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CGAP Digital Finance +
Readiness Framework
and Assessment for
Tanzania
1
Agenda
Readiness framework
Access to and reach of mobile infrastructure
Adoption and reach of digital finance infrastruc...
2
We assessed Digital Finance Plus readiness along
6 dimensions
SOURCE: Client Survey (Oct 2011); McKinsey Quarterly Surve...
3
Digital finance readiness assessment framework detail (1 of 6)
QuestionsFunctional area
1. Access
to and
reach of
mobile...
4
Digital finance readiness assessment framework detail (2 of 6)
QuestionsFunctional area
2. Adoption
and reach
of digital...
5
Digital finance readiness assessment framework detail (3 of 6)
QuestionsFunctional area
3. Role of
the
govern-
ment and
...
6
Digital finance readiness assessment framework detail (4 of 6)
QuestionsFunctional area
4. Sector
analysis
and
challenge...
7
Digital finance readiness assessment framework detail (5 of 6)
QuestionsFunctional area
5. Asses-
ment of
financial
serv...
8
Digital finance readiness assessment framework detail (6 of 6)
QuestionsFunctional area
6. Digital
finance
plus
solution...
9
Agenda
Readiness framework
Sector analysis – agriculture
Sector analysis – health
Sector analysis – energy
Sector analys...
10
Summary of mobile infrastructure readiness assessment
1.1 Technical infrastructure readiness
• Tanzania’s four nation-w...
11
Tanzania has been rapidly extending mobile coverage,
which has allowed the country to rapidly catch up to its peers
1.1...
12
Tanzania’s MNOs operate a series of networks covering 60
to 85% of the population, depending on network generation
1.1 ...
13
93 7
The top four MNOs in Tanzania own 99% of the mobile
market (1/2)
1.2 TELECOM INDUSTRY READINESS
Assessment
Number ...
14SOURCE: WCIS; Telegeography; BMI
Assessment
Airtel
Benson
Tigo
Zantel
Vodacom
Tanzania
Number of subscribers
000s; 2013
...
15
Tanzania’s MNOs offer an advanced set of digital finance
products
SOURCE: GSMA “Mobile Money Tracker”; Operators websit...
16
Mobile phone access remains relatively expensive in Tanz-
ania, smaller players/new entrants provide lower price option...
17
Mobile phone penetration in Tanzania remains below peer
average, however penetration is rising quickly
1.3 LEVEL OF ADO...
18
Access to mobile phone for rural, unbanked, and low-income
households is substantially lower than middle-/high-income h...
19
Agenda
Readiness framework
Adoption and reach of digital finance infrastructure
Role of the government and regulation
S...
20
Summary of digital finance infrastructure readiness
assessment
2.1 Overall financial sector readiness
• Tanzania’s bank...
21
10
14
19
40
50
Uganda
Rwanda
South Africa
Kenya
Tanzania
Tanzania’s banking sector includes 50 licensed banks, with the...
22
Tanzania’s banking sector has become more competitive,
but it still lags peer countries
0.56
0.30
0.10
0.35
0.47
0.27
0...
23
A high use of non-bank products compensates
Tanzania’s low penetration of bank product
Assessment
29
41
14
33
23
34
26
...
24
MFIs are the only financial institutions extending significant credit to
low-income households
Tanzania market profile
...
25
Tanzanian access to formal sector finance has increased in
recent years largely because of the adoption of mobile money...
26
Approximately 70% of mobile money users predominantly
use the service to send or receive money
25.6
Pay bills,
fees, an...
27
Use of mobile money differs substantially between
rural/unbanked/low-income and mid-/high-income households
Tanzania’s ...
28
Of the non-users of mobile money, the majority quote the
lack of a mobile phone as the key barrier
Assessment
Percent
F...
29
Agenda
Readiness framework
Sector analysis – agriculture
Sector analysis – health
Sector analysis – energy
Sector analy...
30
The telco industry is regulated by the Tanzanian Communication Regula-
tory Authority that is implementing a series of ...
31
The telco industry is regulated by the Tanzanian Communication Regula-
tory Authority that is implementing a series of ...
32
The banking sector is regulated by the Bank of Tanzania
Banking regulatory framework
• Bank of Tanzania
• Prudential re...
33
Agenda
Readiness framework
Sector analysis – agriculture
Sector analysis and challenge identification
Assessment of fin...
34
Key takeaways: Agricultural sector analysis and challenge
identification
AGRICULTURE – SECTOR ANALYSIS AND CHALLENGE ID...
35
Tanzania is highly dependent on agriculture for economic output
and employment, similar to other developing economies i...
36
100
90
80
70
60
50
40
30
20
10
0
2020E2015E20102000
The majority of agricultural activity is focused on cereal
producti...
37
The Tanzanian agriculture sector suffers from low productivity
as evidenced by the poor yields in its major crop
SOURCE...
38
Growth in the agricultural sector is hindered by a number of
bottlenecks along the value chain and beyond
▪ Small arabl...
39
Several actors are involved in the agricultural value chain
Private
sector
Govern-
ment
FBO
NGOs
Key value-chain focus
...
40
Currently, Tanzania is only utilizing
~30% of 37 million hectares of arable land
SOURCE: FAOSTAT
Non-arable
50.5 mil ha...
41
Key takeaways
3
1
5
17
18
32
36
42
Uganda
Mozambique
Tanzania
Ethiopia
Ghana
Zambia
Kenya
Malawi
SOURCE: Ministry of Ag...
42
…as they face several challenges in accessing and purchasing
them, despite their many benefits
83
17
100% =
2011
37.2 M...
43
67
33
100% = 5.8 M households
Households receiving extension
advice, %
Extension advice
received
Extension advice
not r...
44SOURCE: National Sample Census of Agriculture 2007/2008; IFAD; Team analysis
1.8%
2.1%
Not stored 16.4%
In locally made ...
45SOURCE: National Sample Census of Agriculture 2007/2008; Team analysis
0%
1%
1%
1%
2%
3%
5%
5%
15%
67%
Government regula...
46SOURCE: Comprehensive Africa Development program (CAADP); TAFSIP
99
1
Share of agro-products processed, %
Not processedP...
47
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
0%
1.0%
2.0%
3...
48
A number of stakeholders are driving several initiatives to
improve value chain dynamics
Description
Southern Agricultu...
49
Agenda
SOURCE: Source
Sector analysis – agriculture
Sector analysis and challenge identification
Assessment of financia...
50
Key takeaways: Agriculture sector financial service need and
gap analysis
AGRICULTURE – FINANCIAL SERVICE NEEDS AND GAP...
51SOURCE: IMF; Central Bank data
30
22
30
24
29
25
44
28
31
1
44
6
8
101112
15
NigeriaKenyaMozam-
bique
Sub-
Saharan
Afric...
52
Many of the value chain gaps are related to limitations in the
meeting of smallholder and other actors’ financing needs...
53
Financing for staple crops, which constitute the largest share of
Tanzanian production, is especially challenging
SOURC...
54
Smallholder farmers and other value chain players have a range
of finance-related needs across the agricultural value c...
55SOURCE: Organization websites; press search; expert interviews; team analysis
A number of players meet the sector’s fina...
56
DF+ can address some of the financing gaps in the agriculture
value chain (1/3)
Input
provision2
1.1
Value chain
gap
DF...
57
DF+ can address some of the financing gaps in the agriculture
value chain (2/3)
Production3
1.1
Value chain
gap
DF+
so-...
58
DF+ can address some of the financing gaps in the agriculture
value chain (3/3)
Storage
and
Distri-
bution
4
1.1
Value ...
59
Agenda
Sector analysis – agriculture
Sector analysis and challenge identification
Assessment of financial service needs...
60
Key takeaways: Agriculture sector Digital Finance Plus solutions
feasibility
AGRICULTURE – DIGITAL FINANCE PLUS SOLUTIO...
61
The in-country interviews have generated new insights into the
agriculture sector (1/4)
“For all the efforts to make fa...
62
The in-country interviews have generated new insights into the
agriculture sector (2/4)
Key insights Indicative quotesI...
63
The in-country interviews have generated new insights into the
agriculture sector (3/4)
“We provide loans to farmers – ...
64
Key insights Indicative quotesInterviews conducted
The in-country interviews have generated new insights into the
agric...
65
DF+ can help in addressing some of the gaps
in the Agriculture value chain
6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF ...
66
Based on the analysis of the current state and barriers to scale,
we suggest 5 DF+ applications for your further consid...
67
Digital Warehouse Receipt System-based medium term-loans
(1/3)
Financial
instrument
Credit provision based on
warehouse...
68
Digital Warehouse Receipt System-based medium term loans
(2/3)
Low High
Detailed impactFeasibility assessment: business...
69
Digital Warehouse Receipt System-based medium-term loans
(3/3)
Case examplesGo-to-market model
NMB Warehouse Receipt Sy...
70
Input credit product for smallholders in closed-loop ecosystem of
integrated value chain actors (1/3)
Financial
instrum...
71
Input credit product for smallholders in closed-loop ecosystem of
integrated value chain actors (2/3)
Low High
Detailed...
72
Input credit product for smallholders in closed-loop ecosystem of
integrated value chain actors (3/3)
Case examplesGo-t...
73
E-wallet for input subsidy disbursement and integrated hosting of
all farmer financial flows (1/3)
Financial
instrument...
74
E-wallet for input subsidy disbursement and integrated hosting of
all farmer financial flows (2/3)
Low High
Detailed im...
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
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Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
Digital Finance Plus Readiness in Tanzania: Full Version
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CGAP and McKinsey conducted an analysis to determine Tanzania's readiness for digital finance applications in 5 sectors.

