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Last mile partnerships webinar presentation


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Summary of baseline insights for building or enabling businesses partnerships to better serve smallholders.

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Last mile partnerships webinar presentation

  1. 1. 28 February / 1 March 2017 Last mile partnerships for smallholder finance Early findings from a study of four value chain / technology FRP winners looking to partner with financial institutions Webinar
  2. 2. Agenda Context and objectives Preliminary guide for last mile firms, and further reading Supporting factors 1 3 2 5 4 Partnership potential and motivations Challenges to partnership formation
  3. 3. Context and objectives
  4. 4. NGO / Public agency Farmer aggregation Technical assistance Loan origination and collection R&D and other back office Market access Cost of capital Value chain actor Financial institution Farmer supportFinancing Financing moves off value chain actor balance sheet Leverages existing value chain actor-farmer interactions NGO/ public agency supports financial institutions and agri-product development and system building Guaranteed through buyer participation Buyer has incentive to train farmers to increase production quality and volume NGO / public agency supports value chain actor with farmer aggregation Close relationship also lowers risk for the fin. institution Change in cost bearing responsibility ILLUSTRATIVE In Inflection Point, we called for “progressive partnerships” that share cost and risk to achieve financial sustainability
  5. 5. We are now studying the potential and process of building last mile business partnerships between value chain players and FIs • “Last mile firms” refers to agribusinesses (a.k.a. “value chain actors”), or ag-focused technology platforms • Business partnerships refers to mutually beneficial collaboration between independent private sector organizations to increase breadth or depth of services to smallholders • In particular, we are studying four last mile firms who already touch smallholders and are seeking financial institution partners to offer financial solutions to the farmers • This is an 18-month ongoing study (into 2018), and we have completed baseline data collection, primarily through interviews/field visits and document review with last mile firms, potential partners, and farmers where possible • Most partnerships are in early/potential stages, so we’re focused on the motivation and process of forming these partnerships; in the future we will analyze business dynamics and results
  6. 6. Four FRP winners were the focus of the study – they operate different business models in four different countries in Africa Who Where What Biopartenaire (subsidiary of Barry Callebaut) is a cocoa off-taker who also provides farmers with inputs and collects payment after harvest. Biopartenaire is looking to partner in a pre-financing scheme for quality agricultural inputs. Empresa de Comercialização Agricola (ECA) is an off-taker of maize working in Mozambique. They have been attempting to build a partnership with Vodacom to facilitate mobile money transactions. They also provide on- lending. Prep-eez, runs an information delivery and communication platform. The platform: (1) Provides information and extension support; (2) Collates data on farmers, and (3) Provides an avenue for FIs to connect with farmers and lend directly. Prep-eez also provides on-farm services and is an offtaker. Kifiya has developed a transaction platform and is partnering with farmer cooperatives, insurance companies and MFIs to provide mobile payment solutions to farmers. Kifiya has also developed a micro-insurance product for farmers that it is working with insurance companies to deliver. ECA * *Kifiya is best described as a technology provider rather than an agribusiness. For the purpose of this study, we have focused Kifiya’s agri-focused activities
  7. 7. Partnership potential and motivation
  8. 8. Why would agribusinesses and ag-focused technology players seek to partners with FIs? Top line (revenue) motivations • Improved farmer productivity (especially for off-takers) • Increased sales volumes over existing infrastructure (for input providers/tech platforms) • Opportunities for rollout of new financial products • Increased farmer loyalty because of expanded offering Reducing costs and risks • Reduced balance sheet pressure (for VCAs already lending) • Reduced administration costs (for lenders) • Lower transaction costs • Piggy-back on technology investment
