Saida, a founder of an agricultural enterprise, started as a farmer in central Uganda growing sorghum, millet, and rice. A few years ago, she decided to buy equipment to process her crops. Demand increased, and she began buying raw materials from others and processing them as well, slowly growing her business year after year. Saida is now ready to grow even more: her plans include hiring more laborers, renting more storage units, and possibly buying a small plot of land from a neighbor.

Things are looking up for Saida and her family, but there is one challenge she has not yet overcome: financing for business growth. She is struggling to find a financial service provider that lends to small agricultural businesses and understands the opportunities that agriculture brings.

Agriculture plays a significant role in the GDP of Uganda, and ABC Finance, a lender operating in the country, sees broad investment potential. However, ABC Finance finds it challenging to lend to small, agricultural businesses because they cannot confidently measure the risks involved. They request a lot of information upfront to better understand these businesses, but oftentimes these small business owners are not able to provide sufficient documentation to move forward. As a result, ABC Finance continues to finance its existing pool of agricultural businesses, primarily those working with cash crops and in formal markets that request large loan amounts. Moreover, as a result of COVID-19, ABC Finance is focused on renewing loans for existing partners and only financing a limited number of new agri-SMEs because ABC are not able to conduct thorough, on-site due diligence.
<blockquote class="blockquote">A $65 billion financing gap for agri-SMEs means three out of four agri-SMEs don't have the necessary finance to grow.</blockquote>
Businesses like Saida’s are not alone in their struggles to secure loans. There is an estimated USD $65 billion financing gap for agri-SMEs, which means three out of four agri-SMEs don't have the necessary finance to grow. For those agri-SMEs that make it to a lender's radar, CFI and <a href="https://scopeinsight.com/">SCOPEinsight</a> research found that lenders spend an inordinate amount of time and resources sourcing businesses and assessing their bankability, making the process of pre-screening and assessment expensive and leaving out the opportunity for many agri-SMEs to receive lending.

Given some of these limitations, how can ABC Finance easily determine if Saida runs a “bankable” agri-SME?
<h2>The Challenges of Determining an Agri-SME’s Bankability</h2>
In 2020, CFI and SCOPEinsight, as part of our partnership with <a href="https://agra.org/" target="_blank" rel="noopener noreferrer">AGRA</a>, researched over 90 lenders and industry actors and mapped SCOPEinsight and <a href="https://csaf.org/">CSAF</a> data to understand the driving factors behind the significant financing gap. Our research pointed to information – the information requested by lenders and the ability of agri-SMEs to provide information to lenders – as one of the most important obstacles to assessing the creditworthiness of agri-SMEs.
<blockquote class="pullquote--right">Lenders tend to gravitate toward larger businesses and stick with lending to businesses they already know.</blockquote>
Lenders typically collect a long list of information during the pre-due diligence (i.e. screening) phase of a deal. That information often includes generic business metrics and other metrics related to the agriculture sector or social and environmental impact. Many agri-SME’s, particularly smaller enterprises and those that operate in informal markets, struggle to provide formal documentation of their business activities. This is further complicated by the fact that the type of information requested varies significantly from lender to lender, making it difficult for agri-SMEs to prioritize what they should be documenting. As a result, lenders tend to gravitate toward larger businesses operating in formal markets and stick with lending to the businesses they already know.
<h2>Bankability Metrics Address the Information Obstacle</h2>
To address this information challenge, we developed a set of standardized bankability metrics that can serve as a common language between lenders and agri-SMEs. The metrics are intended to be used during pre-due diligence, providing lenders with an overview of the agri-SME's activity that is enough for them to decide whether to continue with due diligence or not. At the same time, standardized metrics will provide agri-SMEs with clear expectations about lenders’ requirements and help them prepare for an assessment more quickly and efficiently. The metrics will reduce the time needed to conduct pre-due diligence and open opportunities to expand lending to the many high-potential agri-SMEs that currently struggle to secure financing.

The bankability metrics focus on business activity, financial performance, management capacity, and governance. The team analyzed the wide variety of metrics used by lenders to identify metrics with the greatest common ground and those that are most effective in screening for creditworthiness. Each lender has a unique risk appetite, so the metrics do not identify benchmarks for bankability, but rather provide a common set of metrics whereby each lender can apply their own assessment to determine creditworthiness.

The Challenge of Bringing Agri-SMEs and Lenders Closer Together

Sub-Saharan Africa

Agricultural and Rural Finance

Credit

Credit Provision

Entrepreneurs of MSMEs

Underserved Groups

Smallholder Farmers

Blog Post

Climate change is having severe economic impacts globally, and low-income, vulnerable populations are being disproportionately affected. Many low-income countries are experiencing longer, hotter heat waves and more extreme storms, which is leading to food insecurity, income losses, lost livelihood opportunities, adverse health impacts, and displacement.

Additionally, climate change is a <a href="https://www.ipcc.ch/sr15/chapter/spm/" target="_blank" rel="noopener noreferrer">threat multiplier</a>, exacerbating inequity for low-income households discriminated against based on gender, race, socioeconomic class, age, and disability.
<h2>Mitigating Climate Risk</h2>
The international consensus is that systems change is necessary to mitigate these climate risks. In this context, systems change refers to altering systems of production and consumption to stabilize the amount of greenhouse gases emitted into the atmosphere. For example, the ongoing shift from non-renewable to renewable energy is an outcome of systems changes and required policy initiatives by government, public and private investment in renewable technology, and changes in fuel utilization by households.
<blockquote>Financial services will play an important role in helping low-income households adapt their livelihoods</blockquote>
Systems change will impact low-income communities through the creation and elimination of livelihood opportunities. The types of systems changes required to mitigate climate impacts at a global level will impact livelihoods in communities across the globe as carbon emitting industries are replaced or innovated with climate resilient technologies. Some estimates project 1.5 billion jobs will be created by this process. Arguably more importantly, many jobs will be <a href="https://unfccc.int/resource/docs/2016/tp/07.pdf" target="_blank" rel="noopener noreferrer">altered, eliminated, or replaced</a>. Financial services will play an important role in helping low-income households adapt their livelihoods to cope with these changes as they will require significant investment to update production processes.
<h2>Resilience, Adaptation, and the Role of Financial Services in the Meantime</h2>
Systems change is a process which will occur in the medium to long-term. In the short term, financial services can support low-income households to improve their resilience to climate shocks. Before a shock, low-income households can prepare in a variety of ways, such as improving housing, diversifying their livelihoods, adopting climate-resilient business practices, and accumulating financial resources to respond to shocks when they happen. After a shock, low-income households need to respond to food insecurity, livelihood disruption, loss of assets, and increased health and safety risks. In addition to their pre-shock preparation, low-income households may seek to draw in other household and community resources to boost their resilience. Households may also choose to migrate to areas less exposed or better prepared to respond to climate events.

There is broad evidence of the critical role financial tools – cash transfers, savings, insurance, and credit – play in helping households respond to shocks. There is strong evidence for the role of person-to-person (P2P) and government-to-person (G2P) cash transfers in helping households survive in crisis environments. Studies have shown that P2P and/or G2P transfers have <a href="http://documents.worldbank.org/curated/en/537771507750178892/Philippines-Lessons-learned-from-Yolanda-an-assessment-of-the-post-Yolanda-shortand-medium-term-recovery-and-rehabilitation-interventions-of-the-Government" target="_blank" rel="noopener noreferrer">helped households respond</a> to various weather events in Kenya, earthquakes in Rwanda, and rainfall shocks in the Philippines.

A large body of impact evidence makes clear that savings is also a powerful financial tool in these environments. Innovations for Poverty Action (IPA) has summarized the evidence supporting the role of savings in preparing for shocks. For formal financial services, they found evidence that low and no-fee savings accounts helped households self-insure against shocks, and there was strong evidence for the role of <a href="https://www.poverty-action.org/sites/default/files/publications/Building-Resilience-Through-Financial-Inclusion-January-2019.pdf" target="_blank" rel="noopener noreferrer">behavioral approaches</a> (such as commitment savings devices) in promoting savings for shock mitigation.

There is some positive evidence on insurance and credit as well. Weather-indexed crop and livestock insurance can promote investment by smallholder farmers in communities likely to experience extreme weather events, and a review of the evidence by IPA articulates examples of credit products encouraging investment in farm inputs and technology by smallholder farmers in sub-Saharan Africa. In addition, a <a href="https://www.adb.org/publications/microfinance-disaster-recovery-lessons-nepal-earthquake" target="_blank" rel="noopener noreferrer">limited</a> <a href="https://www.mercycorps.org/blog/nepal-impact-report-earthquake" target="_blank" rel="noopener noreferrer">number</a> of studies have shown households with access to formal credit had better short and long-term outcomes following a crisis compared to similar households without access to credit.
<h2>Critical Gaps in the Current Knowledge Base</h2>
The evidence makes clear the promise of financial services in supporting low-income households’ response to climate change, but there are numerous demand side and supply side challenges that need to be studied in order to maximize the utility of financial services. Additionally, the role of government in creating an enabling environment and enacting social safety nets to promote mitigation and adaptation needs to be explored.

On the demand side, low-income households have less access to and are <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">less likely to use formal financial products</a> compared to middle and high-income households. This is also true of climate-related financial tools. For instance, the evidence shows that voluntary take up of weather-indexed insurance products is <a href="https://www.poverty-action.org/sites/default/files/publications/Make-it-Rain-Policy-Bulletin.pdf" target="_blank" rel="noopener noreferrer">too low to sustain a market</a> for them without subsidy despite their effectiveness. There are numerous product design challenges that may be contributing to this. Gender bias in program and product design persists, making <a href="http://documents.worldbank.org/curated/en/484541544643269894/pdf/130659-REVISED-PUBLIC-Managing-Coal-Mine-Closure-Achieving-a-Just-Transition-for-All-November-2018-final.pdf" target="_blank" rel="noopener noreferrer">interventions less effective</a> for women and multiple studies have articulated the need for improved financial capability to promote uptake and regular, effective use of financial tools.

On the supply side, there is little visibility into the range of products and financial service providers (FSPs) offering climate-focused financial products to low-income households. This hinders industry learning about what products or services are working and why. This opacity contributes to financial institutions in emerging and developed markets being admittedly unsure about how to best design their products to support households’ resilience to climate change. There is good reason to think providers will need to learn what innovative models work as analysts expect climate risks to create new challenges for pricing credit and insurance products, among others. For instance, in 2019, Munich Re, the world’s largest reinsurance firm, warned that climate-risk could <a href="https://www.theguardian.com/environment/2019/mar/21/climate-change-could-make-insurance-too-expensive-for-ordinary-people-report" target="_blank" rel="noopener noreferrer">make insurance premiums unaffordable</a> for most people.

Governments play a critical role, too. However, there are a limited set of evidence-based best practices for responding to this situation. For instance, unemployment insurance and other social safety nets have proven to be important tools in supporting livelihoods during systems change, but such benefits are less common in emerging markets than in advanced economies. They are also less effective at reaching low-wage and informal workers. How can governments establish policy and programs to better protect the livelihoods of these workers? Are there innovative safety net systems that they could use, or are other policy tools effective?
<h2>CFI’s Climate Agenda</h2>
CFI is embarking on an ambitious agenda to address these gaps. Our immediate focus is on building the evidence for what works on the demand and supply side and for government policies.

On the demand side, CFI will focus on two major activities. First, CFI will map the impact evidence, identifying what financial products and services help low-income households effectively respond to climate change. This is a critical early step as it will inform the industry of what is known and unknown about this topic. It will also serve as a foundation from which CFI will operate, helping us identify what evidence gaps need filling. Second, CFI will conduct qualitative and quantitative research with consumers to establish a baseline understanding of consumers’ experience with and financial needs for mitigating and adapting to climate change.
<blockquote>CFI will map impact evidence and conduct research to understand consumers' experiences with and financial needs for mitigating and adapting to climate change.</blockquote>
On the supply side, CFI will leverage the expertise acquired through its strategic <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX to shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions for low-income households. CFI will do this through two main activities. First, CFI will inventory financial products to understand their target market, design, reach, and effectiveness. This will enable us to promote the development of appropriate climate products with FSPs. Second, CFI will track investment in climate-related finance by monitoring funding flows from public and private sources. Given the attention to climate-related finance, it will become increasingly important for funders to have visibility on funding flows related to climate change and finance that impact low-income households.
<blockquote>CFI will shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions.</blockquote>
Emerging market governments are enacting policies to help their countries mitigate and adapt to the effects of climate change. This gives us a sense of <a href="https://www.afi-global.org/publications/3036/Inclusive-Green-Finance-A-Survey-of-the-Policy-Landscape" target="_blank" rel="noopener noreferrer">what governments are doing</a> in response but it is unclear which policies are most effective for low-income households and why. In order to identify effective policy solutions, CFI will conduct mixed-method case studies of climate policies and their impact on the supply and demand side of the ecosystem.

