Reducing Risks in the Coffee Value Chain for all Actors via SMS Bookkeeping


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Moritz Waldstein Wartenberg Presentation session 43 of the Fin4A conference

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Reducing Risks in the Coffee Value Chain for all Actors via SMS Bookkeeping

  1. 1. 2014 Reducing Risks in the Coffee Value Chain for all Actors via SMS Bookkeeping
  2. 2. Risks in producing coffee Business Solutions to Poverty TechnoServe | 2
  4. 4. Business Solutions to Poverty TechnoServe | 4 COFFEE WET-MILLS FACE SERIOUS PROBLEMS IN OBTAINING WORKING CAPITAL – RELUCTANCE OF BANKS IS OFTEN LOGICAL SITUATION FOR WET-MILLS… §  Heavy working capital requirements – due to high expenses pre- and during coffee harvest season §  Businesses with little or no credit history §  Little or no collateral (especially true for cooperative structures) … IS REINFORCED BY RISKS Wet-mills are subject to many substantial risks §  World market price risk §  Operational risk §  Quality risk §  Mismanagement Banks are often highly unwilling to lend to coffee wet-mills
  5. 5. Business Solutions to Poverty TechnoServe | 5 NOW IMAGINE A BANK LENDING TO COFFEE FARMERS IN EAST AFRICA
  6. 6. Business Solutions to Poverty TechnoServe | 6 SITUATION FOR LENDERS … LENDERS FACE SERIOUS PROBLEMS IN RISK MANAGEMENT WHEN LENDING TO COFFEE WET-MILLS … WITH ASSOCIATED PROBLEMS At times lenders are forced to lend to cooperatives (e.g. national policy) or lend for legacy/ historic reasons (cooperative banks) §  High working capital exposure for exporters/ banks §  Need to monitor wet-mill performance and stocks closely •  High costs and much time needed to monitor working capital due to remoteness of many wet-mills •  Paper based bookkeeping can not be shared and continuously controlled •  A number of other risks such as world market prices affect the wet-mill, making working capital lending even riskier •  Mismanagement at wet-mill often happens unnoticed
  7. 7. SMS Bookkeeping – an instrument to minimize risks for all actors in the market Business Solutions to Poverty TechnoServe | 7
  8. 8. Business Solutions to Poverty TechnoServe | 8 SMS BOOKKEEPING BY TNS PROVIDES AN EASY AND ESTABLISHED SOLUTION FOR THE MONITORING PROBLEMS OF LENDERS IT WORKS … §  Key financial and stock info SMS sent in via wet-mill accountants §  Data is confirmed through feedback loop and uploaded to platform §  Data is analyzed and made accessible to lenders via cloud-based website … IS PROVEN WITH 100+ WET-MILLS … … AND MAKES LIFE EASIER ü Easy solution to monitor working capital and operational performance of inaccessible wet-mills ü Daily updates – no time delay ü Automatic analysis of key metrics ü Continuous monitoring prevents mismanagement and flags wet-mills inefficiencies §  Ethiopia §  Rwanda §  Tanzania §  Guatemala
  9. 9. Business Solutions to Poverty TechnoServe | 9 SMS BOOKKEEPING IS EASY TO IMPLEMENT AND IS A LOW-COST SOLUTION FOR WORKING CAPITAL LENDERS EASY TO IMPLEMENT… … AT LOW COST §  Provisions of trainings to working capital lenders, including proficiency test – focus on key metrics and analysis of data §  Provisions of trainings to wet-mill accountants, including proficiency test – focus on data compliance §  Troubleshooting and support §  Ongoing development and improvement of system at no additional cost §  Low service-fee for harvest season calculated based on working capital disbursed §  Service fee potentially be matched by donor – and thus initial operating costs are decreased Example: Rwanda – Service Fee Model Working capital Service fee 1 000 USD≈ 100 000 USD 1 %
  10. 10. Business Solutions to Poverty TechnoServe | 10 Process overview
  11. 11. Business Solutions to Poverty TechnoServe | 11 Paper-based bookkeeping SMS bookkeeping §  Easy to share §  Information updated daily §  System analyzes performance metrics §  System allows benchmarking §  Historical data stored for review §  Difficult to share §  Information delay §  No analytics §  Easy to falsify data at end of season TECHNOSERVE’S SOLUTION SMS BOOKKEEPING HAS VAST ADVANTAGES OVER PAPER-BASED BOOKKEEPING
  12. 12. SMS BOOKKEPING IS TAILORED TO EACH TARGET GROUP’S NEEDS Business Solutions to Poverty TechnoServe | 12 §  SMS interface §  Confirmation, edit/ undo functions for accountant §  Reports shared with wet-mill observers SIMPLE TO USE FOR FARMERS KEY FEATURES SOPHISTICATED INFOS FOR LENDERS §  Cloud-based online interface §  Compliance data and editing functions §  Portfolio and Individual wet-mill view §  Performance Metrics Analyses ! KEY FEATURES
  13. 13. Business Solutions to Poverty TechnoServe | 13 Results
  14. 14. Business Solutions to Poverty TechnoServe | 14 CASE STUDY (1) – SMS BOOKKEEPING HAD PHENOMENAL IMPACT FOR RWANDAN PARTICIPATING WET-MILLS OVERVIEW §  System used by two largest exporters/ working capital lenders in country §  51 Participating wet-mills §  Very high data compliance and quality EFFECTS §  +100% working capital received - also in time §  Lower operational expenses §  No non-performing loans §  All coffees hedged and all wet-mills turning a profit NEXT STEPS 2015 §  Include two banks as working capital lenders §  Have 75 participating wet- mills §  Keep up high data quality and compliance §  Update system with feedback from lenders and farmers EFFECTS §  Increase profits for farmers §  Increase transparency and efficiency of supply chain
  15. 15. §  Hedge earned approx. 232 RWF/kilo or 16 cents/lb §  Without hedge, some cooperatives would have made a loss Business Solutions to Poverty TechnoServe | 15 §  Rwanda Trading Company is a CSP and also financing around 40 wet mills p.a. §  Closely monitor the wet mills to obtain up- to-date stock and cash movement information §  Put up a hedge for all wet-mills and is able to turn a profit in volatile market USE OF SMS BOOKKEEPING EFFECTS Rwanda Trading Company Type - Exporter Location - Rwanda, Kigali CASE STUDY (2) – SMS BOOKKEEPING HELPED THE LENDER PUT UP A HEDGE AND ENSURE A PROFIT FOR SMALLHOLDERS
  16. 16. Business Solutions to Poverty TechnoServe | 16 SMS BOOKKEEPING IS TECHNOLOGY WITH LARGE POTENTIAL IN SCALE AND SCOPE AFRICA CENTRAL AMERICA Ethiopia Tanzania Rwanda Implemented Guatemala Implemented POTENTIAL FUTURE DEVELOPMENTS A.  Increase coverage in countries, where SMS bookkeeping has already been implemented – e.g. in collaboration with partners B.  Include new TNS countries in SMS bookkeeping C. Develop innovative transparency modules complementary to SMS bookkeeping – such as QR enabled traceability, or the “cash-less cooperative”
  17. 17. Thank you. Any additional questions? Please get in touch. Moritz Waldstein (Transparency Innovations Manager) Business Solutions to Poverty TechnoServe | 17