<span style="text-align: left;color: #333333;text-indent: 0px;letter-spacing: normal;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-variant: normal;font-weight: 400;text-decoration: none;cursor: text;float: none;background-color: transparent">This post originally appeared on <a href="https://www.ictworks.org/do-farmers-really-want-to-be-paid-in-mobile-money/#.Wyqvx6kpDBL">ICTworks</a><span style="float: none;background-color: transparent;color: #333333;cursor: text;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-style: normal;font-variant: normal;font-weight: 400;letter-spacing: normal;text-align: left;text-decoration: none;text-indent: 0px"> and is re-posted here with permission.

&gt; Posted by By Chrissy Martin, U.S. Global Development Lab, USAID


Do farmers really want to be paid in mobile money? To answer this question, I’ll ask you to first entertain a brief thought experiment.

Imagine that your employer told you that next pay period, your company will start paying you in <a href="https://bitcoin.org/en/">Bitcoin</a>.  How would you react?  Sure you’ve heard about Bitcoin, but you have lots of questions as to what it will mean to receive your salary this way, such as:
<ul>
 	<li>Am I getting swindled?!</li>
 	<li>Where can I use bitcoin?</li>
 	<li>Can I spend it like dollars, or will I have to convert into dollars first?</li>
 	<li>Where can I convert?</li>
 	<li>How much is the conversion fee?</li>
 	<li>Will I be paid into my same bank account?</li>
</ul>


Your employer has some responses to your questions:
<ul>
 	<li>There are <a href="http://coinmap.org/">only a few places to use Bitcoin</a> in Washington, DC.</li>
 	<li>In order to spend your money anywhere else, you’ll have to convert first, and pay a fee to do so.</li>
 	<li>You’ll have to set up a new account, and learn a new app.</li>
 	<li>If you want to help to learn this new system, you can take unpaid leave to sit in a classroom and attend a financial literacy training…</li>
</ul>
<h3>Your Response to Bitcoin Is Their Response to Mobile Money</h3>
Perhaps this sounds like a less than ideal situation, but it really is not that different from how a farmer must feel when the company they usually sell their produce to decides, or offers, to start paying them in mobile money.

Maybe the farmer has heard of mobile money; she’s heard some good things, but she’s also heard some stories about fraud.  Besides, she’s used to cash, and she doesn’t have the luxury of time to learn an entirely new system since she needs to tend to her farm, her children, and the other side jobs she takes on to help pay the bills.

Why is this thought experiment relevant? Efforts are currently underway in many countries to digitize payments along the agricultural value chain. This is due to both the growing evidence that access to a digital account increases household resilience and the potential for mobile money to increase farmers’ access to financing (think loans for inputs) and markets (think connections to more buyers and the ability to lock in better prices).
<h3>Three Ways to Improve Mobile Money Adoption</h3>
Often, the assumption is that we should start by digitizing payments from buyers to farmers. These are large, bulk payments that can be transitioned from cash to electronic fairly easily, from a technology standpoint. This would get money into the farmer’s mobile wallet so that they start to become familiar with the concept.

However, in select value chains in Uganda, USAID and our partners are finding that this is not necessarily the best way to encourage adoption. While some agribusinesses and farmers are signing on enthusiastically, we’re not yet seeing the type of scale that is necessary to really start building out a rural digital financial ecosystem.

Based on this experience, I see three keys shifts underway that can help:

1. We need to ask what the farmer actually wants.  

The payments first approach to digitizing the value chain fails to start with an understanding of the farmer’s interest in transitioning to mobile money, as we start to understand when we consider the idea of transitioning our own salary to Bitcoin.  The farmer, who may not have a mobile phone, who may rarely leave her farm and may never have been to bank, is often perfectly happy with cash.

So, we have to ask, what does the farmer need?  Access to credit for inputs, on-demand production and marketing services, access to household solar through a digital pay-as-you-go plan, and an easy way to pay for school fees are all products that are based on real constraints that many farmers in Uganda face.

To better understand what makes mobile money attractive to a farmer, United Nations Capital Development Fund (UNCDF) and <a href="http://www.cgap.org/about"> </a><a href="http://www.cgap.org/about">CGAP</a> are undertaking a <a href="http://mm4p.uncdf.org/tags/value-proposition-mapping">Value Proposition Mapping</a>, which will help the private sector tailor products accordingly.

2. We need to expand our idea of the user.

When we talk about being user-centered, we often think immediately of the individual.  However, within a value chain, we need to think of the incentives and capacities for a wide variety of users, including the farmer, other members of the farmer’s household, the agribusiness, the cooperative, the community savings group, and the mobile money provider.

For example, we’re finding that agribusinesses may need significant system upgrades and process changes to transition away from paper based processes.

3. We need to reassess the starting point. 

As we’re finding through Digital Development for Feed the Future, a three-year collaboration between the Global Development Lab and the Bureau for Food Security within USAID, improving data collection and data usability underpins all of our efforts to improve agricultural results through digital tools.

For example, our partner in Uganda, <a href="http://akorion.com/">Akorion</a>, is facilitating input loans to farmers with digital farmer profiles that provide banks with detailed information on which they can base creditworthiness. Through its market system digitization platform and Ezy-Agric, Akorion bridges the information and service delivery gap for farmers and agribusinesses.

These three suggestions are based on our experience to-date in Uganda, as well as the experience of USAID’s partners, including <a href="http://www.siaedge.com/">Strategic Impact Advisors</a> and <a href="http://mm4p.uncdf.org/">UNCDF</a>’s program in Uganda.  However, these suggestions all need to be tested and may change or need to be modified quickly.

The key takeaway?  Remember to challenge your assumptions by always taking a minute to imagine yourself in a similar situation.  How would you feel?

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Do Farmers Really Want to Be Paid in Mobile Money?

Sub-Saharan Africa

Uganda

Keeping Clients First

Agent Banking

Blockchain and Cryptocurrency

Consumer Protection

Delivery Channels

Digital Financial Services

Financial Technology

Mobile Banking

Payments

Smallholder Farmers

Underserved Groups

Blog Post

The following post was <a href="http://blogs.accion.org/features/changing-climate-technology-provides-agricultural-insurance-farmers/">originally published</a> on the Accion blog.
Smallholder farmers are the bedrock of sub-Saharan Africa’s and Asia’s agricultural markets, providing <a class="markup--anchor markup--p-anchor" href="http://www.fao.org/3/a-i4036e.pdf" target="_blank" rel="nofollow noopener noreferrer">over 80 percent of the food supply</a>, but they are growing increasingly vulnerable. Climate scientists estimate that over the next few decades, droughts will <a class="markup--anchor markup--p-anchor" href="https://www2.ucar.edu/atmosnews/news/2904/climate-change-drought-may-threaten-much-globe-within-decades" target="_blank" rel="nofollow noopener noreferrer">frequently affect Africa and Asia</a> as a result of climate change. As weather conditions cause decreased stability for family farms, there is an increased need for risk mitigation solutions that can add security to the lives of those most affected.
Pula, <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/content/pula-secures-funding-global-investors-support-smallholder-farmers-africa-and-south-asia" target="_blank" rel="nofollow noopener noreferrer">one of Accion Venture Lab’s latest investments</a>, provides insurance to smallholder farmers across Africa and India, enabling income security for a population whose livelihoods depend on climate patterns. Pula uses cutting-edge technology coupled with expansive distribution partners to make large-scale agricultural insurance feasible for rural farmers.
Across their product portfolio, Pula uses various technologies, including automated voice calls to register customers, satellite imagery to monitor cloud cover, and SMS messages to provide agronomic advice. In the event of a drought or poor season, Pula uses weather data and yield samples to offer compensation to farmers for their losses. By coupling technology with large-scale distribution, Pula can make insurance practical for smallholder farmers at scale.
At Venture Lab, we’re most excited about a few core areas of the typical microinsurance value chain that Pula disrupts:
Eliminating the purchase barrier: Pula’s distribution model circumvents the challenges of customer adoption and education that we’ve seen insurers struggle with in the past. Customers read about Pula’s coverage on a sticker on the bag of seed or fertilizer they’re purchasing, and then they register their unique policy via their mobile phone. Pula’s partners put stickers on every bag sold in a region, and there’s no visible added cost to the products, simplifying the farmer’s decision-making process. To that farmer, Pula’s coverage is easy to activate and presents pure upside.
Increasing yields for customers with massive need: Pula focuses on some of the most vulnerable populations on Earth, and the insurance coverage is only the beginning of the benefit they receive from the product. By de-risking the purchase of farm inputs, such as seed, fertilizer, or credit, Pula is also able to incentivize farmers to purchase higher-quality products than they otherwise might — without the risk of failure. As a result, they can attain higher yields and incomes. Further, Pula provides the farmer with direct agronomic advice via SMS, leveraging the farmer’s GPS coordinates and their climate science team, and boosting the farmer’s yields.
Lowering the cost to serve: With its innovative distribution, Pula has the potential to reach a customer that has previously been prohibitively expensive to serve. Formerly, insuring smallholder farmers required multiple field visits to determine if conditions were right for crops to grow and to educate the farmer about the benefits of insurance, ultimately convincing them to pay for coverage. Pula can automate and significantly cut costs by assessing the farm’s weather remotely using satellite and regional yield data. Working through distributors also enables Pula to offer free and straightforward insurance coverage that is fully integrated with the input.
Venture Lab is thrilled to be working with the Pula team on their mission to provide insurance to smallholder farmers across Africa and Asia. Co-founder Rose Goslinga is a pioneer in the space, with a decade of experience and a <a class="markup--anchor markup--p-anchor" href="https://www.ted.com/talks/rose_goslinga_crop_insurance_an_idea_worth_seeding" target="_blank" rel="nofollow noopener noreferrer">TED talk</a> on her resume. She is working alongside Thomas Njeru, who provides actuarial experience and financial expertise as the company’s CFO.
As <a class="markup--anchor markup--p-anchor" href="https://www.microinsurancenetwork.org/sites/default/files/Microinsurance%20Network_Africa%20landscape%20full%20report-WEB_0.pdf" target="_blank" rel="nofollow noopener noreferrer">microinsurance in most African markets hovers at or below 5 percent,</a> there is a massive market opportunity to support the world’s most vulnerable as they grow food to provide for their communities. Pula tackles the arduous task of customer awareness by partnering with known brands and uses cutting-edge technology to make the product scalable. <a class="markup--anchor markup--p-anchor" href="http://www.thp.org/knowledge-center/know-your-world-facts-about-hunger-poverty/" target="_blank" rel="nofollow noopener noreferrer">Half of the world’s hungry</a> are farming families, and Pula strives to reach those most in need with security and stability.
Venture Lab is excited to be supporting Pula as they take on one of the world’s most significant challenges.
Have you read?

<a href="https://cfi-blog.org/2018/01/22/7-fintech-trends-to-watch-in-2018/">7 Fintech Trends to Watch</a>

<a href="https://cfi-blog.org/2018/02/27/the-radical-reinvention-of-inclusive-insurance/">The Radical Reinvention of Inclusive Insurance</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

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In a Changing Climate, Technology Provides a Lifeline for Farmers

Financial Service Providers

Fintechs

Index Insurance

Insurance

The following post was <a href="http://blogs.accion.org/features/7-fintech-trends-to-watch-in-2018/">originally published</a> on the Accion blog.
We’re in the middle of a fintech boom that <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/trends-that-may-change-the-world-c00f4e500a8c" target="_blank" rel="noopener noreferrer">could change the world</a>. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.
As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.

<h4>Digital neobanks</h4>
[caption id="attachment_24930" align="aligncenter" width="616"]<img class="wp-image-24930" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/appsm_mockup2.jpg" alt="" width="616" height="411" /> SmartMEI is a digital neobank serving small businesses in Brazil[/caption]
In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="http://nowmoney.me/" target="_blank" rel="nofollow noopener noreferrer">NOW Money</a>, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and <a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="nofollow noopener noreferrer">SmartMEI</a>, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.

<h4>Next gen small business finance solutions</h4>
Around the world, micro, small, and medium enterprises (MSMEs) struggle to access capital. Estimates suggest that <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES" target="_blank" rel="nofollow noopener noreferrer">200 to 245 million formal and informal small businesses</a> either don’t have a loan or have one but are still constrained by their access to financing. Startups have been developing creative ways to acquire, underwrite, and fund these businesses. Some of the most innovative models today are embedding themselves into supply chains and working with a partner in that supply chain to identify MSMEs in need of financing and to obtain existing data that can support credit decision-making. These companies include <a class="markup--anchor markup--p-anchor" href="http://www.tiendapago.com/en/" target="_blank" rel="nofollow noopener noreferrer">Tienda Pago</a>, which partners with major consumer good distributors in Peru and Mexico to extend short-term working capital to small stores for inventory purchases, and <a class="markup--anchor markup--p-anchor" href="https://lidya.co/" target="_blank" rel="nofollow noopener noreferrer">Lidya</a>, which works through partners in Nigeria to provide invoice discounting and supply chain financing to small businesses.

<h4>Insurtech for the underserved</h4>
Low-income consumers in emerging markets need insurance products to manage and mitigate financial risks, but serving those customers poses significant challenges — from cost-effectively reaching and educating consumers, to accurately assessing and pricing risks, to efficiently managing claims. Startups can play a critical role in solving those challenges with products intended to address specific risks for underserved communities, new distribution channels to reach these populations, and new streams of data to more effectively assess and price risk. Insurtech innovators include <a class="markup--anchor markup--p-anchor" href="https://lumkani.com/" target="_blank" rel="nofollow noopener noreferrer">Lumkani</a>, which sells a low-cost heat detector bundled with insurance to households in South African informal settlements that protect against loss of life, shelter, and assets, and <a class="markup--anchor markup--p-anchor" href="https://togarantido.com.br/" target="_blank" rel="nofollow noopener noreferrer">Togarantido</a>, which serves as an online-based insurance broker focused on the underserved in Brazil.

