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RAFLL WAPL session 5

  1. How can digital tools enable smallholder finance? Moderator: RAF Learning Lab Panelists: Kenya Commercial Bank Opportunity International Mercy Corps Agrifin Accelerate March 6, 2017
  2. Why are we talking about digitalization? • Until recently FSP’s have generally overlooked Africa’s 48 million smallholder farmers because of the challenges in reaching this customer segment • But this is changing – new digital technologies and innovative business models are making it possible to provide credit to smallholder farmers in Africa • Digitalization is happening across the lending value chain and includes the use of digital tools and channels for: o customer relationship management o customer registration o loan analysis o disbursement and repayment cash flows o delivery of support services alongside core financial products • Organizations can start their digital journeys in many different places and their journey's are largely shaped by their business priorities and the broader ecosystems in which they operate in
  3. What do we mean by digitalization across the lending value chain? • Manage SHF data (e.g. interactions, repayment rates) • Send SMS/mobile notifications • Deliver support services • Analyze SHF data (including external data) • Communicate loan decision Client acquisition Loan origination Loan analysis approval Loan servicing monitoring Loan repayment Ability of digital to overcome challenges • Facilitate loan disbursement • Facilitate loan repayment Digital tools • Field staff equipped with tablets for data collection • Mobile registration and data collection platforms • GPS tools • Facilitate marketing and dissemination • Mobile money and payment platforms • Mobile wallets to deposit savings and manage account • Data management platforms • GPS tools to monitor field officers • Digital TA and other value added services • SMS / mobile marketing • Up/Cross selling platforms Loan disbursement Loan workout & recovery • Facilitate customer registration and loan application • Facilitate farmer data collection • Facilitate follow up of outstanding loans RAF challenge • High cost to reach SHFs in rural areas • SHFs lack product awareness/ literacy • Difficult and costly to register and collect data on SHF in rural areas • Limited understanding of SHF for assessment • SHF lack credit history / collateral • High costs to distribute loan funds in rural areas • Cash risks (risks of holding and transporting cash) • Difficult and costly to monitor SHF data • High cost to collect loan payments in rural areas • Cash risks (risks of holding and transporting cash) • High costs following up on outstanding loans in rural areas • Mobile money and payment platforms • Mobile wallets to deposit savings and manage account • Credit scoring platforms • SMS/ mobile approval communication Digital customer relationship management, incl. digital marketing and notifications Digital data collection and management Digital decision making Digital cashflows Digital delivery of support services Digital uses • SMS / mobile notifications
  4. We surveyed 23 FSPs across Africa who have started a digital journey; they map to 4 “digitalization profiles” Less than 1,000 farmers served 1,000 – 10,000 Farmers served 10,000 – 25,000 farmers served 25,000 – 100,000 farmers served Over 100,000 farmers served Legend Credit only Productoffering Digital integration along lending value chain Low High End-to- End financial solution1 Traditional MFIs. Traditional MFIs leveraging digital for loan analysis Agribusinesses. Agribusinesses leveraging digital payments and digitalizing data collection and loan analysis to evaluate farmer risk High Tech Banks / Niche NBFIs. High tech commercial banks and niche NBFIs offering fully digital financial services . Commercial Banks / Innovative MFIs. Innovative MFIs and commercial banks equipping field agents with mobile devices and partnering with B2B digital services providers to offer paperless and cashless end to end solutions