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Digital Finance Plus Readiness in Tanzania: Full Version

  1. 1. CGAP Digital Finance + Readiness Framework and Assessment for Tanzania
  2. 2. 1 Agenda Readiness framework Access to and reach of mobile infrastructure Adoption and reach of digital finance infrastructure Role of the government and regulation Sector analysis – water Sector analysis – education Sector analysis – energy Sector analysis – health Sector analysis – agriculture
  3. 3. 2 We assessed Digital Finance Plus readiness along 6 dimensions SOURCE: Client Survey (Oct 2011); McKinsey Quarterly Survey (Jul 2011) Digital finance plus enabling environmentSector-level digital finance plus assessment 4.1 Sector description 4.2 Sector impact on low- income households 5.1 Financial service needs along the value chain 5.2 Financial gap analysis along the value chain 5.3 Barriers to provision of financial products 4.3 Sector-specific actors and regulation 6.1 Potential applications of DF+ to address barriers 6.2 Viability of observed and potential business models 6.3 Scaling and execution capabilities 4.4 Sector challenges 6 5 4 3 2 1 Readiness 1.1 Technical infra- structure readiness 1.2 Telecom industry readiness 1.3 Level of adoption 3.1 Relevant financial and telco regulation 3.2 Government support 3.3 Use of DF+ by the government 2.2 Digital finance readiness 2.3 Level of digital finance adoption 2.1 Overall financial sector readiness
  4. 4. 3 Digital finance readiness assessment framework detail (1 of 6) QuestionsFunctional area 1. Access to and reach of mobile infra- structure 1.1 Technical infrastructure readiness 1.2 Telecom industry readiness Phase How many nationwide mobile phone providers exist and how is the industry changing? ▪ Describe the industry’s structure (number and size of national and regional players), competitive dynamics, and where experts see the industry going How much do mobile services cost and how have these prices changed? ▪ Evaluate cost information for a phone, SIM card, 1 SMS, 10 minutes of call time, 1 MB of mobile data, and trends across geographies ▪ How ubiquitous is mobile phone and internet coverage in the country and how might it change? ▪ What type of networks exist? ▪ What is their quality and how reliable are they? ▪ Evaluate the percentage of people with coverage by region and available network speed with a particular focus on the differences between rural and urban areas and projected changes over the next 2-3 years Analyses to conduct How much of the country actually uses mobile services? ▪ Examine trends in the percentage of adults with mobile phone subscriptions and mobile internet access across regions with a focus on rural vs. urban How often are these services used? ▪ Examine frequency of use and types of plans 1.3 Level of adoption
  5. 5. 4 Digital finance readiness assessment framework detail (2 of 6) QuestionsFunctional area 2. Adoption and reach of digital finance infra- structure 2.1 Overall financial sector readiness 2.2 Digital finance readiness Phase What products does the financial sector offer? ▪ Describe products/services offered and their distribution What types of digital finance products exist? ▪ List digital finance products (distinguish between payment, savings, credit, insurance etc.) Analyses to conduct 2.3 Level of digital finance adoption How many adults have adopted digital finance products? What are these products used for? ▪ Determine the percentage of adults using digital finance products, the percentage of transactions (payment, savings, insurance) done via them, and reasons for any low levels of adoption How many adults and businesses would be open to using digital finance products? ▪ Determine the percentage of adults and businesses familiar with and open to using digital finance ▪ Evaluate this across regions with a focus on urban vs. rural What is the competitive landscape in the financial sector and how is it changing? ▪ Describe the industry’s structure (number and size of national and regional players), the role and reach of non- traditional financial players, competitive dynamics, and where experts see the industry going What access to them do different segments of the population have? ▪ Evaluate access to different financial products/services across regions How are these products distributed and what are the minimum requirements for use? ▪ Describe reach of typical distribution channel What types of providers offer digital finance products and how might the landscape change over the next few years? ▪ Map products to different types of providers (e.g., traditional financial institutions, telcos, microfinance) ▪ Describe major product, technology, and distribution trends
  6. 6. 5 Digital finance readiness assessment framework detail (3 of 6) QuestionsFunctional area 3. Role of the govern- ment and regulation 3.1 Relevant financial and telco regulation 3.2 Government support Phase What are government digital finance regulations? ▪ Examine additional rules specific to digital finance entry, operations, and end users; these include partnership requirements to offer products, architecture (interoperability requirements), e-payment, product offerings, accounting practices, anti-money laundering, who can act as agents, and KYC regulation ▪ Identify regulatory gaps and barriers preventing or slowing the implementation of DF+ What are government regulations around information tracking? ▪ Examine rules about what data digital finance providers can keep, use, and sell What are government finance regulations? ▪ Examine the rules on who can offer what products and how they must be sold, and the clarity of these rules Analyses to conduct Does the government help expand mobile/digital payment infrastructure? ▪ Research on budget and subsidies allocated to these infrastructures ▪ Identify policies that would help the spread of DF+ Does the government take action to increase the number of digital finance players? ▪ Evaluate of awareness raising and budget allocated to organizations for digital finance ▪ Form qualitative view of the encouragement of new entrants and joint ventures 3.3 Use of DF+ by the government Does the government use digital finance products? ▪ Identify government benefit programs/transfer schemes that actively use DF+ (and other spending and salary payments)
  7. 7. 6 Digital finance readiness assessment framework detail (4 of 6) QuestionsFunctional area 4. Sector analysis and challenge identifi- cation 4.1 Sector description 4.2 Sector impact on low- income households Phase 4.4 Sector challenges What is the overall value chain for the industry and structure at each step? ▪ Describe actors and industry structure (number of players, size, and competitive dynamics) for each relevant step What is the role of the government in each step of the value chain? ▪ Describe the role of public financing/provision, subsidies, and relevant regulation What is the significance of the sector in the country’s economy? ▪ Determine the percentage of GDP accounted for by sector, the percentage of workforce employed within the sector, quality of services, productivity and competitiveness accounting for regional variance and international comparisons What trends will shape the sector? ▪ Describe relevant policy, technology, and macro changes What services are and are not provided to low-income households and what determines access to these services? ▪ Describe actual services delivered to low-income households and identify the variation in provision by geography, income, and other attributes What are the key challenges in the sector? ▪ Overview of key shortcomings in the sector along the value chain Analyses to conduct 4.3 Sector- specific actors and regulation What is the sector-specific regulation affecting the delivery of services? ▪ Describe sectors specific regulation, including competitive regulation, product regulation , access regulation, minimum service standards, customer protection etc.
  8. 8. 7 Digital finance readiness assessment framework detail (5 of 6) QuestionsFunctional area 5. Asses- ment of financial service needs and gap analysis 5.1 Financial service needs along the value chain 5.2 Financial gap analysis along the value chain Phase 5.3 Barriers to provision of financial products What financial service gaps exist at each step of the value chain? ▪ Evaluate financial service needs not being served at all by current products or being served inadequately across regions and provide a view of what existing services are missing How would the closing of each gap increase accessibility and affordability? ▪ Develop a perspective on which gap closings would have the highest impact What type of financial needs exist for interactions across the value chain? ▪ Evaluate financial product needed at each step (payment access, financing, mediation, market information, insurance, savings, etc.) and key attributes of identified service (speed, simplicity, timing, etc.) What barriers to the provision of the identified financial services exist? ▪ Identify barriers, including a lack of physical financial infrastructure (agent network/brick and mortar financial institutions), information asymmetry between actors, a lack of a cost-effective provision of the financial service, etc. Analyses to conduct
  9. 9. 8 Digital finance readiness assessment framework detail (6 of 6) QuestionsFunctional area 6. Digital finance plus solution feasibility 6.1 Potential applications of DF+ to address barriers 6.2 Viability of observed and potential business models Phase Is there a feasible business model for the product? ▪ Evaluate if there could be a financially viable business model for this product given sector dynamics Is there a feasible go-to-market model to introduce this product? ▪ Evaluate go-to-market model that could achieve necessary scale Could a digital finance product address the market failure? ▪ Determine if an existing or novel digital finance product could address the market gap and overcome the identified barriers Analyses to conduct What capabilities would be necessary for a business to successfully implement this model? ▪ Develop perspective on capabilities and distribution network necessary for a company to implement go-to- market model and business model How do those capabilities compare with those of existing enterprises? ▪ Map current provider capabilities to required ones Are there actors capable of scal- ing the existing business model? ▪ Identify the landscape of the actors in the sector and evaluate scaling efforts 6.3 Scaling and execution capabilities
  10. 10. 9 Agenda Readiness framework Sector analysis – agriculture Sector analysis – health Sector analysis – energy Sector analysis – education Sector analysis – water Access to and reach of mobile infrastructure Adoption and reach of digital finance infrastructure Role of the government and regulation
  11. 11. 10 Summary of mobile infrastructure readiness assessment 1.1 Technical infrastructure readiness • Tanzania’s four nation-wide MNOs operate a series of networks and standards ranging from 2G to 3.5G networks • The penetration of these networks ranges from selected cities on 3.5G networks to 85% of the population on 2G networks • All major MNOs have committed to and are in the process of making major capital investments in 4G networks, while continuing to expand coverage of existing 2G networks 1.2 Telco industry readiness • Tanzania’s telco industry features 4 main competitors, Vodacom, Airtel, Tigo, and Zantel, with the first 3 accounting for 90% of the subscriber base • Strong four-way competition has led to competitive prices and continued product innovation, with all players offering mobile money and selected players launching mobile savings and credit products 1.3 Level of adoption • Mobile phone adoption in Tanzania currently stands at ~60% and, below the regional average of 74% • However, penetration over the past 4 years has been growing at approximately 10-12% per annum • The continued extension of network coverage, declining mobile phone costs and growing household income are expected to raise penetration to 70-80% over the next 2-3 years
  12. 12. 11 Tanzania has been rapidly extending mobile coverage, which has allowed the country to rapidly catch up to its peers 1.1 TECHNICAL INFRASTRUCTURE READINESS SOURCE: Telegeography; press Percentage of population living in areas with mobile phone coverage %, 2013 Overall assessment Percentage of population living in areas with mobile phone coverage %, historically … but coverage is quickly increasing Tanzania’s mobile coverage is slightly lower than that of its peers … Type of network, % of population covered Ethiopia Ghana Kenya Nigeria Rwanda South Africa Tanzania Uganda India Bangladesh Pakistan Myanmar • Tanzania lags its peers in mobile phone coverage, with 15% of the population living without access to a mobile network • At the same time, mobile coverage has been growing at close to 20% per annum over the past 3 years • Mobile coverage is expected to reach 90+ % of the population by 2016 99 99 99 95 95 95 90 90 87 85 60 35 85 75 60 50 1312112010 2016 90+ +19% p.a. 70 85 3G2G