  9. 9. Biopartenaire provides bundled productivity solution motivated by cocoa supply; wants to outsource lending Biopartenaire current partnership model for saving product Savings Advans provides farmers with a savings product and a mobile channel for deposits Farmer groups - each farmer group has a village coordinator who acts as a distribution point for inputs Biopartenaire provides Advans with a customer base for their savings product Biopartenaire sustainability department Biopartenaire provides credit, using the savings as collateral Source: Biopartenaire documentation, field visit with Biopartenaire team, interviews with current and potential Biopartenaire partners, Dalberg analysis Model and motivation: • Provide extension and inputs (facilitated by credit) cost-neutrally to increase farmer productivity to secure quality cocoa supply • Move direct farmer lending (and related risks) from balance sheet, leverage Advans’ branchless banking system to reach farmers Potential success factors: • Work with MFI given motivation and reach, high-level strategic buy-in • Flexible MOU for experimentation, start with savings product • Support of IFC risk-sharing agreement for current lending Unknowns: • Can BioPartenaire KYC data and insight on the “right” farmers be enough to enable an urban MFI to start lending directly to farmers? • How to quantify the risks (e.g. side-selling) and benefit of outsourcing lending
  10. 10. What is the value proposition for financial institutions? A framework for how last mile partners reduce FI cost/risk Product development includes advising FIs on (i) how and when a product should be delivered, (ii) what products are needed and (iii) developing products, including provision of technical expertise Source: Stakeholder interviews, Dalberg analysis Last mile firms offer… Customer acquisition Product distribution / collection Product development* Credit risk management Farmer aggregation Group farmers together to ease promotion/delivery of services Provides access to large numbers of farmers, reducing sales and marketing costs Agribusinesses act as channels through which to sell products and collect repayments Risk is diversified and reduced by providing to groups, rather than individuals Access to market/ off-taking Provide a guaranteed market, ensuring farmers have income Off-taking provides knowledge of what financial products to offer which customers Off-takers can make repayments on behalf of farmers on collection of produce Knowledge of farmer income and crop cycles can influence how products are tailored Off-taking guarantees farmers a market and cash flow, thereby reducing risk of default Technical assistance Provide training e.g. agronomic practices, financial literacy etc. Training on financial literacy / agribusiness promotes uptake of financial products TA can help increase farmer yields and cash management, reducing default risk Interface with farmers Act as “feet on the ground” and handle farmer interactions Interactions of field agents with farmers can be used to market financial products Assist with disbursing and collecting funds, reducing FI admin and follow up costs Knowledge gained from farmers is used to influence product specifications / terms Can use farmer interactions to educate on repayment terms $ provide reminders Know-Your-Customer (Data) Collect farmer data, e.g. income, farm size, expenditure Data provided to FIs helps target high potential/priority customers for given product KYC data helps FIs determine cash flow cycles and timing for cash disbursement Data provided to FIs is used to structure appropriate credit and insurance products Data on farmers helps select and gain approvals for the most creditworthy farmers Areas of FI cost reduction Areas of FI risk reduction Key: Does not contribute Somewhat contributes Strongly contributes
  11. 11. Kifiya has built an agent and payments infrastructure and wants to increase transaction volumes and product sales *As noted earlier, Kifiya is foremost a technology platform provider. They are currently developing agriculture focused products and partnerships in order to increase the volume of transactions through their platform Kifiya partnership model Farmers Kifiya platform Multi-purpose cooperatives (contains Kifiya agent) Provide extension support, inputs, finance products etc. One-stop-shop for MPC to facilitate transactions Insurance Lending (7 MFIs) Transit companies Utility companies Model and motivation: • Wants partners to deliver financial services at scale by leveraging its DFS infrastructure (fees and commissions) • Looking for insurance companies to underwrite risk and scale up the micro-insurance product they developed for farmers Potential success factors: • FI partners motivated by customer acquisition and government incentives • Best-in-class micro-insurance product design (100x more precise satellite data, 60% cost savings in delivery) Unknowns: • Actual results of the insurance product rollout • Progress on expanding agent network (catalyst for partnership?)