Our goal for developing the evidence base is to provide information that decision makers need to deliver climate-informed financial products to vulnerable populations across the globe with the hope that it ultimately helps facilitate the transition to a more sustainable economy for all. Financial Inclusion Week is the first step in our journey, and we look forward to sharing our impact in the months to come.

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Financial Services are Needed to Help Low-Income People Mitigate and Adapt to Climate Change

Financial Inclusion Week 2020

Challenges and Crises

Enabling Environment

Crop Insurance

Insurance

Financial Inclusion Strategy

Payments

Index Insurance

Many have compared the steps required to overcome COVID-19 with those taken in previous economic crises or <a href="https://centerforfinancialinclusion.org/pandemics-and-natural-disasters-what-can-we-learn-from-past-disasters-to-help-with-todays-pandemic/" target="_blank" rel="noopener noreferrer">natural disasters</a>, whereby the situation follows a similar pattern consisting of three stages: triage, stabilize, recover. While there is some applicability to the current COVID-19 pandemic, it implies a sequence and limited duration that may not truly characterize the nature of the challenges we now face. The reality is that COVID-19 is a more persistent phenomenon that may continue to ebb and flow for some time before it is fully under control.

Given the more entrenched and global nature of this crisis, it is likely that the consequences will be more varied and run deeper than what we have seen in past crises. To help get a sense of what these consequences may be for those who are most vulnerable, we asked a few members of CFI’s <a href="https://www.centerforfinancialinclusion.org/people/advisory-council" target="_blank" rel="noopener noreferrer">Advisory Council</a> to share some brief thoughts on what they see as the biggest implications of COVID-19 and the ways in which the inclusive finance sector can address them.
<h2>Camilla Nestor, Adjunct Professor at Columbia University</h2>
From my perspective, one of the biggest implications of COVID-19 is on food security for countries and populations that were already vulnerable. Before COVID-19, the world’s estimated 500 million smallholder farmers were one of the most financially underserved segments, with an estimated <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">$100 billion lending gap</a> in Africa alone.

As a result of COVID-19, smallholder farmers are dealing with significant volatility in demand for both cash crops and food crops, challenges securing the necessary inputs, and limits on accessing markets. On top of this, they are also facing reductions in access to already-scarce capital. If unaddressed, this lack of capital will directly impact their ability to produce food. We see that commercial lenders are pulling back on lending to agriculture; <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">cross-border social lending</a> is flat; and supply chain financing is at risk – for example, in a recent <a href="https://www.afap-partnership.org/covid-19-impact-assessment-on-the-agrismes-and-farming-communities-of-ghana-malawi-mozambique-tanzania-and-uganda/" target="_blank" rel="noopener noreferrer">survey</a> of 5 markets in Africa, farmers noted reduced access to both supplier credit and trade credit since the onset of the pandemic.
<blockquote>With smallholder farming contributing up to 80% of the food supplies in some regions, there is significant risk to food security at both a household level and a national level.</blockquote>
With smallholder farming contributing <a href="https://www.ifad.org/documents/38714170/40706188/Smallholders+can+feed+the+world_e.pdf/460ca6c2-7621-40d8-9f79-a56f6f8fa75e" target="_blank" rel="noopener noreferrer">up to 80%</a> of the food supplies in some regions, there is significant risk to food security at both a household level and a national level. This is an opportunity for the financial inclusion community and agricultural finance experts to come together to develop short-term and longer-term mechanisms to ensure that financing flows to this critical segment.
<h2>Mark Pickens, Senior Director of Social Impact at Visa</h2>
We need to step up for small and micro businesses as they are the backbone of the global economy. Unless they remain resilient and grow, most economies are going to suffer because small businesses typically account for half of all jobs and GDP. The challenge is even greater with women-owned small businesses, which face many challenges, including lack of access to capital.
<blockquote>Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy.</blockquote>
Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy. Earlier this year the Visa Foundation announced $210 million to help small businesses. Visa also launched online toolkits via Small Business Hubs in 20 countries, expanded our Practical Business Skills portal for a greater geographic reach, and committed to digitally enable 50 million small businesses as we collectively recover from the COVID-19 pandemic.
<h2>Joanna Ledgerwood, Independent Consultant</h2>
It has been well-documented that the COVID-19 crisis has disproportionately affected women and girls. In most countries, social norms dictate that women bear primary responsibility for feeding and caring for their families and managing the household. With children not able to attend school and sick family members needing care, women have increased responsibilities, exacerbating an already heavy workload. The result is women have less time for paid work, and because of the pandemic, less access to informal financial services such as savings groups or local shop credit to help them through.
<blockquote>This pandemic provides an opportunity to proactively promote women’s empowerment.</blockquote>
However, this pandemic provides an opportunity to proactively promote women’s empowerment and advance household food security. Understanding how women and men are impacted differently by the pandemic, as well as the risks, constraints and hardships women face and their specific needs, requires the collection and analysis of sex-disaggregated data. This data can help to design appropriate programs and policies and inform financial products and delivery channels to effectively reach women.

For example, providing digital cash transfers directly to women increases their chances of receiving and controlling money to meet household needs, which in turn is likely to lead to greater bargaining power at home. The use of sex-disaggregated data can help to design programs that mitigate unintended consequences of cash transfers such as increased domestic violence. In addition, G2P programs that take gender biases into account can enhance women’s resilience to future economic shocks and can influence change to social norms over the long-term. Now is the time to ensure that women’s increased responsibilities and reduced ability to earn income will not further widen the gender gap in financial inclusion that existed long before this pandemic.
<h2>David Ferrand, Independent Consultant</h2>
Much depends, I think, on factors beyond financial inclusion. The indications remain rather positive that the health impact on Africa will be relatively bearable, notwithstanding the tragic loss of life. But we still don’t know yet the eventual economic cost to Africa, either in absolute terms or in how it will be distributed. There is a very real concern that the recovery from the crisis could see the micro and smaller scale business sectors re-emerging significantly disadvantaged relative to larger scale. And many people who have lost their livelihoods in the crisis may end up in long-term poverty traps.
<blockquote>Only governments have the balance sheets necessary to bear the risks involved.</blockquote>
There are financial sector providers positioned to play a pivotal role in restoring liquidity to communities and investing in rebuilding. But it would be unrealistic to expect that financial sector players can do this alone. There needs to be a new partnership between the financial sector, communities, and governments. Only governments have the balance sheets necessary to bear the risks involved – but they need help from across the financial system in providing the support where it is needed.

Over the longer term, there is also a need for genuine innovation in developing solutions to deal with the human and economic losses. Digital transformation has extraordinary potential, both now and in the future, to change our societies and ultimately lead to ever greater economic, social and cultural integration of countries and the world. The best-case scenario is that the COVID-19 crisis could lead to our harnessing digital finance to empower the rebuilding and development of local communities. But this is going to require bold, swift and pragmatic action.

Implications of COVID-19 for the Most Vulnerable: A Snapshot of Views from CFI’s Advisory Council

Advisory Council

Our People

Test of a Lifetime: COVID-19 and Financial Inclusion

Digital Credit

Digital Financial Services

Delivery Channels

MSME/SME Finance

Policy, Regulation and Government Initiatives

Supply Chain Finance

Women

Prior to the onset of COVID-19, very few of us would have foreseen a pandemic spreading so rapidly across the world, forcing governments to take actions like lockdowns and border closures. We have observed how these events found many essential services unprepared and resulted in businesses focusing on “response” and “recovery.” In many countries, the pandemic started as a health crisis, while in Sub-Saharan Africa it started as an <a href="https://www.worldbank.org/en/news/video/2020/04/21/africas-pulse-covid-19-coronavirus-causes-first-recession-in-25-years" target="_blank" rel="noopener noreferrer">economic one</a>, as closures happened quicker than the virus spread.

Despite the fact that many agricultural value chains are considered an essential service, agri-SMEs in Sub-Saharan Africa are still facing a <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">decline in demand</a> (particularly those providing farm inputs), <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">liquidity shortfalls</a>, harvesting and production problems due to labor shortages, <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_FINAL.pdf" target="_blank" rel="noopener noreferrer">export and transportation delays due to lockdowns</a>, and cancelled international contracts. All these challenges are exacerbated by ongoing climate change-related shocks, like droughts, floods and <a href="https://www.nationalgeographic.com/science/2020/02/locust-plague-climate-science-east-africa/" target="_blank" rel="noopener noreferrer">locust plagues</a>. The resilience of agri-SMEs (small and medium-sized businesses that are formal and registered entities engaged in agricultural production) is being tested with these events.

While it is too early to estimate the full economic impact of COVID-19 on agri-SMEs, most lenders are taking steps to address the most pressing challenges faced by these agri-SMEs. Though it is prudent to move quickly to overcome these challenges, agri-SMEs would be better supported in the long run if lenders approach these problems through a systemic lens to understand the root of the challenges instead of focusing only on the symptoms of the overall shock.

Aside from the lack of infrastructure, agri-SMEs’ biggest challenge to growth is their limited access to finance and the regulatory burdens constraining this access. As will be discussed below, these challenges are deeper and more structurally embedded, and therefore require a long-term coordinated commitment to provide agri-SMEs access to capital.

This post highlights steps lenders are currently taking to help agri-SMEs weather the storm and suggests areas where they can expand their focus to support these businesses in being better prepared for future economic shocks.
<h2>Explore new options to mitigate risk and increase capital flow to agri-SMEs</h2>
Since the outbreak of the pandemic, most lenders have focused on serving existing clients by increasing their financing, restructuring loans, or deferring payments to meet their clients’ liquidity challenges. By doing so, lenders are also making sure their current portfolio is not at immediate risk.
<blockquote>It’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.</blockquote>
While lenders may be tempted to take a more conservative stance, those with sufficient capacity should be initiating even more new deals in order for agri-SMEs to keep goods and services flowing through the highly interdependent agricultural value chain. For instance, <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">72% of MSEs in Zambia</a> need working capital to continue and grow their business, and <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">61% are running on their savings</a>. COVID-19 is exacerbating the financing gap, and it’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.

Luckily, lenders have successful examples which they can use to build new and more innovative risk mitigation options. Credit guarantees, such as non-bank financial instruments that mitigate default risk for lenders in Sub-Saharan Africa, are a known practice. Between 2008 and 2015, AGRA worked with several partners to offer several guarantees to extend credit to many agriculture value chain actors in Africa, demonstrating the bankability and feasibility of investing in perceived risky agricultural businesses. Additionally, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> has developed a new market platform that aims to incentivize financial service providers to lend to agri-SMEs while also providing technical assistance to them.
<h2>Create new strategies to find and support agri-SMEs</h2>
Many agricultural lenders are reporting that servicing new clients has either stopped or dropped to low levels, not just because of risk concerns, but also because it is almost impossible to conduct thorough due diligence without on-site visits. Given that on-site visits may not be feasible in the near-future, lenders will want to design creative strategies and leverage data to support remote discovery of new agri-SMEs.
<blockquote>Promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics.</blockquote>
To this end, in early 2020, MIX and SCOPEinsight formed a partnership with the support of AGRA to help address the financing gap agri-SMEs face. Through this partnership, they are <a href="https://www.themix.org/news-blog/mix-and-scopeinsight-launch-partnership-with-agra" target="_blank" rel="noopener noreferrer">building bankability metrics</a> so that agricultural lenders can identify and pre-screen agri-SMEs. These metrics play an even more important role now due to COVID-19 disruptions, and they will feed into a portal which will bridge the information gap between agri-SMEs and lenders. As a result, promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics that lenders can use to reduce their costs to serve SMEs. By employing bankability metrics, lenders will be able to assess the potential for growth of agri-SMEs, which currently handle <a href="https://agrf.org/dealroom/wp-content/uploads/2020/07/AGRA-AGRF-Deal-Room-talk-by-Tom-Reardon-july20-2020-final-sent.pptx" target="_blank" rel="noopener noreferrer">680 million tons of food in Africa</a>.
<h2>Offer appropriate technical assistance to agri-SMEs</h2>
<blockquote>The key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges.</blockquote>
Several of the lenders we spoke with are increasingly providing technical assistance to agri-SMEs, recognizing that in these extraordinary times, agri-SMEs are looking for direction. Lenders are offering guidance and training on financial management, crisis management, and operating a business with limited resources. After conducting a <a href="https://rootcapital.org/wp-content/uploads/2020/06/COVID-19-client-survey-report_JUNE-2020.pdf" target="_blank" rel="noopener noreferrer">survey on COVID-19's impact on 134 of its clients</a>, Root Capital decided to offer virtual technical support through its advisory team in four areas: crisis management, emergency operations, financial management and analysis, and digital data collection and analysis.