  5. Loan analysis the start of the digital journey and support services the final frontier? 1. Customer Relationship Management includes Sales & Marketing Source: RAFLL Business Case Survey & Dalberg analysis HighTechBanks /NicheNBFIs CommercialBanks/ InnovativeMFIs Traditional MFIs Agri- businesses Customer Relationship Management1 Customer Registration Loan Analysis Cash Flows Delivery of Support Services Organization 1 Organization 2 Organization 3 Organization 4 Organization 5 Organization 6 Organization 7 Organization 8 N/A Organization 9 Organization 10 Organization 11 Organization 12 Organization 13 N/A Organization 14 Organization 15 Organization 16 Organization 17 Organization 18 Organization 19 Organization 20 Organization 21 Organization 22 Organization 23 Fully digitalized Less digitalized Not digitalized N/A No support services offered
  6. Revenues more likely to cover costs, when the provider is digitalized? 1. Program associated costs refers to cost of funds, direct field operation costs, direct costs of nonfinancial support services, direct marketing and sales costs, and all other overhead and allocated program support Source: RAFLL Business Case Survey & Dalberg analysis Number of survey respondents by costs covered by loan repayment and fee revenue and by profile type 9% 67% 91% 33% 75% 25% 3 11 High Tech Banks / Niche NBFIs Commercial Banks / Innovative MFIs Traditional MFIs 34 Agri- businesses Loan repayment and fee revenue covers or outweighs all program associated costs, or is expected to in the next 2 years1 Loan repayment and fee revenue does not cover all program associated costs, and is not expected to in the next 2 years Degree of Digital Integration + - High Tech Banks / Niche NBFIs respondents excludes two organizations who have yet not rolled out lending products Organizations believe it will take on average 5-10 years for their SHF lending unit to become profitable
  7. FSPs who have measured the impact of integrating digital tools see more value from increasing the addressable market than from reducing the cost to serve Number of survey respondents by impact of integrating digital tools and by profile 1 1 1 3 1 1 11 Increase portfolio quality Increase in loan officer caseload 2 Decrease loan disbursal cost 2 Increase in customer portfolio 4 Decrease customer acquisition cost AgribusinessesCommercial Banks / Innovative MFIs Traditional MFIsHigh Tech Banks / Niche NBFIs Increased revenue Decreased cost Reduced risk • 6/7 saw an increase in revenue • Customer portfolio grew between 25- 50% • Loan officer case load increased between 30-60% • 3/7 saw a decrease in the cost to serve • Customer acquisition cost dropped by 25-40% • Cost of disbursing loans dropped by up to 80% Source: RAFLL Business Case Survey & Dalberg analysis
  8. Obstacles to incorporating digital relate to high upfront costs and lack of internal capabilities Number of survey respondents (out of 23) by perceived obstacles to digital implementation and by profile 2 1 3 2 2 1 1 2 1 11 6 7 8 7 6 4 2 1 3 1 1 1 8 Lack of customer mobile phone access High initial investment 17 Lack of internal capabilities 11 Too drastic of a process change 11 Lack of knowledge on best tools 9 8 Lack of proof of value Transaction fees too high 9 High Tech Banks / Niche NBFIs Commercial Banks / Innovative MFIs Agribusinesses Traditional MFIs Cost-related Internal Capabilities Customer Ecosystem Source: RAFLL Business Case Survey & Dalberg analysis
  9. Examples of digital innovation in the SHF lending value chain by MCF partners Customer Relationship Management Customer Registration Loan Analysis Cash Flows Delivery of Support Services KCB MobiGrow Program • Use of radio radio (local stations) to create awareness and market the benefits of m-Kulima accounts and loans to farmers. • Proactive personal credit limit prompts to farmers • Allow mass on boarding of farmer groups to the system and opening of many accounts at a go. • Allow opt in for individual farmers to register themselves and open accounts. • Alternative data like deliveries histories from off-takers, buyers and cooperatives used to score farmers • Deposits and transactions used to score