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Using Financial Diaries to Understand Your Market

A Case Study from the Zambia Financial Diaries

Eric NoggleResearch Director

Microfinance Opportunities

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Methodology

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Diaries Overview Popularized by Rutherford

High frequency surveys

Cash flow and financial tools

Supplemented with in-depth interviews or cross-sectional surveys

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The SurveyTransactions Earned Income Expenditures Financial transactions Cash Transfers Savings Loans

In-Kind Transactions

Dimensions Who What Where When Why How

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Adaptable to Context Applicable to many contexts

Low-Income Households Smallholder Farmers Savings Groups Asset Finance Companies Gender Dynamics Urban and Rural Differences

Useful for descriptive studies and evaluations

Quantitative and qualitative value

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Financial Diaries in Zambia

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Developing Market Segments

Focusing on Income Patterns

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Traditional Market Segmentation Based on identifying demographic and socio-economic characteristics

Used as proxies for economic behavior Necessary but insufficient for delivering financial services

Must incorporate understanding of cash flow patterns

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A Tale of Two Farmers

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Different Livelihoods, Similar Behavior

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Segmenting by Earnings Patterns

Low- IncomeHigh-

Variation

High- IncomeHigh-

Variation

Low- Income

Low- Variation

High- Income

Low- Variation

Income Level

Inco

me

Varia

tion

(COV

)

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Segments in Zambia

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How Segments Use Financial Services

Managing Cash Flow and Financing Lump Sums

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Financial Services in Zambia Majority of respondents were financially excluded Exceptions: Salaried Workers

Limited use of informal financial services 16% of sample used chilimbas Only 65 new cash loans in 32 weeks

Respondents relied on internal household resources or mutual support networks Earned Income Savings Intra-Household Transfers Cash Gifts

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Managing Daily Cash Flow Higher income variation associated with:

Larger and more frequent cash gifts Fewer deposits into home savings

Higher income levels associated with: More frequent sending of cash gifts

Lower income variation associated with: Higher likelihood of receiving new cash loan

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Lump Sum Purchases

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Weeks with Lump Sums

Income Source Change in Nominal Value

Change in Share of Weekly

IncomeEarned Income

Positive

PositiveHome Savings NegativeFormal Savings PositiveIntra-Household

TransfersNoneCash Gifts NoneOther Income

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Turning Insights into Action

Using Data to Challenge Assumptions