Entrepreneurship Social Impact Sep 8, 2015

A Crowd­fund­ing App that Pays the Bills

A start­up in Kenya cap­tures an under­served market.

Yevgenia Nayberg

Based on insights from

Sarit Markovich

In Kenya, com­mu­ni­ty fundrais­ing is a deeply root­ed tra­di­tion. There is even a term—haram­bee—to describe the spir­it of chip­ping in for crit­i­cal life expens­es such as wed­dings, funer­als, and med­ical bills. But over the decades, as more and more Kenyans have moved from vil­lage to urban cen­ter, keep­ing this tra­di­tion alive has proven logis­ti­cal­ly com­pli­cat­ed. In the absence of face-to-face encoun­ters, donors are nev­er quite sure whether their cash or wire trans­fers are mak­ing it to intend­ed recip­i­ents, being used for whol­ly legit­i­mate pur­pos­es, or whether their con­tri­bu­tions will be pub­licly recognized.

In 2012, Kyai Mullei, a Kenyan-Amer­i­can IT con­sul­tant, and David Mark, a design­er, set out to give Kenyans a cheap and easy way to donate mon­ey for any crit­i­cal life expense. Togeth­er they launched M-Changa (changa means both col­lect” and donate,” reflect­ing Kenya’s cul­ture of reci­procity), a mobile app that allows any­one to solic­it help by host­ing” a fundrais­er that details exact­ly what the mon­ey is for. Donors con­tribute by text mes­sage using an inde­pen­dent mobile pay­ment ser­vice, M-Pesa. When the host with­draws the full amount from M-Changa’s mobile plat­form, the com­pa­ny col­lects a flat rate of 4.25 percent.

The full Kel­logg case, M-Changa: Lever­ag­ing Kenya’s Mobile Mon­ey Mar­ket for Com­mu­ni­ty Fundrais­ing” is avail­able for cor­po­rate train­ing or uni­ver­si­ty classrooms.

M-Changa was found­ed with Kenyans’ unique needs square­ly in mind. In the U.S., there’s this idea that an app by itself can solve the prob­lem,” says Sar­it Markovich, a clin­i­cal asso­ciate pro­fes­sor of strat­e­gy at the Kel­logg School, who recent­ly wrote a case about the com­pa­ny. But you don’t just need an app. What you need is an under­stand­ing of the con­di­tions peo­ple live in and a strat­e­gy for address­ing gen­uine pain points.”

The Next Phase of Mobile Money

The rise of mobile pay­ment ser­vices has been a game-chang­er in Kenya. It address­es a huge need,” says Markovich. And what’s amaz­ing is that every­thing is done with a basic phone — you don’t even need a smartphone.”

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Before M-Pesa, most urban-based Kenyans relied on fam­i­ly, friends, or semi­pro­fes­sion­al couri­ers (usu­al­ly bus or taxi dri­vers) to hand-deliv­er mon­ey — a method both slow and prone to theft. The oth­er, safer choice was to wire funds through mon­ey-trans­fer ser­vices such as Mon­ey­Gram or West­ern Union, which few could afford. By tap­ping into the mete­oric rise of the mobile phone mar­ket — almost 80 per­cent of Kenyans had mobile phones by 2014 — M-Pesa solved a prob­lem for mil­lions of urban and rur­al poor. These are peo­ple who might not have elec­tric­i­ty, peo­ple for whom even get­ting to a bank would be a chal­lenge,” Markovich says. And yet they have these phones, so they can send and receive money.”

What’s amaz­ing is that every­thing is done with a basic phone — you don’t even need a smartphone.”

Mullei and Mark rec­og­nized mobile’s poten­tial to facil­i­tate com­mu­ni­ty fundrais­ing, even more so than web-based fundrais­ing options such as Indiegogo. They aimed M-Changa, which builds on M-Pesa, at fundrais­ers and donors alike. For fundrais­ers, M-Changa offers an easy way to solic­it and col­lect dona­tions. Fundrais­ers are spared the task of hav­ing to con­tact every per­son in their net­work indi­vid­u­al­ly: a sin­gle mes­sage does the trick. And since all dona­tions — from cash deliv­er­ies to wire trans­fers — are received through the same mobile plat­form, fundrais­ers no longer face the has­sle of man­ag­ing var­i­ous forms of pay­ment. For their part, donors — aside from sav­ing mon­ey on couri­ers or trans­fer fees — are guar­an­teed that their con­tri­bu­tions will be spent for their intend­ed purposes.

The Cul­tur­al Val­ue of Transparency

Donors also ben­e­fit from the trans­paren­cy of the fundrais­ing process — some­thing that, for a vari­ety of cul­tur­al rea­sons, Kenyans high­ly val­ue. M-Changa’s ser­vice is not like most tra­di­tion­al microloan struc­tures. In keep­ing with the spir­it of haram­bee, lenders do not expect repay­ment, but they do want to know how the mon­ey is spent, and they expect to earn social cred­it for hav­ing made a contribution.