automatically. • Disbursements of loans done digitally on mobile phone upon meeting requirements. • Crop and animal husbandry SMS’ interactive learning and tips on price & markets. • Use of banks call center dedicated pilot line and IVR Mercy Corps AFA Program • WFP: Desktop admin portal to manage farmer groups and input provision • SAF: Android solution for farmer verification • SAF: Android & USSD self registration and Agent assisted registration modules. • WFP: Android farmer organization registration module • SAF: value chain, farm size, alternative telco data, input purchase data. Learning data • WFP: Input purchases, output sales. • SAF: self captured daily farming records. INPUT purchases, MPESA transactions and call data analysis. • WFP: INPUT purchases, output sales. • SAF: sms learning module. Opportunity International • CKW Farmer Profiling • Bulk SMS • Loan Officer Dashboards • Tablet-based Customer Satisfaction Surveys • IVR Services • Tablet based account opening and loan origination • Agency Banking • Smart Phone App Self- Registration • Predicative, statistical Application Credit Rating • Machine Learning/Artificial Intelligence Based Credit Scoring • POS enabled Agrodealers • POS enabled off- takers • Digitally-enabled lead farmers and extension services • IVR Services
  10. Panelist Presentations
  11. MobiGrow program • MobiGrow is a partnership program between the MasterCard Foundation and KCB Bank Group targeting agricultural value chain actors to offer mobile based financial inclusion and information to smallholders farmers and pastoralists in Kenya and Rwanda. • M-Kulima is the online system / platform by KCB, that shall support the MobiGrow’s financial services offering by offering Accounts, Loans, Insurance and Knowledge / Notifications to smallholder farmers. Financial Services Non-Financial Services Producer Organizations / Off-takers / Buyers /Processors Farmers KCB MobiGrow Scoring System Agro - Dealers DATA mobi-CASH PRODUCEFARM INPUTS mobi-CASH Approach Method Target Partnership Approach: Development Agencies De- risked FPOs, FPO Extension team TtT facilitation Mature Coopera tives, Internal Team Approach In-person Field Agents e.g. Farmer Trainers. Nascent FPOs, -SMSContent -Radio
  12. Alternative data to score Current data and method used: Credit Scoring Algorithm: The program uses data from different sources to determine credit limits for smallholder farmers, this process is automated, and it follows the process below; • Checks national identification from the Integrated Population Registration System (IPRS) database. • Checks credit status from the national Credit Reference Bureau (CRB) database. • Check Off-takers / aggregators data on the past produce deliveries. • Check transactions from the mobile accounts to other mobile wallets e.g. M-Pesa, to KCB bank branches and agents. • Issue automatic credit limits to smallholder farmers based on this. Insert photo or graphic as relevant source: internet
  13. Alternative data to score.. In the shorter term, addition: Agronomic and Economic Data: • Provide smallholder farmers with a digital accounting tool on their mobile phones, that allows them to be able to; record their land size, seasonal yield, expenses per value chain and aggregated, revenues per value chain and aggregated • Issue smallholders with daily, weekly and monthly financial statements from their data on their mobile phones. • Use the smallholders financial statements to issue them credit limits showing up to how much they can borrow. In the longer term, addition: Satellite Data: • Verify crop availability and status using satellite photos from shared GPS coordinates • Verify soil status using satellite photos from shared GPS coordinates. Insert photo or graphic as relevant source: internet
  14. Mercy Corps AFA • The AgriFin Accelerate program is a six- year, USD 25 million program of Mercy Corps, supported by The MasterCard Foundation. • AgriFin Accelerate will support the expansion of digital financial services to one million farmers in Sub-Saharan Africa over six years, delivered by growing ecosystems of diverse service providers.
