little harder to find…

Which brings us back to the headline, and what I was doing in Sierra Leone. Our colleagues in Sierra Leone were stuck. They have the will to be doers, but the project wasn’t moving. I went to give it a kick in the rear, and man did I. I had a great time, and I enjoyed getting to know my colleagues. It remains to be seen if we’ve unstuck the project and gotten it going. But for sure we’ve delivered something that has the potential to be transformative and to unlock people’s curiosity and creativity.

What I did was remarkably like what I did after Hurricane Katrina. I arrived in a hot and humid place, quite unfamiliar to me, and go to work. I dug through the boxes of stuff that my colleagues had ordered. I figured out what people there knew, what they wanted, what they were capable of, and what they needed. As usual, it is the consultant’s job to listen to people tell you what they want, then make them feel good about it when you give them something different. After the first day’s work (“the rapid assessment” in consultant-speak) we got to work.

We hired an electrician to install a big honkin UPS they had. I supervised that work, saying a quick prayer of thanks that MSF’s log school had given me a good lecture on three phase power. Our electrician did pretty good work, though he was a little unclear on the concept of ground. Once I remembered my British English (which I learned from RedR), and pointed out the “earth wire” he’d cut off and neglected to connect to anything, then he got with the program and we fixed things right up with a few quick patches.

I installed a little network, then went to do some network archeology and found an old network that had been forgotten and turned off. We got it back in service, then hooked it up to our little network extending all the way to the Minister of Health’s office. When the new zippy VSAT link is installed and stable in a few weeks, my colleagues will schedule a meeting with him to show him his snappy new access to the Internet and to the national health information system, and he’ll be blown away!

At least, that’s the plan. But why was I there? What sense can it possibly make to send a white dude from Leeds thousands of miles for only two weeks to run around yelling and throwing dollars at problems? Wouldn’t it be better to have local people do it?

In fact it would, and what it takes is a project manager with vision, able to engage and manage a local IT firm. I went to see if we had those pieces, as much as I went to kick the project in the butt with a concentrated bit of white-dude energy. What I found is some of the pieces. I found a local firm named Tiwai Memory Masters founded by two guys from the returned diaspora after the civil war. They know their stuff, and they’ve trained their young employees right. The boss of Tiwai wasn’t afraid to give me a little ribbing either: “My partner is going to complain about how you did that ground wire, but don’t pay any attention to him, he’s just picky.”

I didn’t bother pointing out that the ground wire was the electrician’s fault, not mine. I just took my lumps and smiled. I was smiling because I’d just seen the future of Sierra Leone: a smart techie, with a sense a humor, and pride in workmanship.

I came back and gave a presentation to the Talkers in Geneva. I told them: There are Doers in Sierra Leone, get them under contract and watch this thing fly!

Before I forget, if you want to see some pictures of African doers doing, take a look at these two links:

God I love those guys… they can make anything work. All they need is a reason to believe in themselves, and in their project. The Nigerians get paid their reason to believe every day — they hack hardware for profit. How can we get that energy redirected to work that makes lives better? Profit won’t be enough… what will?

Hello, I’m back!

I am back from Freetown, freezing in Leeds. I’ve spent today trying to get software working including reinstalling Chrome (which started marking all words as misspelled) and Word Press which inexplicably started hanging.

I’ll write a note, maybe this weekend, about what I was doing in Freetown. It was fun, and we got a lot accomplished, so it’s a worthwhile story to tell.

An Interview with a DVD-man

Rare is the dinner in an expat restaurant in Africa which is not (politely and quietly) interrupted by a DVD-man. They have a stock of DVD’s in their backpacks, and work their way through the restaurant giving you a chance to peruse their wares. You have to see the DVDs to believe them, they are made up of several pirated Hollywood movies, with many different versions, all on one disc, enclosed in a professional-looking full color envelope. They have titles like “Segal vs Chan”… a DVD full of Steve Segal and Jackie Chan movies. Another great title is “Superhero Schoolwork”, including Spiderman, Superman, and Wonderwoman (and all the sequels thereof). The DVD’s are billed as “50 in one”, though it requires some clever counting to find 50 movies on one disc. Typically, there are more like 12 movies on a DVD — in itself an impressive achievement of DVD mastering and compression-algorithm optimization.