While technical assistance is not new and is already being offered to SMEs by many organizations, the key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges, with the main goal to support agri-SMEs to grow and become bankable organizations. Helping agri-SMEs become more bankable, and thus more professionalized and visible to other lenders, can assist them to overcome barriers to financing and become more resilient and better equipped to face future risks and shocks.

Going forward, the uncertainty of this pandemic makes it unclear how the next season or harvest will affect agri-SMEs, who are <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">highly interdependent actors in an agricultural value chain</a> where one simple disruption in the flow of goods and services creates challenges for other actors. Along with prioritizing their existing clients, as they are currently doing, lenders could consider the crisis an opportunity to employ long-term strategies that can help agri-SMEs grow into resilient institutions. Coordinated responses and actions by lenders and other actors will play a critical role in ensuring that these businesses are strong enough to continue to feed the world in the face of new pandemics and other global challenges to come.

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From Crisis to Opportunity: How Can Lenders Help Build Resilient Agri-SMEs

Resilience

Financial Health

Responsible Investing

Impact Investing

Scrolling through Instagram these days, I’ve noticed a pattern that has emerged since COVID-19 prompted lockdowns across the globe. With movement restricted, many social media users in the US have engaged in culinary adventures. New experiments in the kitchen abound despite the noted shortage of ingredients like flour on supermarket shelves.

But what I haven’t been seeing on my social media feed on the food front is much more dire: COVID-19 will push up to an estimated <a href="https://www.oxfam.org/en/research/dignity-not-destitution" target="_blank" rel="noopener noreferrer">half billion people into poverty</a> across the globe, threatening food security. Prior to the pandemic, approximately <a href="https://www.who.int/news-room/detail/11-09-2018-global-hunger-continues-to-rise---new-un-report-says" target="_blank" rel="noopener noreferrer">820 million people were chronically hungry</a>. Now, the World Food Program estimates that by the end of 2020, <a href="https://insight.wfp.org/covid-19-will-almost-double-people-in-acute-hunger-by-end-of-2020-59df0c4a8072" target="_blank" rel="noopener noreferrer">265 million people</a> in low and middle-income countries will be under the threat of starvation.
<h2>A Challenge for a Continent</h2>
These issues are particularly acute in several countries in Africa, where job losses and income losses are affecting food security, defined as access to sufficient, safe, and nutritious food. In a recent <a href="https://amref.zoom.us/rec/play/uZZ_Ju2p-zo3E9ed4wSDBKR6W9S9J_2s0iFP-qZemkixVXRQOlWkYuAbMLeKlvVOBygaPgBJmSDPJCzg?continueMode=true&amp;_x_zm_rtaid=FQWENb2fTM2AEbhvJuEg9g.1590501183404.6cee48bfc63a9f06cac60da22d85013d&amp;_x_zm_rhtaid=599" target="_blank" rel="noopener noreferrer">Africa Dialogues webinar</a>, hosted by Dalberg Advisors and Amref Health Africa and moderated by Lolem Ngong and Edwin Macharia, Professor Hamadi Iddi Boga of the Ministry of Agriculture, Livestock, and Fisheries in Kenya; Sara Menker, Founder and CEO of Gro Intelligence; and Monica Musonda, Founder and CEO of Java Foods, explored how the pandemic is disrupting agricultural supply chains and impacting smallholder farmers and vulnerable populations across the continent.

As Menker highlighted, there isn’t a lack of food around the world. Food insecurity, rather, is rooted in a massive distribution problem and a widespread inability to afford food, now exacerbated by COVID-19. Foreign exchange reserves across the African continent are at an all-time low due to the pandemic. In a weakened macroeconomic environment, the cost of imports has increased, and although some African markets are experiencing food insecurity to a greater extent than others, net importers of calories are finding themselves in an increasingly precarious situation. In Zambia, for example, the <a href="http://www.fao.org/giews/countrybrief/country.jsp?code=ZMB" target="_blank" rel="noopener noreferrer">price of fortified cereal</a> for children has increased to $6. Groups including informal workers, microentrepreneurs, and women tend to be the most adversely impacted by such price fluctuations.
<blockquote>Informal workers, microentrepreneurs and women tend to be the most adversely impacted by price fluctuations.</blockquote>
Musonda noted during the webinar that up to 60 percent of wages from informal work in Africa are used to buy food. Finding themselves without work, or with fewer working hours due to COVID-related restrictions on physical movement, informal workers and microentrepreneurs face increasing food insecurity, and women, who allocate more of their own resources to <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">other members of the household during hardship</a>, are disproportionately affected.
<h2>How Does Financial Inclusion Come into Play?</h2>
As a well-documented <a href="https://www.uncdf.org/financial-inclusion-and-the-sdgs" target="_blank" rel="noopener noreferrer">enabler of food security</a>, financial inclusion has an important role to play in the mitigation of COVID-19’s harms to vulnerable groups. Here, I highlight a few of <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">many considerations</a> for financial inclusion initiatives when taking action to reduce food insecurity.
<h3>Supporting SMEs and Smallholder Farmers</h3>
Propping up small and medium-sized business is an important consideration for financial inclusion and, by extension, food security in Africa. SMEs form an <a href="https://www.researchgate.net/publication/315516536_AFRICAN_SMALL_AND_MEDIUM_ENTERPRISES_SMES_CONTRIBUTIONS_CHALLENGES_AND_SOLUTIONS" target="_blank" rel="noopener noreferrer">integral part</a> of the food supply chain in Africa. According to Musonda, <a href="http://www.ipsnews.net/2019/09/smes-main-drivers-africas-food-economy/" target="_blank" rel="noopener noreferrer">SMEs handle 64 percent of food</a>, much of which is fresh and perishable, on the continent. These are the foods that are crucial, but we must do more to ensure that SMEs stay alive during this time of crisis.

This is where financial service providers (FSPs) play an important role. FSPs need to address both short-term and longer-term financing options for SMEs. In the short-term, as <a href="https://www.covid-finclusion.org/forum/discussion/surviving-the-liquidity-crunch-what-are-your-expectations-and-plans-for-managing-mfi-liquidity-what-worries-you-most" target="_blank" rel="noopener noreferrer">FSPs themselves are struggling with liquidity constraints</a>, the role of other actors, such as impact investors, development finance institutions, and policymakers, will be important to filling the void in available liquidity. But beyond liquidity through FSPs, there is a broader role for governments to play when it comes to food security.

In Kenya, the government has created an ecosystem of SMEs to support smallholder farmers in a mutually beneficial initiative that connects nodes of the supply chain. According to Prof. Boga, 90 percent of farmers in Kenya are smallholder farmers. To support this population, the government has created an ecosystem of SMEs to support them, and has implemented an e-voucher program in which farmers receive vouchers on their mobile phones to exchange for partially subsidized farm supplies based on their individual and household needs.
<h3>Promoting and Strengthening Cash Transfer Systems</h3>
Government-to-person (G2P) and person-to-person (P2P) <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits" target="_blank" rel="noopener noreferrer">cash transfers are an effective strategy</a> to increase both financial inclusion and food security. NGOs, governments, and the private sector are working together to promote and strengthen this most important vehicle for quickly delivering crucial cash to low-income households and individuals. <a href="https://www.unicef-irc.org/publications/pdf/IRB 2016_04.pdf" target="_blank" rel="noopener noreferrer">Evidence</a> from several large-scale <a href="https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7596.pdf" target="_blank" rel="noopener noreferrer">evaluations</a> shows that as households receive more in cash transfers, they spend more on food, with positive impacts on meals consumed and dietary quality.

The regulatory environment and payment infrastructure in many countries can present a challenge for massive payouts, but the financial inclusion community views the current crisis as an <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits">opportunity to fast-track improvements to payments systems</a>, particularly through digital payments ecosystems. While digitalization is promising, however, CFI’s Alex Rizzi <a href="https://centerforfinancialinclusion.org/a-covid-digitization-stampede-mustnt-trample-consumer-protection/" target="_blank" rel="noopener noreferrer">cautions</a> that rushed pushes to go digital may harm the poor, and it will continue to be important to put base-of-the-pyramid consumers at the center of considerations for digital cash payments.
<blockquote>Countries with strong DFS infrastructures are taking the lead in implementing systems to help people afford food.</blockquote>
In Africa, countries with strong DFS infrastructures are taking the lead in implementing systems to help the base of the pyramid afford food and other living expenses. The Western Africa Central Bank (BCEAO) is promoting the use of electronic payment tools by making it easier for people to open a mobile money account and by making P2P transfers free. Kenya’s National Treasury <a href="https://www.ugogentilini.net/wp-content/uploads/2020/04/Country-social-protection-COVID-responses_April3-1.pdf" target="_blank" rel="noopener noreferrer">appropriated</a> an additional 10 billion Kenyan schillings, or $100 million, to support for the elderly, orphans and other vulnerable groups through cash transfers. In addition, fee waivers on P2P mobile money transactions on M-PESA were <a href="https://techcrunch.com/2020/03/16/kenya-turns-to-its-mobile-money-dominance-to-stem-the-spread-of-covid-19/" target="_blank" rel="noopener noreferrer">approved</a>. The Moroccan Economic Watch Committee activated a mobile payment device for cash transfers directly to an estimated 3 million informal workers, while in Tunisia, the government is offering one-off cash transfers to households with members working in the informal sector and housing the elderly.

To support governments and markets where the digital payment infrastructure is still developing, initiatives like the <a href="https://www.worldbank.org/en/topic/paymentsystemsremittances" target="_blank" rel="noopener noreferrer">World Bank’s G2Px</a> focus on bringing together expertise across sectors to scale G2P payments responsibly. NGOs such as the World Food Program <a href="https://www.wfp.org/cash-transfers" target="_blank" rel="noopener noreferrer">continue to employ cash transfers</a> in coordination with partners.
<h3>Supporting Women’s Financial Inclusion as a Means to Greater Food Security</h3>
Research indicates that within households, women are at a <a href="https://www.adb.org/sites/default/files/publication/30315/gender-equality-and-food-security.pdf" target="_blank" rel="noopener noreferrer">greater risk of being food insecure</a>. In times of hardship, such as the current pandemic, they are more likely to reduce their own food consumption to leave enough for men and boys. However, access to secure financial services <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">has the potential</a> to <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">promote women’s empowerment</a> and advance food security. Women with bank accounts are likely to have greater bargaining power to allocate more household resources to purchasing nutritious food. Increasingly, many donors and policymakers are recognizing the need to shift cash transfers to women as one approach to tackling food insecurity. This provides an <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">on-ramp for digital financial services while improving convenience and confidentiality</a> of these payments.

Will our documentation of this moment in time capture the resilience, cooperation, and hard work of the individuals and institutions responding to this unprecedented crisis? Food security is a critical basic need, and financial inclusion is an important means of achieving it. With financial services digitizing at a breakneck pace, we mustn’t forget our most basic needs and how inclusive finance can serve them.

Food Security and COVID-19: How Financial Inclusion Can Support Livelihoods

<em style="color:#5e514d">&gt; Posted by Jeffrey Riecke, Communications Associate, CFI</em>

<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>.
<p style="color:#5e514d"><em>Image credit: <a href="http://www.flickr.com/photos/55034788@N08/5758970864/" target="_blank"><span style="text-decoration:underline">Africa Renewal / UN Photo / Fred Noy</span></a></em></p>
<p style="color:#5e514d"><span style="font-weight:bold">Have you read?</span></p>
<p style="color:#5e514d"><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></p>
<p style="color:#5e514d"><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></p>
<p style="color:#5e514d"><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></p>

New Council to Expand Responsible Financing for Agriculture

Responsible Digital Finance

Consumer Protection

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

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.

<em>Image credit: Hailey Tucker, One Acre Fund</em>

<strong>Have you read?</strong>

<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

<em>&gt; Posted by Jeffrey Riecke, Communications Associate, CFI</em>

On Thursday NASA and the Japan Aerospace Exploration Agency <a href="http://www.washingtonpost.com/blogs/capital-weather-gang/wp/2014/02/27/nasa-launching-game-changing-satellite-for-global-precipitation-monitoring/?wpisrc=nl_buzz">launched a new weather and climate satellite</a> that generates a near-global view of precipitation, closing previous large observation gaps. This development has the potential to inform an array of important weather-related activities, including weather index insurance.