  12. 12. Challenges to partnership formation
  13. 13. Despite the potential benefits for improving viability of financial service provision, common challenges are experienced for partnership development SOURCE: Discussions with grantees and their partners, Dalberg analysis FI challenges • Trusting data integrity: significant testing and analysis required before using the data, and still FI data my not be of the right format/quality • Institutional and systems rigidity: Risk aversion and layers of hierarchy across departments make it hard to greenlight any new products or partnerships Last mile firm challenges • Finding the right counterparts with the FI, moving beyond CSR team and getting buy-in across siloes • Proving commercial viability, or achieving a scale that is compelling for the financial institution (especially challenging for startups or business models where FI partnership essential) General challenges • Agreeing to the operational model – Partners may struggle to align on roles and responsibilities, which can be time-consuming and/or lead to dissatisfaction. • Agreeing to cost and revenue sharing especially in the absence of best practices; e.g., costs of educating and training farmers, which may be break the model for any one partner, or revenues from a joint insurance product
  14. 14. Prep-eez has generated a lot of interest but its pioneering model and data aspirations require FIs to think outside the box Opportunity and motivation: • Wealth of farmer data (KYC, etc.) offered to multiple FIs for developing new products, and platform for delivering them • Position as input seller and off-taker aligns Prep-eez with goal of increasing farmer purchasing power and productivity Challenges: • FIs motivated by potential for market share, but have to secure internal approvals across departments, some more risk- averse than others • FIs have never worked with this kind of alternative data before so lack certainty on product design and business model • High interest rate environment dampens farmer demand for credit Pre-peez envisioned partnership model Other Prepeez BUs Prepeez platform Insurance (under negotiation) Credit and saving (under negotiation) Farmers Farm and farmer data Extension support Purchase produce Access farmer profiles Access farmer profiles Provide inputs Source: Dalberg analysis and interviews
  15. 15. ECA Mozambique faces an uphill climb thanks to social and political unrest, and an underdeveloped mobile ecosystem *CDM is a subsidiary of SABMiller Source: ECA documentation, interviews with current ECA partners, Dalberg analysis ECA Initially envisioned partnership model Loan facility Mobile payments Farmers ECA deducts input loan payments after harvest, and pays farmers (currently pay cash but working towards mobile payments) Annual loan to ECA ECA ECA buys and distributes inputs to farmers Off-taker purchases (under negotiation) Payments solution for ECA farmers Purchase maize from ECA Opportunity and motivation: • Outgrower scheme with close relationships with smallholders cultivated over time, and links to large buyer demand • Mobile payments can increase efficiency of operations and reduce cash risks Challenges: • Underdeveloped mobile money ecosystem (liquidity challenges for agents) and connectivity issues • Banking sector generally not interested in smallholder market • Social and political unrest threatening off-taker agreements and general operations
  16. 16. Factors that support partnership formation
  17. 17. Supporting factors in last mile business partnership formation (1/2) SOURCE: Discussions with FRP winners and their partners, Dalberg analysis Category Support factor Ways in which enabling factor promotes partnerships for financial provision FIs who have a strategy focused on agriculture or working with the bottom of the pyramid are more likely to be interested in partnership as doing so helps to fulfil their mandate. FIs who have a team specifically dedicated to forming / managing partnerships are more open to innovative approaches, have experience in partnership brokering and are better able to deal with issues that pose challenges in partnership formation. Existing relationships between Agribusiness management and FI management can play an important role in gaining required approvals. These could take the form of having previously worked together, social networks etc. Policies that push inclusive financial service provision are likely to boost partnerships. Likewise, policies that empower rural communities or otherwise create an enabling environment. A stable operating environment is predictable and low risk, which encourages FIs to take on new partnerships and non-traditional avenues of providing finance. Markets with more competitive dynamics promote partnerships; FIs are more willing to take innovative approaches to increase their market share than when a few key players dominate, with no incentive to serve rural populations. External environment Government policies Socio-economic stability Private sector competition Partner characteristics FI strategy Partnership teams Existing relationships