<h4>Financial services for smallholder farmers</h4>
Smallholder farmers remain notoriously difficult to reach and are often considered high-risk clients since their incomes are tied to unpredictable harvests. An estimated <a class="markup--anchor markup--p-anchor" href="https://www.raflearning.org/post/inflection-point-unlocking-growth-era-farmer-finance" target="_blank" rel="nofollow noopener noreferrer">270 million smallholder farmers around the world face a financing gap of $170 billion</a>. Innovators addressing this need can provide real value — by helping farmers finance irrigation pumps, combat pests, or address climate risks. Startups in this space include <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/" target="_blank" rel="nofollow noopener noreferrer">Apollo Agriculture</a>, which leverages satellite imagery, data science, and mobile money to finance fertilizer and seeds needed to increase crop yields, and <a class="markup--anchor markup--p-anchor" href="https://www.pula-advisors.com/" target="_blank" rel="nofollow noopener noreferrer">Pula</a>, which works with large seed and fertilizer suppliers across Africa to bundle crop insurance in with product purchases.

<h4>Asset finance</h4>
[caption id="attachment_24931" align="aligncenter" width="615"]<img class="wp-image-24931" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/kn_pg_2016_25.jpg" alt="" width="615" height="410" /> The Paygo team at work on their smart meter for cooking gas[/caption]
Individuals and small businesses require financing for assets like medical equipment, smartphones, and solar home systems to increase efficiency and improve lives. One promising innovation in this space is pay-as-you-go financing, which allows consumers and business owners to make small upfront payments and regular “top-ups,” usually sent via mobile money. The model has already led to a rapid expansion in solar home systems across emerging markets. Other scalable models for asset financing leverage new distribution and payment approaches like layaway solutions, leasing models, and peer-to-peer transfers. <a class="markup--anchor markup--p-anchor" href="http://paygoenergy.org/" target="_blank" rel="nofollow noopener noreferrer">PayGo Energy</a> is a promising company in this space; its pay-as-you-go financing model enables low-income customers in Kenya to pre-pay for cleaner and more affordable cooking gas.

<h4>All-digital consumer lending</h4>
Recent years have seen digital consumer lenders emerge and scale by using simple apps to collect and analyze customer data to provide access to credit for underserved populations. The speed and accessibility of digital platforms enable credit access for consumers who are underserved by traditional lenders and who might otherwise be too costly to serve. Innovators could add value to the sector with new approaches to credit underwriting and consumer engagement that lower defaults and improve retention — two of the critical challenges to the app-based lending model. <a class="markup--anchor markup--p-anchor" href="http://smartcoin.co.in/" target="_blank" rel="nofollow noopener noreferrer">SmartCoin</a> offers new engagement tools alongside its mobile lending platform to better understand and serve its customers in India, and <a class="markup--anchor markup--p-anchor" href="https://www.tezfinancialservices.pk/" target="_blank" rel="nofollow noopener noreferrer">Tez</a> provides an all-digital banking platform with a full suite of products to low-income consumers in Pakistan.

<h4>Consumer financial health</h4>
In 2016, the Federal Reserve revealed a concerning statistic about financial health in the U.S.: 46 percent of Americans said they could not pull together <a class="markup--anchor markup--p-anchor" href="https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.893f79e72c4c" target="_blank" rel="nofollow noopener noreferrer">$400 to cover an emergency</a>. Startups are providing solutions that help consumers manage their day-to-day financial lives and rebound from shocks. There is significant potential for innovators to leverage behavioral science to design new solutions such as clever nudges, useful automation, gamification, or bundling across different financial products. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="https://www.lendstreet.com/" target="_blank" rel="nofollow noopener noreferrer">Lendstreet</a>, which focuses on financial health by providing U.S. consumers a platform to restructure and refinance their distressed debt and rebuild their credit, and <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destacame</a>, which empowers users in Mexico and Chile with control of their data to build their financial capabilities and access better financial products.
Each of these areas of startup-led innovation offers significant potential for both social impact for underserved consumers and financial profit in 2018. We’re excited to see what’s next.
Image credits: Accion

Have you read?

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<a href="https://cfi-blog.org/2017/07/31/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines/">How Financial Institutions and Fintechs Are Partnering for Financial Inclusion: Lessons from the Frontlines</a>

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7 Fintech Trends to Watch in 2018

Apollo Agriculture

Lidya

Pula

Accion Venture Lab

Alternative Data

Credit

Financial Health

Impact Investing

Insurtech

MSME/SME Finance

Neobanks

PayGo

Refugees and Migrants

Remittances

&gt; Posted by Andrew Fixler, Freelance Journalist

<a href="https://www.flickr.com/photos/38476503@N08/21760883046/"><img class="alignright wp-image-20783" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/21760883046_408ce22872_z.jpg?w=490" alt="" width="330" height="220" /></a>Consolidation and investment in coffee brands is reaching a fever pitch, according to Andrew Daday, Director of Coffee for <a href="https://www.stumptowncoffee.com/">Stumptown Roasters</a>. Coffee is the second-most traded commodity in the world, and the modal coffee farmer is a smallholder living near or below the poverty line, resulting in unique value chains in Latin America, East Africa, and Southeast Asia. These value chains are characterized by factors like the <a href="http://www.investopedia.com/university/commodities/commodities2.asp">commodity coffee markets</a>, agronomics, organization/associations of growers, government coffee marketing institutions, and the state of rural financial services. <a href="https://en.wikipedia.org/wiki/Specialty_coffee">Specialty coffee</a> is characterized by meeting particular quality standards. Specialty coffee production allows some farmers to escape the vicissitudes of the commodity coffee market and to capture value commensurate with their product’s quality and input costs. In the United States, <a href="http://www.scaa.org/?page=resources&amp;d=facts-and-figures">55 percent</a> of the 48 billion dollars of coffee retail value consumed falls into the specialty category – representing immense growth in recent decades. If bullishness ratifies the growth prospects for high-end coffee in the U.S. and abroad, it is worth looking into how scaling will manifest at the agricultural end of the value chain, because the relationships coffee farmers have with downstream firms impact their well-being in a number of ways, including via their access to financing.

Agriculture finance for smallholders can be an operationally-intensive, high-risk enterprise. However, financial institutions like the Netherlands’ Rabobank and Mexico’s Banorte <a href="http://www.fao.org/docrep/017/i0846e/i0846e.pdf">express</a> that agricultural credit is especially viable and profitable if “producers are well-integrated into a viable value chain.” Linking into a larger firm’s supply chain is a boon to small business growth in many contexts. Besides serving as a “<a href="https://nycfuture.org/pdf/Giving_Small_Firms_the_Business.pdf">springboard for growth</a>” for small businesses from increased market access, buyer-supplier linkages yield exposure to key industry information and data points along the value chain that contribute to better capital allocation and financial accessibility for qualified entrepreneurs. Linking with a value chain may also <a href="https://www.microlinks.org/good-practice-center/value-chain-wiki/value-chain-finance">enable</a> a transition from informal lending, which can rely overwhelmingly on local knowledge for underwriting, to the formal financial services sector.

Viability of financing increases when value chain linkages are stronger and are used as intangible collateral. While building relationships with farmers, buyers consider smallholder attributes similar to those examined by credit underwriters. This translates into easier screening of potential borrowers, disbursement and repayment of loans, and management of collateral and risk. A detailed understanding of the quality of value chain linkages can further assure lenders of farmers’ future revenue streams. Lead firms in the value chain depend on supplier quality and resilience, so they may actively play a role in facilitating outside financing, or in rarer cases directly finance their partners through product and receivables financing.

In specialty coffee, value chain integration is diligently forged. The <a href="http://www.scaa.org/chronicle/2012/02/14/direct-trade-the-questions-answers/">direct trade</a> model is defined by a transparent relationship between farmer and roaster starting with contract negotiation, and continuing through a long-term alignment of interest in the farm’s growth, stability, and sustainability. Scalability is built on a knowledge network supported by government coffee institutes and international coffee raters, like the Cup of Excellence or Coffee Analysts, as well as roasting companies. In different manifestations of specialty coffee trade, this network is tapped in order to scale the number of producers as demand grows. So as coffee consumption grows, and the market share of specialty coffee increases, more farmers will enter close relationships with international firms.

For example, Starbucks runs <a href="http://www.starbucks.com/responsibility/community/farmer-support/farmer-support-centers">Farmer Support Centers</a> to <a href="https://books.google.com/books?id=xRL32pfxl8gC&amp;pg=PA123&amp;lpg=PA123&amp;dq=starbucks+farmer+support+center+costa+rica+value+chain+finance&amp;source=bl&amp;ots=3SSBDQ0BaU&amp;sig=WCgKAGGOsmXCnfI795B-XKssiQg&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwiygoKjmezKAhULMz4KHUGfDF4Q6AEIMzAD#v=onepage&amp;q=starbucks%20farmer%20support%20center%20costa%20rica%20value%20chain%20finance&amp;f=false">ensure</a> the company can meet growing demand. They administer an array of resources and support to growers, and bring new farmers into the company’s fold.

Specialty coffee allows farmers to recoup investments in increased quality by assuring that their produce will be processed and sold by a series of actors that will recognize the beans’ quality and distinctive identity. Additionally, the degree to which coffee farmers capture returns on their products’ distinct value attributes <a href="https://books.google.com/books?hl=en&amp;lr=&amp;id=mwpAO0J9ojgC&amp;oi=fnd&amp;pg=PR8&amp;dq=history+of+coffee+commodity&amp;ots=iESGIxaVI-&amp;sig=VwMnMFr3BYKA9h8D2KKy3G8Z55M#v=onepage&amp;q=history%20of%20coffee%20commodity&amp;f=false">determines a significant component of their market power</a>. Daday explained that <a href="https://en.wikipedia.org/wiki/Third_wave_of_coffee">third wave coffee roasters</a> (specialty coffee roasters which consider coffee more an artisanal foodstuff than commodity) buy beans from a single origin in shipping container-sized quantities, and at a premium price. This further entrenches a mutual dependence, and cements the negotiational potence of specialty coffee producers relative to their counterparts who sell coffee destined for the commodity market.

Beyond the rarified world of third wave coffee roasters, retailers are investing in their value chains, often with regard for the financial externalities this avails to their businesses and those of their partners. Starbucks’ Director of Coffee Sustainability and general manager of the Starbucks Agronomy Company notes in a <a href="http://www.fao.org/3/a-i0016e.pdf">2006 seminar</a> that sustainability and risk control are paramount in the company’s value chain. This might manifest in partnerships with impact investors who can finance growers with whom the coffee company hopes to build a long term relationship. Recently, Keurig Green Mountain, Coffee Cooperatives, Starbucks, and USAID partnered with Root Capital to target the Roya blight, a leaf rust endemic to Latin America which causes a <a href="http://www.fomin.org/en-us/Home/FOMINblog/Blogs/DetailsBlog/ArtMID/13858/ArticleID/2179/NoTitleLink.aspx">half billion dollars in losses</a> annually when left unmitigated. Their <a href="http://www.rootcapital.org/about-us/press-releases/usaid-keurig-green-mountain-cooperative-coffees-starbucks-and-root-capital">efforts</a> will allocate $23 million, including $15 million in investment capital, to technical assistance and farm-rehabilitation efforts. Part of the technical assistance includes advice on negotiating ongoing Roya prevention costs into contracts.

From coffee to cocoa to other crops, there are roughly 500 million smallholder farmers around the world. As lessons learned in supply chain sophistication and agriculture financing amass in the growing artisanal produce and mass market grocery industries alike, the prospects for entrepreneurial smallholders may significantly brighten.

Image credit: <a href="https://www.flickr.com/photos/38476503@N08/21760883046/">CIAT</a>

This post was modified from its original version on March 4, 2016.

Have you read?

<a href="http://cfi-blog.org/2014/03/27/agriculture-microinsurance-in-africa-to-subsidize-or-not-to-subsidize/" target="_blank">Agriculture Microinsurance in Africa: To Subsidize or Not to Subsidize?</a>

<a href="http://cfi-blog.org/2014/04/24/new-council-to-expand-responsible-financing-for-agriculture/">New Council to Expand Responsible Financing for Agriculture</a>

<a href="http://cfi-blog.org/2015/01/28/banking-services-extended-to-300000-colombian-coffee-growers/">Banking Services Extended to 300,000 Colombian Coffee Growers</a>

Coffee Connections: Improving Smallholder Inclusion through Value Chain Finance

Agricultural and Rural Finance

Risk Management

Underwriting

Editor's Note: Eric Noggle worked at Microfinance Opportunities when this research was conducted and published.

In 2014, <a href="http://fsdzambia.org/">Financial Sector Deepening Zambia</a> and <a href="https://www.microfinanceopportunities.org/">Microfinance Opportunities</a> (MFO) began the Zambia Financial Diaries—a 52-week study of the financial lives of 352 low-income Zambians. The study included 92 smallholder farmers—individuals who own small plots of land on which they grew crops or tended livestock for sale and/or subsistence.

The Zambian smallholder farmers represent only a tiny fraction of the estimated 500 million smallholder households worldwide. Smallholder farmers are a large livelihood group and addressing their diverse needs—from crop diversification to market integration—is a strategic priority for the World Bank Group, country-level governments, and non-government organizations.

Understanding smallholder farmers’ income patterns is critical for designing financial services that meet their financial needs. The common perception of farmers’ income patterns is that they are lumpy and linked to agricultural cycles, but the income patterns identified in MFO’s Zambia Financial Diaries challenge this perception.
<h2>Income Patterns</h2>
<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png"><img class="alignright wp-image-20735" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png" alt="" width="350" height="88" /></a>The farmers in MFO’s study had lower and more variable incomes than respondents who earned the majority of their income from informal, off-farm sources (“informal workers”). The farmers had 4.3 income sources on average, often relying on casual labor or running informal shops to supplement their agricultural activities, while informal workers had 3.3 sources. Farmers’ average weekly earnings were low—only about $19 per week on average compared to $50 for informal workers (based on June 2015 exchange rates). The farmers also experienced more week-to-week income variation, as measured by the coefficient of variation (COV), than other respondents who work in the informal economy.

