How can digital tools enable smallholder finance?Moderator: RAF Learning Lab

Panelists:Kenya Commercial BankOpportunity InternationalMercy Corps Agrifin Accelerate

March 6, 2017

Why are we talking about digitalization?

• Until recently FSP’s have generally overlooked Africa’s 48 million smallholder farmers because of the challenges in reaching this customer segment

• But this is changing – new digital technologies and innovative business models are making it possible to provide credit to smallholder farmers in Africa

• Digitalization is happening across the lending value chain and includes the use of digital tools and channels for:o customer relationship managemento customer registrationo loan analysiso disbursement and repayment cash flowso delivery of support services alongside core financial products

• Organizations can start their digital journeys in many different places and their journey's are largely shaped by their business priorities and the broader ecosystems in which they operate in

What do we mean by digitalization across the lending value chain?

• Manage SHF data (e.g. interactions, repayment rates)

• Send SMS/mobile notifications

• Deliver support services

• Analyze SHF data (including external data)

• Communicate loan decision

Client acquisition

Loan origination

Loan analysis approval

Loan servicing monitoring

Loan repayment

Ability of digital to overcome challenges

• Facilitate loan disbursement

• Facilitate loan repayment

Digital tools

• Field staff equipped with tablets for data collection

• Mobile registration and data collection platforms

• GPS tools

• Facilitate marketing and dissemination

• Mobile money and payment platforms

• Mobile wallets to deposit savings and manage account

• Data management platforms

• GPS tools to monitor field officers

• Digital TA and other value added services

• SMS / mobile marketing

• Up/Cross selling platforms

Loan disbursement

Loan workout & recovery

• Facilitate customer registration and loan application

• Facilitate farmer data collection

• Facilitate follow up of outstanding loans

RAF challenge

• High cost to reach SHFs in rural areas

• SHFs lack product awareness/ literacy

• Difficult and costly to register and collect data on SHF in rural areas

• Limited understanding of SHF for assessment

• SHF lack credit history / collateral

• High costs to distribute loan funds in rural areas

• Cash risks (risks of holding and transporting cash)

• Difficult and costly to monitor SHF data

• High cost to collect loan payments in rural areas

• Cash risks (risks of holding and transporting cash)

• High costs following up on outstanding loans in rural areas

• Mobile money and payment platforms

• Mobile wallets to deposit savings and manage account

• Credit scoring platforms

• SMS/ mobile approval communication

Digital customer relationship management, incl. digital marketing and notificationsDigital data collection and management

Digital decision making

Digital cashflows

Digital delivery of support services

Digital uses

• SMS / mobile notifications

We surveyed 23 FSPs across Africa who have started a digital journey; they map to 4 “digitalization profiles”

Less than 1,000farmers served

1,000 – 10,000Farmers served

10,000 – 25,000farmers served

25,000 – 100,000farmers served

Over 100,000farmers served

Legend

Credit only

Prod

uct o

fferin

g

Digital integration along lending value chain

Low High

End-to-End financial solution1

Traditional MFIs. Traditional MFIs leveraging digital for loan analysis

Agribusinesses. Agribusinesses leveraging digital payments and digitalizing data collection and loan analysis to evaluate farmer risk

High Tech Banks / Niche NBFIs. High tech commercial banks and niche NBFIs offering fully digital financial services.

Commercial Banks / Innovative MFIs. Innovative MFIs and commercial banks equipping field agents with mobile devices and partnering with B2B digital services providers to offer paperless and cashless end to end solutions

Loan analysis the start of the digital journey and support services the final frontier?

1. Customer Relationship Management includes Sales & MarketingSource: RAFLL Business Case Survey & Dalberg analysis

High

Tech

Ban

ks

/ Nic

he N

BFIs

Com

mer

cial

Ban

ks /

Inno

vativ

e M

FIs

Tra

ditio

nal

MFI

sAg

ri-bu

sines

ses

Customer Relationship

Management1

Customer Registration Loan Analysis Cash Flows

Delivery of Support Services

Organization 1Organization 2Organization 3Organization 4Organization 5Organization 6Organization 7Organization 8 N/A

Organization 9Organization 10Organization 11Organization 12Organization 13 N/A

Organization 14Organization 15Organization 16Organization 17Organization 18Organization 19Organization 20Organization 21Organization 22Organization 23

Fully digitalizedLess digitalized

Not digitalized

N/A No support services offered

Revenues more likely to cover costs, when the provider is digitalized?