  15. Safaricom Dairy Product Integrated Mobile Platform: One-stop access to a variety of services that decrease the cost and increase the efficiency of input provision while enabling farmers to easily transact, learn and grow. • BUY INPUTS, LEARN, MY FARM RECORDS, SAFARICOM SERVICES, REGISTER, CHANGE LANGUAGE Safaricom Dairy product menu
  16. Safaricom Dairy Product Integrated mobile platform: Phase 2 developments • LAYAWAY PURCHASING • CREDIT OFFERINGS o INPUT CREDIT o ASSET FINANCING o INSURANCE Current Safaricom Dairy Product partners
  17. Building a Smallholder Farmer Digital Footprint Dakar, Senegal | March, 2017
  18. • Provided 388,000 production loans, valued at more than $73 million and 880,000 savings accounts to farmers, with more than 400,000 mobile banking clients across 42 Value Chains • Rolled out full mobile banking in Malawi, Rwanda, Uganda and Ghana, and mobile money services in Tanzania and Kenya • Established partnerships with MNO’s including MTN, Telenor, Vodafone, and Bharti Airtel Limited • Opportunity Malawi is our first majority digital bank: 78% of transactions are client-initiated, and transacted digitally • Piloted branchless banking in Tanzania and expanding to four more countries • CKWs/Digitally Enabled ESPs to Profile & Train over 10,000 SHFs • Run customized tablet-based and agency-based loan and account origination applications • Launching a $25 Android Smart Phone to extend MM services to the bottom of the pyramid Current Digital Innovations in Agricultural Finance
  19. Building a Smallholder Farmer Digital Footprint Technological Innovation has enabled FSPs to: • Leverage Artificial Intelligence • Create Automatic Credit Scoring • Reach further and faster for less than ever before Smallholder Farmers Want: • Availability of Financial Services which are tailored for Agricultural • Timeliness of Delivery • Affordability Rural Systems Lack: • A Coordinated Ecosystem • Trust in FSPs • A Digital Footprint • Customized Financial Solutions
  20. Building a Smallholder Farmer Digital Footprint
  21. Building a Smallholder Farmer Digital Footprint
  22. Binding the Value Chain Together in a Digital Ecosystem
  23. Building a Smallholder Farmer Digital Footprint
  24. Discussion and Q&A

Editor's Notes

  1. Good afternoon and welcome to this last session of the workshop During this session we’re going to talk about about how digital tools can enable smallholder finance in Africa I will start by presenting some key findings from our research on the business case for digitally enabled smallholder finance We will then hear some real life examples of digital innovation along the lending value chain from 3 MCF partners, including KCB, Mercy Corps and Opportunity International This will be followed by a discussion with the panelists and Q&A from the audience
  2. FSP’s have overlooked Africa’s 48 million smallholder farmers because of challenges in reaching this customer segment New digital technologies and business models are starting to make it possible to provide credit to smallholder farmers Digitalization is happening across the lending value chain and includes the use of digital tools for: Customer relationship management Customer registration Loan analysis Disbursement and repayment cash flows Delivery of support services Organizations’ digital journeys are shaped by business priorities and the ecosystems in which they operate in.
  3. What do we mean when we talk about digitalization across the lending value chain? This figure illustrates the different points where digital technologies are entering the SHF lending process to address key challenges – [Walk through diagram] For example: Loan analysis and approval is difficult because FSP’s don’t know much about the SHF and the SHF lacks credit history and collateral Technology firms are addressing this challenge by developing risk scoring tools that leverage non-traditional customer behavior data to help FSP’s reach customers with no credit history Loan disbursement is difficult because of the high costs of distributing loan funds in rural areas and the risks of holding and transporting cash. Here mobile money and payment platforms are enabling cashless loan disbursements and repayments to reduce these costs and risks.
  4. We surveyed 23 financial service providers across Africa that have started their digital journeys The sample is small and is not meant to be representative But the study does provides valuable insights into the current and projected use of digital tools and the impact on the performance of FSPs Lays the groundwork for future Learning Lab research on this topic We found that providers are integrating digital technology selectively along the value chain to balance the potential benefits of digital tools with: customer needs and preferences the company’s product portfolio profitability internal capabilities to integrate digital solutions And capabilities of the digital ecosystem This figure maps the study participants to four “profiles” based on their level of digital integration across the value chain and the extend to which they offer bundled financial products. Traditional MFIs – offer bundled credit solutions and leverage digital technology primarily for loan analysis Agribusinesses – primarily provide credit for inputs and are using some digital tools for payments and data collection Commercial banks and innovative MFIs – provide more complete financial solutions and are digitalizing all functions along the value chain High-tech banks / MNOs / NBFIs – offering a mix of financial products and are fully digitalized along the lending value
  5. This figure maps each study participant by their profile and their level of digitalization across the 5 main steps of the SHF lending process Loan analysis Almost all organizations use digital tools for loan analysis – mostly for data collection and analysis Half of the respondents use alternative data for credit scoring – but over 80% of them only use airtime data (not best indicator for SHFs) Findings suggest that an alternative data push will have the greatest impact on the sector for loan analysis Figuring out what types of data are most useful and how to integrate different data sources into the lending process is critical Customer registration Less than a third of respondents have fully digitalized customer registration The majority continue to rely on some form of human interaction – importance of balancing digital technology with human interaction in rural settings Cash flows Digitalization of cash flows is largely determined by the mobile money ecosystem in which the organization operates Most organizations operating in a mature mobile money ecosystem have transitioned to cashless operations (50%) or are in the process of doing so (43%) Organizations operating in less developed ecosystems use cash (44%) or a mix of cash and digital payments (56%) Support services Hardest to digitalize despite representing the second largest cost to FSPs (behind cost of funds) Only 17% of organizations use e-learning platforms and do so primarily for information services Almost 50% of organizations use exclusively non-digital support services – importance of human interaction for learning?