However, these data mask the diversity of smallholder farmers’ income patterns. The study found farmers who earned large sums frequently, while others had large and inconsistent windfalls. Lower-income farmers also had diverse patterns, with some earning small sums on a frequent basis while others went weeks between earning income.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png"><img class="aligncenter wp-image-20737" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png" alt="" width="615" height="232" /></a>

MFO developed a simple market segmentation framework to understand the role of income patterns in financial service design better. The framework comprises two dimensions: average weekly income and week-to-week income variation as measured by the COV. We divided respondents into high- or low-income groups at the median of average weekly income and high- or low-variation groups at the median of the COV.

&nbsp;
<h2><a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png"><img class="aligncenter wp-image-20738" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png" alt="" width="615" height="299" /></a></h2>
<h2>Implications of Segmenting by Income Behavior</h2>
The segmentation framework demonstrates the diversity of smallholder farmers’ income patterns and their similarity to the income patterns of informal workers. This finding should encourage stakeholders to prioritize collecting information about consumers’ income patterns when designing financial services for the low-income market segment. The financial needs of a smallholder farmer with high, steady income are more similar to those of a micro-entrepreneur with the same income pattern than a smallholder farmer who irregularly earns small sums. Recognizing these inter-livelihood similarities can help stakeholders mitigate inefficiencies in the design, marketing, and delivery of financial services.

&nbsp;

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png"><img class="aligncenter wp-image-20739" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png" alt="" width="615" height="232" /></a>

&nbsp;

Stakeholders focused specifically on smallholder farmers should consider the needs and opportunities that these income patterns suggest. For instance, a farmer with high income and high variation may benefit from interventions that allow the farmer to diversify on- and off-farm income sources. This diversification could lead to more consistent annual income. A farmer with high income and low variation may be best suited for interventions that support the expansion of farming activities through asset financing or linkages with local markets. Farmers with low-income and high variation may struggle to piece together the income necessary to purchase inputs during the planting season; thus, a layaway product might be beneficial for them. Cash transfers from government agencies or non-governmental organizations would help farmers with low-income and low variation pay basic on- and off-farm expenses that their meager earnings cannot cover.

Income patterns alone should not inform the design of financial services for smallholder farmers, but they are a critical component in the process. MFO’s hope is that this study and other research can help improve the efficacy of interventions meant to help this diverse group.

For more information on the research methodology and additional findings, please read the <a href="https://www.microfinanceopportunities.org/?p=2824">Zambia Financial Diaries Interim Report</a>.

Have you read?

<a href="http://cfi-blog.org/2014/09/10/pay-for-performance-operationalizing-the-embedded-education-model/">Pay-For-Performance: Operationalizing the Embedded Education Model</a>

<a href="http://cfi-blog.org/2014/06/11/climate-change-adaptation-for-smallholder-farmers/">Climate Change Adaptation for Smallholder Farmers</a>

<a href="http://cfi-blog.org/2013/11/01/what-is-financial-capability/">What Is "Financial Capability?"</a>

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&nbsp;

&nbsp;

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Using Income Patterns to Segment Livelihood Groups: The Case of Smallholder Farmers

Zambia

<img class="alignright" style="border:0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2011/08/disc-meter.jpg?w=300&amp;h=174" alt="" width="300" height="174" />&gt; Posted by Center Staff

This edition of top picks features posts highlighting initiatives to optimize smallholder finance data collection and usage, efforts to improve youth financial capability, and insights on how mobile money services can effectively reach women.

To better provide financing for the 450 million smallholder farmers around the world, there’s a big opportunity in developing shared knowledge bases and coordinated learning agendas for this topic area. A <a href="http://www.cgap.org/blog/filling-smallholder-household-data-gap-new-learning-agenda">new post</a> on the CGAP blog shares the work of Dalberg Global Development Advisors and the Initiative for Smallholder Finance to ascertain the state of the smallholder financing knowledge base and put in place a number of complementary tools so that those addressing this financing gap can work together, repurpose what others have already learned, and build off of the field's scarce resources to drive it forward. The post highlights a smallholder impact literature wiki, an interactive map of smallholder finance tools, a framework for data collection that includes a shared learning agenda, and new briefings offering supply and demand side insights as well as indications of where data is lacking.

How can children and youth become financially capable adults? A <a href="http://www.poverty-action.org/blog/how-can-children-and-youth-become-financially-capable-adults" target="_blank">new post</a> on the Innovations for Poverty Action (IPA) blog examines interventions that have been conducted to improve the financial capability and well-being of the younger client segment. In Uganda, a country with one of the highest primary school drop-out rates in the world, 81 percent of parents with children who have dropped out cite financial constraints as the reason. Youth finance to keep kids in school and support their overall betterment is not a new item on the financial inclusion and development agendas, and so efforts to date to improve capability have been varied and even tested in combination. The IPA post discusses promising results that have arisen from financial education and savings initiatives, and important next steps.

In Papua New Guinea, where roughly 15 percent of the population has access to formal financial services, the MiCash mobile money service boasts an impressively high gender balance among its clients: 38 percent are women. The service was launched by Nationwide Microbank in 2012 and has been met with relatively high uptake among the population. GSMA’s Mobile Money for the Unbanked blog is producing a series of posts that build on their recently released report Reaching Half of the Market: Women and Mobile Money, outlining takeaways from mobile money services that have been effective in reaching women. <a href="http://www.gsma.com/mobilefordevelopment/reaching-half-of-the-market-women-and-mobile-money-the-example-of-nationwide-microbank-in-png">This week’s post</a> on MiCash in Papua New Guinea includes insights on financial literacy, outreach, and partnerships.

Image credit: <a href="http://commons.wikimedia.org/wiki/User:Iainf" target="_blank">Ianf</a>

Smallholder Data, Youth Capability, Women and Mobile – Top Picks of the Microfinance Blogosphere

Financial Capability

Women

Youth

&gt; Posted by Bobbi Gray, Research and Evaluation Specialist, Freedom from Hunger 

<a href="http://www.thelasthungerseason.com/"><img class="alignright wp-image-15287" style="border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/06/9088752.jpg" alt="" width="250" height="388" /></a>In <a href="http://cfi-blog.org/2014/06/23/the-last-hunger-season-book-review-part-one/" target="_blank">part one of this review</a>, we considered several themes that Roger Thurow raised in the book <a href="http://www.thelasthungerseason.com/" target="_blank">The Last Hunger Season: A Year in an African Farm Community on the Brink of Change</a> that might influence how we conduct research and design evaluations to measure changes in poverty. The book follows four Kenyan smallholder families for a year, chronicling how their lives were changing as a result of participating in One Acre Fund’s agriculture training and loan program.

Understanding the decisions these families made about how and where to allocate their very limited resources helps us as financial service practitioners and researchers to understand and appreciate certain realities.

Financial service providers can feel both disappointed and encouraged by this book. We find ourselves uncomfortable reading about Leonida, the Kenyan mother and smallholder farmer who makes a credit payment instead of feeding her family. But we also see opportunity. It’s a difficult trade-off for Leonida, but she sees her credit payment as her ticket to new investment in crops, which have already shown promise after a year of participating in One Acre Fund’s program.

In our earlier discussion, we looked at how we might think differently about evaluating programs. Let’s switch gears to what Thurow encourages us to think about in terms of program design. He highlights two key opportunities that stem from a more client-centered approach to program design.

Being client-centered requires a deep understanding of not just client needs, but their financial priorities.

One Acre Fund learned that, in order to pay school fees, farmers in its program were often selling their grain at times when they would receive the lowest price for their harvest.

In response, One Acre Fund developed a school fee loan, using their grain as collateral. Repayment of the loan is deferred until the market price of grain is at a peak, months later.

One Acre wanted to ensure that the farmers could time their sales to generate the greatest profit and avoid having to sell at suppressed prices to pay school fees when those expenditures could be anticipated. They also developed small loan products that would allow farmers to buy small amounts of seed and fertilizer consistent with their small plots of land. This allows farmers to plant supplementary crops to help sustain their family through the hungry season.

As we come to a deeper understanding of the financial circumstances and constraints faced by smallholder farmers, we gain a clear picture of how One Acre Fund has innovated around these constraints to develop products that meet the specific financial needs and priorities of their clients.

Financial services alone are not enough to move people out of poverty—an integrated approach is necessary.

As we follow the stories of these four families, we become keenly aware of why microcredit alone will not be enough for them.

One Acre Fund uses microcredit as one tool but pairs it with agricultural education to help address inadequate agricultural practices. These integrated services are one part of the equation. However, health is also a roadblock for poor households as they try to pull meager funds together to seek treatment and save family member lives.

After one year in the program, Rasoa, a 30-year-old mother of three boys, was feeling comfortable about the future. She said, “For now, I won’t cry again that my children are lacking food.” However, misfortune struck and her brother was admitted to the hospital. She knew the hospital wouldn’t treat him without advance payment, so she sold two bags of her grain to pay for it. This grain was originally set aside to feed her family through the hunger season.

Being client-centered could also mean ensuring that different sectors such as health, agricultural, and financial sectors work more collaboratively to meet the multifaceted needs of the poor. Opportunities to create more and better linkages between the financial, health, and agricultural sectors exist, but they require a new way of thinking and a commitment to listening and working collaboratively to meet client needs.

We have seen such linkages work. One Acre Fund provides one example of client-centered programming. Freedom from Hunger has also helped its partners establish linkages to health providers to offer reduced-cost medical care, organize health fairs, and organize their own cadres of community health workers. Some of our partners are even addressing the first 1,000-day period from pregnancy to a child’s second birthday by providing pre-natal care education and linkages to health services, breastfeeding and diarrhea education, and access to related health products.

Thurow’s description of the lives of the smallholder farmers in The Last Hunger Season helps us fully realize that the movement out of poverty is often not linear. Sometimes there are periods of progress and other times, there are setbacks.

One Acre Fund encourages simple, yet effective changes to agricultural practices, including increased investment in inputs and instruction on how and when to most effectively plant new seeds and nurture them, the use of fertilizers, crop diversification, and crop rotation. If followed, this advice helps smallholder farmers by ensuring there is always a crop in the ground to produce food for the household while the cash crops are waiting to be harvested. Program participants in the story reaped harvests that were double, triple, and even quadruple the size of previous gains, providing opportunities for better nutrition, additional agricultural investments, and improvements to other life areas. Readers are left with a feeling of hope… a hope that greater returns will continue in the years to come, because a new foundation has been set for the future.

Image credit: <a href="http://www.thelasthungerseason.com/" target="_blank">The Last Hunger Season</a>

Have you read?

<a href="https://cfi-blog.org/2014/06/23/the-last-hunger-season-book-review-part-one/" target="_blank">'The Last Hunger Season' - Book Review (Part One)</a>

<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

<a href="http://cfi-blog.org/2014/04/24/new-council-to-expand-responsible-financing-for-agriculture/" target="_blank">New Council to Expand Responsible Financing for Agriculture</a>

'The Last Hunger Season' - Book Review (Part Two)

Kenya

Microfinance

&gt; Posted by Bobbi Gray, Research and Evaluation Specialist, Freedom from Hunger 

<a href="http://www.thelasthungerseason.com/"><img class="alignright wp-image-15287" style="border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/06/9088752.jpg" alt="" width="250" height="388" /></a>In 2009, <a href="http://www.portfoliosofthepoor.com/">Portfolios of the Poor</a> illustrated a rich array of formal and informal financial services and money management practices used by the poor. For this reason, it has become a foundational text for development professionals seeking to address poverty through financial inclusion.

<a href="http://www.thelasthungerseason.com/">The Last Hunger Season: A Year in an African Farm Community on the Brink of Change</a>, by journalist and author Roger Thurow, chronicles the lives of four smallholder farmers in Kenya over a year’s time. His conclusions further enrich our understanding of household financial decision-making processes and tradeoffs made by the poor on a daily basis.

Along the way Thurow describes the critical role that the Kenya-based One Acre Fund plays in improving agricultural knowledge and practices by providing training and credit for agricultural inputs such as seed and fertilizer to families that have one acre of land or less. All four families followed in the book are <a href="http://www.oneacrefund.org/">One Acre Fund</a> program participants.

The Last Hunger Season provides some important lessons for us as financial service practitioners. It helps us re-frame how we view client impact and design impact assessments. Let’s look at a few themes.

Think of “impact” or “change” in poverty in a more comprehensive way. Thurow shares the story of Leonida, a 42-year-old Kenyan mother of seven children. Several times each year, she must choose between feeding her children and paying school fees to keep her oldest son in a boarding school. Hunger is the tradeoff that Leonida accepts because she sees education as the ticket to a better future for her children and her family.

When we only look at reported hunger as a metric for smallholder farmers, for example, given this information we might conclude that the program is failing Leonida. However, when we expand our assessment, we might see that the increase in income is directed toward education—to the detriment of family nutrition and health in the short term. However, this attention to education is deliberate and reflects the values and priorities of this family.

By only monitoring and measuring the “direct” benefits of a program, we risk getting an inaccurate picture of change or impacts at the household level. It’s important to note that to date, with participation in the One Acre Fund program, Leonida’s production has <a href="http://www.huffingtonpost.com/roger-thurow/g8-summit_b_1525882.html" target="_blank">increased</a> from three 90-kilogram bags of maize to 10.

Qualitative observations can provide rich insights into what “impact” is. Perhaps the most striking takeaway from The Last Hunger Season is that when we use only quantitative measures, we are hard pressed to fully understand the impacts of a program.

As Thurow follows the families and illustrates the difficult decisions they make (and the underlying reasons behind those decisions), we are forced to wonder whether the research methods that we, as practitioners and researchers, rely on to assess the outcomes of a project can effectively capture this type of decision-making in action.

For example, one day, two of Leonida’s daughters return home from their local school, in the middle of the day, to collect school fees for their tuition. They have been asked not to return to school until they can pay their fees. They have missed lunch at school, and Leonida also has nothing to offer them to eat.