  13. 13. 12 Tanzania’s MNOs operate a series of networks covering 60 to 85% of the population, depending on network generation 1.1 TECHNICAL INFRASTRUCTURE READINESS 2G 3.5G 1G 3.5GGene- ration 2.5G 2.5G 3G 2G 2.5G 2.5G 3G 3.5G 2.5G 2.5G 3G 3G2G 3.5G Platform GSM GSM GSM W-CDMA W-CDMA ETACS GSM GSM GSM W- CDMA W- CDMA W- CDMA GSM GSM CDMA2000 CDMA2000 W-CDMA W-CDMA Evolution None GPRS EDGE None HSDPA None None GPRS EDGE None HSPA+ DC- HSPA+ None GPRS 1x 1xEV-DO None HSPA+ Frequency 900/1800 900/1800 900/1800 Unknown Unknown 900 900/ 1800 900/ 1800 900/ 1800 - - - 900/1800 900/1800 800 800 Unknown Unknown Launch Nov-01 Apr-06 Apr-06 Dec-08 Dec-08 Sep-94 Aug-00 Aug-06 Aug-06 Q1 2011 May-13 Sep-13 Aug-99 - Nov-06 Nov-06 May-12 May-12 Status Live Live Live Live Live Shut down Live Live Live Live Live Live Live Live Live Live Live Live Network Details Jan-14: ~85%; Dec- 11: 65-70% (est.) Jan-14: 88%; Dec- 11: 65-70% (est.) Jan-14: ~75%; Dec- 11: 65-70% (est.) Jan-14: 70% (est.); Sep-11: Dar es Salaam Jan-14: ~70% (est.), Sep-11: Dar es Salaam - Jan-14: 85% (est.); Dec-11: 67% (1,173 BTS); Dec-10: 63% (1,057 BTS); Dec-09: 60% Jan-14: 80% (est.); Dec-11: 62% (est.); Dec-10: 60% (est.) Jan-14: 50% (est.); Dec-11: 35% (est.); Dec-10: 30% (est.) Jan-14: 70% (est.) Jan-14: ~20 cities and towns (est.) Jan-14: only selected city centers Jan-14: 70% (est.); Dec-11: 60% (est.); Sep-10: 50% (est.) Jan-14: ~50% (est.), main towns and cities only Jan-14: Zanzibar, Pemba, and Dar es Salaam Jan-14: Zanzibar, Pemba, and Dar es Salaam Jan-14: Zanzibar only (plans expansion to Dar es Salaam and other cities) Jan-14: Zanzibar only (plans expansion to Dar es Salaam) 2G 4G2.5G 2.5G 3G 3.5G 3.5G GSM GSM GSM W- CDMA W- CDMA W- CDMA LTE None GPRS EDGE None HSDPA HSUPA None 900 900 900 2100 2100 2100 800/ 1800 Jul-99 Apr-06 Jul-07 Feb-07 Feb-07 Feb-07 - Live Live Live Live Live Live In deploy- ment Jan-14: 85%-90 (est.); Dec-11: 75.8% Jan-14: 85%- 90% (est.); Dec-11: 75.8% Jan-14: >50% (select- ed towns and cities) Jan-14: 70% (est.); available in around 40 towns and cities Jan-14: 70% (est.); available in around 40 towns and cities Jan-14: 70% (est.); available in around 40 towns and cities Laun- ched six- month trial in Msasani Penin- sular district of Dar es Salaam with NSN in Jan-13 2G network at ~85% 2G network at ~85% 2G network at ~85% 2G network at ~70% SELF-REPORTED FIGURES MIGHT BE OVERSTATED
  14. 14. 13 93 7 The top four MNOs in Tanzania own 99% of the mobile market (1/2) 1.2 TELECOM INDUSTRY READINESS Assessment Number of mobile phone providers in Tanzania Growing number of providersHigh market shares of top three operators 2013 8 12 8 11 7 2010 7 Market share of top 3-5 players, %Number of MNOs1 No 84 15 93 7 83 17 100 1 Mobile network operator SOURCE: WCIS 98 2 82 17 Tigo Tanzania 6,297 52 Zantel 1,803 8,996 Vodacom Tanzania 10,289 Benson Informatics 0 Smile Tanzania 0Telesis Hits 1 3 Sasatel 4 TTCL Airtel Tanzania Number of subscribers 000s 100 55 24 1089 72 28 100 4 12 8 8 3 Ghana Kenya Nigeria Rwanda South Africa Tanzania Uganda 5 6 1Ethiopia 1 1 1 1 India Bangladesh Pakistan Myanmar Top 3 Top 4 Top 3 Top 3 Top 5 Top 3 Top 5 Top 3 Top 5 Top 3 Top 5 Top 3 Top 5 Top 1 Top 3 Top 3 Top 3 Top 1 Top 5 Top 5 Top 5 MNO • Tanzania’s mobile phone industry is dominated by 4 relevant players that control more than 99% of the market; this consolidation is similar to that observed in peer countries • The number of providers has roughly stayed the same over the past few years • All major providers cover the key population centers allowing for significant competition
  15. 15. 14SOURCE: WCIS; Telegeography; BMI Assessment Airtel Benson Tigo Zantel Vodacom Tanzania Number of subscribers 000s; 2013 0 0 10,289 8,996 4 52 3 1 6,297 1,803 TTCL Smile1 Description/history Telesis 1 Smile is a wireless broadband operator, it does not offer voice services Hits Sasatel Tanzania’s MNOs have taken different strategies to acquire and retain customers • The Tanzanian mobile phone market features strong competition with incumbents and new entrants actively competing for market share • Players compete <_> diverse strategies including innovative service offering (Vodacom), network coverage (Airtel), and low pricing (Zanzibar Telecom) • Ahead of competition on introducing innovative services but only regains subscribers after 2011/2012 loss • Substantial investments resulted in the widest mobile broadband coverage, but high prices limit service uptake • Aggressively expanding coverage, low tariffs, and promotions enable it to quickly gain market share • Owns modern infrastructure, capable of providing fast data services, but reliance on CDMA blocks smooth migration to LTE • High prices and limited coverage prevent quick customer uptake despite modern infrastructure • Simple tariffs and affordable broadband enable growth but lack of scale prevents fast expansions • 20 years of mobile experience in Tanzania combined with developed infrastructure enables it to maintain third place in the market; recently aggressive in marketing The top four MNOs in Tanzania own 99% of the mobile market (2/2) 1.2 TELECOM INDUSTRY READINESS
  16. 16. 15 Tanzania’s MNOs offer an advanced set of digital finance products SOURCE: GSMA “Mobile Money Tracker”; Operators websites Similar services offered by playersSimple mobile payments offering Rwanda Ghana Kenya Tanzania Uganda 0 1 1 2 3 3 3 4 4 4 4 7 0 0 1 1 0 0 0 1 1 3 3 0 Simple digital payment product1 Advanced digital payment product2 Number of MNOs offering digital finance products Description of product offering for biggest telco providers Airtel MIC Tanzania Limited Vodacom Tanzania Zantel South Africa India Nigeria Bangladesh Pakistan Ethiopia Myanmar Basic Advanced 1 Simple: operator offers only bill payments, airtime top up, domestic money transfers, bulk payments, merchant payments 2 Advanced: in addition to the above, operator offers services such as loan repayments, debit, insurance, other banking products Assessment • Vodacom leads the digital financial service innovation in Tanzania offering the broadest digital finance product portfolio • Tanzania’s telco industry compares favorably with other countries based on its offering of digital finance products 1.2 TELECOM INDUSTRY READINESS
  17. 17. 16 Mobile phone access remains relatively expensive in Tanz- ania, smaller players/new entrants provide lower price options Assessment 5 10 11 6 5 14 70 50 45 54 50 47 6 6 5 5 4 3 Cost per sec1 Cost per SMS Cost per 1 MB2 Airtel Benson Tigo Zantel Vodacom Tanzania New entrants and smaller players are providing lower cost options SOURCE: WCIS; company websites TTCL Smile3 1 For calls to other networks (off-net); 2 Based on monthly bundled plan of 5GB except Smile for which 3GB data plan was analyzed; 3 Smile Tanzania offers only mobile broadband services n/a n/a n/a4 5 7 8 10 11 13 14 Cost of comparable monthly prepaid access1 USD at PPP n/a n/a n/a n/a South Africa Tanzania Uganda Nigeria Ethiopia Kenya Rwanda Ghana Pakistan Bangladesh India Myanmar Mobile phone access remains relatively expensive in Tanzania • Tanzania’s mobile phone sector offers a healthy set of prices with new entrants providing low-cost alternatives to incumbents 1.2 TELECOM INDUSTRY READINESS in TZS
  18. 18. 17 Mobile phone penetration in Tanzania remains below peer average, however penetration is rising quickly 1.3 LEVEL OF ADOPTION 12 27 58 60 63 67 69 70 72 73 109 138 2 3 1 1 2 2 1 1 9 n/a n/a n/a Mobile pene- tration1 % of population Mobile internet penetration % of population 1 Not adjusted for multi-SIMming, i.e., individuals may own more than one SIM card and be counted multiple times 60 55 50 42 201312112010 +12% p.a. Overall assessmentGrowing mobile penetrationTanzania’s mobile penetration is similar to its peers Ghana Nigeria South Africa Tanzania Kenya Mobile penetration % of population SOURCE: Analyses Mason; WCIS Uganda India Rwanda Bangladesh Ethiopia Pakistan Myanmar 2013 • Tanzania’s mobile phone penetration is below its regional peers • Over the past 3 years, Tanzania has added approximately 5% of its population to the subscriber base annually • Often penetration does not fully reflect true access of different people within a household, leaving some question as to female access to services
  19. 19. 18 Access to mobile phone for rural, unbanked, and low-income households is substantially lower than middle-/high-income households Tanzania’s mobile phone access differs by household groups SOURCE: FITS household survey 2012 • A substantial gap in mobile phone access exists between the group of rural/unbanked/low-income households (55-57%) and the group of middle-/high- income households (76%) Household consumption above$2/day Rural Unbanked Household consumption below $2/day 76.0 57.0 58.0 55.0 63.0 Households that have or can borrow a mobile phone Assessment Percentage of total households 1.3 LEVEL OF ADOPTION
  20. 20. 19 Agenda Readiness framework Adoption and reach of digital finance infrastructure Role of the government and regulation Sector analysis – agriculture Sector analysis – health Sector analysis – energy Sector analysis – education Sector analysis – water Access to and reach of mobile infrastructure
  21. 21. 20 Summary of digital finance infrastructure readiness assessment 2.1 Overall financial sector readiness • Tanzania’s banking sector includes 50 licensed banks and a number of regulated and unregulated microfinance institutions • Despite the large number of licensed institutions, the formal banking sector serves only 14% of the population, focusing predominantly on the urban salaried workers and commercial lending • A number of attempts by large commercial banks to extend their products to the unbanked have resulted in significant write-offs and their subsequent withdrawal from this segment • Micro-finance institutions are the only players extending significant credit to low-income households, credit procedures and collateral / guarantor requirements are however burdensome and constitute a serious barrier to credit 2.3 Level of digital finance adoption • Mobile money has experienced exponential growth over the past 5 years • Starting from virtually no use in 2009, mobile money uptake has increased to over 11 million users in 2013, which equals 49% of the adult population • Key uses of mobile money are sending and receiving money (predominantly from remittances payments,) which account for almost 70% of all mobile money transactions 2.2 Digital finance readiness • A notable barrier to mobile money adoption is still the lack of access to mobile phones for significant parts of the population • Rural penetration of mobile money remains relatively low and account activitiy while growing is still low
  22. 22. 21 10 14 19 40 50 Uganda Rwanda South Africa Kenya Tanzania Tanzania’s banking sector includes 50 licensed banks, with the top 10 banks accounting for ~75% of lending and ~85% of deposits Number of licensed banks Assessment 255,553 303,036 319,813 399,950 413,818 438,583 491,904 654,446 1,354,770 1,806,865 444,562 313,715 556,359 686,711 700,927 886,162 1,291,335 2,288,263 2,582,328 3,918,095 20.6 15.4 7.5 5.6 5.0 4.7 4.6 3.6 3.5 2.9 23.4 15.4 13.7 7.7 5.3 4.2 4.1 3.3 2.7 1.9 2.1 OVERALL FINANCIAL SECTOR READINESS …and market share is split among the leaders M/s, % Top 10 banks hold 73.3% of the loan market Top 10 banks hold 83.6% of the deposit market Top 10 banks in Tanzania by deposits, 2012 Top 10 banks in Tanzania by loans, 2012 Total loan volume in TSH millions Total deposit volume in TSH millions Tanzania has more banks than its peers… • Tanzania has a diverse banking sector with over 50 licensed players • While the formerly state- owned banks still dominate, a number of regional and international banks have achieved considerable market share SOURCE: Bank of Tanzania
  23. 23. 22 Tanzania’s banking sector has become more competitive, but it still lags peer countries 0.56 0.30 0.10 0.35 0.47 0.27 0.11 0.19 Ethiopia Kenya Uganda Bangladesh Tanzania Ghana Nigeria India Rwanda South Africa n/a 2005 2010 0.59 0.36 0.31 0.29 0.27 0.24 0.22 0.16 0.15 0.15 • Tanzania’s competitiveness has substantial improved over the last couple of years • Compared to ist regional peers especially South Africa and Rwanda competitiveness remains low Top 3 banks’ market power (Lerner index) Assessment 2.1 OVERALL FINANCIAL SECTOR READINESS SOURCE: Tanzania Banking Survey
  24. 24. 23 A high use of non-bank products compensates Tanzania’s low penetration of bank product Assessment 29 41 14 33 23 34 26 21 14 38 18 44 10 19 7 9 7 9 8 8 16 17 30 15 24 42 14 10 25 33 26 40 28 44 41 30 63 75 11 Rwanda Nigeria Zambia Uganda Zimbabwe Ghana South Africa 4 Tanzania Botswana Kenya Financially excluded Use informal mechanisms only Have/use non-bank products Have/use bank products 34.4 13.7 20.1 7.3 38.7 51.4 6.8 27.6 Rural Urban Tanzania lags peers in bank product use Gap driven by rural consumers 2.1 OVERALL FINANCIAL SECTOR READINESS • Tanzania has the lowest rate of bank product use among its peers • Low penetration is driven by the focus of the formal banking sector on the urban salaried worker • Uncollateralized lending to low- income households is virtually absent from the system • Tanzania’s high level of non- bank financial product use is driven predominantly by a rise in mobile money use • Non-bank product use is particularly high in urban areas where over half of urban consumers use mobile money Percentage of adult population with particular financial products, 2013 Percentage of adult population with particular financial products, 2013 SOURCE: FinScope
  25. 25. 24 MFIs are the only financial institutions extending significant credit to low-income households Tanzania market profile MFIs Borrowers AccessBank – TZA 15,819 Akiba 27,111 BRAC – TZA 104,225 ECLOF – TZA 5,051 Equity Bank Tanzania 7,176 FINCA – TZA 82,288 IDYDC - K–Finance 572 MBF 2,478 Mbinga Community Bank 6,053 Mtoni 1,351 MuCoBa 5,601 Mwanga Community Bank 8,314 NMB - Opportunity Tanzania 8,959 PRIDE – TZA 100,055 PTF 6,108 SEF – TZA 1,198 SELFINA 7,746 Tujijenge 8,265 Victoria Finance 155 VisionFund TZA 33,394 YOSEFO Loans USD 32,596,119 46,766,487 20,267,459 1,467,041 60,487,310 29,593,107 354,157 194,029 212,031 908,172 2,004,364 4,024,608 5,140,608 773,508,940 6,206,129 37,028,179 1,147,468 263,569 4,002,088 775,268 342,857 7,080,836 2,521,617 18,120 1. NGO MFI (not regulated) 2. Microfinance companies (regulated by BoT with lower capital requirements than regular banks) 3. Commercial and community banks (regulated by BoT) 4. Savings and credit cooperative societies (regulation limited to annual audit) Tanzania recognizes 4 types of microfinance institutions with different levels of regulation Lending to low-income households requires: - Significant collateral - Multiple guarantors - An involved application process with often multiple visits - rates vary between 30-80 p.a. 2.1 OVERALL FINANCIAL SECTOR READINESS SOURCE: Tanzania Banking Survey
