Week 12 PhD on the business card (part 2)

So here goes my seven levels deep - why's

How I perceive the problem: The urban poor household pays a premium for lower quality basic needs today (water, energy, housing, food, social security)*. Housing and social security pique my curiosity. On a per square foot basis, a slum single-room iron sheet shelter is 20% more expensive than an adjacent formal estate apartment. In the case of social security, narrowing to the life assurance - death and disease, the urban poor will often use expensive mobile money transfers to send remittances to cater for the bad event. Because these remittances are on demand and not from some common pool, they are expensive to fund and not resilient (if multiple social members died or got sick the system is stretched thin very easily)

Why?

A roof over one's head is the most basic sense of security for a human being and a logical family's desire. Social security protects families (or using the economics gab - the households) and individual lives from going off the rail and straining to survive as a result of an unexpected bad event (could be loss of life or poor health or loss of a resource/ livelihood). Its a paradox for the low income to be paying a premium to meet these basic needs and yet accessing inefficient riskier or low quality solutions.

Why?

Because in a normal market, the supplier will surely seek out the premium payer (The person willing to pay more for the same product hence higher profit margins). But in this case it is akin of a veil or a "no go zone" that better solutions do not reach those willing to spend the most.

Why?

It could be one of two things:

1. Market of lemons: Financial products (e.g. house mortgage or insurance) are peppered with big words and jargon. Almost always one of the parties has an upper hand in knowing if the financial product is good or bad. Often times it is the richer and more powerful party with the upper hand of information. Because the buyer cannot differentiate a good mortgage from a bad mortgage they eventually loose trust in the system when they see those they know getting their fingers burnt. They vote with their feet and boycott taking up these solutions whether good or bad. But this presupposes the willingness of the targeted urban low income household to take up a mortgage or formal insurance. Do they even want to pay for and own a house in the city in the first place? Does the formal insurance meet their point of need in the first place?

2. The math is mad!: It could simply be the case the solution was such a misfit or even not considered as a possible solution in the first place. Year on year mortgage loan accounts (the classical financial way to finance ownership of a modern home) in Kenya are less than 25,000 – less than 1% of households. The case for insurance (the classical financial solution to managing unexpected bad events) is no better with insurance penetration in Kenya at 2.5%. Clearly the classical financial solution to supporting these basic human desires of improving and preserving life are not appealing to the mass. It could be either of two things: the mass is mad. Or the math is mad. I think the latter.

Why?

Because financial solutions exist and make sense only if they add value to those they seek to serve - humanity responding to their real lived experiences. We can not justifiably presuppose willingness to take up a solution. we must support it with expressed willingness on ground.

Why?

Having an effective solution (affordable, better coverage) to adequate housing and adequate social security for the urban low income households helps them manage their lives better.

Why?

The families realize a decent roof over their head - the first line of protection in this case physical from harm to their lives. Also having an efficient social security system helps them respond to negative events without adversely affecting their quality of life.

Why?

Because by protecting the families and supporting their well being, we ultimately support life.

*it is harder to determine for rural households because many will have subsistence non-monetized solutions to their basic needs