1. Program associated costs refers to cost of funds, direct field operation costs, direct costs of nonfinancial support services, direct marketing and sales costs, and all other overhead and allocated program supportSource: RAFLL Business Case Survey & Dalberg analysis

Number of survey respondents by costs covered by loan repayment and fee revenue and by profile type

9%

67%

91%

33%

75%

25%

3 11

High Tech Banks / Niche

NBFIs

Commercial Banks /

Innovative MFIs

Traditional MFIs

34

Agri-businesses

Loan repayment and fee revenue covers or outweighs all program associated costs, or is expected to in the next 2 years1

Loan repayment and fee revenue does not cover all program associated costs, and is not expected to in the next 2 years

Degree of Digital Integration

+ -

High Tech Banks / Niche

NBFIs respondents excludes two organizations who have yet not rolled out

lending products

Organizations believe it will take on average 5-10 years for their SHF lending unit

to become profitable

FSPs who have measured the impact of integrating digital tools see more value from increasing the addressable market than from reducing the cost to serve

Number of survey respondents by impact of integrating digital tools and by profile

1 1

1

3

1

1

11

Increase portfolio quality

Increase in loan officer caseload

2

Decrease loan disbursal cost

2

Increase in customer portfolio

4

Decrease customer

acquisition cost

AgribusinessesCommercial Banks /Innovative MFIs

Traditional MFIsHigh Tech Banks / Niche NBFIs

Increased revenue Decreased cost Reduced risk

• 6/7 saw an increase in revenue

• Customer portfolio grew between 25-50%

• Loan officer case load increased between 30-60%

• 3/7 saw a decrease in the cost to serve

• Customer acquisition cost dropped by 25-40%

• Cost of disbursing loans dropped by up to 80%

Source: RAFLL Business Case Survey & Dalberg analysis

Obstacles to incorporating digital relate to high upfront costs and lack of internal capabilities

Number of survey respondents (out of 23) by perceived obstacles to digital implementation and by profile

2 13 2

21

1

21

11

6

7

8 7 6 4

2

13

11

1

8

Lack of customer

mobile phone access

High initial investment

17

Lack of internal

capabilities

11

Too drastic of a process change

11

Lack of knowledge

on best tools

98

Lack of proof of

value

Transaction fees too

high

9

High Tech Banks / Niche NBFIsCommercial Banks / Innovative MFIs

AgribusinessesTraditional MFIs

Cost-related Internal Capabilities Customer Ecosystem

Source: RAFLL Business Case Survey & Dalberg analysis

Examples of digital innovation in the SHF lending value chain by MCF partners

Customer Relationship Management

Customer Registration Loan Analysis Cash Flows

Delivery of Support Services

KCB MobiGrow Program

• Use of radio radio (local stations) to create awareness and market the benefits of m-Kulima accounts and loans to farmers.

• Proactive personal credit limit prompts to farmers

• Allow mass on boarding of farmer groups to the system and opening of many accounts at a go.

• Allow opt in for individual farmers to register themselves and open accounts.

• Alternative data like deliveries histories from off-takers, buyers and cooperatives used to score farmers

• Deposits and transactions used to score automatically.

• Disbursements of loans done digitally on mobile phone upon meeting requirements.

• Crop and animal husbandry SMS’ interactive learning and tips on price & markets.

• Use of banks call center dedicated pilot line and IVR

Mercy Corps AFA Program

• WFP: Desktop admin portal to manage farmer groups and input provision

• SAF: Android solution for farmer verification

• SAF: Android & USSD self registration and Agent assisted registration modules.

• WFP: Android farmer organization registration module

• SAF: value chain, farm size, alternative telco data, input purchase data. Learning data

• WFP: Input purchases, output sales.

• SAF: self captured daily farming records. INPUT purchases, MPESA transactions and call data analysis.

• WFP: INPUT purchases, output sales.

• SAF: sms learning module.

Opportunity International

• CKW Farmer Profiling• Bulk SMS• Loan Officer

Dashboards• Tablet-based

Customer Satisfaction Surveys

• IVR Services

• Tablet based account opening and loan origination

• Agency Banking• Smart Phone App Self-

Registration

• Predicative, statistical Application Credit Rating

• Machine Learning/Artificial Intelligence Based Credit Scoring

• POS enabled Agrodealers

• POS enabled off-takers

• Digitally-enabled lead farmers and extension services

• IVR Services

Panelist Presentations

MobiGrow program• MobiGrow is a partnership program between the MasterCard Foundation and KCB Bank Group

targeting agricultural value chain actors to offer mobile based financial inclusion and information to smallholders farmers and pastoralists in Kenya and Rwanda.