  26. 26. 25 Tanzanian access to formal sector finance has increased in recent years largely because of the adoption of mobile money Adults served by the non-bank formal sector Banked adults 55.9 13.1 13.8 9.1 6.3 Insurance 13.0 49.0 1.1 Use mobile money 4.5 MFI/SACCOS member 4.4 Assessment 13.6m 2.8m 3.4m 1.9m 11.9m 0.2m 3.1m 1.3m Percent 1.1m 1.0m % of adults 2009% of adults 2013 This increase in non-bank service is driven by mobile money Growth has been driven by the non-bank formal sector 2.2 LEVEL OF DIGITAL FINANCE ADOPTION • The rise of mobile money is driving Tanzanians’ increased financial access • Banks and insurance providers have also played a substantial role in this rise as each industry increased users by over 1 million between 2009 and 2013 • MFI/SACCOS membership remained relatively constant, suggesting enrollment may have plateaued SOURCE: FinScope
  27. 27. 26 Approximately 70% of mobile money users predominantly use the service to send or receive money 25.6 Pay bills, fees, and business transactions 37.6 Save or store money 33.1Send money Receive money 9.9 Assessment 8.0 Percent 2.4 Uses of mobile money 2.2 LEVEL OF DIGITAL FINANCE ADOPTION • While mobile money has seen significant growth, subscribers predominantly use it for sending and receiving money • Efforts to expand usage to general business transactions are in early stages 11.9 Use mobile money 9.1 6.2 SOURCE: FINSCOPE Millions, in million Households, in million
  28. 28. 27 Use of mobile money differs substantially between rural/unbanked/low-income and mid-/high-income households Tanzania’s mobile money penetration SOURCE: FITS household survey • Tanzania’s mobile phone penetration is in line with its peers • Over the past 3 years, Tanzania has added approximately 5% of its population to the subscriber base • Often penetration does not fully reflect the access of different people within the household, leaving some question as to female access to services Household consumption above$2/day Rural Unbanked Household consumption below $2/day 53.0 29.0 29.0 25.0 35.0 Mobile money user in houshold Assessment 2.2LEVEL OF DIGITAL FINANCE ADOPTION 2012, Percent
  29. 29. 28 Of the non-users of mobile money, the majority quote the lack of a mobile phone as the key barrier Assessment Percent For products beyond payment, more fun- damental product questions need to be addressed first, not addressed in chart The lack of a mobile phone is the main barrier to mobile money adoption 2.3 DIGITAL FINANCE READINESS • The lack of a mobile phone remains a serious obstacle to adoption for mobile payments • For other mobile products such as insurance and credit, knowledge of the product itself is the key barrier • Digital finance can address these problems more effectively than bricks and mortar branches by using mobile technology to educate and reach potential consumers High fees Knowledge about registration 4.5 8.3 Distance to mobile money agent 8.5 Don’t have mobile phone 60.4 4.8 5.6 Don’t know product Cannot afford 15.4 Does not know how it works Does not know where to purchase 64.2 Insurance Credit product 8.0 Don’t know product Cannot afford 35.2 Does not know where to purchase 37.5 SOURCE: FinScope
  30. 30. 29 Agenda Readiness framework Sector analysis – agriculture Sector analysis – health Sector analysis – energy Sector analysis – education Sector analysis – water Role of the government and regulation Access to and reach of mobile infrastructure Adoption and reach of digital finance infrastructure
  31. 31. 30 The telco industry is regulated by the Tanzanian Communication Regula- tory Authority that is implementing a series of key regulatory initiatives (1/2) Telco regulatory framework • Tanzanian Communication Regulatory Authority • Provide effective competition • Protect consumer interest • Regulate rates and changes • Manage radio frequencies Stability • In place since 2003, and has introduced significant regulation i. Interconnection fees regulation Termination charge set by TCRA, TZS • Significant focusing of lowering termination charges to increase competition among mobile phone subscribers • Introduction of rate schedule that is designed to reduce termination charges from 112 TZS to 26.96 TZS by 2017 26.9628.5730.5832.4034.12 112.00 2017161514132012 Telco Regulatory playing field Key regulatory initiatives 3.1 RELEVANT FINANCIAL AND TECLO REGULATION Regulator Task
  32. 32. 31 The telco industry is regulated by the Tanzanian Communication Regula- tory Authority that is implementing a series of key regulatory initiatives (2/2) Telco regulatory framework ii. Mobile SIM registration Telco Key regulatory initiatives • Compulsory registration of all active SIM cards nation-wide • Hosted June 2009, final deadline postponed to 2013 • Disconnection of 650,000 subscribers for failure to register iii. Mobile number portability • Regulatory initiative to enable the portability of mobile numbers when switching MNOs • Part overall reform package aimed at increasing competition between MNOs • Originally planned for 2013, postponed to 2014 to allow for technical implementation iv. Universal Service Access Fund • Dedicated financing vehicle to increase mobile connectivity in rural areas • Bid-based tenders for subscribers to expand coverage to underserved areas • A number of contracts awarded in 2013 to all four major MNOs 3.1 RELEVANT FINANCIAL AND TECLO REGULATION
  33. 33. 32 The banking sector is regulated by the Bank of Tanzania Banking regulatory framework • Bank of Tanzania • Prudential regulation • Operational guideline and regulation • Sector-wide and player- specific risk management • Further financial inclusion • Regulator for over 15 years i. Credit bureau • The BoT has recently licensed two credit bureaus to compile data from all licensed banks and MFIs • Credit bureaus are currently establishing reporting relationships Telco Regulatory playing field Key regulatory initiatives i. National ID card system • Tanzania is introducing a national ID system that uniquely identifies each citizen • In conjunction with the credit bureau, this system is expected to significantly raise credit provision i. Agency banking • The BoT has recently introduced a new agency banking framework enabling the delivery of banking service through licensed agencies • Agency banking is expected to substantially lower cost and widen access to financial services Stability Regulator Task 3.1 RELEVANT FINANCIAL AND TECLO REGULATION
  34. 34. 33 Agenda Readiness framework Sector analysis – agriculture Sector analysis and challenge identification Assessment of financial service needs and gap analysis Digital finance plus feasibility assessment Sector analysis – energy Sector analysis – water Sector analysis – health Sector analysis – education SOURCE: Source Access to and reach of mobile infrastructure Adoption and reach of digital finance infrastructure Role of the government and regulation
  35. 35. 34 Key takeaways: Agricultural sector analysis and challenge identification AGRICULTURE – SECTOR ANALYSIS AND CHALLENGE IDENTIFICATION 4.1 Sector description 4.3 Sector-specific actors and regulation 4.2 Sector impact on low-income households 4.4 Sector challenges • The Agriculture sector suffers from low productivity, which can be understood by evaluating several drivers across the value chain (land, inputs, mechanization, extension, aggregation, marketing), including – Small average plot size per farmer relative to peers, lack of widespread access to improved seeds and fertilizer, weak irrigation infrastructure, inadequate provision of extension services, low access to agronomic information, and low producer prices due to lack of bargaining power and poor dissemination of market information • The government has recently relaxed its regulation of the sector – farmers are able to circumvent the burdensome (government-controlled) cooperative legislation to self-organize into free-enterprise associations. Export restrictions on cereals have also been relaxed, enabling farmers to net higher incomes • However, there is still inadequate public investment in the sector – the government has only dedicated 6% of the national budget to the sector, falling short of its 10% commitment under the Maputo Declaration • The great majority of farmers in Tanzania are smallholders – there are estimated to be more than 5 million farming households in the country • A majority of smallholders are subsistent agriculturalists – they consume a majority of what they produce and bring a very small surplus to market • Tanzania is highly dependent on agriculture for economic output and employment, as it constitutes 27% of GDP and accounts for ~75% of employment • Two out of three Tanzanian farmers produce food crops - 85% of cereal production consists of maize and rice (paddy), which are the two most important crops • The sector has several stakeholders – inputs (seeds, fertilizer, chemicals) are supplied by major international input companies and local agro-dealers, production is mostly done by smallholder farmers, with a few large-scale commercial farms for cash crops (e.g., horticulture, legumes), extension support is provided by the Ministry of Agriculture, aggregation (where it exists) is done by producer associations, and marketing is done by traders; several local and international NGOs also play along the value chain
  36. 36. 35 Tanzania is highly dependent on agriculture for economic output and employment, similar to other developing economies in Africa SOURCE: World Bank (2010); CIA Factbook; team analysis Other 75 5 20 Agriculture 100% = 2011 Industry Services 25.59 million employed With a strong majority of the workforce employed by agriculture, this sector will be critical to reducing poverty 4.1 AGRICULTURE – SECTOR DESCRIPTION Mozambique 5% 10% 15% 20% 25% 30% 35% 250 500 750 1,000 1,250 6,000 10,000 50,000 0% -5% 0 Tanzania Kenya Uganda Zambia China South Africa Brazil USA GNI/Capita % of agriculture contribution in national GNI Workforce breakdown by sector, %
  37. 37. 36 100 90 80 70 60 50 40 30 20 10 0 2020E2015E20102000 The majority of agricultural activity is focused on cereal production SOURCE: Kilimo Kwanza; ASDP; ASDS; CAADP Compact. CIA Factbook; FAO (2013) Market value by agricultural product % Area planted by crop type 100% = 8.8 million ha Area planted by cereal type 100% = 5.8 million ha 70 16 10 4 Maize Paddy Sorghum Millet Wheat 2010 1 72 15 8 6 Crops Livestock Hunting and forestry Fishing 2010 100% = TZS 4.1 trillion 66 11 11 7 Cereals Pulses Oil seeds & oil nuts Cash crops Roots & tubers Fruits & vegetables 2010 3 1 Agriculture Services Manufacturing/Industry Key takeaways Real GDP by sector % • Agriculture contributes a significant share to GDP, although the relative GDP contribution is projected to decline over time • Cereal production comprises the largest share of agricultural production, with maize being the most important crop 4.1 AGRICULTURE – SECTOR DESCRIPTION
  38. 38. 37 The Tanzanian agriculture sector suffers from low productivity as evidenced by the poor yields in its major crop SOURCE: Ministry of Agriculture; FAO (2013); FAOSTAT Tanzania scores at the bottom of its peers in maize yields Zambia 2,244 Uganda 2,686 Mozambique 854 Tanzania 1,366 Kenya 1,393 Malawi 1,650 Ghana 1,737 Ethiopia 2,137 749 1,667 2,193 1,240 1,871 3,059 2,655 2,499 2008 2012 CAGR % -2 4 9 2 7 5 -2 -3 Maize yield Kg/ha Key takeaways • One of the major impediments to agricultural growth is the low productivity of land and labor • Maize yields of 1.2 MT/ha are ~40% lower than peers’ average • Tanzania’s maize productivity has declined even as peers have registered large productivity gains over a 5- year period • Key factors driving the poor performance include – Low public expenditure on R&D, inadequate financing, poor production techniques, underdeveloped markets, poor rural infrastructure 4.1 AGRICULTURE – SECTOR DESCRIPTION
  39. 39. 38 Growth in the agricultural sector is hindered by a number of bottlenecks along the value chain and beyond ▪ Small arable land utilization: only 30% of potentially productive area under agricultural production ▪ Limited average plot size: smallholders control 0.9-3.0 ha on average ▪ Onerous administrative procedures:15- step process to obtain a land title ▪ Inconsistently enforced land rights ▪ Low fertilizer application: Only 9 kg/ha used, ~40% lower than peer average ▪ Weak demand for improved seeds: farmers are unable to purchase even limited offerings on market, only absorbing 40% of stock ▪ Underdeveloped capacity of agro- dealers: lack of business skills and unattractive margins to serve smallholders ▪ Inefficient government input subsidies: late payments and non- functioning vouchers ▪ Farmer information constraints: inadequate agrono- mic knowledge on all aspects of production ▪ Inadequate extension services: too little staff with inadequate resources and underdeveloped capacity ▪ Low level of mechanization: only 24% use animal traction and 13% use mechanical power ▪ Budget constraints: insufficient allocation and late disbursement of funds by government to extension works ▪ Heavy reliance on natural elements: predominantly rain- fed agriculture is highly susceptible to adverse weather conditions ▪ Unavailability of long-term storage: only 1% of farmers have access, forcing remainder to sell at low prices to avoid spoilage ▪ Cash flow constraints: farmers have urgent need for cash so can’t afford to hold produce ▪ Underdeveloped physical infrastructure: dearth of all-weather roads in rural regions ▪ Low level of private investment: smallholders and enterprises lack access to financing ▪ Weak market linkages: underdeveloped relationships between agro- processors and producers, especially in value- adding schemes Challenges ▪ Low level of commercialization: majority of produce consumed in the home ▪ Non-consolidated aggregation/off- take: fragmented producer base with weak negotiating power ▪ Poor price discovery: non- transparent commodity pricing ▪ Weak market linkages: underdeveloped relationships between agro- processors and producers 1 432 65 1.1 1.2 1.3 1.4 2.1 2.2 2.3 2.4 3.1 3.2 3.3 3.4 3.5 4.1 4.2 4.3 5.1 5.2 5.3 5.4 6.1 6.2 4.4 AGRICULTURE – SECTOR CHALLENGES