Today, at lunch, I was talking about an idea with Steve for how how to coopt the media in Africa. At that instant, a DVD-man came up to the table to offer his wares. I took the chance to do some market research, to figure out how his business works to feed in some ground-based-reality into my scheme.

The young man is named Mohammed. He is alone now, his father was has last relative and he died in 2005. Years ago (perhaps 5 or so) he met a woman on the beach. She was an Indian, a visitor to Sierra Leone. She worked for a bank. They started talking about his school, and how to raise enough money for his school fees. She decided to “invest” in Mohammed by giving him a gift of 100,000 leones (in today’s currency, about USD 30). With that, he bought movies and started walking around after school selling them.

After Steve and I had talked to him a while, I asked him for the “financials” of his business. It should be noted, at the beginning of our conversation, he was reluctant to talk about his business, I suspect out of fear that we were investigating piracy. Here’s how it works out… the DVDs are available one at a time from a wholesaler for SLL 8000 per disc. He sells them for SLL 10000, for a profit of SLL 2000 per disc. Mohammed keeps a stock of around 50 discs right now (“51”, he proudly told me!). His inventory has gone as high as 81 discs. He started his business years ago with 25 discs, bought using the initial capital from his Indian benefactress.

Perhaps there is a discount for buying in bulk, but Mohammed didn’t mention it. I suspect he rarely has the capital to replenish his stock. Instead, Mohammed’s business model is just like any extremely small business: he constantly balances how much money he can take out of his business to pay for school fees with how much he needs to reinvest disc by disc to replenish his stocks. I found it interesting as well that he remembered his exact highest inventory with pride — for Mohammed, his inventory is his life’s savings. Can you imagine the risk and the burden of carrying your life’s savings on your back? What if they are stolen? What if the price of DVD’s collapses?

Steve bought a DVD, “Harrison Ford Mega Pack”. That’s SLL 2000 more profit for Mohammed, but not enough to pay this week’s school fees. Here’s hoping he sells some more discs today…

As an aside, Mohammed told us that you can buy DVD’s mastered and manufactured in Nigeria for only SLL 6000. Theoretically, you can sell them for SLL 10000, just like the ones that Mohammed sells, which come from China. But Mohammed says that the Nigerian discs are lower quality and though they offer double the profit, if you sell them to a customer and it does not play right, then you lose a customer. He prefers to sell the lower profit and higher quality merchandise from China.


Steve and I were thinking about it a bit, and it’s true: when you buy these DVD’s on the street, in the marketplace, or in a restaurant, it’s just a throw of the dice if it will work. On our travels, we’ve both bought DVD’s that didn’t play right. There are certain brands of pirated DVDs that look good, and in practice prove to be good. One brand that looks particularly good is “UPS”. The pirates just took the UPS logo and slapped it on their discs, and it works! It looks professional, and it turns out the pirates professional enough to pirate a logo as well as the content, make good discs! Mohammed is right; customers prefer the Chinese discs.

This is field economics at it’s best. What a great way to spend a Saturday afternoon in Freetown!

Hello from Freetown

I started a two week trip to Freetown, Sierra Leone yesterday. I am here as an IT consultant for the Health Metrics Network, part of the World Health Organization. We are taking a bunch of random hardware that the government bought with a not-quite-complete architecture and putting in place a foundation for IT services related to the Health Information System. Of course, the HIS relies on lots and lots of low tech forms and paperwork “up country”, but there’s also a need for a datacenter in the capital.

I probably won’t post much from here, since I’ll be really busy.

I’ll just say a couple of brief things: it’s great to be back in West Africa, the humidity is not so bad when you get used to it, I enjoyed Star beer and jollof rice for dinner last night.

More ideas on how to innovate to serve poor communities

Another reference I don’t want to lose: Innovation in Africa Tips.

Also, why is it “in Africa”? What happened that Africa got so far behind, or is getting so much of the attention? Why don’t we advise people how to make a new clean water technology stick in SE Asia, or in South America anymore? Even a few years ago when I came to this world, there was much more discussion of all the poor places, and not just Africa.