Useful Lump Sums: Microenterprise Revenue Management and its Potential for Banks

This brief is based on a study by Microfinance Opportunities (MFO) “Cash In, Cash Out: Financial Transactions and Access to Finance in Malawi” that examined the impact of a branchless banking innovation in Malawi. MFO conducted the study from July 2008 – December 2009 among hundreds of low-income Malawians. It used the Financial Diaries methodology, tracking every transaction for 172 households and 257 individuals each week over an 18-month period.

This brief explores whether microentrepreneurs in Central Malawi are able to synchronize their routine handling of large volumes of cash and their equally routine need for usefully large lump sums of it. Findings indicate that microentrepreneurs:

• Routinely experienced both good weeks with strong sales and income and bad weeks without;
• Frequently experienced weeks with no income at all;
• Could seldom predict whether any given week would be a good one or a bad one;
• Could not time the need for usefully large lump sums to coincide with the good weeks;
• Faced significant challenges in setting aside surplus from good weeks as savings.

The study suggests that a market opportunity exists for banks to develop financial products that could help resolve the chronic mismatch between cash in and cash out.