She knows that if she doesn’t pay the full amount of the school fees for her oldest son, he will surely be sent home and all of her past efforts to keep him in school will be for naught. So, she makes a difficult decision. By allowing her youngest (female) children to go hungry, she keeps the majority of the money for her oldest (male). She sends the two youngest back to school with partial payment, hoping this will buy her time to make a full payment later when she can find other ways to gather the funds.

If we evaluate this in terms of where did you spend your money?, we would see that she spent money on school fees. However, it is equally important to understand what she did NOT spend her money on as well as her reason to prioritize school fees over food. Leonida explains, “A person with one child who is a doctor or lawyer is above a person with seven children who haven’t been educated.”

Seasonality matters. Though this is not a new concept, as we follow the four families through a year, we come to fully appreciate another challenge we have in understanding client impact: the time of year that we conduct a client assessment can make a big difference in what we find.

When clients are interviewed at the height of the “hungry season,” we are not going to detect very positive outcomes. Conversely, if we conduct our assessments immediately after the harvest, we risk overestimating client well-being, as it can be short-lived. As Andrew Youn, President of Once Acre Fund notes, “Harvest time is a time to dream. To dream of improving lives, feeding families, sending children to school, investing in livestock.”

Some research methods and assessments take seasonality into account. Thurow reminds us of the importance of factoring in seasonality when designing assessments and interpreting the results.

Measuring hope and “softer” impacts. At the end of the year, along with increases in harvest results, hope appears to be one of the tangible impacts of One Acre’s credit and agricultural support program.

One could easily argue that Thurow wrote the book to elicit this emotion in the reader. But it’s possible that there is more here than just a writing style; it suggests an important consideration for us when we design evaluations of both short- and long-term program impact.

We typically evaluate the benefits of access to and use of microfinance products using quantifiable measures – for example, agricultural output, household income, business revenues, amount of savings, increase in assets, and others. Yet, we could learn a lot more about some of the “softer” impacts such as client attitudes and perceptions about their lives, including hope.

Instead of approaching household outcomes only by whether there was more income in one year’s time, what if we instead accepted that a client’s perception of her well-being is an adequate composite for assessing her comprehensive, complicated financial and non-financial life? Or, in the least, what if we incorporated these “soft” aspects as integral components for gauging program impact?

We know that we can’t prove impact by relying only on hope and a positive perception of a client’s current life or future—or can we? Thurow paints a compelling picture that illustrates why and how the process of moving out of poverty is slow and painstaking. He makes the point that hope seems to be the vital fuel that helps propel this engine forward. Attitudes and perceptions may turn out to be a more accurate indicator of wellbeing than a long list of quantifiable indicators. It is something we should test. If smallholder farmers are hanging onto hope for a better future, perhaps we as evaluators should as well.

In part two of this post I’ll discuss some of the client-centered program design insights shared in The Last Hunger Season.

*This post was modified from its original version on June 25, 2014.

Image credit: <a href="http://www.thelasthungerseason.com/" target="_blank">The Last Hunger Season</a>

Have you read?

<a href="http://cfi-blog.org/2014/06/11/climate-change-adaptation-for-smallholder-farmers/" target="_blank">Climate Change Adaptation for Smallholder Farmers</a>

<a href="http://cfi-blog.org/2014/03/27/agriculture-microinsurance-in-africa-to-subsidize-or-not-to-subsidize/" target="_blank">Agriculture Microinsurance in Africa: To Subsidize or Not to Subsidize?</a>

<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

'The Last Hunger Season' - Book Review (Part One)

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

<a href="http://www.flickr.com/photos/55034788@N08/5758970864/"><img class="aligncenter wp-image-14750" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/04/5758970864_fa51c58c71_z.jpg" alt="" width="600" height="398" /></a>The 450 million smallholder farmers around the world, who comprise the majority of those living in absolute poverty, have <a href="http://dalberg.com/documents/Catalyzing_Smallholder_Ag_Finance.pdf">an enormous unmet financing need</a>. Such financing requirements include small loans for inputs like seeds and fertilizer. A few weeks ago, seven leading social lenders, who collectively disbursed $360 million in 2013 toward agriculture financing, joined forces to spur sustainable growth and instill responsible practices in this vital lending area: they formed the Council on Smallholder Agricultural Finance.

Launched at the Skoll World Forum in Oxford, the Council is made up of Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investments AG, Root Capital, the Shared Interest Society, and Triodos Investment Management. The Council will meet regularly, share experiences and insights, and develop best practices and industry standards across three areas: market growth; responsible lending principles; social and environmental impact.

The Council particularly targets loans to “missing middle” agricultural businesses in low- and middle-income countries. The “missing middle” refers to businesses that require financing in the $25,000 to $2 million range, which are amounts often deemed too large for microfinance and too low for commercial banks. These businesses include producer organizations, companies that source from smallholder farmers, and companies that provide productive assets to smallholder farmers, often on credit. These companies can serve hundreds to thousands of farmers, offering an array of services including market access support, training, financial services, and accessible assets. Though millions of smallholder farmers are connected to these missing middle businesses, the vast majority are not.

There’s a huge opportunity to expand the missing middle agricultural financing market. The groups in the Council plan to increase their combined disbursements in this area to a total of $500 million by 2016. They also aim to facilitate successful market entry for new lenders. Research indicates the addressable financing gap for this market area to be about <a href="http://dalberg.com/documents/Catalyzing_Smallholder_Ag_Finance.pdf">$12 billion</a>.

While promoting market growth, the Council will look to instill responsible practices – across social, environmental, and corporate governance areas - among all financial institutions serving the missing middle market. The Council created a <a href="http://www.csaf.net/lending/lending-principles/">set of responsible lending principles</a> for these lenders, which include principles on transparency, prevention of overindebtedness, trusted information sharing, and fair treatment.

To ensure that their lending efforts are creating positive social and environmental change, the Council created and endorsed a set of <a href="http://www.csaf.net/impact/">seven impact metrics</a> that its members will collect and share annually, and use as a basis for deeper impact analysis in the future.

To learn more about the Council on Smallholder Agricultural Finance, <a href="http://www.csaf.net/">click here</a>.
Image credit: <a href="http://www.flickr.com/photos/55034788@N08/5758970864/" target="_blank">Africa Renewal / UN Photo / Fred Noy</a>
Have you read?
<a href="http://cfi-blog.org/2014/03/27/agriculture-microinsurance-in-africa-to-subsidize-or-not-to-subsidize/" target="_blank">Agriculture Microinsurance in Africa: To Subsidize or Not to Subsidize?</a>
<a href="http://cfi-blog.org/2014/01/29/the-hunger-games-are-real-for-millions-of-people/" target="_blank">The Hunger Games Are Real for Millions of People</a>
<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/" target="_blank">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

New Council to Expand Responsible Financing for Agriculture

Responsible Digital Finance

&gt; Posted by Laurence Dare and Stephanie Hanson, East Africa Policy Manager and Director of Policy and Outreach, One Acre Fund

Expanding access to finance isn’t enough. Clients need access to financial products that they will actually adopt. That’s why addressing customer needs, one of the pillars of the <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion" target="_blank">Financial Inclusion 2020 Roadmap to Inclusion</a>, is so critical for making finance more inclusive. For smallholder farmers in rural Africa, <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;cad=rja&amp;uact=8&amp;ved=0CDoQFjAB&amp;url=https%3A%2F%2Fwww.mfw4a.org%2Fdocuments-details%2Ffinancial-inclusion-in-africa.html%3Fdl%3D1&amp;ei=osUwU9zeJPSQ0gHDioCoDA&amp;usg=AFQjCNEfXdiaXnDcAXy1C7BZ66UuPIxtYg&amp;sig2=hPgAjLL1GQrJmkjN1Pq3PQ&amp;bvm=bv.63587204,d.dmQ" target="_blank">where inclusion rates are 19 percent compared to the urban rate of 34 percent</a>, the financial services provided don’t come close to <a href="http://api.ning.com/files/BpcxhYIbWSb--9dVh4I6Vp8t042J6m87aqI8DN47rXSg*4UvXaDtH5vNtygCoe5x-zKwCF14kyP*ktfXrOePlLwVwQS3uCEd/Initiative_for_Smallholder_Finance_Briefing_1.pdf">meeting the demand</a>. Asset-based financing and loan products with flexible repayment schedules can help close this gap.

Among other financial services, smallholders desperately need access to financing for basic inputs—improved seed and fertilizer—that could dramatically increase their agriculture productivity. Properly designed, this financing could make an important contribution to growth and poverty reduction in Africa.

<img class="aligncenter wp-image-14492" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/het1099.jpg" alt="" width="525" height="348" />Unfortunately, microfinance products created for Africa’s poor do not necessarily meet such needs. Most microfinance institutions are <a href="http://pdf.usaid.gov/pdf_docs/pnadf010.pdf">concentrated in urban and peri-urban areas</a> and primarily offer cash loan products on strict repayment schedules. These products meet the needs of the urban and suburban poor, most of whom receive small but frequent income from businesses or jobs. Smallholder farmers have different challenges.

Unlike urban clients, smallholder farmers receive the majority of their income all at once after harvesting. As small jobs come in, such as day labor on a neighbor’s farm or a local construction project, farmers can earn some extra income, but this is incremental and unpredictable. A cash loan product on a strict repayment schedule does not meet these financing needs.

How should a loan product be structured to meet the needs of smallholder farmers? At <a href="http://www.oneacrefund.org/">One Acre Fund</a>, we designed a product pairing asset-based financing and a flexible repayment schedule that is working for 180,000 smallholder farmers in Kenya, Rwanda, Burundi, and Tanzania.

Instead of cash, One Acre Fund lends the assets that farmers need for success. By buying through us, farmers are able to avoid the potential pitfalls associated with local sellers, such as poor quality or fraudulent inputs and high prices. Our organization sources materials from large suppliers, negotiates bulk fates, and imposes rigorous quality control standards.

There are other advantages to lending assets rather than cash, as well. Farmers are less intimidated by taking a loan when they are receiving a comprehensive package of inputs that is proven to be profitable. Because it shares features with <a href="http://www.ifad.org/operations/projects/regions/pn/factsheets/nena_islamic.pdf">Islamic finance models such as murabaha</a>, asset-based lending can provide a workable alternative for Muslim clients.

[caption id="14458" align="alignright" width="342"]<a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/graph.jpg"><img class="wp-image-14458 size-none" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/graph.jpg" alt="Money flows in throughout the season rather than all at the end. In the past three years, One Acre Fund has seen stable and steady repayments." width="342" height="241" /></a> Loan repayment money flows in throughout the season rather than all at the end. In the past three years, One Acre Fund has seen stable and steady repayments.[/caption]

For the lender, the asset-based lending model lowers risk and reduces the need to assess credit worthiness. The lender knows what investment the client has made and knows that the investment can be used in a profitable business model. It also allows for specifically tailored training. With all of their clients using the same inputs, microfinance institutions can provide precise information on how to use them to maximize profits. Our field officers provide highly-specific training at weekly meetings to ensure that clients get the most out of their investments. Field officers also use these meetings to encourage continuous repayment and offer modest incentives for meeting targets early.

Instead of enforcing a strict weekly repayment structure, our flexible repayment structure has just two deadlines for clients. First, farmers must meet a “prepayment” requirement before they receive any of our services (roughly 10 percent of their total loan size). The second repayment deadline is the final one, due after the harvest. After paying that first 10 percent, farmers are free to make repayment on their own schedule, at any time throughout the season.

This type of flexible repayment schedule works because it meets the needs of smallholder farmers, boosts demand for credit and <a href="http://www.econ.yale.edu/conference/neudc11/papers/paper_146.pdf">increases the amount invested in farm inputs</a>. And it has been shown that offering a flexible repayment schedule generally <a href="http://www.hks.harvard.edu/fs/rpande/papers/repayfreqjeea_1107.pdf">does not increase delinquency or default</a> among microfinance clients.

At One Acre Fund, the flexible repayment schedule has been very successful, supporting a growing number of clients as well as excellent repayment statistics over the past three years. Our overall repayment rate is over 98 percent.

Image credit: Hailey Tucker, One Acre Fund

Have you read?

<a href="http://cfi-blog.org/2013/07/29/financing-smallholder-farmers-with-fairtrade-access-fund/" target="_blank">Financing Smallholder Farmers With Fairtrade Access Fund</a>

<a href="http://cfi-blog.org/2014/01/29/the-hunger-games-are-real-for-millions-of-people/" target="_blank">The Hunger Games Are Real for Millions of People</a>

<a href="http://cfi-blog.org/2014/03/03/weather-index-insurance-to-benefit-from-new-nasa-satellite/" target="_blank">Weather Index Insurance to Benefit from New NASA Satellite</a>

Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa’s Smallholder Farmers

Amee Parbhoo

Coryell Stout

Jordan Coriza

Justin Matheson-Turner

Rachel Morpeth

Robert Ongodia

Vikas Raj

Latin America and The Caribbean

Mexico

South Africa

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Appropriate Product Design and Delivery

Crop Insurance

Customer Centricity

Human Centered Design

Human Touch

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Rural Populations

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The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

<a href="https://apolloagriculture.com/">Apollo Agriculture</a>, based in Kenya, delivers customized packages of seed, fertilizer, and insurance on credit for smallholder farmers. The farmer customers also receive valuable guidance in farming techniques and information on weather conditions that may affect results. Accion Venture Lab was an early investor in the company and continues to work with Apollo in an advisory capacity.

Technology is at the center of Apollo’s model. Its founders, Eli Pollak and Earl St. Sauver, built on their experience at The Climate Corporation using data to help farmers make better-informed decisions. Apollo’s systems rely on remote sensing technology, data science, mobile money, and voice-based trainings to make them cost-effective and scalable.

