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Can Cash Compete with a Pig?

Editor's Note: This is the second blog in a three-part series co-authored by Ali Ndiwalana, Lisa Kienzle and Ignacio Mas on mobile money. Post #1 can be found here.

What are the rewards or incentives and mechanisms that are needed to help poor customers set aside money to meet their financial goals? Banks in Uganda are taking numerous measures to capture the market – from offering unusually high interest rates (Crane Bank is advertising 20% on fixed-deposit accounts) to introducing lottery schemes that offer houses and cars for new savings account customers (e.g., Vimba with Bank of Africa or Fuuka binojjo with Housing Finance Bank).

But even this fierce competition and significant incentives, the majority of Ugandans still prefer stuffing cash under their mattress or converting their cash into in-kind assets such as chicken, pigs, goats and cows. Lack of access to formal financial tools is just one reason for this preference. There is something fundamentally important that the banks have not considered when cultivating their incentive schemes: The rewards offered by these assets are hard to beat.

Take the example of the pig, which produces three cycles of eight piglets, or 24 piglets, per year. A grown pig can be sold for 200,000 UGX ($80), which amounts to a return of 4.8 million UGX, or a bit more than $2000, per year minus the cost of their upkeep. Not bad for some swine! These in-kind investments also regularly produce other goods that can be consumed or sold – for example, chickens produce eggs, and cows and goats produce milk.

Within the context of such returns, cash can never really be king in poor communities because it does not quickly multiply or consistently produce anything of palpable value. What you see is what is printed on the note. It is only what you can buy with it in the market that changes. And with food inflation as high as 42%, cash is quickly losing its value. So why would anyone in their right mind keep their value in cash in the context of such high returns? More importantly, how can we design appropriate financial products in communities where it pays off to be “cash lite”?