The satellite, known as the Global Precipitation Measurement (GPM) satellite, uses a radiometer and dual-frequency radar to measure the presence and even the intensity of rain, snow, and ice, to a time window of three hours, across a geographic range of 65 degrees north to 65 degrees south latitude. Data generated by the satellite will be publicly available to anyone around the world.

[caption id="attachment_14147" align="aligncenter" width="587"]<a href="http://www.nasa.gov/press/2014/february/nasa-and-jaxa-launch-new-satellite-to-measure-global-rain-and-snow/#.UxSe_fldWSo" target="_blank"><img class=" wp-image-14147  " style="border:0;margin-top:8px;margin-bottom:8px" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/14-055-gpm1_0.jpg?w=490" width="587" /></a> A Japanese H-IIA rocket launching the GPM satellite from the Tanegashima Space Center in Tanegashima, Japan.[/caption]
<p style="text-align:left">NASA’s predecessor satellite was only able to detect rain, and not to varying intensities. It also covered a more limited geographic area of 35 degrees north to 35 degrees south. The new NASA satellite could prove an invaluable resource for weather-related initiatives like disaster response and relief.</p>
<p style="text-align:left">Weather index insurance is well-positioned to benefit from the newly detailed precipitation data. Weather index insurance offers a payout to farmers in the event of extreme weather, such as drought or a hurricane. The financial support helps farmers sustain their families while their source of livelihood, their land, recovers. This safeguard also makes it less risky to take out loans to invest in the productivity of land. The payout is triggered by weather index readings that register as extreme weather. This mechanism yields low transaction costs – a necessity as it rarely is practical for insurance agents to travel to smallholder farmers and verify the weather and land conditions.</p>
Available weather data has been a limiting factor for the scope and accuracy of weather index insurance. A few years ago, those with index insurance hit by Hurricane Sandy in the Caribbean were not able to receive payouts because the limited range of the NASA satellites in operation did not cover the impact zone. As the new satellite expands the data’s geographic reach, weather index insurance is also positioned to expand. With the new satellite, weather index insurance could expand beyond rain, too. Hail storms, for example, are currently a significant risk in countries like Malawi and Zambia, but the data has been lacking to support weather index insurance with hail coverage.

When we heard about this exciting development, we reached out to Véronique Faber, Executive Director of the Microinsurance Network, to see what she thought. "This data will be a game-changer, especially as NASA plans to give access to everyone in the world," she said, adding, "Stakeholders involved in weather index insurance for small farm holders will watch this space closely!"

Along with these potential advantages, it’s important to consider a few factors that might constrain the satellite’s ability to support weather index insurance. Typically, insurance product pricing and design is calibrated using historical data on claims and damage. This will be lacking at first when the new satellite data comes on stream, and could limit its rapid use. There is also the potential for the satellite’s new techniques to not be as accurate as hoped across all regions. It’s still not uncommon for particular satellites to be more or less accurate for particular geographies. For instance, the previous NASA satellite was more accurate in the Caribbean and East Asia than it was in Africa.

<em>*Some of this post's content was generously provided by <a href="http://www.microensure.com/" target="_blank">MicroEnsure</a>.</em>

<em>Image credit: <a href="http://www.nasa.gov/press/2014/february/nasa-and-jaxa-launch-new-satellite-to-measure-global-rain-and-snow/#.UxSfnPldWSp" target="_blank">NASA/Bill Ingalls</a></em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2013/12/06/microinsurance-gets-three-wishes/" target="_blank">Microinsurance Gets Three Wishes</a>

<a href="http://cfi-blog.org/2014/02/25/mobile-microinsurance-products-and-financial-capability/" target="_blank">Mobile Microinsurance Products and Financial Capability</a>

<a href="http://cfi-blog.org/2013/04/16/silos-no-more-financial-inclusion-for-the-whole-value-chain/" target="_blank">Silos No More: Financial Inclusion for the Whole Value Chain</a>

Weather Index Insurance to Benefit from New NASA Satellite

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You might have heard about the latest trend in fintech – embedded finance. Maybe you’ve used a “buy now, pay later” option when shopping online, or purchased insurance to protect your rental car trip. When we talk about embedded finance, we’re referring to two types of companies: platforms that provide financial products alongside their core offerings and API-based enablers that plug into existing companies and allow those partners to offer financial services to their customers.

At Accion Venture Lab, we see embedded finance as more than just a trend. It’s a means to responsibly and seamlessly provide credit, savings, insurance, and other financial tools to underserved customers around the world. When companies that are not financial institutions offer embedded finance products, they give customers who aren’t able to access traditional financial services a way to grow their businesses, protect their livelihoods, and save for their futures.

As embedded finance gains more traction, there’s been a lot of discussion about what it means to embed financial services and who stands to benefit the most. Here’s what we’ve learned so far from our work with embedded finance providers around the world:
<h3>1. Companies are thinking about embedded financial services from day one.</h3>
In the past, we used to see companies only begin to think about integrating financial services into their platforms after establishing their core offerings or raising later stages of funding. Now, more companies understand the importance of embedded finance – it allows companies to reach never-before-serviced customers and increases value of customers by decreasing acquisition costs and increasing revenue potential – and are offering financial services from the start as one of their core products.

For example, Accion Venture Lab portfolio company <a href="https://field.inc/" target="_blank" rel="noopener noreferrer">Field Intelligence</a> helps pharmacies in Nigeria and Kenya digitize their supply chain operations and manage their inventory. However, Field Intelligence’s “pay as you sell” product, Shelf Life, which <a href="/this-company-is-making-healthcare-more-accessible-in-emerging-markets" target="_blank" rel="noopener noreferrer">allows users to pay for their inventory as they sell it</a>, has been a critical part of Field Intelligence’s business model since its earliest days. With Shelf Life, pharmacies can keep up with fluctuating customer needs without paying expensive upfront costs. Business owners can afford to stock their shelves and free up their working capital to instead invest in their businesses and expand their operations. By ensuring that pharmacies can continue to pay for products while they strengthen their businesses, the subscription aspect of the Shelf Life helps Field Intelligence retain customers long-term.

Another one of our portfolio companies, <a href="https://www.capiter.net/" target="_blank" rel="noopener noreferrer">Capiter</a>, is a platform that provides fast-moving consumer goods (FMCG) retailers in Egypt with access to a suite of products, including inventory procurement, business management, and credit. As an early-stage startup, Capiter not only provides financing to its customers but has also started to expand into offering a digital wallet, all prior to raising their Series A round. Capiter’s financial offerings have been key to its success. After connecting merchants to suppliers, they can then offer both cash and credit-based inventory financing options, addressing several customer needs at once.
<h3>2. Embedded finance isn’t just one product.</h3>
When you think of financial services, you might initially think of just credit. But embedded finance goes beyond credit and cuts across the full spectrum of financial services – lending, insurance, savings, and investments.

In the Accion Venture Lab portfolio, <a href="https://www.lami.world/" target="_blank" rel="noopener noreferrer">Lami</a> partners with companies such as banks and telecommunications providers to offer customizable insurance to their customers in Africa, <a href="https://www.accion.org/tech-opens-the-door-for-low-income-africans-to-get-the-insurance-they-need" target="_blank" rel="noopener noreferrer">where only 3 percent of Africans outside of South Africa have access to insurance</a>. Lami’s solution contextualizes the purchase of insurance by meeting customers where they are and addressing specific needs, resulting in greater long-term adoption of the product and retention of customers.

In India, our portfolio company Anthem provides administrative and financial solutions for schools in 300 cities across the country. Anthem’s digital platform helps educational institutions streamline their administrative activities – with tools to manage cashflows, expenses, and school fees all in one place.
<h3>3. Embedded finance is for everyone.</h3>
Embedded finance is democratizing financial services for underserved populations around the world by meeting people where they are and building on the trust that people have with existing platforms they already use.

Embedded financial services are fundamentally reshaping the distribution model of financial services. They allow companies to reach previously underlooked populations in more contextualized and inclusive ways. As these customers stick around longer for financial services, they drive up retention rates and increase a company’s revenue streams. As a result, the profitability and lifetime value of currently underserved customers increases.

Accion Venture Lab’s global portfolio companies are helping diverse populations access financial services that they otherwise wouldn’t be able to. In Indonesia, where <a href="https://www.ifc.org/wps/wcm/connect/260f2097-e440-4599-91ec-e42d45cf3913/SME+Indonesia+Final_Eng.pdf?MOD=AJPERES&amp;CVID=lj8qhPY" target="_blank" rel="noopener noreferrer">70 percent of small businesses</a> are owned and managed by women, <a href="https://fairbanc.app/" target="_blank" rel="noopener noreferrer">Fairbanc</a>’s “buy now, pay later solution” helps small businesses stock their shelves and keep their shops open. In Latin America, <a href="https://www.soyhenry.com/" target="_blank" rel="noopener noreferrer">Henry</a> helps address <a href="https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=ZJ" target="_blank" rel="noopener noreferrer">high unemployment rates</a> by offering virtual coding courses that students pay for via an income sharing agreement (ISA), where they only pay for their education once they have secured employment after graduation. In India, <a href="https://agrim.app/" target="_blank" rel="noopener noreferrer">AgriM</a>’s digital marketplace provides inventory procurement to the country’s more than one million agricultural retailers, who serve 130 million farmers.

Embedded finance is a powerful tool to provide the world’s financially underserved populations with seamless access to finance. But this trend will only succeed in enacting meaningful change if the offerings are <a href="/what-does-embedded-inclusive-fintech-look-like" target="_blank" rel="noopener noreferrer">responsible, affordable, and fair</a>. Embedded products must not only offer better terms and pricing than other traditional counterparts, but all prices, terms, and data being used must be visible and understood by customers who may not have used any financial services before. When this happens, we ensure that people have products that meet their needs and are not left further behind.

Embedded finance: More than a trend

Miguel Tzoy Pu owns a small farm in Totonicapán, Guatemala, where he grows tomatoes, chilis, potatoes, and corn. His wife and three children depend on the income from his harvest to pay for school, food, and other household necessities. Like many of the 5.7 million smallholder farmers in Guatemala, Miguel has struggled to manage the impacts of a changing climate, enduring periods of severe drought and destructive hurricanes that wreak havoc on his crop yields. With little financial experience, he has also had limited access to financial products that might help him to reduce farm losses, invest in new technologies, and protect his farm against agricultural shocks.

Across Guatemala, <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Guatemala.pdf" target="_blank" rel="noopener noreferrer">7.5 million people do not have a basic bank account and just 12 percent of the population saved or borrowed from a financial institution as of 2017</a>. Micro, small, and medium enterprises (MSMEs), which account for 85 percent of employment and contribute 40 percent of GDP, consistently face challenges in accessing the formal financial system dominated by large commercial banks, with an estimated <a href="https://www.smefinanceforum.org/data-sites/msme-finance-gap" target="_blank" rel="noopener noreferrer">$14.2 billion formal finance gap</a>. With half the population living in poverty and <a href="https://www.iadb.org/en/improvinglives/neediest-and-hardest-reach-informal-workers-face-pandemic" target="_blank" rel="noopener noreferrer">70 percent of workers employed in the informal sector</a>, traditional financial institutions have shied away from serving low-income households and microentrepreneurs due to a lack of documented transactions and collateral which has fueled credit and risk aversion among banks. As the country continues to struggle during the COVID-19 pandemic and the risk of extreme weather events grows, inclusive financial services are more critical than ever.

<a href="https://genesisempresarial.org/" target="_blank" rel="noopener noreferrer">Fundación Génesis Empresarial</a> is Guatemala’s largest nonprofit microfinance institution, offering a comprehensive portfolio of products and services that includes working capital, housing, and education loan products, agricultural financing and advisory, insurance, and remittances to MSMEs and rural communities across the country. Founded in 1988, Génesis has provided financial and non-financial products and services, financial education and business management training, and advisory support to more than 720,000 clients, <a href="/two-women-entrepreneurs-carve-out-economic-opportunity-in-guatemala" target="_blank" rel="noopener noreferrer">helping them grow their businesses, send children to school, and move out of poverty</a>. Of their current 138,000 clients – many of whom are excluded from the traditional financial system – 42 percent live in poverty or extreme poverty, 85 percent live in rural areas, and 64 percent are women. Their national coverage extends across more than 100 branches, 3,000 agents, and 12,000 payment points, many in rural areas with limited access.