<img class="alignleft wp-image-17740" src="https://content.accion.org/wp-content/uploads/2019/02/Kenya_Nakuru_0034-1-1-1024x684.jpg" alt="Apollo agents using mobile phone in Nakuru, Kenya" width="500" height="334" />At the same time, Apollo’s results-driven, customer-focused approach means it must stay in close contact with farmers and gather feedback on what works and what doesn’t. Some of its staff’s work is almost entirely out in the field. For example, Rebecca, a field associate, works with both farmers and with the Apollo agents that visit their farms and set them up with their accounts. She finds the opportunity to speak directly with customers very rewarding. She says, “I’m most satisfied when the farmers come to me and tell me how the quality of their harvest has gotten better. When you help that farmer come from nowhere, to know something, and he appreciates you, it gets you excited that you got to help. This inspires me to keep doing this.”

Other Apollo staffers focus more on the technical systems, like Nairobi-based operations designer Javin, who collaborates with the tech team to identify and address issues in various processes. Even so, keeping up with customers is a central part of his work, as he explains, “ We have a call center team that gets feedback from the field. I also deal with farmer communication, making sure that we are in touch with our farmers as often as we can, reminding them to check payments.” He also goes out into the field himself to see how processes are working and solve problems as they arise.

Says Javin, “The small farmers grow food that the country depends on, both for the community and their own family. I like work that impacts communities. It feels great.”

Out in the field with the farmers

Impact Investor

Institutional Funder

Social Good

“Change is the only permanent thing. We see a lot happening, like climate change, and for us to solve the issues of the smallholder farmers — we can’t use the normal way to solve issues,” says Jacobeth Barno, who works for Accion Venture Lab portfolio company Pula. In Kenya, where Jacobeth works, the past decade of change has led to a booming digital economy with <a href="https://globalfindex.worldbank.org/">91 percent of the population</a> using mobile money. 

But smallholder farmers haven’t always gotten to enjoy the fruits of the digital revolution, particularly when it comes to insurance. “Insurance has not been available to them,” says Jacobeth. “The reason is not that insurance companies don’t like them, but because the approach does not suit the smallholder farmers — it’s too expensive for them. I realized there is an opportunity to be able to reach these people with innovations to help improve their years and change their lives.”

Fintech innovation is crucial for Pula as it seeks to serve rural communities. “Technology has helped us reach most people. Through technology, we have been able to advise farmers on methods to use that can improve production and their farming. We use our phones for farmers to pay with and to do research,” says Pula employee Cleopas Busienei. 

But technology is only part of the story for Pula’s business model. Team members regularly visit communities to talk and share advice with smallholder farmers. Data-driven insights inform farmers about when and how to plant their crops to produce higher yields. Jacobeth sums up the company’s vision with, “I see a great future for Pula because we put out clients first and deliver on what we promise. We always come up with solutions. I want to see Pula help those who are in a struggle to scale up due to low-income, and I want us to help them.” 

With 1.5 billion smallholder farmers worldwide, who are largely uninsured, Pula has a massive opportunity to help people.  With its formula of mixing cutting-edge insurtech products with a personal connection with clients, Pula is making strides in empowering a vital, yet underserved, segment of the population with knowledge and confidence.

Driving resilience for farmers through tech and human interaction

The real impact of financial inclusion

Andrew Murithi Karanja studied mechanical engineering but didn’t pursue it as a career. Instead, he found himself back on the land in central Kenya his father bought over 50 years ago. “Farming is deep in me because my parents were farmers. I just found myself in farming,” he says. However, even though he loved the land and his work, he found it hard to get ahead using the same skills his parents did. “Life was difficult,” he recalls. “I used inferior seeds, used less fertilizer. The yields were poor.”

That all changed when he signed up with <a href="https://apolloagriculture.com/">Apollo Agriculture</a>, a Kenya-based fintech startup and Accion Venture Lab portfolio company that works with smallholder farmers like Andrew. Apollo helps farmers obtain the high-quality seeds and fertilizer they couldn’t afford before and also advises them on how to plant and tend the crops to maximize their yield. For Andrew, the results have been very positive. “They have taught me so much about farming,” he says. “We learned how to apply fertilizer, how to space maize, it has helped us.” He used to farm only an acre and a half of land, but with Apollo’s help, he is up to three acres and is confident he’ll soon be able to manage five. 

<img class="wp-image-19105 alignleft" src="https://content.accion.org/wp-content/uploads/2019/07/Nakuru_0012-1024x684.jpg" alt="Andrew smiling outside of a home" width="500" height="334" />Andrew is so happy with his Apollo experience, he’s urged friends and neighbors to become customers as well. “People have learned about Apollo through me, especially my neighbors. They have seen how my farm is looking good, so I tell them about Apollo.” Now 58 years old, he plans to retire from farming in about a decade but thinks he might still want to keep working with Apollo. “I would like to retire. Then I can teach others about farming with Apollo. I cannot leave Apollo. I will continue to work with them,” he says. 

Again, reflecting on his past struggles, Andrew says, “You would have pitied us if you saw us then. The futile labor of the past is gone. Apollo boosted me and helped me to see a ray of hope. Now I am proud to be with Apollo.”

Learning new skills helped this longtime farmer thrive

By Simon Brunner in the <a href="https://www.credit-suisse.com/corporate/en/responsibility/dialogue/bulletin.html?WT.i_short-url=%2Fbulletin&amp;WT.i_target-url=%2Fcorporate%2Fen%2Fresponsibility%2Fdialogue%2Fbulletin.html">Credit Suisse Bulletin</a>
“Show me your credit rating and I’ll tell you who you are,” is the unwritten rule of the economic mainstream: If a global company, a small village shop, a home buyer or even an entire country wants to borrow money, they must first provide proof of their assets and income. But how can a farmer in rural Kenya provide reliable financial information when such information depends in large part on his harvest?
Apollo Agriculture, a start-up founded in Nairobi in 2016, wants to solve this problem with the help of remote sensing technology and data science. Apollo uses machine learning models to build credit profiles for their customers, using alternative data sources. This includes inferences from satellite imagery of customers’ fields, as well as self-reported and behavioral data gathered during the customer enrollment process. Apollo then provides approved customers with a package of farm inputs, advice, and insurance, on credit that is customized to the size of their farms. This means that farmers in the Kenyan city of Nakuru, for example, can access the quality seed and fertilizer they need to increase their yields and are protected in case of drought.
Co-founder and CEO Eli Pollak has ambitious plans: “Our business is helping small-scale farmers make more money on their farms. We see fantastic opportunities to help farmers expand and achieve higher returns, including higher profitability crops, more crop diversification, irrigation, and access to markets.”

<h2 class="p2">Accion Venture Lab </h2>
As part of its Financial Inclusion Initiative, Credit Suisse supports Venture Lab, the seed-stage investment arm of Accion, an NGO and pioneer in the area of financial inclusion. Venture Lab provides startup capital and support to innovative start-ups that facilitate, improve, and reduce the cost of access to financial services for people living in poverty. Apollo Agriculture is part of <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab/">Accion’s portfolio. </a>

<h2 class="p1">Improving realities</h2>
A conversation with Laura Hemrika, the Global Head of <a href="https://www.credit-suisse.com/corporate/en/responsibility/economy-society/focus-themes/financial-inclusion.html?WT.i_short-url=%2Ffinancialinclusion&amp;WT.i_target-url=%2Fcorporate%2Fen%2Fresponsibility%2Feconomy-society%2Ffocus-themes%2Ffinancial-inclusion.html">Corporate Citizenship &amp; Foundations at Credit Suisse</a>

<h4 class="p1">Q: Laura Hemrika, what does Credit Suisse seek to achieve through its Corporate Citizenship activities?</h4>
A: Through our work, we seek to contribute to a more inclusive future where all people can both access the resources and develop the financial, entrepreneurial, and other skills they need to thrive in the economy and society. We focus on the topics of financial inclusion, financial education, and future skills, and partner with NGOs and social enterprises transforming the realities of thousands of people worldwide.

<h4 class="p1">Q: Why did Credit Suisse choose to support Accion’s Venture Lab?</h4>
A: Venture Lab has a very successful approach to identifying innovative new financial inclusion business models and helping them reach scale. Thanks to their smaller size, presence on the ground close to investees, and international team with deep experience in building financial inclusion and tech businesses, they are better placed to do so than we are, and are a great complement to our strengths. They provide early-stage investment capital — which can be difficult to obtain, especially for start-ups in emerging markets — and work closely with entrepreneurs to help build their companies. These companies are the future of financial inclusion, merging big data, new technology, and new models to deliver financial services to new customer segments, especially low-income people in developing countries.

<h4 class="p5">Q: What support does Credit Suisse provide to help partners achieve sustained growth and impact?</h4>
A: Our partners need not only capital but also expertise to grow and achieve a greater social impact. We, therefore, complement our grant funding with the knowledge and expertise of our employees through a number of employee engagement programs. Whenever valuable, we also try to connect our partners to other Credit Suisse resources, such as our clients and business colleagues, or to our other partners. Together we can achieve an even bigger impact.
A version of this post appeared previously in the <a href="https://www.credit-suisse.com/corporate/en/responsibility/dialogue/bulletin.html?WT.i_short-url=%2Fbulletin&amp;WT.i_target-url=%2Fcorporate%2Fen%2Fresponsibility%2Fdialogue%2Fbulletin.html">Credit Suisse Bulletin</a>.

Loans with the help of satellite images

Credit Suisse

When asked how he feels about farming, Festus replies, “I enjoy it so much — I love it.” Farming allows Festus to be his own boss and is more stable than other forms of work. With his harvests, Festus puts food on the table, pays his children’s school fees, and incrementally improves his family’s standard of living. But, as all farmers know, a bountiful harvest is never a given. “When drought came, I would lack food and wait for the rain, farm again, and wait to get food.” Trapped in this cycle, and with no recourse from a failed harvest, Festus could never plan for the future.

Until recently, smallholder farmers have not had access to farming technologies that mitigate the risk of drought, pests, and floods. These farmers are at a higher risk of a bad harvest which can have wide-ranging consequences for their finances. When Festus learned about Accion Venture Lab portfolio company <a href="https://www.pula-advisors.com/">Pula</a>, he saw an opportunity to boost his resilience and security. Pula offers more than crop insurance. Farmers like Festus benefit from interactive training on farming methods and tech-enabled insights accessible through farmers’ mobile phones. 

<img class="size-large wp-image-18867 aligncenter" src="https://content.accion.org/wp-content/uploads/2019/06/Kitui_0012-1024x684.jpg" alt="Festus harvesting his crops" width="1024" height="684" />Festus has seen the benefits of working with Pula and regularly encourages other farmers to join. “I hope that Pula continues in the future and that we can continue to improve our future through its benefits,” he says. Knowing that his crop insurance provides protection from a bad harvest, Festus can take care of his family and his hopes and plans for the future can stretch beyond the next harvest.

Insurance emboldens Festus to be his own boss

Anastasia Ngala has to make sure her crops can thrive with only two rains per year. “We have long rain and short rain. We plant for the short rains this November. I am happy when it rains because I sell my farm products and earn my income.” Missing one of these rains can mean ruin for Anastasia’s harvest and financial hardship for her family of nine. But farming is Anastasia’s way of life and her only source of income. When she learned about Accion Venture Lab portfolio company <a href="https://www.pula-advisors.com/">Pula</a>, she recognized the opportunity to further develop her agricultural skills while insulating herself from bad harvests.  

[caption id="attachment_18776" align="alignleft" width="500"]<img class=" wp-image-18776" src="https://content.accion.org/wp-content/uploads/2019/06/Kitui_0051-1024x684.jpg" alt="Pula employee Jacobeth Barno" width="500" height="334" /> Pula employee Jacobeth Barno[/caption]

Pula, a cutting-edge insurtech startup, focuses on providing crop insurance to traditionally underserved smallholder farmers. “It’s important to solve that sector because as soon as we support the smallholder farmer, we will directly be changing a lot of things in the dynamics of the economy,” says Pula employee Jacobeth Barno. As a Pula customer, Anastasia can access data-driven farming insights that boost her crop yields while also having the peace of mind that she will be compensated if the harvest fails. “When I planted without Pula, I took a risk that it was okay if I harvested or lacked yields. I was 50-50. But now, I am 99 percent assured by Pula,” she says.

The benefits of Anastasia’s relationship with Pula have been tangible. With the confidence of her Pula coverage, she has grown her farm from three to five acres and has encouraged her children to work with Pula. Anastasia has also become a vocal Pula advocate outside of her home. She urges her friends and neighbors to look into the benefits, “Some of my neighbors want to join the insurance because they have known about compensation and also want to get compensated.” Now, Anastasia has confidence that she can provide for her family and grow her farming capabilities to new levels.

&nbsp;

<img class="size-large wp-image-18779 alignnone" src="https://content.accion.org/wp-content/uploads/2019/06/Kitui_0037-1024x684.jpg" alt="Pula client Anastasia" width="1024" height="684" />

After seeing the benefits of crop insurance, Anastasia’s an advocate

Entrepreneur

<a href="https://apolloagriculture.com/">Apollo Agriculture</a>, a young startup based in Kenya, has ambitious plans. The company supports smallholder farmers with a suite of offerings, ranging from customized packages of seed and fertilizer to technology-aided information on agricultural techniques and weather forecasts, to insurance products to provide a safety net in case of crop failures. <a href="https://www.accion.org/fintech-startup-revolutionizing-kenyan-agriculture">Accion Venture Lab was an early investor in the firm and continues to provide advisory support as it develops its growth plans</a>. 

One key element of the Apollo model, which makes it possible to grow so quickly, is partnering with local agricultural businesses to reach rural, remote customers. With operational and tech support from Apollo, they provide agricultural inputs and information to the farmers who have signed up for Apollo’s services. We recently spoke with some of these partners in the area around Nakuru.