  40. 40. 39 Several actors are involved in the agricultural value chain Private sector Govern- ment FBO NGOs Key value-chain focus Stakeholder Examples Land Input Prod- uction Sto- rage Marke- ting Pro- cessingDescription Seed and input companies, agro-dealers Mix of international and local companies import/produce seed, fertilizer, and crop protection products; distribution happens at the local level by agro-dealers Commercial farms Large scale, mechanized crop production and value- added processing ; could also involve model plots and outgrower schemes for and knowledge transfer initiatives to involve smallholders Traders Small-scale traders purchase commodities at the farmgate and sell them on to agro-processors (e.g., mills, food processors) Warehouse receipt program Warehouse operators provide infrastructure and tools for fumigation, storage; and packaging of commodities. Collateral managers also provide receipt verification, financing, and deposit insurance . Development institutions, social enterprises Organizations provide support to farmers and fund initiatives all along the value chain, including by providing inputs, giving agronomic and business skill training, and enhancing market linkages Extension agents Free locally based government agents providing farmers with training on an ad hoc basis, including through field demonstrations and test plots Farmer cooperatives, SACCOs Producer associations whose objectives include increasing access to improved inputs, extension services and market; some organizations, like SACCOs, have a long history of effectively providing loans and facilitating access to capital 4.4 AGRICULTURE – SECTOR CHALLENGES
  41. 41. 40 Currently, Tanzania is only utilizing ~30% of 37 million hectares of arable land SOURCE: FAOSTAT Non-arable 50.5 mil ha (53%) 11 15 20 30 31 41 48 65 Mozambique Zambia Kenya Ghana Tanzania Ethiopia Uganda Malawi Share of arable land used under agricultural production, % Total arable land Million ha Total Tanzania land 100% = 88.5 million ha Arable land utilization 100% = Non-arable Arable 2011 88,580 58 42 5 14 36 37 16 27 23 49 1 4.4 AGRICULTURE – SECTOR CHALLENGES
  42. 42. 41 Key takeaways 3 1 5 17 18 32 36 42 Uganda Mozambique Tanzania Ethiopia Ghana Zambia Kenya Malawi SOURCE: Ministry of Agriculture; FAO; FAOStats; IFPRI 8 9 22 29 49 28 30 2 Tanzanian farmers make negligible use of fertilizers on their plots 2007 2011 CAGR % -8 -7 11 13 7 15 29 10 Fertilizer usage Kg/ha Tanzania has very poor usage of inputs: fertilizer 4.4 AGRICULTURE – SECTOR CHALLENGES • Although fertilizer use in Tanzania has gone up in the past few years, Tanzanian farmers continue to apply ~40% less fertilizer/ha than their peers’ average usage • Low fertilizer usage is driven by a few factors – Poor access to credit: both farmers and importers/wholesalers suffer from financing gaps – Farmer information constraints: inadequate agronomic knowledge on proper use of fertilizer for specific crop types and ecological conditions Related to financing gap2
  43. 43. 42 …as they face several challenges in accessing and purchasing them, despite their many benefits 83 17 100% = 2011 37.2 M ha Planted area with improved seeds, % With improved seeds Without improved seeds Tanzanian farmers make little use of improved seeds … SOURCE: FAOStats; team analysis Tanzania has very poor usage of inputs: improved seeds • Demand for improved seed by Tanzanian farmers is diminished because of number of factors, including – Lack of smallholder pricing power: fragmentation of farmer base inhibits negotiating power through bulk purchases – Inadequate access to financing: credit provision for farmers and agro-dealers is limited; banks do almost no lending to the former, and do limited lending to latter via credit guarantees – Poor government subsidy program administration: government subsidy payments to agro-dealers are often late and sometimes subsidy vouchers are not honored at point of redemption – Underdeveloped capacity of agro-dealers: low incentive to serve smallholders because of the high cost of service and lack of business skills to weather low-margin business Related to financing gap 4.4 AGRICULTURE – SECTOR CHALLENGES 2
  44. 44. 43 67 33 100% = 5.8 M households Households receiving extension advice, % Extension advice received Extension advice not received SOURCE: National Sample Census of Agriculture 2007/2008; Wageningen University and Research Center; IFPRI … and even those receiving them face serious challenges in the quality and efficacy of services provided Relatively few smallholder households have access to extension services… Tanzanian farmers receive low-quality extension services to assist them in their cultivation practices • Extension services are essential to enhancing agricultural productivity by teaching smallholders farm management skills including, inter alia, correct land preparation, timely planting, pest and disease control, and soil nutrient balancing • Extension in Tanzania is almost entirely financed by the government via the Ministry of Agriculture Food Security and Cooperatives (MAFC) • The provision of adequate extension services is limited by a few factors, including – Low budget allocation: insufficient funding to hire an adequate number of personnel and provide them with resources to carry out impactful demonstrations and field experiments – Late budget disbursement: sporadic and often delayed payments of extension workers and for tools – Poor capacity: extension workers suffer from low education levels and weak morale, thus limiting their ability to counsel farmers – Weak transport infrastructure: absence of reliable means (roads, public transport, etc.) for extension workers to reach farmers Related to financing gap 4.4 AGRICULTURE – SECTOR CHALLENGES 3
  45. 45. 44SOURCE: National Sample Census of Agriculture 2007/2008; IFAD; Team analysis 1.8% 2.1% Not stored 16.4% In locally made traditional structure 33.6% In sacks/open drum 44.5% In airtight drum In improved locally made structure Few Tanzanian farmers have access to proper storage options … Method of harvest storage % … due to the absence of infrastructure and financing options Although 90% of smallholders store their produce, most use suboptimal conditions and put their commodities at risk Related to financing gap Ideal storage methods • Having adequate access to storage facilities is important because it enables producers to maintain the integrity of their surplus produce; post-harvest losses range from 25 to 35% of yield in areas where that lack proper facilities • Storage is also crucial to enable farmers to hold their post-harvest commodities to take advantage pricing cycles • However, a dearth of storage infrastructure, a lack of access to credit, and their immediate need for cash prevents farmers from investing in storage infrastructure and/or holding on to their commodities for the desired length of time 4.4 AGRICULTURE – SECTOR CHALLENGES 4
  46. 46. 45SOURCE: National Sample Census of Agriculture 2007/2008; Team analysis 0% 1% 1% 1% 2% 3% 5% 5% 15% 67% Government regulatory problems Marketing problems Cooperative problems No buyer Lack of market information No transport Crop market too far Transport cost too high No problem Open market price too low Low prices are the biggest driver of dissatisfaction for farmers Several challenges remain in redressing marketing gaps Farmers experience various marketing problems when selling their produce Related to financing gap • Most households report that the open market price for their produce is too low; this is driven by a number of factors, including – Non-consolidated aggregation/off- take: fragmentation of producer base leads to weak negotiating power against traders – Poor price discovery: inadequate farmer ability to discern market prices and drivers – Weak market linkages: few relationships between farmers and agro- processors/other end customers in high- touch production and marketing arrangements (e.g., outgrower schemes, contract farming) – Government policy: export bans on staple crops prevent farmers from taking advantage of higher prices in neighboring countries 4.4 AGRICULTURE – SECTOR CHALLENGES 5
  47. 47. 46SOURCE: Comprehensive Africa Development program (CAADP); TAFSIP 99 1 Share of agro-products processed, % Not processedProcessed Tanzania does negligible value addition to its agro product The challenges to the agro-processing industry are manifold The level of value addition through agro- processing in Tanzania is very low Related to financing gap • Tanzania is exporting unprocessed agro-products when the agro-processing industry cannot meet domestic demand • Only an estimated 1% of Tanzania agricultural produce is processed compared to between 20 and 70% for some medium-level third-world countries • The low capacity in agro-processing is driven by a number of factors, including – Poor physical infrastructure in rural areas, with a dearth of all-weather roads – Limited private-sector participation and a low level of investment by farmers and agribusiness enterprises, accentuated by the reluctance of banks to lend for agricultural and agro-industrial investments – Limited knowledge of value-adding opportunities and innovative marketing approaches such as contract farming, outgrower schemes, warehouse receipts, commodity exchanges, options trading etc. 4.4 AGRICULTURE – SECTOR CHALLENGES 6
  48. 48. 47 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 12-201311-1210-1109-1008-0907-08 % of the total budget Total government budget Total agriculture sector budget Key takeaways SOURCE: Calculations based on MAFAP public expenditure database for the URT Comparison between agriculture sector budget against total government budget, TZS Billions Government spending in agriculture and related services is low Public expenditure in direct and indirect support of the agriculture sector has lagged targets 1 Agricultural research, extension services, payment to producers, storage, training, inspection etc. • The Comprehensive Africa Agriculture Development program (CAADP) targets 6% annual growth in the agricultural real GDP by allocating 10% of the national budget to the agricultural sector1 • However, this is not the case as the agriculture sector has only been getting an average of ~6% of the national budget for the past 6 years • TBD 4.4 AGRICULTURE – SECTOR CHALLENGES 6
  49. 49. 48 A number of stakeholders are driving several initiatives to improve value chain dynamics Description Southern Agriculture Growth Corridor for Tanzania (SAGCOT) • Facilitating the establishment of linkages between smallholders and large commercial farms • Modern irrigation system will increase productivity Agricultural Sector Development Program (ASDP) • Improvement of farm inputs accessibility • Construction and rehabilitation of infrastructure • Promotion of agricultural mechanization Agro-dealer program • Improved input use and increased output • Increased number of traders involved in agribusiness Marketing Infrastructure, Value Addition, and Rural Finance (MIVARF) • Kilimo Kwanza (Agriculture First) is an initiative aimed at mobilizing all sectors of the economy to bring about an agricultural revolution in Tanzania. • The pillars of Kilimo Kwanza are: financing, policy, and regulatory incentives for increased private sector investments Rural Micro, Small, and Medium Enterprise Support Program (MUVI) • Radio Stations used to spread the message regarding the Muvi programs • In rural areas, stations took the initiative to get the local people to assist with the training to interview people with the aim of covering issues/areas within the Muvi program Southern Highlands Food Systems Program (SHFS) Main sponsor (s) • The Southern Highlands Food Systems Project is under implementation by FAO in Tanzania, with funding from Germany Type • Improve productivity and security in the southern region • Improve production and productivity • Enhance input access and build capability • Increase financing and development of market infrastructure • Provide financing services • Enhance technical support and capacity building 4.4 AGRICULTURE – SECTOR CHALLENGES
  50. 50. 49 Agenda SOURCE: Source Sector analysis – agriculture Sector analysis and challenge identification Assessment of financial service needs and gap analysis Digital finance plus feasibility assessment Readiness framework Access to and reach of mobile infrastructure Adoption and reach of digital finance infrastructure Role of the government and regulation Sector analysis – energy Sector analysis – water Sector analysis – health Sector analysis – education