  6. The big question is whether digitalization is profitable. While it’s too early to be certain, the business case for digitalization looks promising! The majority of organizations in our study are convinced that digitalization will improve their profitability. This figure shows that highly digitalized organizations are more likely to cover associated program costs with loan repayment and fee revenue — or expect to do so in the next two years. Organizations are optimistic about digitalization and plan to increase the use of digital tools across their value chains Over 90% of the organizations are interested in digitalizing cash flows and payments with consumers There is also strong interest in digitalizing loan analysis (>85%) with a focus on integrating additional sources of alternative data in credit decisions Nearly eighty percent plan to make further investments into digital customer acquisition channels and ongoing digital customer management And more than half of the organizations are considering additional investments into digital support / value added services Almost half of the organizations surveyed expect to recoup their investment into digitalization in less than two years.
  7. Where does the value of digitalization come from? Most organizations indicated that the main initial motivations for investing in digital tools in the past have been to reduce cost to serve and to improve portfolio quality. However, organizations that have invested in digital tools and tried to measure the impact report seeing more value from digitalization for topline growth and improved portfolio quality rather than cost reduction. Digital tools can increase portfolio growth and expand an organization’s market through three different pathways: By increasing field officer productivity – enables increased loan officer caseload By acting as a distribution (and marketing) channel – to reach and market products in remote areas that were previously considered too expensive to serve By bringing new segments of the rural population into the addressable market
  8. While digital tools have great potential, FSP’s face a number of challenges in incorporating digital tools High upfront costs appears to be the greatest binding constraint to digitalization - lowers operating costs over time but immediate increase in CAPEX Organizations also struggle with the lack of internal capabilities to implement, integrate and manage digital tools Companies don’t have a clear understanding of the digital service provider landscape, which makes it difficult to assess vendors when considering an investment in digital Many firms also reported being constrained by a less-developed rural mobile ecosystem - limits access to reliable mobile connectivity and insufficient coverage of mobile money agent networks
  9. This table maps out the digital innovations that our 3 panelist organizations are implementing along the lending value chain Note that Mercy Corps is not an FSP, but is working with a number of providers to implement these tools
  10. We will now hear some real life examples of digital innovation along the lending value chain from 3 MCF partners Our first panelist is: Dickson Naftali – Head of the MobiGrow Program with Kenya Commercial Bank Sieka Gatabaki – Financial Services Manager with the Mercy Crops AgriFin Accelerate Program Tim Strong – Regional Agricultural Finance Adviser with Opportunity International
  11. Ecosystem question (OI and MC, possibly KCB)   Q1: Which of the digital tools that you’re working with are easy to replicate in different ecosystems, and which are heavily dependent on the local context?   Alternative data questions (OI, MC and KCB)   Q2: Your organizations all have ambitious plans to use alternative data, but many of these initiates are in the early days of development. We keep hearing that there is great potential for alternative data, but we also know that there are issues around accessing the data and data quality. How are you addressing these challenges, and what would you say to financial service providers that are skeptical about using alternative data?   Q3: We have heard that you don’t need a large amount of data points, just a few very good high quality data points. Do you agree with this? And what data do you think is most important?   Open up Q&A to audience