<img class="wp-image-18259 size-large alignnone" src="https://content.accion.org/wp-content/uploads/2019/04/Kenya_Nakuru_0005-1024x684.jpg" alt="Charity Njeri" width="1024" height="684" />Charity Njeri sells farm supplies and also distributes Apollo’s seeds and fertilizers through her shop. Both she and the farmers use Apollo’s app to manage the transactions. “They send their farmers to us, we give the farmers their package, and then they sign on the app. As soon as the whole process is done, the money comes in immediately. They pay us before the farmer leaves the store,” she says. Not only does Charity appreciate getting her cut of the transaction, the new customers coming in to pick up their Apollo supplies also sometimes buy other items while at the store. “The Apollo farmers have become our farmers,” she says. 

<img class="wp-image-18260 size-large alignnone" src="https://content.accion.org/wp-content/uploads/2019/04/Nakuru_0009-1024x684.jpg" alt="Nancy Njeri" width="1024" height="684" />Nancy Njeri is a local agricultural dealer who sells crop and livestock supplies and has special training in treating animals. “Apollo visited me here at the shop, and we discussed how we can do business, and started working together. I found that it was a good deal,” she says. She uses Apollo’s app to process deliveries and transactions between the company and the farmers. “They have brought some new customers to us,” she says. “You try to guide them where to get effective advice and support. In turn, they benefit, especially when you treat their animals and they get healed. We advise them on crops, what to use at what time, and in return, they get good profit and come back.”

<img class="wp-image-18261 size-large alignnone" src="https://content.accion.org/wp-content/uploads/2019/04/Nakuru_0018-1024x684.jpg" alt="James Mwangi" width="1024" height="684" />James Mwangi, another local salesman, says of his relationship with Apollo, “Farmers benefit, I benefit, and Apollo benefits. Farmers get their products, and my business is growing dramatically.” Sounding as confident as Apollo itself about the company’s future, he says, “Apollo is the only serious company working with farmers, and trying to improve farming in this area. Other companies don’t pay the farmers much attention or give them loans. That’s how they are going to grow.”

As Apollo continues to expand its work with smallholder farmers, these partnerships that help <a href="https://www.accion.org/the-tech-touch-balance/">balance their high tech approach with local human interaction</a> will be key to their success.

Partnerships help this agricultural fintech startup cover more ground

Virginia Wanjiru Ndegwa, who lives near Nakuru, Kenya, isn’t afraid of hard work. At age 72, she’s raised ten children, is now looking after some of her grandchildren as well, and she’s still rising early every day to tend to the family farm. “Who will help you feed yourself if you don’t work? You have to sweat before you can eat. That’s what I do, that’s what suits me,” she says. 

Kenya-based <a href="https://apolloagriculture.com/">Apollo Agriculture</a> is a fintech startup that seeks to help hardworking, vulnerable smallholder farmers like Virginia with the challenges they face. Apollo, an Accion Venture Lab portfolio company, offers a suite of products, including customized packages of seed, fertilizer, advice, and insurance on credit — all enabled by advanced technological solutions like satellite data and digital communication.

When Virginia first met Apollo agents in her area, she was a little wary. “I told [them] I didn’t want to risk losing my farm! But we talked some more until I understood the product,” she says. Soon convinced, she enrolled. “I paid for the registration and like a boss, waited for the fertilizer delivery,” she says. Apollo provided both fertilizer and guidance on how to use it. Planting was delayed due to drought, but once the rains came, Virginia reaped an exceptional harvest. 

“Previously I would get eight to ten bags [of maize] per acre. This year I got around 23 bags,” she says. However, she explains, the selling price for the crop is low at the moment. “When prices are good, you can make money. But now prices are bad, and you are stuck with the crop,” she sighs. Knowing that this is a common problem for their smallholder farmers, Apollo is expanding into more profitable crops so customers are less affected by maize price volatility. Ever resourceful, Virginia’s thinking of how she might make some additional income as she waits to sell her maize. “Let’s do something else,” she says, chuckling. “We can have chickens, raise rabbits and the like.” 

Even though her hoped-for profits haven’t come through yet, Virginia’s still glad for the security Apollo gives her to weather unpredictable harvests and markets. “Farming with Apollo has improved my life. I barely had anything in my pocket,” she says. “Get us a proper market, and we shall farm!”

Helping smallholder farmers face challenges on multiple fronts

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

Fintech companies are, of course, technology-driven. The word “tech” is part of their name, after all! And yet, even fintechs usually include elements of human touch in their business models. For example, sales agents may help contact and enroll new customers, or support staffers may be available to help troubleshoot when problems arise.

In our recent paper, <a href="https://www.accion.org/the-tech-touch-balance/">“The Tech Touch Balance: How the Best Fintech Startups Integrate Digital and Human Interaction to Accelerate Financial Inclusion,”</a> we showcase several fintech startups in the Accion Venture Lab portfolio that are finding an optimal balance between tech and human interactions, making their offerings accessible, affordable, and attractive to their target customers. Two are located in Africa: Apollo Agriculture, and Lumkani.

Both companies are innovative in that they offer services that have not previously existed in the market. <a href="https://apolloagriculture.com/">Apollo</a>, based in Kenya, provides high-quality seeds and fertilizers for smallholder farmers. Apollo also provides guidance and information to the farmers so they can improve input yield and better respond to storms or droughts. The second Africa-based company profiled, <a href="https://lumkani.com/">Lumkani</a>, sells fire insurance to residents of informal settlements in South Africa. The insurance package includes an alarm that can detect a fire and then trigger an alert to residents and neighbors, so they have a chance to seek safety. And if a home does catch fire, the insurance payout helps policyholders replace damaged property. Since both Apollo and Lumkani offer products and services that customers are less familiar with, human interaction helps drive adoption and overall retention.

[caption id="attachment_17740" align="alignleft" width="500"]<img class="wp-image-17740" src="https://content.accion.org/wp-content/uploads/2019/02/Kenya_Nakuru_0034-1-1-1024x684.jpg" alt="Apollo agents in Nakuru, Kenya" width="500" height="334" /> Apollo Agriculture balances its high-tech model with field agents to serve smallholder farmers in Kenya.[/caption]

Apollo’s clients, smallholder farmers, are among the world’s most financially underserved populations. They also tend to be less digitally savvy, and many have had negative experiences with financial institutions in the past. At the same time, they are very interested in receiving help to boost their yields and incomes, so Apollo’s model is attractive.

Apollo primarily relies on tech to determine the creditworthiness of its customers: it employs a highly sophisticated, tech-driven underwriting process that leverages data collected from satellite imagery and the farmers themselves. All of Apollo’s loans are repaid through mobile money and require no human touch, which is convenient for farmers in remote, rural areas. Apollo also uses SMS to communicate with farmers for matters ranging from payment reminders to weather alerts.

On the other hand, Apollo field agents are an essential part of the customer journey, especially in the early stages, as they visit potential clients and answer questions. Agents are also available to go in person to handle challenges that can’t be managed through SMS. Call centers and automated Interactive Voice Response (IVR) systems are also part of Apollo’s tech-touch continuum.

In South Africa, mobile money systems are much less available than they are in Kenya, so they are not a good option for Lumkani clients to use to manage policy payments and payouts. Additionally, people in the informal settlements where Lumkani provides its services tend to be limited in both financial literacy and experience with technology, so they need information on what the insurance product is and how it works.

So Lumkani relies on agents — many of whom live in the same settlements — to do face-to-face sales pitches and enrollments. The agents, however, carry smartphones with an app for setting up the new accounts. Agents also collect cash payments in person but send SMS reminders to keep clients up to date. The fire detectors not only sound an alarm to warn people in the home when they sense heat nearby but also report back to Lumkani so that SMS alerts can be sent throughout the community. The company can then follow up with clients, both electronically and in person, to see if any fire damage occurred, and to begin the claims process if so. In combining tech and touch, Lumkani earns the trust of its clients while making the signup and payout processes faster and less expensive than many traditional insurance models.

For more examples of how fintech startups balance tech and touch as they develop their offerings, and general advice on these issues, read the full paper <a href="https://www.accion.org/the-tech-touch-balance">here</a>.

Two African startups where inclusive fintech comes with a human touch

Lumkani

Mastercard Foundation

Financial Service Provider

The tech touch balance

In the heart of Kampala, along the bustling Bombo Road, sits the headquarters of UGAFODE Microfinance Limited (MDI). UGAFODE is a small but progressive microfinance institution (MFI) focused on serving peri-urban and rural Uganda, mainly in the agricultural sector. Under the guidance of CEO Shafi Nambobi, who joined in May 2017, UGAFODE has made sweeping transformations. The institution has gone from a primarily manual operation with lengthy loan approval processes, to being a competitive tech-enabled institution with a focus on digital channels and serving microentrepreneurs and “last mile” clients in the Ugandan market.

We recently called Shafi, and even though it was 6 pm in Kampala and he was gathering his bags to head home, he took the time to share his insights on the strategies that have turned the company around. “UGAFODE has always upheld a client-centric focus, and the company maintained this approach while implementing their new strategies,” he said. One of the first changes was bolstering their call center, which has been instrumental in attracting both new and former clients. This has proven to be a key component in maintaining the balance between <a href="https://www.accion.org/the-tech-touch-balance/">digitization and human touch</a>, as it allows customers to engage with a real person without having to make long journeys from rural areas to bank branches.

Most of UGAFODE’s clients are farmers, working in crop and livestock production. More than 80 percent of their clients live in rural areas, and some are as far as 40 kilometers from the nearest UGAFODE branch. Clients often struggled to make the long trips out to the bank when all they needed were simple banking services. To bring banking services to the people, UGAFODE has incorporated more digital products into its business plan. These products include:
<ol>
 	<li>Digital field applications (DFAs), which allow remote approval of loans</li>
 	<li>UGAFODE mobile app, which allows customers to move cash from their mobile wallets to their savings accounts</li>
 	<li>Digital document management for digital verification</li>
 	<li>Digital delinquency management for timely follow up on late payments</li>
</ol>
These new channels have improved customer interaction with UGAFODE’s products, allowing microentrepreneurs to cut costs and time to travel to the bank and spend more time developing their businesses.

The company is also working to improve its loan processing and renewal system. UGAFODE reduced processing time from more than 21 days down to less than a week to ensure that their clients can get their funding when they need it. Another issue in their previous process was that their loan repayment system would automatically prevent clients with delayed payments from applying for another loan. Shafi knows that life can throw curve balls that prevent clients from making payments on time — a family member falls ill, a bicycle part needs to be replaced, a home needs repair. As such, the company changed this policy and adopted more flexible considerations for loan repayment timelines.

Shafi is excited to continue the turn around and watch the company grow, and sees many opportunities for the future. As UGAFODE continues to digitize and expand into rural areas, they expect to onboard more women — currently about 60 percent of their client base. Additionally, Shafi indicated that Uganda has become a home to more than <a href="https://www.unocha.org/southern-and-eastern-africa-rosea/uganda">1.4 million refugees</a> from nearby countries, including Somalia, South Sudan, Burundi, and the DRC. These refugees have been neglected and excluded from financial services, which they need to establish their livelihoods and send remittances to friends and family members. UGAFODE is currently seeking approval to include refugees in their outreach offering.

As UGAFODE continues to find ways to bring more underserved clients financial services that meet their needs, they know that staying customer-centric is crucial. “When we listen to our customers, we are able to make suggestions to the board of what needs to change, and create a better customer experience,” said Shafi. And as UGAFODE’s digital transformation has shown: keeping customer needs in mind is good for business and financial inclusion.

Going digital to serve customers in Uganda

Ugafode

Financial Inclusion Practitioner

Accion Global Investments

“I have never been so proud because, that season, insurance made that harvest possible,” recalls Rose Goslinga, CEO and co-founder of Pula. She saw how insurance enabled 10,000 farmers in East Africa to reap a harvest against all odds in 2009. Rains fell early that year — well before farmers were ready — and the seeds they had already planted didn’t germinate. In most places across Africa and around the world, those farmers would have been out of luck. However, because their seeds were covered by insurance, the farmers were able to pick up new bags and enjoy a successful harvest in the latter part of the season. On <a href="https://soundcloud.com/accioninternational/pula-and-protecting-smallholder-farmers-through-insurance">our latest episode of VentureKast</a>, the podcast about the most innovative and impactful financial inclusion startups in the world, I sat down with Rose to discuss <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/in-a-changing-climate-technology-provides-a-lifeline-for-farmers-c2eb5133d79f" target="_blank" rel="noopener noreferrer">Pula, Accion’s first ever investment in insurance</a> for farmers.
Pula develops insurance products and distributes them to farmers, while simultaneously offering farm advisory services so that, in Rose’s words, their customers “can be the best farmers they can be.” Pula bundles their insurance products with farm inputs, such as fertilizer, seeds, or credit. This substantially lowers risk for farmers who want to be able to invest in more expensive, higher-yielding seeds and fertilizers. The insurance provides income stability for farmers who are at the mercy of droughts, floods, and pests. Pula uses satellite data and imagery to be able to underwrite these policies more efficiently and provide timely agronomic advice.
Across Pula’s eight African markets, insurance penetration rates are typically less than 5 percent. Pula innovates to improve this. The farmers realize that insurance is useful, but they are not willing to pay its upfront cost.

<blockquote class="graf graf--pullquote graf--startsWithDoubleQuote">“They don’t wake up in the morning thinking, ‘I want to buy new insurance.’ They think, ‘I have school fees to pay’ or when it starts raining, ‘I need to buy fertilizer now; where is my money for fertilizer?’”</blockquote>
So, Pula figured out another way; they partner with input distributors to insure all bags of seeds and fertilizers — the costs are simply included in each bag. If the rain doesn’t arrive on time, the farmers can receive a voucher for another bag and plant again for a second chance at the harvest. The key is that the distributor pays for the insurance, not the farmer.
Technology underpins Pula’s business model. Satellite imagery monitors weather conditions to facilitate underwriting and expedite claims processes. QR codes allow farmers to register for insurance policies by pushing a few buttons. SMS messages relay immediate advice on when to apply fertilizer or top-dressing to maximize yields. This use of technology allows Pula to scale much faster than most insurance companies and to reach previously inaccessible communities.
“What do farmers really want? They don’t necessarily want insurance, but they do want fertilizer, they do want seeds,” says Rose. Pula’s short-term insurance products are revolutionary for many of its customers, especially considering how few of the world’s 500 million smallholder farmers have insurance. For Rose, the future means expanding Pula’s work to provide seeds, fertilizer, and insurance around the world.