  51. 51. 50 Key takeaways: Agriculture sector financial service need and gap analysis AGRICULTURE – FINANCIAL SERVICE NEEDS AND GAP ANALYSIS 5.1 Financial service need along value chain 5.2 Financial gap analysis along value chain 5.3 Barriers to provision of financial products • Similar to many peer countries in SSA, there is a clear disconnect between the importance of agriculture to the Tanzanian economy and general access to financing – although agriculture accounts for ~30% of the GDP, only ~10% of commercial lending goes to the sector • Even where financial products are offered to farmers, they are only available to a small niche relative to the wider smallholder base – beneficiaries tend to belong to strong producer associations, grow horticultural or other types of cash crops and have strong relationships with a monopsonic value chain actor (e.g., outgrower and contract farming schemes with agroprocessors) • The needs of smallholders are only being met to a limited extent – Loans: minimal access of credit to farmers; few national banks lend to select producer associations with extremely high collateral requirements at market rates of 25%; MFIs (e.g., FINCA, Pride) also lend to producer associations, but at high rates of 50-200%, while village-level moneylenders extend credit at extremely burdensome rates of up to 300% – Insurance: extremely rare, except for nascent efforts within “closed loop” market ecosystems in which a partnership of value chain actors (e.g., Sacau project by Monsanto, Yara, Barclays) provide weather-indexed crop insurance bundled with other financial products (e.g., input credit) and collateralized with warehouse deposits, often only covering the value of inputs (not the entire harvest value) – Agronomic, weather, and market information: only 7,000 extension workers nationally, thus providing minimal frequency and quality of agronomic support to farmers; however, there are a number of mobile-based applications (e.g., Tigo Kilimo by Tigo, by Kilimo Salama by Snygenta Foundation), directly reaching farmers via helplines and SMS to provide advice on farm management, weather forecasts, market price information, etc. • Smallholder farmers and other players have a range of finance-related needs across the value chain, including – Loans: short and long term lending for acquisition of inputs (seeds, fertilizer, agro nutrients), access to mechanization during plan- ting (tractor rentals), harvesting once crops are ready (extra labor hire), to market based on pricing cycles – Insurance: protection against extreme hydrological conditions (e.g., drought, excess rainfall) to recoup investment in inputs and labor – Agronomic, weather, and market information: knowledge on farm management best practices (e.g., input application, disease control), localized weather forecasts, and market prices by crop and geography – Smallholder farmers/SMEs in the agriculture sector are a low priority segment for most financial institutions due to the unmanageable risk and high cost-to-serve, low presence of collateral, and variability of harvest performance
  52. 52. 51SOURCE: IMF; Central Bank data 30 22 30 24 29 25 44 28 31 1 44 6 8 101112 15 NigeriaKenyaMozam- bique Sub- Saharan Africa2 EthiopiaTan- zania Malawi GhanaUganda Agriculture as a share of GDP and commercial bank lending, 20081 , in % % Lending% GDP 1 2008 reflects latest available data 2 Commercial bank lending across SSA is estimated at <10%, with the exception of Malawi, Tanzania and Uganda 5.1 AGRICULTURE – FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN As in much of SSA, a clear disconnect exists between the importance of agriculture to the Tanzanian economy and general access to financing Key takeaways • Agriculture is a key driver of the Tanzanian economy, contributing 28% of GDP • The agriculture sector has limited access to commercial bank lending: it receives on average 2-3 times less credit than its fair share based on GDP contribution
  53. 53. 52 Many of the value chain gaps are related to limitations in the meeting of smallholder and other actors’ financing needs The nature of the agricultural sector makes providing financing less desirable • Unique risks – High operational and price risks due to weather, disease/pests, makes it hard to diversify for banks in many monoculture regions – Seasonal and multiyear cycles • Time inconsistency – Lag exists between investment needs and expected revenues – Need patient capital with a long horizon and a tolerance for risk • High transaction costs – Loans are often in small amounts – Borrowers are often dispersed in remote/rural areas with no distribution access • Informality leads to a lack of collateral and information – Absence of land titles or registered assets – No financial statements or credit score from credit bureau • Low level of financial literacy – Limited understanding of the benefits of financial services and products • Governance – Substantial government intervention is increasing uncertainty – Subsidies and repeated debt forgiveness are creating a moral hazard 5.1 AGRICULTURE – FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN
  54. 54. 53 Financing for staple crops, which constitute the largest share of Tanzanian production, is especially challenging SOURCE: Expert interviews; literature review Markets for staple crops are often highly politicized Staple crops require significant economies of scale to attract financing Lack of product differentiation makes it harder to finance staple crop value chains • Small producers often compete with larger, more efficient producers in the country/region • Scale is often required to ensure quality (e.g., through mechanization, storage infrastructure) • The presence of multiple traders and intermediaries increases the risk of diversion and side selling unlike in cash crops, which are more integrated • Food reserve purchasing by governments creates unpredictability • Legacy of government supply/subsidy of inputs distorts the market but is hard to reform 5.1 AGRICULTURE – FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN
  55. 55. 54 Smallholder farmers and other value chain players have a range of finance-related needs across the agricultural value chain SH = smallholder AD = agro-dealer EA = extension agents PS = other private sector Gov = government 1 432 65 Financingneeds • PS: long-term loans to private enterprise to: a) build agro- processing plants; and b) on-lend to farmers participating in outgrower/contract farming schemes • SH: market information systems to enable easy price discovery • SH: depository accounts (checking and saving) to park cash following commodity sales • SH: payment receipt for commodity transactions • SH: short-term loans and credit guarantees to store commodities until ideal market period • PS: long-term loans to rehabilitate warehouses and expand capacity • PS: deposit insurance to protect stored commodities from fire, theft, etc. • Gov: long-term loans to build/refurbish roads and other “last mile” rural infrastructure • SH: long-term credit to purchase/ lease/rent tractors and other advanced equipment/ machinery • SH: agronomic information transfer from agricultural professionals • SH: weather- indexed insurance policy to cover drought- related losses • EA: salaries/payment receipt to fund transmission of agronomic expertise and carrying out of experiments with farmers • SH: short-term loans to purchase seeds, fertilizer, and agro nutrients • SH: third-party credit guarantees to procure inputs • SH: payments to facilitate transactions with suppliers • SH: weather- indexed insurance policy to indicate credit- worthiness for input purchases • AD: short-term loans to maintain inventory and extend credit to SH • SH: long-term credit to expand plot through lease and/or purchase of additional land 5.1 AGRICULTURE – FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN
  56. 56. 55SOURCE: Organization websites; press search; expert interviews; team analysis A number of players meet the sector’s financing needs to a very limited extent Number/reach of existing initiatives Minimal Moderate LimitedN/A Minimal but efforts underway 1 432 65 Information Short term Long term Product/receive- ables finance Credit Value chain lending Physical asset collateralization Insurance Credit guarantees Savings Payments 5.2 AGRICULTURE – FINANCIAL GAP ANALYSIS ALONG THE VALUE CHAIN
  57. 57. 56 DF+ can address some of the financing gaps in the agriculture value chain (1/3) Input provision2 1.1 Value chain gap DF+ so- lutionDrivers Finance need Existing services Barriers ►Lack of access to short- term credit for smallholders to purchase inputs • Farmers participating in closed-loop agriculture eco- systems (e.g., Sacau project by Monsanto, Yara, ETG and Barclays) receive purpose- tied loans based on future sale to off-takers (e.g., large traders, agro-processors) • Donor direct financing/credit guarantees within specific initiatives (e.g., AGRA in the SACGOT program) • Government input subsidy program • Banks’ reluctance to lend to farmers in the absence of collateral • Harvest risk posed by crop exposure to extreme weather variability • Weak market dynamics – insufficient off-taker demand for non-high-value food crops 2.1 Inadequate fertilizer application 2.2 Inadequate use of improved seeds ►Dearth of third-party credit guarantees ►Insufficient utilization of mobile payment platforms to facilitate transactions with suppliers • Widespread use of mobile money apps like Tigo-Pesa, M-Pesa, and AirtelMoney – ~50% of adults are currently subscribers • Mobile phone penetration is relatively high (75% of the population) – but the poorest smallholders do not own handsets 2.4 Inefficient government input subsidies ►Non-digitization of input vouchers and administrative complexity of redemption process • Government program disburses paper-based vouchers to DALDOs1 for distribution to smallholders – the processes of application, verification and redemption ends with agro-dealer payment entailing 7+ handoffs • Agro-dealers, who rely on subisdies for up to 20% of total sales, are thus often paid up to 12 months late • Lack of adoption of digital platforms/mobile money, malfeasance by district-level government officials 1 District Agriculture and Livestock Development office DF+ solution Add-on to core DF+ solution)( 5.3 AGRICULTURE – BARRIERS TO PROVISION
  58. 58. 57 DF+ can address some of the financing gaps in the agriculture value chain (2/3) Production3 1.1 Value chain gap DF+ so- lutionDrivers Finance need Existing services Barriers ►Low levels of farmer education on agronomic best practices (e.g., land preparation, input application, disease diagnosis) • Smallholders have very low levels of formal schooling and employ age-old tactics, not having adopted many modern techniques • Infrequent and poor quality access to government extension services • Mobile-based applications (e.g., TigoKilimo) are beginning to provide customized agronomic advice • Lack of widespread training programs, demonstration plots, field trials etc. • Remoteness and dispersion of farmsteads • Infrequent use of mobile solutions even where subscribed 3.1 Farmer information constraints 3.2 Heavy crop and economic losses to weather variability ►Insufficient access to localized market information ►Crop exposure to extreme weather conditions without insurance protection ( ) ( ) • Few widely accessible market price indices exist • Mobile-based applications (e.g., TigoKilimo) are beginning to provide localized market data • Farmer distance from physical markets • Monopoly of information by traders ( ) ( ) • Weather-indexed crop insurance plans are bundled with other financial products and available to farmers participating in closed-loop market ecosystems with major value chain actors • Absence of deep microclimate data • High insurance plan premiums • Exclusion of the majority of smallholders from integrated value chain ecosystems DF+ solution Add-on to core DF+ solution)( 5.3 AGRICULTURE – BARRIERS TO PROVISION
  59. 59. 58 DF+ can address some of the financing gaps in the agriculture value chain (3/3) Storage and Distri- bution 4 1.1 Value chain gap DF+ so- lutionDrivers Finance need Existing services Barriers ►Insufficiently developed warehouse infrastructure • The majority of smallholders currently sell their produce to small-scale traders at the farmgate immediately following harvest • The value of crops can be up to 60% higher during times of peak market prices • Warehouse Receipt Systems are being implemented in certain value chains – farmers deposit produce after harvest and receive a medium-term loan for a portion of crop value until the full balance is settled, with the ultimate sale occurring in more ideal market conditions • Sparse presence of storage facilities • Poor management and operations of warehouses • Farmers’ immediate cash need after harvest 4.1 Unavailability of storage warehouses 4.2 Farmers’ post-harvest need for liquidity ►Farmers’ inability to hold on to crops until optimal market conditions DF+ solution Add-on to core DF+ solution)( 5.3 AGRICULTURE – BARRIERS TO PROVISION OF FINANCIAL PRODUCTS
  60. 60. 59 Agenda Sector analysis – agriculture Sector analysis and challenge identification Assessment of financial service needs and gap analysis Digital finance plus feasibility assessment Readiness framework Access to and reach of mobile infrastructure Adoption and reach of digital finance infrastructure Role of the government and regulation Sector analysis – energy Sector analysis – water Sector analysis – health Sector analysis – education
  61. 61. 60 Key takeaways: Agriculture sector Digital Finance Plus solutions feasibility AGRICULTURE – DIGITAL FINANCE PLUS SOLUTION FEASIBILITY 6.1 Potential applications of DF+ to address barriers 6.3 Scaling and execution capabilities 6.2 Viability of observed and potential business models • DF+ can play a positive role in helping to address several of the financing gaps faced by smallholders in agriculture by facilitating financial linkages between value chain actors, decreasing transaction costs, promoting transparency in the flow of commodities and financial products, powering the aggregation and analytics of data (behavioral, agronomic, and market), and enhancing contract enforceability • Consequently, several value chain actors are partnering to provide innovative applications that enhance farmer access to financing and increase farmer incomes. The most noteworthy products already in operation and/or under development for the near term include: i) Warehouse Receipt System based post-harvest credit provision; ii) input loans through closed-loop agriculture ecosystems; iii) information portals for agronomic, weather, and market data; iv) e-wallets for input subsidy administration; and v) weather-indexed crop insurance to protect against extreme weather conditions • The current landscape of DF+ solutions is mostly driven by value chain actors, including seed and fertilizer companies (e.g., Monsanto, Yara) and agro-processors (e.g., ETG), with the notable exception of the most successful agronomic information portal, which is primarily driven by Tigo, a telco company • Financial institutions lend directly to producers or producer associations in extremely rare cases – however, banks like NMB and Barclays are extending credit with heavy collateralization/security guarantee through value chain actors • Scaling of DF+ solutions is hampered by several non-finance-related challenges, including – Producer organization and entrepreneurship: many farmers are not encompassed in market-based associations and lack the business knowledge to self-organize and form enterprising collectives – Supply/demand market dynamics: the provision of financing is closely linked with robust markets for particular crops, consequently favoring producers of high-value crops with market for agro-processing and export (e.g., white maize, sunflower, coffee)