Fundación Génesis provided Miguel Tzoy Pu with a loan to expand his tomato and chili cultivation and support to help him better manage his credit. The loan has allowed Miguel to further expand his tomato plots, produce higher quality crops, and earn more every month.

Accion is excited to continue our 30-year relationship with Fundación Génesis Empresarial as part of the <a href="/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses" target="_blank" rel="noopener noreferrer">Mastercard and Accion partnership</a> to help small businesses like Miguel Tzoy Pu’s operate in and benefit from the digital economy. A cornerstone of <a href="/accion-joins-white-house-call-to-action-to-support-economic-opportunity-in-the-northern-triangle" target="_blank" rel="noopener noreferrer">our commitment to support economic opportunity in the Northern Triangle</a>, Accion will help Génesis strengthen and accelerate their digital transformation to spur continued innovation and drive scale.

In recent years, Génesis has invested heavily in digital transformation – of their own institution, and of their clients. They now offer a digital wallet, called akisí, an online banking application, and recently launched a digital revolving credit product called Génesis Efectivo. Through this partnership, Accion will help Génesis:
<ul>
 	<li>Drive adoption and usage of the akisí wallet, particularly among women and rural users.</li>
 	<li>Develop and launch a holistic product and go-to-market strategy to scale Génesis Efectivo, their revolving digital credit line.</li>
 	<li>Expand and optimize Génesis’ agricultural products and program for smallholder farmers, including the integration of best practices to adapt to climate change.</li>
 	<li>Reimagine a customer-centric digitized group lending methodology to better support clients at the base of the pyramid.</li>
</ul>
This work will ultimately help increase access to high-quality digital financial services, improve economic opportunity for MSMEs and smallholder farmers, and build all Guatemalans’ resilience to economic and environmental shocks. Génesis is uniquely positioned to address complex challenges to financial inclusion in Guatemala. With the support of the <a href="https://bit.ly/39XuCMa" target="_blank" rel="noopener noreferrer">Mastercard Center for Inclusive Growth</a> and Accion, Fundación Génesis Empresarial can continue to deliver on its mission to promote the social and economic development of its clients.

<em><a href="https://www.linkedin.com/in/malavika-krishnan/" target="_blank" rel="noopener noreferrer">Malavika Krishnan</a> contributed to this article.</em>

Pathway to a resilient future for Guatemalan farmers and entrepreneurs

As the pandemic continues to move businesses online, making digital tools more <a href="https://www.accion.org/growing-disparities-threaten-an-inclusive-recovery">vital</a> for the survival of families and small businesses, some might overlook the importance of the thousand-year-old agricultural sector in building an inclusive and effective economic recovery. Farming and agriculture have long played major roles in reducing poverty and creating economic opportunities, and new technologies are revolutionizing the industry, empowering farmers and agribusinesses to build their financial resilience.

<a href="https://www.worldbank.org/en/topic/agriculture/overview">Two thirds</a> of the world’s working poor make a living through agriculture, and smallholder farmers produce around <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X2100067X?via%3Dihub">a third</a> of the world's food. But <a href="https://globalfindex.worldbank.org/">235 million</a> farmers, including 115 million women, are unbanked and receive payments in cash, keeping them invisible to financial institutions. And despite the valuable income, food, and economic stability that farmers provide, they face more challenges today than ever.

The pandemic created many <a href="https://www.globalcitizen.org/en/content/ifad-food-security-during-covid-19/">obstacles</a> for farmers and agribusinesses, including disrupted supply chains and difficulties storing excess crops, causing them to spoil. Stifled economies and social unrest have further destabilized the already fragmented agricultural value chain.

Climate change poses many <a href="https://www.ucsusa.org/resources/climate-change-and-agriculture">threats to farmers</a> and those who depend on them, including increasing rates of floods, droughts, monsoons, and hurricanes, which disrupt supply chains, destroy crops, and destabilize farmers’ way of life. New <a href="https://www.centerforfinancialinclusion.org/climate-change-is-exacerbating-covid-19-recovery-for-msmes-in-nigeria">data</a> from the Center for Financial Inclusion illuminate the impact of climate change on small businesses: a quarter of entrepreneurs in Nigeria experienced a climate shock in the last five years—and those who did took longer to recover from the effects of COVID-19.

Women make up <a href="http://www.fao.org/gender/background/en/">nearly half</a> of farmers but often face discrimination that limits their ability to earn a living and provide for their families. For example, <a href="https://foodtank.com/news/2021/06/research-in-malawi-shows-how-access-impacts-female-farmers/">a recent study</a> in Malawi found that social norms and customs constrained female farmers to areas with less fertile soil, leading to lower crop yields.
<h2><strong>Advancements in agritech can build an inclusive recovery</strong></h2>
The agricultural sector will play a central role in our global recovery from the pandemic, and advancements in agritech can help farmers and other related businesses boost their profits, start participating in the digital economy, and build their financial resilience against future challenges, especially those brought by <a href="https://www.accion.org/opening-opportunities-for-smallholder-farmers-in-a-changing-climate">climate change.</a>

Innovative fintech companies are helping farmers around the world—many of them <a href="https://www.accion.org/for-rose-in-kenya-crop-insurance-is-a-game-changer">women</a>—access digital and financial tools that traditional institutions have been unable or unwilling to provide. Accion Venture Lab portfolio company <a href="https://www.pula-advisors.com/">Pula</a> has provided more than 4.5 million traditionally excluded farmers in Africa and Asia with agricultural insurance and data-driven insights to help them sustainably increase crop yields. <a href="https://www.apolloagriculture.com/">Apollo Agriculture</a>, based in Kenya, also takes <a href="https://www.accion.org/tech-gives-farmers-in-east-africa-a-boost">a tech-based approached</a> to help farmers maximize their profits through mobile money accounts, financing, optimized advice, farming products, and insurance.

Agritech innovation is also strengthening the agricultural value chain, benefitting everyone from small farmers to local distributors. In Latin America, Accion Venture Lab has invested in <a href="https://terramagna.com.br/">TerraMagna</a>, a Brazilian company that <a href="https://www.accion.org/how-one-company-uses-tech-to-support-brazilian-farmers">leverages satellite imaging</a> to lower the cost of underwriting and help more farmers access credit. Small farms are often located in remote areas where traditional banks can’t reach, so they seek credit from local agri-retailers that sell seeds and fertilizer. TerraMagna uses their tech-based approach to assess collateral with more precision, lowering agri-retailers’ credit risk and enabling them to provide lower-cost loans.

Similarly, Accion Venture Lab portfolio company <a href="https://agrim.app/">AGRIM</a> provides <a href="https://www.accion.org/agri-inputs-b2b-marketplace-agrim-emerges-from-stealth-mode-with-2m-in-seed-funding-from-omnivore-india-quotient-and-accion-venture-lab">an e-commerce platform</a> for agri-retailers in India. India’s agri-retailers provide more than 120 million smallholder farmers with essential supplies and informal credit. AGRIM connects these retailers directly to manufacturers, allowing access to a wider range of products that can be delivered to their doorsteps at transparent prices. AGRIM also aims to embed affordable lending products for their clients by leveraging unique data from the platform. Since its founding in April 2020, more than 1,000 manufacturers and 100,000 retailers have joined AGRIM’s platform.

Established microfinance institutions are also leveraging new technologies to respond to the effects of the pandemic. Supported by our global partnership with Mastercard, our partner Annapurna Finance in India <a href="https://www.accion.org/women-entrepreneurs-get-back-to-business-in-india">developed</a> an SMS-based emergency loan product to help rural microentrepreneurs like Papina Das adapt and rebuild. Within three days of applying, Papina received a loan of just 20,000 INR, or $274 USD, which she used to rehire her assistant and restart her dairy farm—and now her sales have nearly fully recovered.
<h2><strong>Supporting the most effective innovations</strong></h2>
We must continue to <a href="https://www.inclusivefintech50.com/">support and elevate innovators</a> who are finding new ways to answer the financial needs of underserved farmers and agribusinesses. The potential of innovation is limitless, and underserved small businesses of all kinds need digital and financial tools to recover and grow. Working together, investors, policymakers, and development finance institutions should foster advancements in fintech that are helping farmers, agribusinesses, and other underserved entrepreneurs open economic opportunities in their communities.

With support from fintech, farmers can grow an inclusive global recovery

[embed]https://vimeo.com/510355709[/embed]

Low-income farmers can’t always access the training and inputs they need to earn a stable income and adapt to challenges like a changing climate. Innovative financial tools open opportunity for small-scale farmers to thrive. Our partner Apollo Agriculture takes a tech-based approach to empowering smallholder farmers with the tools they need to succeed.

Tech gives farmers in East Africa a boost

[embed]https://vimeo.com/489465107[/embed]

When we open opportunity and access to financial services like crop insurance, we change lives. With simple financial tools, we can make sure that farmers can keep providing for their families. <a href="https://www.accion.org/opening-opportunities-for-smallholder-farmers-in-a-changing-climate" target="_blank" rel="noopener noreferrer">Find out how we help them secure their livelihoods.</a>
<h2>En español:</h2>
[embed]https://vimeo.com/503307647[/embed]

Smallholder farmers find a secure future

[embed]https://vimeo.com/489464646[/embed]

With access to simple financial tools — like digital credit, crop insurance, and mobile payments — people all around the world can build better futures. Watch the video to see how we connect people and small businesses to the tools they need to thrive.
<h2>En español:</h2>
[embed]https://vimeo.com/503307390[/embed]

<hr />

<h2>Transcript</h2>
<strong>Farmer (voiceover): </strong>My father taught me how to farm. But, because of the drought, I haven't been able to provide for my children the way my father provided for me.

<strong>Pharmacist 1 (voiceover): </strong>It gives me great pride to run my pharmacy and serve my community...

<strong>Pharmacist 2 (dialogue): </strong>"Anything?"

<strong>Pharmacist 1 (dialogue): </strong>"Not yet."

<strong>Pharmacist 1 (voiceover): </strong>...Which makes it so much harder when I can't be prepared for my customer's needs.

<strong>Restaurant owner (voiceover): </strong>Everything I do, I do for her.

<strong>Restaurant owner (dialogue): </strong>"Eat your breakfast first."

<strong>Restaurant owner (voiceover): </strong>So, when the virus shut down my restaurant... [<em>a masked customer knocks on the restaurant's closed door</em>]

<strong>Restaurant owner (dialogue): </strong>"Sorry, we can't open."

<strong>Restaurant owner (voiceover): </strong>...I felt like I was letting her down.

[<em>On-screen text</em>]<strong> In times of uncertainty, what does opportunity look like?</strong>

<strong>Farmer (voiceover): </strong>Having access to crop insurance has changed my life. It has allowed me to protect what is most important.

<strong>Pharmacist 1 (voiceover): </strong>I discovered a service that lets me manage supplies and order what I need online so my community can get the medication they need when they need it.

<strong>Owner (voiceover): </strong>By being able to receive online payments, I've been able to move my entire business online and it's been a life saver.

[<em>On-screen text</em>] <strong>For those who have been left out,  Accion opens opportunities to build better lives. #OpenOpportunity</strong>

An open opportunity leads to a brighter future

Nearly two-thirds of the world’s poor depend on agriculture to survive, and many of these families collect money only once a year, stretching their income from one harvest to the next. But climate change is putting their livelihoods in peril — as global surface temperatures increase, so does the risk of drought, the intensity of storms, and the frequency of natural disasters. Furthermore, our global food supply is at risk because it depends in large part on the productivity of smallholder farmers who live and work in emerging markets. In sub-Saharan Africa and Asia, smallholder farmers provide over 80 percent of the food supply.

In sub-Saharan Africa, nearly <a href="https://blogs.imf.org/2020/06/04/safeguarding-africas-food-security-in-the-age-of-covid-19/" target="_blank" rel="noopener noreferrer">half the population</a> lives below the poverty line and depends on agriculture, herding, and fishing to feed their families and earn an income. Their food supply is extremely vulnerable to climate change and the effects of a food shortage can be devastating — malnutrition surges, school enrollment drops, the economy suffers, and lives are lost.