Pula and protecting smallholder farmers through insurance

Smallholder farmers are the bedrock of sub-Saharan Africa’s and Asia’s agricultural markets, providing <a class="markup--anchor markup--p-anchor" href="http://www.fao.org/3/a-i4036e.pdf" target="_blank" rel="nofollow noopener noreferrer">over 80 percent of the food supply</a>, but they are growing increasingly vulnerable. Climate scientists estimate that over the next few decades, droughts will <a class="markup--anchor markup--p-anchor" href="https://www2.ucar.edu/atmosnews/news/2904/climate-change-drought-may-threaten-much-globe-within-decades" target="_blank" rel="nofollow noopener noreferrer">frequently affect Africa and Asia</a> as a result of climate change. As weather conditions cause decreased stability for family farms, there is an increased need for risk mitigation solutions that can add security to the lives of those most affected.
Pula, <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/pula-secures-funding-from-global-investors-to-support-smallholder-farmers-in-africa-and-south-asia/" target="_blank" rel="nofollow noopener noreferrer">one of Accion Venture Lab’s latest investments</a>, provides insurance to smallholder farmers across Africa and India, enabling income security for a population whose livelihoods depend on climate patterns. Pula uses cutting-edge technology coupled with expansive distribution partners to make large-scale agricultural insurance feasible for rural farmers.
Across their product portfolio, Pula uses various technologies, including automated voice calls to register customers, satellite imagery to monitor cloud cover, and SMS messages to provide agronomic advice. In the event of a drought or poor season, Pula uses weather data and yield samples to offer compensation to farmers for their losses. By coupling technology with large-scale distribution, Pula can make insurance practical for smallholder farmers at scale.
At Venture Lab, we’re most excited about a few core areas of the typical microinsurance value chain that Pula disrupts:
Eliminating the purchase barrier: Pula’s distribution model circumvents the challenges of customer adoption and education that we’ve seen insurers struggle with in the past. Customers read about Pula’s coverage on a sticker on the bag of seed or fertilizer they’re purchasing, and then they register their unique policy via their mobile phone. Pula’s partners put stickers on every bag sold in a region, and there’s no visible added cost to the products, simplifying the farmer’s decision-making process. To that farmer, Pula’s coverage is easy to activate and presents pure upside.
Increasing yields for customers with massive need: Pula focuses on some of the most vulnerable populations on Earth, and the insurance coverage is only the beginning of the benefit they receive from the product. By de-risking the purchase of farm inputs, such as seed, fertilizer, or credit, Pula is also able to incentivize farmers to purchase higher-quality products than they otherwise might — without the risk of failure. As a result, they can attain higher yields and incomes. Further, Pula provides the farmer with direct agronomic advice via SMS, leveraging the farmer’s GPS coordinates and their climate science team, and boosting the farmer’s yields.
Lowering the cost to serve: With its innovative distribution, Pula has the potential to reach a customer that has previously been prohibitively expensive to serve. Formerly, insuring smallholder farmers required multiple field visits to determine if conditions were right for crops to grow and to educate the farmer about the benefits of insurance, ultimately convincing them to pay for coverage. Pula can automate and significantly cut costs by assessing the farm’s weather remotely using satellite and regional yield data. Working through distributors also enables Pula to offer free and straightforward insurance coverage that is fully integrated with the input.
Venture Lab is thrilled to be working with the Pula team on their mission to provide insurance to smallholder farmers across Africa and Asia. Co-founder Rose Goslinga is a pioneer in the space, with a decade of experience and a <a class="markup--anchor markup--p-anchor" href="https://www.ted.com/talks/rose_goslinga_crop_insurance_an_idea_worth_seeding" target="_blank" rel="nofollow noopener noreferrer">TED talk</a> on her resume. She is working alongside Thomas Njeru, who provides actuarial experience and financial expertise as the company’s CFO.
As <a class="markup--anchor markup--p-anchor" href="https://www.microinsurancenetwork.org/sites/default/files/Microinsurance%20Network_Africa%20landscape%20full%20report-WEB_0.pdf" target="_blank" rel="nofollow noopener noreferrer">microinsurance in most African markets hovers at or below 5 percent,</a> there is a massive market opportunity to support the world’s most vulnerable as they grow food to provide for their communities. Pula tackles the arduous task of customer awareness by partnering with known brands and uses cutting-edge technology to make the product scalable. <a class="markup--anchor markup--p-anchor" href="http://www.thp.org/knowledge-center/know-your-world-facts-about-hunger-poverty/" target="_blank" rel="nofollow noopener noreferrer">Half of the world’s hungry</a> are farming families, and Pula strives to reach those most in need with security and stability.
Venture Lab is excited to be supporting Pula as they take on one of the world’s most significant challenges.

In a changing climate, technology provides a lifeline for farmers

We’re in the middle of a fintech boom that <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/fintech-trends-may-change-world/" target="_blank" rel="noopener noreferrer">could change the world</a>. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.
As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.

<h3 class="graf graf--p">Digital neobanks</h3>
[caption id="attachment_8117" align="alignnone" width="800"]<img class="size-full wp-image-8117" src="http://blogs.accion.org/wp-content/uploads/2018/01/APPSM_Mockup2.jpg" alt="SmartMEI is a digital neobank serving small businesses in Brazil" width="800" height="534" /> SmartMEI is a digital neobank serving small businesses in Brazil[/caption]
In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/invested-in-now-money/" target="_blank" rel="nofollow noopener noreferrer">NOW Money</a>, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/why-we-invested-in-smartmei-in-brazil/" target="_blank" rel="nofollow noopener noreferrer">SmartMEI</a>, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.

<h3 class="graf graf--p">Next gen small business finance solutions</h3>
Around the world, micro, small, and medium enterprises (MSMEs) struggle to access capital. Estimates suggest that <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES" target="_blank" rel="nofollow noopener noreferrer">200 to 245 million formal and informal small businesses</a> either don’t have a loan or have one but are still constrained by their access to financing. Startups have been developing creative ways to acquire, underwrite, and fund these businesses. Some of the most innovative models today are embedding themselves into supply chains and working with a partner in that supply chain to identify MSMEs in need of financing and to obtain existing data that can support credit decision-making. These companies include <a class="markup--anchor markup--p-anchor" href="http://www.tiendapago.com" target="_blank" rel="nofollow noopener noreferrer">Tienda Pago</a>, which partners with major consumer good distributors in Peru and Mexico to extend short-term working capital to small stores for inventory purchases, and <a class="markup--anchor markup--p-anchor" href="https://www.lidya.co/" target="_blank" rel="nofollow noopener noreferrer">Lidya</a>, which works through partners in Nigeria to provide invoice discounting and supply chain financing to small businesses.

<h3 class="graf graf--p">Insurtech for the underserved</h3>
Low-income consumers in emerging markets need insurance products to manage and mitigate financial risks, but serving those customers poses significant challenges — from cost-effectively reaching and educating consumers, to accurately assessing and pricing risks, to efficiently managing claims. Startups can play a critical role in solving those challenges with products intended to address specific risks for underserved communities, new distribution channels to reach these populations, and new streams of data to more effectively assess and price risk. Insurtech innovators include <a class="markup--anchor markup--p-anchor" href="https://lumkani.com/" target="_blank" rel="nofollow noopener noreferrer">Lumkani</a>, which sells a low-cost heat detector bundled with insurance to households in South African informal settlements that protect against loss of life, shelter, and assets, and <a class="markup--anchor markup--p-anchor" href="https://www.togarantido.com.br/" target="_blank" rel="nofollow noopener noreferrer">Togarantido</a>, which serves as an online-based insurance broker focused on the underserved in Brazil.

<h3 class="graf graf--p">Financial services for smallholder farmers</h3>
Smallholder farmers remain notoriously difficult to reach and are often considered high-risk clients since their incomes are tied to unpredictable harvests. An estimated <a class="markup--anchor markup--p-anchor" href="https://www.raflearning.org/post/inflection-point-unlocking-growth-era-farmer-finance" target="_blank" rel="nofollow noopener noreferrer">270 million smallholder farmers around the world face a financing gap of $170 billion</a>. Innovators addressing this need can provide real value — by helping farmers finance irrigation pumps, combat pests, or address climate risks. Startups in this space include <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/" target="_blank" rel="nofollow noopener noreferrer">Apollo Agriculture</a>, which leverages satellite imagery, data science, and mobile money to finance fertilizer and seeds needed to increase crop yields, and <a class="markup--anchor markup--p-anchor" href="https://www.pula-advisors.com/" target="_blank" rel="nofollow noopener noreferrer">Pula</a>, which works with large seed and fertilizer suppliers across Africa to bundle crop insurance in with product purchases.

<h3 class="graf graf--p">Asset finance</h3>
[caption id="attachment_8118" align="alignnone" width="800"]<img class="size-full wp-image-8118" src="http://blogs.accion.org/wp-content/uploads/2018/01/KN_PG_2016_25.jpg" alt="The Paygo team at work on their smart meter for cooking gas" width="800" height="533" /> The Paygo team at work on their smart meter for cooking gas[/caption]
Individuals and small businesses require financing for assets like medical equipment, smartphones, and solar home systems to increase efficiency and improve lives. One promising innovation in this space is pay-as-you-go financing, which allows consumers and business owners to make small upfront payments and regular “top-ups,” usually sent via mobile money. The model has already led to a rapid expansion in solar home systems across emerging markets. Other scalable models for asset financing leverage new distribution and payment approaches like layaway solutions, leasing models, and peer-to-peer transfers. <a class="markup--anchor markup--p-anchor" href="https://www.paygoenergy.co/" target="_blank" rel="nofollow noopener noreferrer">Paygo Energy</a> is a promising company in this space; its pay-as-you-go financing model enables low-income customers in Kenya to pre-pay for cleaner and more affordable cooking gas.

<h3 class="graf graf--p">All-digital consumer lending</h3>
Recent years have seen digital consumer lenders emerge and scale by using simple apps to collect and analyze customer data to provide access to credit for underserved populations. The speed and accessibility of digital platforms enable credit access for consumers who are underserved by traditional lenders and who might otherwise be too costly to serve. Innovators could add value to the sector with new approaches to credit underwriting and consumer engagement that lower defaults and improve retention — two of the critical challenges to the app-based lending model. <a class="markup--anchor markup--p-anchor" href="http://smartcoin.co.in/" target="_blank" rel="nofollow noopener noreferrer">SmartCoin</a> offers new engagement tools alongside its mobile lending platform to better understand and serve its customers in India, and <a class="markup--anchor markup--p-anchor" href="https://www.tezfinancialservices.pk/" target="_blank" rel="nofollow noopener noreferrer">Tez</a> provides an all-digital banking platform with a full suite of products to low-income consumers in Pakistan.

<h3 class="graf graf--p">Consumer financial health</h3>
In 2016, the Federal Reserve revealed a concerning statistic about financial health in the U.S.: 46 percent of Americans said they could not pull together <a class="markup--anchor markup--p-anchor" href="https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.b9b4359e9508&amp;noredirect=on" target="_blank" rel="nofollow noopener noreferrer">$400 to cover an emergency</a>. Startups are providing solutions that help consumers manage their day-to-day financial lives and rebound from shocks. There is significant potential for innovators to leverage behavioral science to design new solutions such as clever nudges, useful automation, gamification, or bundling across different financial products. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="https://www.lendstreet.com/" target="_blank" rel="nofollow noopener noreferrer">Lendstreet</a>, which focuses on financial health by providing U.S. consumers a platform to restructure and refinance their distressed debt and rebuild their credit, and <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destacame</a>, which empowers users in Mexico and Chile with control of their data to build their financial capabilities and access better financial products.
Each of these areas of start-up led innovation offers significant potential for both social impact for underserved consumers and financial profit in 2018. We’re excited to see what’s next.

7 fintech trends to watch in 2018

Destacame

lendstreet

NOW Money

SmartCoin

SmartMEI

Tienda Pago

Venture Lab recognizes that support beyond capital is critical to seed stage fintech companies. Our portfolio engagement work is customized to the post-investment needs of our partner companies and includes business model refinement, sector expertise and access to networks, and strategic and operational support. To date, we have engaged in over 55 intensive, short-term projects with investee companies in core business areas. Recently, Reilly Kiernan and I traveled to Kenya to work with <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/">Apollo Agriculture</a>, one of our newest <a href="https://www.accion.org/content/venture-lab-portfolio">portfolio companies</a>.

<h3 class="graf graf--p">The Apollo Agriculture Model</h3>
Apollo Agriculture is a tech-enabled input financing solution for smallholder farmers that was founded in 2016 by <a class="markup--anchor markup--p-anchor" href="https://www.forbes.com/pictures/5a0494a74bbe6f37dda214bd/eli-pollak-28-l-earl-st-s/#3a4d1f9a1ad5">Eli Pollak and Earl St Sauver</a>, both former employees of the Climate Corporation, and Seth Silverman, former head of Kenya operations at One Acre Fund. The founders’ vision is to help smallholder farmers in emerging markets maximize their profits.
Apollo's model combines a new credit product with sophisticated analytics, remote sensing, and agronomic machine learning. Farmers can purchase high-quality farming inputs (like hybrid seeds and fertilizer) on credit with flexible repayment terms and post-harvest due dates. The offering also includes crop insurance and customer-centric, voice-based trainings developed by the Apollo team to help farmers learn best practices for tasks like planting, combating pests, and developing financial literacy.
Each farmer’s plot is GPS-mapped and satellite-tracked to provide up-to-date data on crop production and health.
Apollo kicked off its operations last year, staffing up a Nairobi-based office and serving maize farmers in the Nakuru region of Kenya. Apollo generates large volumes of data about each customer, which is processed using machine learning. Over time, this will enable the company to make better lending decisions and provide customized support for farmers, based on specific needs.