  62. 62. 61 The in-country interviews have generated new insights into the agriculture sector (1/4) “For all the efforts to make farmers entrepreneurs and link them to markets and such – we should keep in mind that many smallholders are simply not attractive/eligible for such enablement” – Seed company executive “Simply providing credit does not address more fundamental questions – is there a sustainable growing demand for the crop being grown by the farmer? And does the farmer think, act, and manage his farm like a business?” – Seed company executive Key insights Indicative quotesInterviews conducted • Bill and Melinda Gates Foundation (BMGF) • East Africa Seed Co. Ltd • Faida Market Link (Faida MaLi) • Ministry of Agriculture • Monsanto • President’s Delivery Bureau • Syngenta • Seed Co Tanzania • Tujijenge • Tanzanian Horticultural Association (TAHA) • Tigo • USAID 1. Supply/demand dynamics in the market, as well as the entrepreneurial profile of farmers, are the fundamental drivers of commercial viability of credit provision and other financing support • Credit is best targeted at particular types of farmers, with characteristics including – Entrepreneurial saavy and commitment: young, early adopters who have already demonstrated a desire for business improvement through installation of irrigation systems, crop rotation, hybrid seed usage, etc. – Ideal farm size/crop profile: farm sizes of 5-50ha, (not too small, but not so big that they are commercial size with access to “regular” credit from VC actors and/financial institutions); produce horticultural, dairy, white maize, etc. – Demand-driven need for loan capital: Year-over-year on demand growth for a crop that is not imported, providing an impetus for farmers to grow their businesses, for which they will need investment 2. Many of the new financial products being offered are only available to a small niche of farmers relative to the wider smallholder base • Farmers who are eligible for input credit, crop insurance, warehouse receipts, etc., usually: a) belong to a strong producer collective; b) grow horticultural or other types of cash crops; and c) have a strong relationship with a monopsonic value chain actor (e.g., outgrower schemes to supply a brewery with barley) 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  63. 63. 62 The in-country interviews have generated new insights into the agriculture sector (2/4) Key insights Indicative quotesInterviews conducted “We have had 40 years of socialism in this country – we have to teach farmers fundamental things before we erase the everything-is-for-free attitude and the fundamental ignorance about a capitalistic market system” – Producer association executive “We can show great results for our work – farmers whom we have helped are demonstrably better off - but we have barely scratched the surface and expanding our efforts requires donor financing” – Producer association executive 3. Organization, farmer education, and aggregation are major prerequisites to providing input financing, linking to markets, etc. The following interventions are generally required • Association: organizing farmers into formal associations with a collective mission, constitution, negotiation power etc. • Training: farmer education on use of inputs and collective marketing; business and technical skills training including “farming as business” • Aggregation and storage: building/renovating storage facilities and mobilized associations to implement WRS; achieving certification by Tanzania Warehouse Licensing Board • Mindsets and behaviors: make farmers more entrepreneurial. “We have had 40 years of socialism in this country, so many still have some version of everything-is-for-free and the state- takes-care-of-all attitudes” 4. Donor support is still key to enabling producer supporting organizations • Successful NGOs helping farmers to organize have succeeded in achieving significant results in enhancing farmer incomes – one succeeded in increasing farmer income from for paddy from Tsh 200/kg to 450/kg by facilitating building and management of warehouses • However, donors heavily subsidize renovation of warehouses and introduction of improved storage and management practices – the NGO still relies on funds for financing its own operational needs • Bill and Melinda Gates Foundation (BMGF) • East Africa Seed Co. Ltd • Faida Market Link (Faida MaLi) • Ministry of Agriculture • Monsanto • President’s Delivery Bureau • Syngenta • Seed Co Tanzania • Tujijenge • Tanzanian Horticultural Association (TAHA) • Tigo • USAID 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  64. 64. 63 The in-country interviews have generated new insights into the agriculture sector (3/4) “We provide loans to farmers – but our conditions are often highly prohibitive, and our rates are fundamentally unattractive” – MFI executive “It is ultimately good business for us to enable farmers to buy higher quality inputs – but we can’t go at it alone” – Seed company executive “We have big plans for the future, but first we have to get farmers comfortable with us” – Telco executive Key insights Indicative quotesInterviews conducted 5. Most farmers have some access to credit – but it is often through informal networks and entails extremely burdensome terms • Several actors lend money to farmers – local moneylenders, who charge exorbitant rates (up to 300%) and MFIs whose rates are also high (50-200%). A few banks (NMB, Stanbic) also do extremely selective lending at reasonable rates (e.g., 25%) but in highly controlled circumstances (e.g., with WRS deposits as collateral and guaranteed off-takers) 6. Seedcos and other major input suppliers are willing to participate in closed-loop marketing ecosystems in which they contribute to farmer financing • Syngenta, Yara, and other input suppliers have collaborated with FIs like Barclays to launch pilot initiatives to help “emerging farmers” secure comprehensive financing for procuring inputs and selling produce directly to agro- processors • The objective is to ultimately create wider demand for their own goods, as farmers who experience commercial success buy hybrid seeds and fertilizer more frequently 7. Building farmer trust and fidelity is an essential prerequisite to commercializing mobile solutions like agro information apps • Tigo enables farmers who sign on to its TigoKilimo to use highly discounted services to prove its efficacy and build trust before eventually moving onto higher profit generating features • Bill and Melinda Gates Foundation (BMGF) • East Africa Seed Co. Ltd • Faida Market Link (Faida MaLi) • Ministry of Agriculture • Monsanto • President’s Delivery Bureau • Syngenta • Seed Co Tanzania • Tujijenge • Tanzanian Horticultural Association (TAHA) • Tigo • USAID 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  65. 65. 64 Key insights Indicative quotesInterviews conducted The in-country interviews have generated new insights into the agriculture sector (4/4) “We have nearly $100,000 in unpaid vouchers from the government from last year’s harvest season” – Agro-dealer executive • Bill and Melinda Gates Foundation (BMGF) • East Africa Seed Co. Ltd • Faida Market Link (Faida MaLi) • Ministry of Agriculture • Monsanto • President’s Delivery Bureau • Syngenta • Seed Co Tanzania • Tujijenge • Tanzanian Horticultural Association (TAHA) • Tigo • USAID 8. An E-wallet in which all of farmers’ financial transactions are put in a virtual bank account and are facilitated by a payment platform could have a tremendous impact on making financial flows transparent and efficient • SeedCos report that up to 20% of all revenue is driven by government input subsidy schemes • High degree of inefficiency in the issuing, circulation, and processing of vouchers; a single batch of vouchers can pass through 7 steps from issuance to redemption • This leads to frequent cases of system corruption and frequently late payments to agro suppliers 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  66. 66. 65 DF+ can help in addressing some of the gaps in the Agriculture value chain 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS Detail follows Value chain segment Challenges Product evaluation Finance as barrier DF+ potential No other barriers Assessment of applicability of DF+ solution 1.1 Small arable land utilization 1.2 Limited average plot size 2.1 Inadequate fertilizer application 2.2 Weak demand for improved seeds 2.3 Underdeveloped capacity of agro-dealers 2.4 Inefficient government input subsidies 3.1 Farmer information constraints 3.2 Weak extension services 3.3 Low levels of mechanization 3.4 Heavy exposure to weather variability 4.1 Unavailability of storage warehouses 4.2 Post-harvest need for liquidity 4.3 Underdeveloped rural infrastructure 5.1 Low levels of commercialization 5.2 Non-consolidated aggregation/off-take 5.3 Poor access to market information 5.4 Weak market linkages 6.1 Low level of private investment Land Input provision Production Storage & Distribution Marketing Processing high low
  67. 67. 66 Based on the analysis of the current state and barriers to scale, we suggest 5 DF+ applications for your further consideration Top challengesDescriptionDF+ product Unavailability of storage warehouses 4.1 1. Product financing 2. Storage facilities 3. Qualities and standards 4. Market price information availability • Inventory-based credit provision to farmers for certified commodities held in storage at warehouses • Digital Warehouse Receipt System- based medium-term loans Addressed Agriculture sector challenge A Post-harvest need for liquidity 4.2 Inadequate fertilizer application 2.1 1. Product financing 2. Farmer eligibility 3. Value chain actor coordination 4. Side-selling risk • Post-harvest, off-take-linked input loan for farmers in agriculture value chain ecosystems • Input credit for small- holders in closed- loop ecosystem of integrated value chain actors B Inadequate usage of improved seeds 2.2 Inefficient government input subsidy program 2.4 1. Farmer education 2. Mobile phone penetration 3. Privacy 4. Product financing • Mobile phone platform for digital issuance, verification, and redemption of input vouchers • E-wallet for government input subsidy disbursement C D Heavy crop losses to extreme weather 3.4• Insurance product to mitigate the risk of extreme weather events with digital purchase, claims filing, resolution, and payout • Weather-indexed crop insurance enabled by digital platform 1. Product financing 2. Weather condition and crop yield correlation modeling 3. Depth of historical weather data Farmer information constraints 3.1• Digital portal for collection and dissemination of agronomic, weather and market data, with extension of financial products based on detailed consumer profile • Mobile system for agriculture informa- tion dissemination and collection of smallholder data E 1. Primary information access 2. Usability of collected data 3. Marketing 4. Distribution 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  68. 68. 67 Digital Warehouse Receipt System-based medium term-loans (1/3) Financial instrument Credit provision based on warehouse crop deposits Target audience Smallholders participating in WRS Product provider Financial institutions + agro-processors Value propositionProduct details Overall value proposition • Providing farmers access to credit based on deposited collateral • Improving farmer income by allowing choice on when to sell in the pricing cycle • Reducing post-harvest losses due to poor storage conditions • Smoothing the supply of produce and price volatility in the market • Helping to create commodity markets that promote aggregation, competition, and trade Core product features • Mechanism to mobilize credit to farmers by creating secure collateral for processors and traders • After harvest, the farmer deposits crop in a licensed warehouse and receives a certificate verifying the quantity and quality grade of the commodities • Based on the certified amount, the bank extends a short-term loan to the farmer for a certain portion of the crops’ value (percentage of total commodity X average price of commodity over benchmark period) • Before the loan matures (6-to 9-month period), the farmer sells his crop to an agro- processor or trader who pays the entire value of the crops into the WRS bank account • The bank deducts the principal and interest owed, then deposits the balance into the farmer’s mobile money account Potential extensions • Purpose-tied savings accounts: farmers may elect to leave a portion of post-harvest sales in the mobile account for an interest-bearing savings account, which they can use to procure inputs at the beginning of the next planting season • Futures contracting: farmers and agro-processors can enter into agreements to produce and trade commodities of a specified quantity, quality, price, and timing; the agreements are considered completed once commodities are deposited into warehouse DF+ specific value proposition • Digital issuance of warehouse deposit certificate • Mobile money transfer by bank into farmer account for interim credit and final sale amount Product summary • Inventory-based credit provision to farmers for certified commodities held in storage at warehouses Financial needs addressed • Farmers’ need for liquidity in the immediate aftermath of harvest • Farmers’ option to sell produce at time of peak prices A 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  69. 