<img class="alignright wp-image-23023" src="https://content.accion.org/wp-content/uploads/2020/12/kenya-nakuru-farmers-300x200.jpg" alt="" width="400" height="267" />However, when farmers have the ability to adapt to shocks and crises, they can avoid the worst impacts of food shortages. That’s why it’s crucial for farmers to have access to savings accounts, credit, and insurance. For many of us, the idea of saving seems pretty simple: you set money aside in a secure place and earn interest. But, many people around the world lack access to a formal savings account, and <a href="https://www.accion.org/global-challenges" target="_blank" rel="noopener noreferrer">less than half</a> of adults saved at all in 2017. Moreover, <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">235 million</a> unbanked farmers receive agricultural payments in cash, including 115 million women. Since cash is invisible to lenders, it doesn’t generate credit histories and as a result, it prevents families and businesses from borrowing appropriate financing if they need it. In Ethiopia alone, creating a digital agricultural payments system could cut the share of unbanked adults by up to <a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses" target="_blank" rel="noopener noreferrer">60 percent</a>.
<h2>How agricultural fintechs open opportunities in Africa</h2>
<span style="font-weight: 400">Through our early-stage investment initiative, Accion Venture Lab, we’re supporting innovative agricultural fintech startups. These companies build useful tools that give low-income farmers, who are most vulnerable to extreme weather conditions, the opportunity to afford high-quality seeds and fertilizer, save securely, and adapt when challenges arise. </span>

<span style="font-weight: 400">Formal accounts open opportunities for farmers to access a wider array of financial services, including credit and insurance. Insurance and innovative digital products can help smallholder farmers endure climate risks, improve their farming practices, and boost their incomes over time. Accion Venture Lab portfolio company Pula is doing just that in 11 countries across Africa and Asia. So far, they’ve provided over 3.3 million traditionally excluded smallholder farmers with agricultural insurance and data-driven insights and advice to help them increase crop yields in sustainable ways. This has been a game-changer for </span><a href="/for-rose-in-kenya-crop-insurance-is-a-game-changer" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400">Rose Kilonzo</span></a><span style="font-weight: 400">, a Kenyan farmer who now has confidence that she can provide for her family no matter the circumstances. </span>

<span style="font-weight: 400">“When you plant, you have faith it will be taken care of should your crop fail,” she tells us. With a more secure income, she’s looking forward to expanding into commercial agriculture and passing on the trade to her children and grandchildren.</span>

<img class="alignnone wp-image-14546 size-large" src="https://content.accion.org/wp-content/uploads/2018/09/Kitui_0022-1-1024x684.jpg" alt="" width="1024" height="684" />

<span style="font-weight: 400">Another innovative tech-based company we are supporting is </span><a href="/this-agricultural-fintech-empowers-the-farmers-who-feed-the-world" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400">Apollo Agriculture</span></a><span style="font-weight: 400">, an agricultural fintech that helps farmers maximize their profits with financing, farming products, optimized advice, and insurance. Their model combines input financing with sophisticated analytics, remote sensing, agronomic machine learning, and mobile money. This approach opens opportunities for the poorest farmers to purchase high-quality farming inputs, such as hybrid seeds and fertilizer, on credit with flexible repayment terms and post-harvest due dates. </span>

<span style="font-weight: 400">In addition to financing and distributing agricultural inputs, Apollo Agriculture’s integrated solution includes the necessary training to farm effectively and sustainably. This multifaceted approach ultimately allows farmers to increase their crop yields, leading to greater financial security, better livelihoods, and a reliable food supply for the world.</span>

<span style="font-weight: 400">Eventually, Apollo Agriculture plans to leverage its technology to support farmers with personalized solutions based on their specific geographical, weather, and land characteristics. In the long term, these customized farming techniques will improve soil quality and curb erosion, which helps boost productivity and sustainability.</span>
<h2>A tech-based approached to farmer credit in Latin America</h2>
<span style="font-weight: 400">In Latin America, we’re investing in </span><a href="/how-one-company-uses-tech-to-support-brazilian-farmers" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400">TerraMagna</span></a><span style="font-weight: 400">, a Brazilian company that uses their proprietary machine learning platform and monitoring technology to generate a more personalized farmer credit score and an accurate estimate of collateral value. Because family-run farms in Brazil lack access to traditional financial institutions, they often seek credit from retailers where they purchase seeds, fertilizer, and other inputs. TerraMagna partners with these local retailers and uses their tech-based approach to reduce the manual cost of the underwriting process and assess the collateral value with more precision, which lowers the retailers’ credit risk and enables them to provide lower-cost loans.</span>

<span style="font-weight: 400">Lenders in Brazil have typically used land as collateral and have found it difficult to properly accept crops as collateral, given the high fraud risk. Using satellite images, TerraMagna can track the crop status in real-time and help prevent fraud attempts. This approach aligns with our thesis that technology and innovative lending models can work together to create new asset collateral, ultimately granting better access and better credit pricing to family farmers.</span>

<span style="font-weight: 400">We will continue to support smallholder farmers, open opportunities for young people to get into the farming business, and remove the barriers to profitable and sustainable farming for the most vulnerable. As the world’s population grows, so too will our portfolio of partners offering innovative financial and business development services that enable farmers to prosper in a changing climate.</span>

Opening opportunities for smallholder farmers in a changing climate

[embed]https://soundcloud.com/accioninternational/deepening-support-for-small-scale-farmers-in-east-africa[/embed]

<a href="https://www.accion.org/clients/apollo-agriculture" target="_blank" rel="noopener noreferrer">Apollo Agriculture</a> empowers small-scale farmers in East Africa with the tools they need to maximize their profits, produce food for their communities, and build financial stability for their families. Through a digital-first approach, they’re reaching rural farmers and building on their services to meet more of their needs. “As we go out and acquire customers and get to know them better, there’s a huge opportunity to partner more deeply with them and both support them to earn more, and also increase the value that Apollo can gain from that relationship,” says Apollo Agriculture co-founder and CEO Eli Pollak in this episode of <a href="https://www.accion.org/series/win-from-within-how-fintech-startups-build-value" target="_blank" rel="noopener noreferrer">VentureKast</a>.

Inclusive fintech startups like Apollo are rethinking their approach to scaling their businesses by evolving and expanding services for existing customers. “Over time, capital tends to commoditize, but the trust that we can build in terms of a relationship — where the farmer trusts us to deliver value in agriculture and then trusts us to advise them on how to continue to make more money — I think is really sticky,” says Eli. Listen to the full episode on SoundCloud, Spotify, and Apple Podcasts, and <a href="https://www.accion.org/win-from-within-how-fintech-startups-can-grow-by-building-value-for-existing-users" target="_blank" rel="noopener noreferrer">read the full Win from within report here</a>.

Deepening support for small-scale farmers in East Africa

As an essential service, the Brazilian agricultural market has been sheltered from the devastating economic effects of COVID-19-related shutdowns, but farmers still face enormous challenges. Most of Brazil’s farms are small or medium, and they depend on credit for 80 percent of their working capital each season. But these independent farmers are often ignored by banks because they are difficult to reach geographically and challenging to underwrite. As the government continues to reduce subsidies to farmers and demand for crops increases, the need for responsible financing to support this vital sector of the country’s economy is becoming more critical than ever.

Even before the pandemic started, the <a href="/2020-and-beyond-whats-next-for-fintech-innovation-in-latin-america" target="_blank" rel="noopener noreferrer">Accion Venture Lab team was looking</a> for startups that drive the digital transformation of Latin America’s agricultural landscape with innovative financial products. When we met with <a href="https://terramagna.com.br/" target="_blank" rel="noopener noreferrer">TerraMagna</a>, we immediately realized that the company was in a unique position to help underserved farmers because of their use of satellite imaging to appraise and monitor collateral and their embedded finance model, which allows input suppliers to improve underwriting and reduce costs.

We previously invested in African agri-fintech startups <a href="/for-rose-in-kenya-crop-insurance-is-a-game-changer" target="_blank" rel="noopener noreferrer">Pula</a> and <a href="/apollo-agriculture-raises-6-million-to-help-small-scale-farmers-make-more-money" target="_blank" rel="noopener noreferrer">Apollo</a>, and we are convinced that this is the right time to support the agri-fintech space in Brazil. The current conditions are favorable for a company like TerraMagna to thrive: satellite images are now more accessible, low interest rates make debt funding possible, and new regulations will bring more financing to the sector.

Accion Venture Lab is thrilled to make its first agri-fintech investment in Latin America. We are most excited that TerraMagna is:
<h3>Connecting small and medium farmers with fairly priced credit</h3>
The lack of access to traditional financial institutions forces smallholder farmers to seek credit from expensive retailers where they purchase seeds, fertilizer, and other inputs. TerraMagna addresses this problem by using their proprietary machine learning platform and monitoring technology to generate a more personalized farmer credit score and an accurate estimate of collateral value. This approach reduces the manual cost of the underwriting process, which lowers the retailers’ credit risk and enables them to provide lower-cost loans. Lenders in Brazil have typically used land as collateral and have found it difficult to properly accept crops as collateral, given the high fraud risk. Using satellite images, TerraMagna can track the crop status in real-time and help prevent fraud attempts. This approach aligns with our thesis that technology and <a href="/time-to-shine-for-innovative-fintech-lenders" target="_blank" rel="noopener noreferrer">innovative lending models</a> can work together to create new asset collateral, ultimately granting better access and better credit pricing to smallholder farmers.
<h3>Taking a holistic approach to strengthening the farming sector</h3>
Rather than lending directly to farmers, TerraMagna leverages partnerships with local input retailers to monitor, underwrite, and fund their loans. Since these retailers operate with slim margins and are forced to sell seeds and other agricultural goods primarily on credit, they value TerraMagna’s ability to reduce their loan risk and improve their collateral documentation. TerraMagna’s precise, lower-cost underwriting processes and collateral-monitoring technology allow retailers to provide farmers with loans that cover a larger portion of their working capital and enable them to purchase higher-quality inputs. With broader financing coverage, farmers can ease the pressure on their margins, improve their financial resiliency, and reinvest their profits into their farms.
<h3>Leveraging data to improve the agricultural ecosystem</h3>
As TerraMagna continues to monitor farms across the region and develops relationships with input retailers, they will gather critical data about how agronomic conditions and inputs impact farmer yields. As we’ve seen through our work with Apollo and Pula, this data can generate insights and personalized agronomic advice that helps retailers better support farmers, increasing their crop yields and benefiting the overall health of the agricultural ecosystem.

As QED’s Nigel Morris said in our <a href="/a-great-company-going-into-covid-is-invariably-a-great-company-coming-out" target="_blank" rel="noopener noreferrer">latest podcast series</a>, “a great company going into COVID is invariably a great company coming out.” TerraMagna is a perfect example of this. With their unique technological skills and vast knowledge of the agricultural sector, the team built a product with competitive advantages for the suppliers and turned it into a profitable business. And they went one step further and fully immersed themselves in the fintech world, first by participating in the underwriting process and now by funding some of the suppliers’ loans to provide better pricing and expand their lending capabilities.

We’re continuously impressed by the eagerness of TerraMagna’s team to keep learning and innovating, and we can’t wait to see what comes next for them.

How one company uses tech to support Brazilian farmers

Brazil has been hit especially hard by the COVID-19 pandemic, and the crisis is changing every aspect of society. Now that the most obvious and immediate effects have set in, we are beginning to see what the mid- and long-term consequences will be in the country.

I strongly believe that fintech will be one of the sectors that will emerge from this crisis both reinvigorated and transformed. As a fintech entrepreneur, you have the chance to rebuild a better Brazil.
<h2>Transforming uncertainty into new opportunity</h2>
It’s not a surprise that the macro landscape looks grim right now. The economy is <a href="https://blogs.imf.org/2020/06/26/outlook-for-latin-america-and-the-caribbean-an-intensifying-pandemic/" target="_blank" rel="noopener noreferrer">expected to contract around 9 percent</a> this year, and although analysts predict a positive rebound next year, the main players in the financial sector are still in shock. As a consequence of increased payment deferrals for loans, the current level of non-performing loans is unknown and financial institutions are navigating in the dark. The CEO of Itau referred to their strategy around managing these loans as <a href="https://www.fool.com/earnings/call-transcripts/2020/05/06/itau-unibanco-holding-sa-adr-itub-q1-2020-earnings.aspx" target="_blank" rel="noopener noreferrer">"more an art than science.”</a> I cannot find a better phrase to describe the current situation of the traditional financial sector. Amid all of this uncertainty, it is clear that fintech players will be better positioned to recover from the economic downturn if they can use alternative data sources to access updated financial information.

Those tech companies who already have access to real-time data will have an added advantage due to <a href="https://www.businessinsider.com/brazil-moves-forward-with-open-banking-2020-5#:~:text=The%20Central%20Bank%20of%20Brazil%20has%20released%20open%20banking%20regulation,the%20customer%20agrees%2C%20per%20Finextra." target="_blank" rel="noopener noreferrer">an open banking regulation released by The Central Bank of Brazil</a>, which will be fully implemented next year. In addition to the data they already have, fintechs will benefit from accessing additional information from their clients that allows them to provide a better, more personalized service. At the same time, the opportunities for fintechs to partner with banks will increase as banks seek to connect to third party providers and enrich their businesses.