<h3 class="graf graf--p">Portfolio Engagement in Action</h3>
[caption id="" align="alignnone" width="1080"]<img class="graf-image" src="https://cdn-images-1.medium.com/max/1080/1*THIDonU0GxTE5O8OikzpGg.jpeg" alt="Interviewing farmers in Kenya" width="1080" height="810" /> Interviewing farmers in Kenya.[/caption]
In advance of next season’s harvest, Apollo is thinking hard about its growth strategy, and like most startups, juggling many complex moving pieces. Venture Lab’s portfolio engagement team has regular check-ins with our companies to discuss potential areas of support that we can provide. We are very intentional about the type of support we offer — more generalist and bespoke, with clear timelines and responsibilities — so we work together with portfolio companies to bridge any critical gaps or offer an extra set of hands without creating a void when a particular project ends.
During a recent check-in call, Apollo and the Venture Lab team discussed ways that we could support the end of its first pilot and start of its full program roll-out. Although the Apollo team is highly capable and experienced with customer surveys, they are also in the midst of recruiting key hires, fundraising, completing their pilot, identifying new markets, and more — all while staying as lean as possible to keep costs down.
So, to free up some of Apollo’s bandwidth and deepen our expertise, Venture Lab and Apollo agreed that Venture Lab could be most supportive to their current needs by helping with their pricing strategy, specifically with answering key questions:

<ul class="postList">
 	<li class="graf graf--li">What do the economic lives of smallholder farmers look like? How does this impact farmers’ ability to pay?</li>
 	<li class="graf graf--li">What are farmers’ current practices for financing inputs?</li>
 	<li class="graf graf--li">How do farmers value the Apollo product? What drives this value? How does this impact willingness to pay? What price can Apollo charge for the product?</li>
 	<li class="graf graf--li">What payment structures are most supportive of repayment for this population — incorporating an understanding of behavioral nudges and seasonality of cash flow?</li>
</ul>
We then spent two weeks in Kenya working closely with Eli Pollack and Operations Manager, Benjamin Njenga, to gather customer insights on the current Apollo package and pricing through focus groups and one-on-one conversations with a total of 84 individual farmers. This field engagement yielded several important insights and reflections about Apollo’s model and what it means to price a product for smallholder farmers:

<ul class="postList">
 	<li class="graf graf--li">Power of aligned incentives: Apollo only succeeds if its farmers succeed. The ability to drive higher yields and ensure higher incomes for farmers is necessarily tied to the likelihood of repayment. At Venture Lab, we look for models where financial inclusion is core to the product, and we see this in how Apollo’s pricing strategies are designed to help create value for farmers in addition to creating sustainable margins for themselves.</li>
 	<li class="graf graf--li">Understanding your customer: To design a product that meets farmers’ needs and to price it reasonably requires understanding farmers’ realities. For example, in the course of our work, we learned more about when farmers have cash (such as when harvesting shorter-term crops like beans) and recommended that Apollo design a milestone to encourage farmers to make loan payments at this point when they likely have some liquidity to do so. We also learned that though there are some common challenges for smallholders, there is no one-size-fits-all solution to financial inclusion for this customer group. Farmers vary along many dimensions (regions, business knowledge, access to incremental/recurring revenue, etc.). Understanding not just the big picture, but some of these key drivers of difference, is critical for models serving this population.</li>
 	<li class="graf graf--li">Using behavioral science: Apollo’s approach to encouraging repayments draws from behavioral science best practices, including using deposits as a commitment device and designing incentives to encourage repayment. Incorporating a better understanding of how customers make decisions and how to encourage behaviors will be critical for Apollo.</li>
</ul>
As farmers harvest their crops and repay their loans, Apollo will learn from the results of its first year and design a strategy for reaching even more farmers.

Checking in with the startup that’s revolutionizing Kenyan agriculture

Far from the bustling financial centers of the city, people in rural areas have long been underserved by traditional financial institutions. While this is a problem for all rural residents, the lack of access to financial services is particularly difficult for farmers since it bars them from growing their agricultural businesses. We talked to Jonathan Agwe of the <a class="markup--anchor markup--p-anchor" href="https://www.ifad.org/home" target="_blank" rel="noopener noreferrer">International Fund for Agricultural Development (IFAD)</a> to get his opinions on the challenges that rural clients face in accessing financial services, as well as the solutions to help reach them.
Mr. Agwe will be part of a panel discussing rural youth and agriculture during <a class="markup--anchor markup--p-anchor" href="http://www.e-mfp.eu/" target="_blank" rel="noopener noreferrer">European Microfinance Week</a>. From November 29 through December 1, professionals from dozens of countries will converge in Luxembourg to discuss the most recent innovations, trends, and opportunities in the inclusive finance sector. If you’re interested in attending, you can find more information <a class="markup--anchor markup--p-anchor" href="https://registration.european-microfinance-week.eu/ehome/index.php?eventid=279965&amp;" target="_blank" rel="noopener noreferrer">here</a>.
Q: What role do financial services play for farmers?
A: Although the question is short, it is also very challenging — challenging because farmers need financial services for both farm and non-farm use. If the question were specifically about agricultural finance, then the here answer would be more direct. Let’s answer the more generic financial services for farmers:
On the one hand, one needs to take a holistic look at the demand side by conducting a thorough demand analysis on the financial needs of the farmers (tripling up as economic investors, social entrepreneurs, and consumers) and then categorize such needs into:

<ul class="postList">
 	<li class="graf graf--li">consumption needs</li>
 	<li class="graf graf--li">investment needs</li>
 	<li class="graf graf--li">needs for inputs, including for technical services and hired labour</li>
 	<li class="graf graf--li">needs for running capital, as well as for other transaction costs</li>
 	<li class="graf graf--li">needs for assorted payments sent and/or received.</li>
</ul>
On the other hand, one needs to look at the supply side by unbundling financial services into:

<ul class="postList">
 	<li class="graf graf--li">financial products (loans, grants, savings/remittances)</li>
 	<li class="graf graf--li">non-financial products (financial literacy, capacity development/business development services, technology-enhanced delivery systems/digital financial services/assorted payment systems)</li>
</ul>
The next thing to do is to match the financial demands of the farmers with supply of tailored/appropriate/adapted financial services. Sometimes, tailoring or adaptation of existing traditional financial services to meet the needs of smallholder farmers is the real hurdle. So, the role financial services on the supply side play for farmers is to respond to the specific financial needs of the farmers.
Q: Where have you seen a gap in reaching rural populations?
A: Let me be more specific by narrowing the gap you are referring to, to ‘financial services gap’. With this refocusing then, one sees a gap in almost all of the supply-side traditional financial services listed above reaching rural populations. Such gaps exist due to several factors, some of which include but not limited to:

<ol class="postList">
 	<li class="graf graf--li">lack of the analyses listed above, thereby resulting in mismatches between the demand from rural populations and the supply of non-pro farmer/non-tailored/inappropriate financial tools and services);</li>
 	<li class="graf graf--li">not meeting the demand due to unaffordable pricing of financial services — unaffordable pricing caused partially by high transaction costs to reach breakeven catchment volumes of rural populations, as these populations:
<ul>
 	<li class="graf graf--li">are so hard to reach because of bad or non-exiting infrastructure networks (access roads, telecommunication, electricity),</li>
 	<li class="graf graf--li">are so geographically dispersed, and/or</li>
 	<li class="graf graf--li">are so heterogeneous with diverse and non-standardized demand and risk profiles.</li>
</ul>
</li>
</ol>
Q: To feed a growing population worldwide, we need farmers. But not enough young people are becoming farmers. How do we encourage young people to pursue careers in farming?
A: Feeding a growing population is important and we need farmers and more young people (for that matter) to get engaged, so that they would stay longer in the farming business. Currently, in the world with alternative opportunities in the urban and semi urban conglomerates that trigger and/or encourage rural youth outmigration, farming is the income-generating activity (IGA) of last resort for their livelihood enhancement. Farming is comparatively less rewarding economically; it is not so esthetical; and it is arduous and labor-intensive. To make young people take up farming as a career, it is necessary to remove all the challenges and barriers inherent in farming; transforming farming from a mainstay/livelihood activity into a profitable business. Sustainable profitability (void of subsidies, if possible) is the main incentive young people would be looking for in a career in farming.
Q: In a changing climate, how can we make sure agriculture remains a sustainable career and that smallholder farms have the tools they need to be resilient?
A: For us (I am not sure who in particular) to make sure smallholder agriculture remains a sustainable career, is really a far-fetched and unrealistic objective because talking sustainability means talking full cost recovery pricing for smallholder products. But we know smallholders are generally price takers as they hardly ever get involved in the price setting for their own products. So, for smallholder agriculture to be sustainable, they must fetch and receive and be paid full-cost recovery prices. For smallholders to have the tools needed to be resilient to climate change, they will need to get trained and certified in environmentally-friendly GAPs (good agricultural practices), which hopefully will reduce their production and production-associated risks. On the marketing side, such certified smallholders can get organized into groups to deliver their aggregated products under contractual arrangements to niche market opportunities offered by certification schemes, where they can negotiate reasonable full cost recovery prices to raise their returns — the ultimate incentive for smallholder farmers to stay and practice climate change resilience. But what would be the economies of scale of such niche market opportunities?
Q: What types of products (individual lending, input loans, etc.) have you seen making the most impact for smallholder farmers?
A: It is extremely difficult to answer this question with any reasonable degree of confidence because prioritizing financial demand needs vary for the heterogeneous community labelled smallholder farmers. However, what appears to have the most impact for smallholders across the board is business development services (BDSs). When smallholders have acquired skills that help them identify profitable business propositions, they usually generate business plans therefrom which would then naturally link them to all sorts of financing; potential financial service providers (if they are convinced), would consider the viable business propositions to be able to pay back any loan taken for that particular smallholder farm business. In some cases, especially in contract farming arrangements, verifiable viable smallholder business propositions have convinced lenders to wave collateral requirements. So, development of viable smallholder business plans makes the most impact on smallholder farmers.
Q: What do you see as the most promising innovations for reaching rural populations with financial services?
A: The most promising innovations would include but not limited to:

<ol class="postList">
 	<li class="graf graf--li">business development services, which of course is an innovation that does not sound like a financial service but is unavoidable for the success of financial services for rural populations;</li>
 	<li class="graf graf--li"> digital financial services;</li>
 	<li class="graf graf--li">contract farming, especially contract farming with certification for environmental-friendliness for climate change resilience.</li>
</ol>

Q&amp;A: Bridging the financial services gap for rural and agricultural customers

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

To start a business is to take a leap of faith. That’s what farmer Emma Guadarrama and her husband Genaro Acosta did five years ago when they decided to build two expensive greenhouses to grow organic tomatoes. They had heard that organic produce was in demand in the nearby Mexican town of Ixtapan de la Sal, where they sold their product every weekend during harvest season. They also knew that the town had some of the highest rates of birth defects in the country, because, according to Genaro, the flower nurseries in the area where so many young women worked used hazardous fertilizers and chemicals.

“If we can grow good produce without so many chemicals,” Genaro says, “we can really help the women and children in our community.”

It was a perfect plan. The only problem was that they didn’t know the first thing about organic farming.

Genaro took classes from a government-run agricultural program a few miles away. He learned a variety of methods for prepping the soil, which included using bone meal, egg shells, and animal blood. He also learned techniques for nurturing the roots of the tomato seedlings, which included a paste made from lentils. He even learned how to keep pests away with a mixture of coca cola, fabric softener, and milk.

Things were off to a good start, but then tragedy struck.

Just a few months after they’d planted their first tomato crop — which requires a significant amount of care and attention — a storm destroyed one of their greenhouses. The entire structure collapsed under heavy rain and wind, wiping out the entire harvest.

“When that happened,” Emma said. “I sat down, watched the wreckage, and just cried.”

But with the same resilience of any hardworking farmers, Emma and Genaro quickly sprang into action. They approached Accion partner CrediConfia for a loan. They had already borrowed from CrediConfia once, to build one of their greenhouses. The new capital helped them get back on their feet quickly.

<img class="alignnone size-large wp-image-6846" src="http://blogs.accion.org/wp-content/uploads/2016/04/organic_farming_Emma_Maria_Guadarrama_of_Mexico_client-of_CrediConfia_and_Accion-3-1024x683.jpg" alt="organic_farming_Emma_Maria_Guadarrama_of_Mexico_client of_CrediConfia_and_Accion 3" width="1024" height="683" />
Although they don’t have a formal savings account, every time they get a small surplus of profits, they invest it back into the business — anything from new tools for their tractor or the bees they need to pollinate the tomato plants.

Their customers are happy, Emma reports. “The ladies I supply at the market love my tomatoes. And they complain when I tell them our harvest is about to end. That’s why we’re busy building another greenhouse, so we can have rotating crops and a constant outflow of produce.”

As for Genaro, he’s been spreading the word about the benefits — both financial and environmental — of organic farming. He’s been teaching his techniques to neighboring farmers. Emma is looking forward to starting a course to learn how to make tomato shampoo, soap, and other tomato-scented products.

Sitting under the shade of a mango tree, Emma talks about the hardships of being a farmer. She recounts the recent damage to her kitchen roof, and how she had to cook on a wood fire outside while making the repairs to the building, which took a long time due to her lack of cash flow.

“We have made many sacrifices to have this business,” Emma says. “I don’t have big aspirations, but I want to meet my family’s needs.”

Emma and Genaro are not just meeting the needs of their family; they are sowing the seeds of a healthier community. With determination and small loans from CrediConfia, they’ll soon reap the fruits of their labor — well beyond their tomato greenhouses.

<img class="alignnone size-large wp-image-6847" src="http://blogs.accion.org/wp-content/uploads/2016/04/organic_farming_Emma_Maria_Guadarrama_of_Mexico_client-of_CrediConfia_and_Accion-1024x683.jpg" alt="organic_farming_Emma_Maria_Guadarrama_of_Mexico_client of_CrediConfia_and_Accion" width="1024" height="683" />