  18. 18. Supporting factors in last mile business partnership formation (2/2) SOURCE: Discussions with FRP winners and their partners, Dalberg analysis FIs are reluctant to trust alternative data or work in products they don’t understand. Well- designed, short term guarantees either from the agribusiness or a third party can support trust building. FIs often have limited internal capacity to develop/test products for smallholder farmers. External support from technical experts can help build trust in the offering of the last mile partner. Donor- funding for TA may be catalytic if the FI is committed strategically to ag, and some skin in the game. Digital/mobile platforms facilitate data collection on customers, disbursements and repayments of funds in rural areas. In doing so they serve as a go-between between the farmers, agribusiness and FI, easing the operations within partnerships Presence of facilitators Guarantees Technical support Digital/mobile platforms Even though some supporting factors are not within control, partners can capitalize on the factors that are: seeking organizations that have partnership teams in place, reaching out to potential providers of guarantees, obtaining technical support and leveraging digital platforms Supporting testing such as pilots Pilots are a useful way to test whether partnerships will work and whether value really exists for all stakeholders involved. Facilitators can play an important role in managing, brokering agreement and capturing lessons from pilot Category Support factor Ways in which enabling factor promotes partnerships for financial provision
  19. 19. Preliminary guide for last mile firms seeking to build partnerships with FIs
  20. 20. 1. Seek partners w/ aligned interests and relevant experience • Look for financial institutions (FIs) with a stated strategy in agriculture or serving the BoP • Look for FIs with a strong distribution footprint • Look for FIs that have a team specifically focused on partnerships • Look for FIs where existing relationships exist • Consider FIs with a history and culture of innovation that is reinforced by senior management • Look for FIs that have worked with donor agencies in the past 2. Highlight value proposition • Create a pitch deck • Adjust pitch documentation based on feedback • Emphasize factors that FIs are most interested in e.g., market size, customer acquisition, cost savings, etc. • Highlight how partnership can reduce bank risk • Provide “real-life” demonstrations • Talk to multiple Fis • Be prepared to present to multiple people within the FI 3. Develop a structured process for negotiation, build linkages, and communicate openly • Agree on communication norms and processes • Be clear on non-negotiables • Understand the business model and highlight incentives for each party • Build in options for re-negotiating terms, linked to phased rollout • Look for FIs that have worked with donor agencies in the past • Look for FIs that have worked with donor agencies in the past • Consider independent arbiters (e.g., donors) for coordination, honest broker support, and even risk sharing Guide for last mile firms: Seeking and negotiating partnerships
  21. 21. Guide for last mile firms: Working together in partnerships 1. Align on vision and clarify roles and responsibilities • Align on a vision of what everyone is trying to achieve • Align on roles and responsibilities • Seek to solve challenges together 2. Create systems for open communication and dynamic feedback • Agree on communication norms and processes • Create outlets to ensure communication is open and transparent • Build linkages with and engage senior management • Start with a pilot or “test phase” for the partnership • Visit other similar partnerships, and visit each other’s operations • Align on allocation and contribution of resources 3. Align on available capabilities and resources 4. Create accountability measures • Proactively monitor results and outcomes and foster a “learning culture” • Where feasible, make the partnership recognizable and autonomous • Develop an escalation mechanism
  22. 22. See our learning brief and report deck here for more information Learning Brief 02: Better together Baseline report
  23. 23. Further or upcoming reading • Learning Lab and ISF (2016) Inflection Point • Learning Brief 01: The business case for digitally-enabled smallholder finance • Initiative for Smallholder Finance Briefing Notes • Lending a Hand: How direct-to-farmer finance providers reach smallholders • Value Chain Financing: How agro-enterprises serve as alternate aggregation points for delivering financial services to smallholder farmers • The Rise of the Data Scientist: How big data and data science are changing smallholder finance • IDH Sustainable Trade: Service Delivery Model research • Opportunity International Value Chain Partnerships in Practice • AGRA FISFAP study of hybrid data: Farm management information system (MIS) data for use by financial institutions • Mercy Corps Agrifin Accelerate ongoing work with partnership-based platforms including Patient Procurement Platform in Tanzania and DigiFarm in Kenya
  24. 24. THANK YOU