The book “Portfolios of the Poor” (if you don’t know it, get it!) gave us an unprecedented account of how poor households live with less than 2 dollars a day. They discovered that contrarily from popular belief the poor manage their finances with a complex set of financial instruments by relying on informal networks and other non-formal institutions instead of living “hand to mouth”.

We want to translate this approach to the analysis of local markets –the part of the economy often called “informal sector”- which tends to be misrepresented in all possible ways. First, just to name one, it is often described as a financial and institutional “vacuum”, as if businesses operated in an unorganized and unregulated environment.  This logic oversimplifies the financial dynamics existing in a hugely complex low-income market like Kenya, where social structures coexist with a relatively developed financial sector as well as booming mobile banking technologies.

Second, instead of lacking access to financial services, the reality that we are observing in Kariobangi is that small businesses choose between a plethora of (mostly unconventional) instruments, both formal and informal, market and non-market, according to the firms’ needs and opportunities. Banking with the “unbanked” is therefore more complex than expected because financial institutions have to compete with a variety of other mechanisms in terms of credit, savings and insurance.

Another relevant factor is that local markets are diversified, not only in terms of sectors but also in terms of size and growth potential. This view is in contrast with the traditional representation of local markets as a homogeneous blend of survival activities. Different segments do exist and must be identified in order to design appropriate policies and financial products.