• M-Kulima is the online system / platform by KCB, that shall support the MobiGrow’s financial services offering by offering Accounts, Loans, Insurance and Knowledge / Notifications to smallholder farmers.

Financial Services Non-Financial Services

Producer Organizations /

Off-takers / Buyers /Processors

Farmers

KCBMobiGrow

Scoring System

Agro - Dealers

DATA

mobi - CASH

PRODUCEFARM INPUTS

mob

i - C

ASH

Approach Method Target

Partnership Approach:

Development Agencies

De-risked FPOs,

FPO Extension team TtT facilitation

Mature Coopera

tives,

Internal Team

Approach

In-person Field Agents e.g. Farmer Trainers.

Nascent FPOs,

- SMS Content

- Radio

Alternative data to score Current data and method used:Credit Scoring Algorithm:

The program uses data from different sources to determine credit limits for smallholder farmers, this process is automated, and it follows the process below;

• Checks national identification from the Integrated Population Registration System (IPRS) database.

• Checks credit status from the national Credit Reference Bureau (CRB) database.

• Check Off-takers / aggregators data on the past produce deliveries.

• Check transactions from the mobile accounts to other mobile wallets e.g. M-Pesa, to KCB bank branches and agents.

• Issue automatic credit limits to smallholder farmers based on this.

Insert photo or graphic as relevant

source: internet

Alternative data to score.. In the shorter term, addition:Agronomic and Economic Data:

• Provide smallholder farmers with a digital accounting tool on their mobile phones, that allows them to be able to; record their land size, seasonal yield, expenses per value chain and aggregated, revenues per value chain and aggregated

• Issue smallholders with daily, weekly and monthly financial statements from their data on their mobile phones.

• Use the smallholders financial statements to issue them credit limits showing up to how much they can borrow.

In the longer term, addition:Satellite Data:

• Verify crop availability and status using satellite photos from shared GPS coordinates

• Verify soil status using satellite photos from shared GPS coordinates.

Insert photo or graphic as relevant

source: internet

Mercy Corps AFA • The AgriFin Accelerate program is a six-

year, USD 25 million program of Mercy Corps, supported by The MasterCard Foundation.

• AgriFin Accelerate will support the expansion of digital financial services to one million farmers in Sub-Saharan Africa over six years, delivered by growing ecosystems of diverse service providers.

Safaricom Dairy ProductIntegrated Mobile Platform: One-stop access to a variety of services that decrease the cost and increase the efficiency of input provision while enabling farmers to easily transact, learn and grow.

• BUY INPUTS, LEARN, MY FARM RECORDS, SAFARICOM SERVICES, REGISTER, CHANGE LANGUAGE

Safaricom Dairy product menu

Safaricom Dairy ProductIntegrated mobile platform: Phase 2 developments• LAYAWAY PURCHASING

• CREDIT OFFERINGSo INPUT CREDIT

o ASSET FINANCING

o INSURANCE

Current Safaricom Dairy Product partners

Building a Smallholder Farmer Digital FootprintDakar, Senegal | March, 2017

• Provided 388,000 production loans, valued at more than $73 million and 880,000 savings accounts to farmers, with more than 400,000 mobile banking clients across 42 Value Chains

• Rolled out full mobile banking in Malawi, Rwanda, Uganda and Ghana, and mobile money services in Tanzania and Kenya

• Established partnerships with MNO’s including MTN, Telenor, Vodafone, and Bharti Airtel Limited

• Opportunity Malawi is our first majority digital bank: 78% of transactions are client-initiated, and transacted digitally

• Piloted branchless banking in Tanzania and expanding to four more countries• CKWs/Digitally Enabled ESPs to Profile & Train over 10,000 SHFs• Run customized tablet-based and agency-based loan and account origination applications• Launching a $25 Android Smart Phone to extend MM services to the bottom of the pyramid

Current Digital Innovations in Agricultural Finance

Building a Smallholder Farmer Digital Footprint

Technological Innovation has enabled FSPs to:• Leverage Artificial Intelligence• Create Automatic Credit Scoring• Reach further and faster for less

than ever before

Smallholder Farmers Want:• Availability of Financial Services

which are tailored for Agricultural• Timeliness of Delivery• Affordability

Rural Systems Lack:• A Coordinated Ecosystem• Trust in FSPs• A Digital Footprint • Customized Financial Solutions

Building a Smallholder Farmer Digital Footprint

Building a Smallholder Farmer Digital Footprint

Binding the Value Chain Together in a Digital Ecosystem

Building a Smallholder Farmer Digital Footprint

Discussion and Q&A