This is not anony­mous char­i­ty,” Markovich says. It’s one thing to give a per­cent­age of your income to an orga­ni­za­tion whose cause you respect. It’s anoth­er thing to donate mon­ey for a neighbor’s funer­al, or a cousin’s wed­ding, or a friend’s surgery. You know this per­son. These are spe­cif­ic dona­tions for a spe­cif­ic com­mu­ni­ty pur­pose. Know­ing who donat­ed is part of the cul­ture. If peo­ple know that I donat­ed — and how much — it’s going to give me more respect in the community.”

With this in mind, the company’s founders under­stood that to make their ser­vice attrac­tive, it was impor­tant to ensure trans­paren­cy. All con­tri­bu­tions are easy to track, which min­i­mizes the chances of fraud and also guar­an­tees that donors receive social cred­it. And thanks to a part­ner­ship with Mas­ter­Card, fundrais­ers can link their account to either a cred­it or deb­it card, so that any pur­chas­es auto­mat­i­cal­ly appear on the host’s M-Changa fundrais­ing page. This gives donors a chance to see how the funds are being used, and cre­ates what Mullei calls 360-degree transparency.”

A Com­mu­ni­ty Bank

Markovich sees great poten­tial for a com­pa­ny like M-Changa. With mobile mon­ey on the rise in Kenya, but also in Tan­za­nia, Ugan­da, Ethiopia, and Nige­ria, there is no short­age of cus­tomers. That includes the mil­lions of peo­ple liv­ing and work­ing in oth­er coun­tries who send remit­tances home to sup­port their fam­i­lies and communities.

These young peo­ple who go abroad and find them­selves with high­er incomes — they still want to par­tic­i­pate in the com­mu­ni­ty, and this is one way to do that,” she says. If they choose to go back, they won’t be strangers. They helped their neigh­bor; they helped their cousin. They know what’s going on, and they are still a part of that life.”

But the impli­ca­tions of finan­cial inno­va­tions like M-Changa extend beyond the African con­ti­nent. For Markovich, orga­nized com­mu­ni­ty fundrais­ing offers a local vari­a­tion on the tra­di­tion­al sav­ings account. When it comes to a sav­ings account, the bank takes that mon­ey” — col­lect­ed by com­mu­ni­ty mem­bers — and invests it how­ev­er it choos­es,” she says. What’s hap­pen­ing in Kenya seems to be that instead of a bank, the com­mu­ni­ty decides how to allo­cate those funds. The com­mu­ni­ty itself is act­ing as a kind of bank­ing service.”

Exam­ples of this kind of de fac­to com­mu­ni­ty bank­ing have been a fix­ture of vil­lage life for cen­turies. The pro­to­type for peer-to-peer” lend­ing is the rotat­ing sav­ings and cred­it asso­ci­a­tion,” where mem­bers con­tribute equal­ly to a fund that is then allo­cat­ed to a sin­gle mem­ber at every meet­ing, giv­ing mem­bers access to sums that are large enough to cov­er unex­pect­ed or crit­i­cal life expens­es. M-Changa’s mod­el builds upon this tra­di­tion­al safe­ty net.

Tra­di­tion­al Partnerships

So should banks — and oth­er finan­cial com­pa­nies — feel threat­ened by com­mu­ni­ty fundrais­ing on mobile plat­forms? Not nec­es­sar­i­ly. Com­pa­nies like M-Changa rely on banks to act as partners.

This year, the com­pa­ny worked out a deal with Equi­ty Bank — an East African bank known for serv­ing dis­ad­van­taged pop­u­la­tions — so that M-Changa users could donate using Equity’s mobile wal­let ser­vice or even the bank’s ATMs. And finance com­pa­nies stand to gain from the part­ner­ship as well. Mas­ter­Card, which lags behind Visa in terms of brand recog­ni­tion and mar­ket share in Kenya, hopes to use its rela­tion­ship with M-Changa to increase aware­ness and gain greater access to Kenyan’s mer­chants and banked as well as unbanked cus­tomers. I see them as a com­pli­ment, not a threat,” Markovich says. In fact, banks should want com­pa­nies like M-Changa to succeed.”

Markovich expects that more finan­cial inno­va­tion is on the way, as com­pa­nies con­tin­ue to offer alter­na­tive bank­ing ser­vices to peo­ple for whom tra­di­tion­al bank­ing is sim­ply not an option. To suc­ceed, how­ev­er, these com­pa­nies will need to see the world through their cus­tomers’ eyes. I think the most suc­cess­ful com­pa­nies will be those that under­stand their customer’s pain points and find new ways to address them,” she says. In fact, that is what dri­ves innovation.”

Featured Faculty

Sarit Markovich

Clinical Associate Professor of Strategy

About the Writer

Drew Calvert is a freelance writer based in Iowa City, Iowa.

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