But negatively hit sectors aren’t the only place where tech startups can find opportunities to offer financial services to the underserved. For example, agriculture is <a href="https://www.world-grain.com/articles/13958-record-soybean-shipments-forecast-for-brazil" target="_blank" rel="noopener noreferrer">posting record results</a>, and some industries within the gig economy, like last-mile delivery, are also growing more than ever before. There is a huge potential to layer digital financial services in these and other thriving sectors.
<h2>Data is king</h2>
Fintech companies are in an advantageous position when they have rich and timely data needed to make the right business decisions. And those data-driven companies that build strong relationships with customers by solving problems that aren’t financial — before embedding fintech solutions — are in an even better position. In the past, <a href="https://www.forbes.com/sites/vikasraj/2019/11/20/platform-fintechs-are-cominghow-should-startups-respond/#742436bb2b0f" target="_blank" rel="noopener noreferrer">we have explored how super-platform tech companies are doing this</a>, and now this approach is expanding across multiple sectors. For example:
<ul>
 	<li><a href="https://terramagna.com.br/" target="_blank" rel="noopener noreferrer">Terra Magna</a> has spent years building a huge database of farming regions and crop performance using high-tech satellite images. With a unique knowledge of the business, it is now starting to provide responsible financing to farmers.</li>
 	<li><a href="https://www.loopa.digital/" target="_blank" rel="noopener noreferrer">Loopa</a> is a startup that provides a free platform to MSMEs for credit card reconciliation, allowing them to have a better understanding of their business and solve cashflow inefficiencies. That type of relationship with customers is the one that provides infinite possibilities to add financial services.</li>
 	<li>Finally, <a href="https://www.smartmei.com.br/" target="_blank" rel="noopener noreferrer">SmartMEI</a>, one of our portfolio companies, is building solutions for the future of work. They understand the needs of a workforce that is changing every day and have built targeted financial products for an evolving workplace. The company started by providing simplified accounting services and has grown to offer a full suite of products.</li>
</ul>
<h2>But who is investing right now?</h2>
At the onset of the pandemic, capital immediately dried up for entrepreneurs. Many investors had to concentrate their efforts on helping their portfolio companies stay afloat, and others were too wary of the situation to keep investing. As Nigel Morris, partner of QED Capital, recently said in an episode of <a href="https://www.accion.org/a-great-company-going-into-covid-is-invariably-a-great-company-coming-out" target="_blank" rel="noopener noreferrer">VentureKast</a>, “We are going to see fewer tourists involved in VC in the fintech space.” The ones that will keep betting on the sector — and that have already restarted actively investing — are the true fintech specialists.

So, the big question is: who should you pitch your startup to in Brazil? Many great investors come to mind. This complete <a href="https://www.contxto.com/en/brazil/venture-capital-brazil-2020/" target="_blank" rel="noopener noreferrer">cheat sheet recently published in Contxto</a> lists some of the most active equity investors divided by industry and stage.
<h2>Don’t miss the chance to grow your startup, with some caution</h2>
The pandemic, despite all its negative connotations, is creating a temporary blue ocean for many fintechs. Now may be an excellent moment to fundraise and accelerate growth, but you should consider a few things before doing so:
<ol>
 	<li><strong>Don’t be afraid to be selective.</strong> Choose your customers wisely and make good use of your data collection and analysis capabilities.</li>
 	<li><strong>Mind your unit economics.</strong> This is a moment to grow, but definitely not at all costs. Bear in mind that this is a time ruled by uncertainty. The less you burn, the more runway to have to survive through the storm. VCs are certainly looking at this before investing.</li>
 	<li><strong>Valuations are coming down.</strong> Early-stage valuations in Brazil reached astronomical levels in recent years, and now it’s not uncommon to see up to 30 percent cuts. Believe it or not, this could be a good thing for your startup as you can align incentives with your investors and reduce the risk of a down round in later stages.</li>
 	<li><strong>Banks will catch up.</strong> This blue ocean won’t last forever, and open banking will facilitate access to information for all players. Start preparing for what will come after COVID-19, whether or not you work directly with banks.</li>
</ol>
<h2><strong>Accion Venture Lab is here to help the ecosystem grow</strong></h2>
Accion Venture Lab’s mission is to support innovative companies that help the financially underserved. We are always working to grow the fintech ecosystem — even outside our portfolio. This the first in a series of blog posts and webinars we will be hosting in the coming months, made possible by support from FedEx, to help the Brazilian fintech ecosystem thrive through the COVID-19 crisis. We invite you to follow along and <a href="mailto:accionventurelab@accion.org">reach out</a> if there is any way we can support you.

Now is the time for fintechs to accelerate growth in Brazil

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

Accion’s partners have always used innovative approaches to bring financial inclusion to underserved people and businesses in emerging economies. The coronavirus pandemic has put their spirit of innovation to the test as they must find new ways to continue serving clients while protecting their wellbeing and that of their employees.

We’re sharing examples of adaption from our partners around the globe that we hope will be helpful for all organizations to keep in mind when considering client and staff safety and business continuity during a time of constant changes.
<h3>1. Ensure staff has the equipment and education to do their jobs safely.</h3>
Our partner <a href="https://www.accion.org/this-company-is-making-healthcare-more-accessible-in-emerging-markets" target="_blank" rel="noopener noreferrer">Field Intelligence</a> is a startup operating in Nigeria and Kenya that uses data-driven supply chain management software and highly efficient distribution service to help pharmacies operate more efficiently. Their pharmacy clients remained open throughout the pandemic to provide necessary services in their communities. As a preemptive measure, Field Intelligence completed a handwashing and safety campaign to encourage 150 pharmacies to use safe practices that prevent the spread of the virus. They also supplied and trained all of their delivery staff on proper personal protective equipment usage. By tapping into their existing network, they were able to quickly provide training to their staff. These steps were critical for keeping essential workers safe over the past few months. As many countries begin to reopen and ease restrictions, businesses should prioritize safety above all else and provide the training and equipment that staff and clients need.
<h3>2. Enable staff to provide customer support remotely.</h3>
<a href="http://apolloagriculture.com" target="_blank" rel="noopener noreferrer">Apollo Agriculture</a>, another startup in Kenya, partners with small-scale farmers to help them access everything they need to maximize their profitability, from financing and insurance to farming products and optimized advice. These <a href="https://www.accion.org/this-agricultural-fintech-empowers-the-farmers-who-feed-the-world" target="_blank" rel="noopener noreferrer">farmers are facing great challenges</a> during the pandemic and Apollo empowers them to be productive and sustainable. To continue providing customer support to farmers, Apollo faced a major challenge: transitioning their call center of over 150 people to remote work. Most of their call center agents did not previously have internet or a computer in their home. Despite these challenges, Apollo successfully transitioned the entire team to remote operation and equipped all staff with reliable internet in a matter of days — all during their busiest time of year and the COVID-19 crisis. As remote work may continue for some time, staff need to be fully equipped to work remotely to make these solutions sustainable in the long-term.
<h3>3. Innovate to meet customer's needs digitally.</h3>
In Bolivia, <a href="https://www.accion.org/transforming-finance-low-income-people-bolivia" target="_blank" rel="noopener noreferrer">BancoSol</a> — a regulated commercial bank dedicated to serving micro and small entrepreneurs — knew that their customers needed urgent services to stay afloat during the pandemic and that digital tools would be crucial for reaching them. BancoSol launched a pilot of a remote lending program and is also working on revamping their existing mobile application to serve more clients digitally. Additionally, tellers are encouraging clients to sign up for online banking services and begin using them to minimize face-to-face contact and continue to be able to manage their businesses and connect with customer service representatives. So far, results from BancoSol’s initiative have been encouraging — in the first ten days of their efforts, online transactions increased by five percent, and transactions have continued to rise since then.
<h3>4. Make a plan to keep your team safe and productive in the long-term.</h3>
As China has reopened its economy and more people have returned to work, conversations with our partner <a href="https://www.accion.org/giving-customers-a-reason-to-trust-digital-finance-in-china" target="_blank" rel="noopener noreferrer">Grassland Finance Limited</a> have given us a glimpse into what many of our other partners may experience in the coming weeks and months. Grassland shared with us that their staff is:
<ul>
 	<li>Practicing social distancing in the office. Staff continue to work in shifts and will do so until the situation improves.</li>
 	<li>Wearing protective masks and regularly monitoring for symptoms to ensure those coming into the office are healthy.</li>
 	<li>Avoiding in-person team activities and unnecessary travel.</li>
</ul>
For Grassland and other partners, the need to increase digital capacity to adapt to immediate challenges and to move into a new normal is a key theme. Seah Hooi Koon, Grassland’s COO, shared, “The disaster also showed again the importance of building up the digital capability of both our company and of our clients, and this will be key in our strategy going forward.”

Digital capability, adaptability, and a spirit of innovation will continue to guide companies forward as the situation evolves around the globe. At Accion, we will continue to stay in close contact with our partners to learn from them as they adapt and to provide resources to help them increase digital capabilities, keep staff safe, and continue to serve their clients.

Four examples show how businesses can stay safe and effective right now

Each morning, Laal Kumari Singh rises early to feed her herd of cows, milk them, and leads them to a pasture to graze. As the sun begins to set, she leads them back home for another feeding and milks them once more. When her regular customers arrive to purchase fresh milk – an important source of protein and nutrients — throughout the day, Laal carefully measures the milk that her cows produce, saves exactly what she needs for her family, and sells the surplus both to people in her community in Raipur, India and to larger suppliers.

There are millions of small business owners like Laal in India, each working hard to support their families and fulfill a need in their communities. When these enterprises thrive, so do the families and communities that depend on them. That’s why our partner <a href="https://www.subk.co.in/index.php" target="_blank" rel="noopener noreferrer">Sub-K</a> set out to bring financial tools to underserved businesses in India, particularly the last mile where no financial services have reached before. Sub-K uses <a href="/instead-sending-people-bank-sub-k-brings-banking-people">its large network of agents</a> to reach people in rural communities in India and connect them to banks. “It’s really critical for us to have the touchpoints on the ground to interact with these communities that probably have never had a banking relationship. So to that extent, our agents play a very important role in introducing these communities to the banking system,” explains Sub-K’s CEO Sasidhar Thumuluri.

By working with Sub-K to purchase additional cows for her herd, Laal has expanded her business dramatically. When she first started her milk business, she only owned five cows. Now, her herd of cows, calves, and buffaloes has grown to nearly 40, producing 30 to 40 liters of milk for her to sell each day. Because of Laal’s success, she’s been able to support her three kids: two sons and one daughter. She uses her increased income from the expansion of her milk business to help pay for her children’s education. She’s thinking of the future, too — she’s already invested in buying a shop in nearby Sarura to further build her family’s financial security.
<h2>Continuing to serve small businesses during the pandemic</h2>
As the coronavirus pandemic leaves its impact on communities, the entrepreneurial dream that led Laal to build a better life for her family is in danger. To help small business owners in India overcome this devastating financial shock, Sub-K is introducing emergency loans and accelerating digital solutions. Even before the crisis hit, Sub-K recognized this opportunity for driving financial inclusion. “Digital is the way to go to reach the large-scale masses and the last mile,” says Sasidhar.

Despite the clear advantage in connecting small business owners like Laal to digital services, Sasidhar also knows the great challenges this presents. Many of Sub-K's clients have never had a formal bank account before, much less access to any digital banking services. So Sub-K is used to giving clients extra support to learn about products and become comfortable with new platforms. Their agents have typically done this work hands on in local communities, but as face-to-face interactions are halted, Sub-K is offering digital payment options on their mobile phones. Only 20 – 30 percent of Sub-K's clients in rural areas currently have smartphones, but even those without online access can utilize digital services through Sub-K's call center or by reaching out to local agents. As Sub-K works to quickly expand their digital platform to address new challenges from the pandemic, they are taking a multichannel approach that will continue to meet these clients where they are. If clients are given what they need to use digital financial services, this shift could make it possible to reach even more financially excluded people in the longer term.