69. 68 Digital Warehouse Receipt System-based medium term loans (2/3) Low High Detailed impactFeasibility assessment: business model Feasibility assessment: enabling environment Feasibility • Moderately feasible: successful WRS schemes have been implemented in Tanzania, but widespread scaling is hampered by the lack of a few key enablers, including storage infrastructure and quality and grading standards Potential impact • High impact: farmers net significantly higher incomes (up to 65% for some crops) when given access to adequate storage facilities and short- term liquidity to meet their immediate cash needs Government regulation • GoT has developed Warehouse Receipt Act laws and a Warehouse Licensing Board to facilitate WRSs Telco • Integrating new farmer WRS accounts with a mobile money platform is relatively easy Product financing • The upfront cost of renovating and operationalizing warehouses is high and may require donor financing; in steady state, WRSs can become commercially viable/self-financing • Net earnings per kilogram through WRS are 20-65% higher than non-WRS subscribers – e.g., for cashew, prices through middlemen were 1,000 TShs/kg, whereas prices through WRS were1,300 TShs/kg; for sunflower, prices were 450 TShs/kg through middlemen and 650 TShs/kg through WRS Storage facilities • Famers who are members of producer associations or cooperatives often have access to physical storage infrastructure, although best-practice fumigation and packaging, as well as professional management, are a challenge A Qualities and standards • Quality standards need to be specific enough to give clear definitions of quality grades – Tanzania Bureau of Standards currently has moderate capability in this area Market price fluctuation and information availability • General price increase in the harvest season is essential enabler and present in Tanzania; however, tracking prices for certain commodities can be a challenge in the absence of location-specific indices 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  70. 70. 69 Digital Warehouse Receipt System-based medium-term loans (3/3) Case examplesGo-to-market model NMB Warehouse Receipt System • NMB has implemented a WRS financing system in Tanzania • ~30 warehouses have been licensed, with ownership by farmer associations as well as private operators • About 7 crops are covered under the scheme (coffee, pigeon peas, cashew, paddy, sunflower and sesame) • Initiatives are underway to establish a Commodity Exchange for efficient marketing • In 2011, NMB conducted $73 million of business through the WRS schemes A • Agro-processors and banks consult with producer organizations to develop WRS based on buyer and seller needs • Banks and agro-processors receive support from development institution to upskill and license existing warehouses • Operation and management of warehouses is conducted by farmer organizations or subcontracted to private- sector players 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  71. 71. 70 Input credit product for smallholders in closed-loop ecosystem of integrated value chain actors (1/3) Financial instrument Input loan by repayment linked to harvest Target audience Smallholders in integrated market ecosystems Product provider Input companies + off- taker + warehouse Value propositionProduct details Overall value proposition • Provides farmers with access to purpose-tied credit to purchase the most critical production factors • Improves yield (quality, consistency, and volume output) of crops and secures higher prices for farmer produce • Enhances sales of input suppliers – virtuous cycle of farmers investing in improved inputs • Guarantees off-takers quality supply of produce at a specified time and scale, with pre-agreed price/pricing formula Core product features • A contract farming arrangement integrating smallholders with major value-chain market actors to link them with financing, provide them with comprehensive agronomic support and guarantee off-take at the end of harvest • Highly organized, entrepreneurial group of “emerging farmers” (e.g., an “apex” comprising 200 farmsteads, each with minimum 5 ha and growing a horticultural crop) are included in a closed-loop system of seed and fertilizer suppliers (e.g., Monsanto), a warehouse, an off-taker (e.g., sunflower processor), and a financial institution • Farmers receive SMS-based vouchers from FI for acquisition of fertilizer, seed etc., with the primary risk born by the off-taker and secondary guarantee by input companies • Post-harvest, farmer delivers harvest to off-taker on pre-agreed quantity, quality, and price basis • Off-taker deducts cost of input before depositing balance of payment to farmers’ mobile account Potential extensions • Crop insurance: weather protection insurance could potentially be bundled with input, with portion of premiums paid by input companies to incent farmer seed purchases DF+ specific value proposition • Convenient payment platform eliminates need for paper vouchers and cash • VC actors can track the flow of funds and better enforce repayment Product summary • Post-harvest, off-take-linked input loan for farmers in closed-loop agriculture value chain ecosystems Financial needs addressed • Smallholder access to credit for input purchase • Convenient tracking and facilitation of financial flows between VC actors B 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  72. 72. 71 Input credit product for smallholders in closed-loop ecosystem of integrated value chain actors (2/3) Low High Detailed impactFeasibility assessment: business model Feasibility assessment: enabling environment Feasibility • Moderately feasible: successful cases of integrated ecosystems have been implemented, proving concept feasibility. However, scaling to wider smallholder base is inhibited by supply/demand dynamics and farmer characteristics Potential impact • High impact: farmers with improved access to inputs, complemented with on-farm support, have grown yields of major crops by up to 3 times Government regulation • No known government policy constraints Telco • Widespread adoption of M- Pesa, Tigo-Pesa, and other mobile money providers; building the user interface will be the only additional effort required Product financing • Value chain actors like input companies and agro- processors are willing to take risk for FI credit provision, in controlled circumstances as outlined • Improved access to hybrid seeds in closed- loop systems have led to dramatic improvements in yield – in white maize, for example, yield has jumped from 1-1.5 tons/ha, to 4 tons/ha Value chain actor coordination • Successful closed-loop system requires presence and coordination of all major VC chain actors • Pilot projects have proven coordination capability successful, although only on a small scale so far B Side-selling risk • Due to lack of legal enforcement mechanisms and the volatility of prices on the open market, only monopsonic off-takers are relatively protected from side-selling by farmers Farmer eligibility • Smallholders have to be organized into associations, adopt an enterprise mindset, have reasonably large landholdings, and grow crops that off-takers desire (e.g., white maize, sunflower) for value addition, among other requirements • Currently, a relatively small share of farmers fulfill most of the requirements above – the majority of farmers grow food crops, have small plots, and are not effectively organized 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  73. 73. 72 Input credit product for smallholders in closed-loop ecosystem of integrated value chain actors (3/3) Case examplesGo-to-market model Sacau project (Monsanto, Yara, Barclays, ETG) • Monsanto partnered with other input suppliers and a financial institution to provide farmers with financing and agronomic support • Closed-loop system with a contract-farming- type arrangement in which the off-taker is guaranteed purchase at a certain price after harvest • Identified about 200 “emerging farmers” producing white maize, with landholdings of 5- 10ha; bank provided 100% input financing based on a 75% credit guarantee provided by value chain actors • Resulting improvements of up 30% in yields, with commensurate increases in farmer incomes C • Input suppliers, mechanization service, off- taker, and financial institution form a partnership to target a specific segment of producers (based on crop, geography, entrepreneurial characteristics, etc.) • Farmers are provided with integrated, end-to-end financial products, as well as farm management support and business training 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  74. 74. 73 E-wallet for input subsidy disbursement and integrated hosting of all farmer financial flows (1/3) Financial instrument Digital wallet for input subsidy voucher disbursal Target audience Smallholders eligible for input subsidies Product provider Government + input supplier + telco Value propositionProduct details Overall value proposition • Subsidies are used for their intended purpose – minimal opportunity for intermediate actors to misappropriate • Reduces transaction cost: the current process requires 7-different handoffs between various government officials, private sector actors, and farmers • Encourages agro-dealers to meet seed and fertilizer demand as they can easily redeem vouchers • Value chain actors have transparency into the flow of inputs and funds in the system Core product features • Eligible farmers receive a defined percentage government subsidy on a specific number of bags of fertilizers and seeds on unique mobile accounts • Electronic vouchers with unique PINs for the subsidy amounts are issued by Ministry of Agriculture to farmers on SMS, which they receive based on their digital identity card • At the agro-dealer site, the farmer presents voucher PIN and pays for the balance using mobile money • If the farmer is a participant in a Warehouse Receipt System (WRS) scheme, digital account is used for payment upon deposit of harvest • Participating agro actors are able to trace aggregated and sanitized data on flow of inputs and funds in value chain Potential extensions • Post-harvest payments: WRS-linked farmers can conduct all financial transactions using the same mobile money account • Loan extension: over time, data collected on farmer usage of inputs and harvest output/sale at the end of the agro cycle can be used to assess need and worthiness for purpose-tied loans by financial institutions DF+ specific value proposition • Convenient payment platform eliminates need for paper vouchers and cash • Unique digital tag identifies individual farmers Product summary • Mobile phones platform to enable farmers to conduct basic transactions and make payments for direct input access Financial needs addressed • High administrative expense of running input subsidy programs • Frequent issues faced by agro-dealers in redeeming vouchers • Misuse/misappropriation of government subsidies C 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  75. 75. 74 E-wallet for input subsidy disbursement and integrated hosting of all farmer financial flows (2/3) Low High Detailed impactFeasibility assessment: business model Feasibility assessment: enabling environment Feasibility • Highly feasible: widespread mobile phone ownership and mobile money usage make voucher system addition relatively easy Potential impact • High impact: Smallholders will be able to improve crop yields by having easier access to improved seeds and fertilizer. Agro- dealers will be able to redeem value of government vouchers, and therefore become more willing to meet farmer demand Government regulation • No known government policy constraints Telco • Widespread adoption of M- Pesa, Tigo-Pesa, and other mobile money providers; building the user interface will be the only additional effort required Product financing • The Government of Tanzania, backed by the World Bank, already runs a large input subsidy program; funding development of e-wallet system easily paid for through subsequent savings realized • Agro-dealers estimate that up to 20% of their entire business is funded through government input subsidies; frequent delays and the several hand-offs required for redemptions drastically erode profit margins • In the Nigerian pilot program, a 2-year program has reached 5 million farmers and is estimated to have enhanced the food security of 25 million people in rural farm households Mobile phone reach • E-wallets require access to mobile technology by smallholders; currently, Tanzania has a very high penetration of mobile access, with ~60% of the population having access, including the rural farmer base Farmer education • Extension workers, NGOs, and other agriculture actors will need to train farmers on usage of virtual system, but this is a relatively easy task given high levels of literacy and mobile phone usage Privacy • Collection of metadata may be non-objectionable, but farmer-specific information has the potential for misappropriation C 6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS
  • GailZuniga

    Dec. 6, 2017
  • SondreAsdl

    Aug. 1, 2016
  • bhavaniy1

    Aug. 29, 2015
  • sitaramerchant

    May. 30, 2015
  • slifko

    May. 15, 2015
  • AsifAdeni

    May. 15, 2015

CGAP and McKinsey conducted an analysis to determine Tanzania's readiness for digital finance applications in 5 sectors.

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