Sasidhar stresses the importance of rebuilding from COVID-19 in a way that brings the most vulnerable microbusinesses into the digital economy: “Let’s not go back to our old normal, and let’s not wait for the situation to get normalized and then get back to the old way of doing business. Here is an opportunity that we need to grab. Let’s develop tools. Let’s educate them. Let’s make sure we build a new normal, which to me is a [digital] ecosystem play. It is possible. Let’s get together, collaborate, and make this happen.” With the right tools and support, entrepreneurs like Laal can grow their businesses and build stability for themselves and their families. The future of these small businesses — under threat from the pandemic — depends on their ability to access the financing they need digitally. Learn more from Sasidhar by watching our recent webinar, <a href="/going-digital-an-essential-move-for-msmes-in-a-post-covid-19-world">Going digital: An essential move for MSMEs in a post COVID-19 world</a>.

Finding a new way to reach the last mile in India

Our global food supply depends on the productivity of farmers all around the world, especially the smallholder farmers who live and work in emerging markets. But the coronavirus pandemic has presented new challenges for already-vulnerable farmers and disrupted global supply chains. This crisis poses a great threat to food security for much of the world’s population.

Even before COVID-19, the 300 million smallholder farmers around the world faced a funding gap of over $167 billion. Particularly in sub-Saharan Africa, which is home to over 50 million smallholder farmers, closing this gap would significantly boost efforts to fight poverty and hunger. Our partner <a href="http://apolloagriculture.com/" target="_blank" rel="noopener noreferrer">Apollo Agriculture</a> is addressing this need with an innovative, tech-based business model that helps farmers maximize their profits with a bundle of financing, farming products, optimized advice, and insurance. Accion Venture Lab is happy to extend our support of Apollo as they continue to empower farmers in East Africa with the tools they need to build financial stability, maximize their profits, and produce food for their communities, which is even more important amid the pandemic crisis.
<h2>Why we invested in Apollo Agriculture</h2>
Around the globe, smallholder farmers are the backbone of societies as they grow and harvest essential crops that feed nearly 2 billion people, mostly people living in emerging markets. Unfortunately, these farmers face tremendous hardships from climate-related challenges, trade volatility, financial limitations, and now, a global pandemic. Most smallholder farmers do not have access to credit and or the technical expertise needed to optimize their harvests. Their crop yields are also hindered by a lack of access to quality inputs, like seeds and fertilizers, and a need for appropriate agronomic advice.

<img class="wp-image-21198 alignleft" src="https://content.accion.org/wp-content/uploads/2020/05/apollo2.jpg" alt="" width="446" height="298" />In 2016, we supported Apollo Agriculture in their pre-seed round to help address the impediments smallholder farmers face, and we are excited to have the opportunity to support them again in a follow-on investment in their Series A. At its core, Apollo Agriculture is a tech-enabled financing solution for smallholder farmers in East Africa that allows them to <a href="https://www.accion.org/seeds-fertilizer-mobile-money-kenyan-farmers-get-the-supplies-they-need" target="_blank" rel="noopener noreferrer">acquire the agricultural inputs they need</a>. Their model combines input financing with sophisticated analytics, remote sensing, agronomic machine learning, and mobile money. Farmers can purchase high-quality farming inputs, such as hybrid seeds and fertilizer, on credit with flexible repayment terms and post-harvest due dates. The offering also includes customer-centric, voice-based trainings developed by the Apollo team to help farmers learn best practices for tasks like planting and combating pests and to develop financial literacy.

Accion Venture Lab is excited to continue supporting Apollo Agriculture as they grow and scale their business. We are most excited by Apollo’s:
<h4><strong>Ability to address a core financing need for a large, underserved segment</strong></h4>
Apollo Agriculture addresses one of the fundamental challenges of improving farmer livelihoods in Africa by financing the comprehensive toolkit of inputs, agronomic training, and planting tools that underserved smallholder farmers need to increase crop yields. Apollo is working with smallholder farmers in Africa who are growing vital staple crops, such as maize, tomatoes, sorghum, potatoes, and beans. The farmers in this segment cover a range of economic levels, including those who are truly the poorest of the poor to those who own small, commercial farms. Apollo’s model is flexible enough to work with all socioeconomic levels of smallholder farmers.
<h4><strong>Innovative business model</strong></h4>
At the time of our seed investment, we felt that Apollo was <a href="https://www.accion.org/fintech-startup-revolutionizing-kenyan-agriculture" target="_blank" rel="noopener noreferrer">the most innovative company in agricultural finance</a> and were excited to support a financing model focused on smallholder farmers. Nearly three years later, Apollo continues to focus on innovation by using cutting-edge tools like satellite imagery and remote sensing — technology used in developed markets for decades — to benefit smallholder farmers in Africa. Rather than inventing a new and unproven solution, Apollo is leveraging existing technology to provide a tried and tested set of solutions.

Since the pandemic began, Apollo has seen an increased need for its products, even while business conditions rapidly became more challenging due to significant mobility restrictions, a curfew, and a rapid transition to remote work. Their tech-enabled business model has allowed them to continue providing customers with high-quality farm products and financing throughout the pandemic. We believe that Apollo’s model could be the key to unlocking significant improvements in the livelihoods of farmers around the world, a critical need as the world grapples with a potential food crisis caused by the turmoil of the COVID-19 pandemic.
<h4><strong>Strong value proposition</strong></h4>
Beyond simply distributing agricultural inputs, Apollo’s integrated solution combines the financing and <a href="https://www.accion.org/learning-new-skills-helped-this-longtime-farmer-thrive" target="_blank" rel="noopener noreferrer">training that are necessary for farmers to use them effectively</a>. This approach allows farmers to increase their crop yields, leading to greater financial security, better livelihoods for farmers and their families, and a reliable food supply for the world. Farmers can select high-quality inputs purchased on credit, allowing them to reserve their money for other needs. Eventually, Apollo’s vision is to leverage its technology to provide customized inputs to farmers based on their specific geographical, weather, and land characteristics. These personalized farming techniques will also help to limit erosion and improve soil quality, further boosting productivity and sustainability.
<h4><strong>Ability to de-risk credit access to smallholder farmers</strong></h4>
Apollo will continue to serve a huge population of unbanked farmers who, prior to using their model, were too high-risk or inaccessible to receive the capital and resources they need to succeed. The team has proven that smallholder farmers, with the right tools and knowledge, can afford to pay back loans and continue to use their services. Apollo continues to have a high loan payback and customer repeat rate. Apollo’s offering has been strong enough to encourage farmers to re-engage even after experiencing disappointing crop prices or environmental challenges the previous season, and even during this unprecedented pandemic. As farmers are facing immense difficulties during the coronavirus pandemic, the ability to access capital will be critical for them to recover financially while continuing to produce the food that so many depend on.

It has been a great journey to see Apollo Agriculture grow, and we believe that this series A will propel them to empower so many more smallholder farmers — not only in Kenya, but across Africa. As Apollo continues to grow and scale, they can provide the critical financing farmers need to achieve their greatest potential and continue feeding the world.

This agricultural fintech empowers the farmers who feed the world

<span style="font-weight: 400;">Smallholder farmers in Kenya — like smallholder farmers everywhere — work very hard, and live precariously, always facing challenges from drought to floods to commodity market fluctuations. Margaret Auma Oyoko, who grows maize and raises cows, when asked to describe her day says simply, “When I wake up, I pray to God to help me in my activities like farming, feeding the cows, and other household duties.”</span>

&nbsp;

[caption id="attachment_20230" align="alignleft" width="500"]<img class=" wp-image-20230" src="https://content.accion.org/wp-content/uploads/2019/12/Kenya_Nakuru_0030-2-1024x684.jpg" alt="Alfred in maize field" width="500" height="334" /> <em>Alfred appreciates how healthy his crops are with Apollo’s fertilizer.</em>[/caption]

<span style="font-weight: 400;"><a href="https://apolloagriculture.com/">Apollo Agriculture</a>, an Accion Venture Lab portfolio company, was founded to help farmers like Margaret thrive in the face of their many challenges. When farmers become Apollo clients, they receive not only high-quality seeds and fertilizer but also advice to help them farm more effectively. </span>

<span style="font-weight: 400;">Alfred first heard about Apollo from a friend who is also a farmer. He reports that he and several neighbors have all had positive experiences with Apollo so far. “Their fertilizer is very </span><span style="font-weight: 400;">rich, which meant my crop yield was very high. After harvesting and selling my maize, I was able to pay the school fees,” he says, adding, “I’ve also learned so much more about </span><span style="font-weight: 400;">agriculture. They teach us a lot and show us how to do farm work.”</span>

[caption id="attachment_20232" align="alignright" width="500"]<img class=" wp-image-20232" src="https://content.accion.org/wp-content/uploads/2019/12/Nakuru_0023-1024x684.jpg" alt="Susan shows an Apollo agent her produce." width="500" height="334" /> <em>Susan shows an Apollo agent her produce.</em>[/caption]

<span style="font-weight: 400;">Susan Wangui Wanjiru also learned about Apollo through a friend, and while like Alfred, she appreciates the quality of its products, she is especially impressed by its tech-enabled systems. She first signed up as a customer via text message and then an agent came to her property and assessed her farm. Says Susan, “The beauty of it is that Apollo does not give out cash to anyone, not even the agents. You send </span><span style="font-weight: 400;">it</span><span style="font-weight: 400;"> directly to them [using M-Pesa]. You then get your balance as a text message.” For a busy farmer and mother, the convenience is invaluable.</span>

<span style="font-weight: 400;">Summing up his Apollo experience, Alfred says, “Before, I struggled to get farm inputs. The next problem was finances, as you have to buy everything with cash. It was also difficult to find people who could teach you something new. But now it’s better with Apollo.”</span>

Seeds, fertilizer, mobile money: Kenyan farmers get the supplies they need

<span style="font-weight: 400;">Rose Kilonzo comes from a long line of farmers in Kitui County, Kenya. “I love it because when you farm, you won’t go hungry,” says Rose. She has always valued being able to provide for her family through the crops she grows, both by putting food on the table and by selling the surplus to earn money for school fees and clothes for her five kids. Plus, she enjoys the autonomy of being her own boss. But Rose knows that a good harvest is never a certainty. She compares farming to playing a game of cards — the outcome is never guaranteed. A season of scarce rains can destroy her fields and leave Rose and her family with no food or source of income. </span>

<span style="font-weight: 400;">When Rose heard about Accion Venture Lab portfolio company </span><a href="https://www.pula-advisors.com/"><span style="font-weight: 400;">Pula</span></a><span style="font-weight: 400;">, she was excited to learn more about how their innovative insurance and agriculture advisory services could benefit her. Pula provides agricultural insurance for traditionally excluded small-holder farmers by leveraging cutting-edge technology and an extensive network of partners, including the </span><a href="https://www1.wfp.org/r4-rural-resilience-initiative"><span style="font-weight: 400;">World Food Program’s R4 Rural Resilience Initiative</span></a><span style="font-weight: 400;">. In addition to insurance, Pula provides data-driven insights and advice to help farmers like Rose gain higher yields on their crops in sustainable ways. </span>

<span style="font-weight: 400;">Rose now has confidence that she can provide for her family no matter the circumstances. “When you plant, you have faith it will be taken care of should your crop fail,” she says. Rose has become an advocate of insurance for farming and shares her experience with other local farmers. With a more secure income, she’s looking forward to expanding into commercial agriculture and teaching her children and grandchildren the trade. </span>

For Rose in Kenya, crop insurance is a game-changer

<a href="https://apolloagriculture.com/"><span style="font-weight: 400;">Apollo Agriculture</span></a><span style="font-weight: 400;">, 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.</span>

<span style="font-weight: 400;">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.</span>

<span style="font-weight: 400;"><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.”</span>

<span style="font-weight: 400;">Other Apollo staffers focus more on the technical systems, like Nairobi-based operations designer Javan, 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.</span>

<span style="font-weight: 400;">Says Javan, “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.”</span>

Out in the field with the farmers

<span style="font-weight: 400;">“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 </span><a href="https://globalfindex.worldbank.org/"><span style="font-weight: 400;">91 percent of the population</span></a><span style="font-weight: 400;"> using mobile money. </span>

<span style="font-weight: 400;">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.”</span>

<span style="font-weight: 400;">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. </span>

<span style="font-weight: 400;">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.” </span>

<span style="font-weight: 400;">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. </span>

Driving resilience for farmers through tech and human interaction

<span style="font-weight: 400;">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.”</span>

<span style="font-weight: 400;">That all changed when he signed up with </span><a href="https://apolloagriculture.com/"><span style="font-weight: 400;">Apollo Agriculture</span></a><span style="font-weight: 400;">, 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. </span>

<span style="font-weight: 400;"><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. </span>

<span style="font-weight: 400;">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.”</span>