business partnerships baseline report

February2017

LastmilepartnershipsforsmallholderfinanceEarlyfindingsfromastudyoffourvaluechain/technologyFRPwinnerslookingtopartnerwithfinancialinstitutions

Baselinereport

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Executivesummary(1/4)

KeyQuestion1:Howcanlastmilepartnershipsimprovetheviabilityandscalabilityoffinancialserviceprovision?

Ø Financialinstitutions(FIs)demonstrateinterestinenteringpartnershipswhenapproachedbyagribusinessesortechnologyproviderswhooffersolutionsthat:

- Sharecost:GrowingmarketshareandthecustomerbasewashighlightedasaprioritybymostFIsinterviewed.LastmilefirmscanprovidevaluetoFIsthroughtheiron-groundteams/infrastructure,connectionwithfarmersanduseofinnovativetechnologies.ThiscansignificantlyimproveFIcostsfor:customeracquisition,distributionofproducts,productdevelopmentandfinancialliteracytrainingforfarmers

- Reducerisk:FIshavehistoricallyavoidedlendingtosmallholdersduetoalackofknowledgeonagricultureandinsufficientinformationonfarmeractivities.Agribusinesses,throughaggregatingoffarmers,theiroff-takingactivitiesandpotentialtosharelossintheeventoffarmerdefaultcansignificantlyreduceFIrisk

- Providealternativedata:Lastmilefirmscollectmultiplestreamsofdatathatcanbeusedforcreditscoring,insuranceassessmentsandcustomerunderstanding.ThiscanhelpFIsreduceproductdevelopmentcosts,increasecustomerbase,reduceriskoflendingandgaininsightonproductsfarmersuse.Todate,buildingtrustindataremainsachallenge

Contextandobjectives:Adeepdivestudyonprogressivepartnershipsthatimprovethebusinessmodelsustainabilityofsmallholderfinance

Ø DalbergwascommissionedbytheRAFLearningLabtoassessthemotivation,process,businessdynamicsandresultsforfarmersfrompartnershipsbetweenlastmilefirms(agribusinessesandag-focusedtechnologyproviders)andfinancialinstitutionsoveraperiodof18months.Thisreportpresentsbaselinestudyfindings.

Ø Thestudyisbasedoninterviews,fieldvisitsandotherdatafromfourFRPinnovationcompetitionwinners:Prepeez,Kifiya,EmpresadeComercializaçãoAgricola (ECA)and Biopartenaire.Stakeholders interviewed also included their potential partnersand sectorexperts.

1Throughoutthisreportwewilluse“lastmilefirms”toreferto:(1)businessesworkingdirectlywithfarmerssuchasextensionprovidersandoff-takersand,(2)Technologyproviderswhohavedevelopedplatformsthatreachsmallholderfarmersasaspecifictargetmarket

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Keyquestion2:Whataretheimpedimentstopartnershipdevelopment?

Ø Lastmilefirmsexperiencesignificantchallengewhensearchingforandleadingpartnershipdiscussion,namely:

- FIsdon’tunderstandagricultureandthereforeremainreluctanttogointopartnership.LastmilefirmsmustspendextensivetimeconvincingmultiplestakeholderswithinFIsofthevalueproposition

- Thecommercialbenefitofpartnershipsisnotreadilyapparent.Alackofhistoricalprecedentorevidenceofpartnershipsinagricultureimpededevelopment.Alackofprecedentalsocreatesdifficultieswhennegotiatingtheoperationalmodel,costandrevenuesharingarrangements

- Financialinstitutionsdon’ttrustthedatathatlastmilefirmsprovide.FIsareriskaverseandthereforereluctanttousealternatedataprovidedbyagribusinessesorag-focusedtechnologyproviderswithoutsignificantverificationofitsintegrityandquality

Keyquestion1continued…Ø AgribusinessesandtechnologyprovidersdemonstrateinterestinpartneringwithFIswheretheycanlowerthecostofcapital

forfarmersandimprovethemonetizationofthesystemsthatthelastmilefirmshavedeveloped

Ø BothlastmilefirmsandFIsbelievethattheaboveelementsimprovetheviabilityofprovidingfinancialproductsandservicestosmallholderfarmers.Todate,however,thepartnershipsinplaceremainintheirinfancy,meaningtangibleresultsandevidenceofimprovedviabilityforbothbusinessesandfarmersisstillforthcoming

Ø NoevidenceordiscussionofimprovedscalabilitywasgivenduringtheBaselineassessment.Allpartnershipsremaininpilotingand/orproofofconceptstage.Itisexpectedthatevidenceofpartnershipbenefitsforscalingwillnotoccuruntilviabilityofpartnershipsareproven

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AreasthatshouldbetestedthroughtheMid-pointcheck-inandEndline Evaluation

Ø ThisbaselinereporthasfocusedontheactivitiesthatbothlastmilefirmsandFIshavebeenundertakingtoset-uppartnershipsandwhybothpartiesbelievepartnershipswillbevaluable.Themid-pointcheck-inandendline evaluation(proposedforAugust2017andearly2018respectively),shouldfocuson:

- Understandingwheretherehasbeenprogressonpartnershipnegotiationsanddevelopment

- Whetherbeliefsonthebenefitsofpartnershipstillholds

- Whattheresultshavebeen,ifany,frompartnershipsforbusinessesandsmallholderfarmers

Keyquestion3:WhatenablespartnershipdevelopmentandwhatshouldlastmilefirmslookforwhenseekingFIpartners?

Ø IninterviewinglastmilefirmsandFIs,commonenablerswereevidencedsupportingpartnershipformation:

- FIswithstatedgoalsorstrategiesinagricultureortheBaseofPyramid(BoP)aremorelikelytobeinterestedinpartnerships.TheseFIsoftenhavelittleinternalcapabilityorknowledgeonhowtoreachstatedgoals

- PartnershipteamswithinFIsimprovethechancesofpartnershipformation.Partnershipteamsaregenerallymoreopentoinnovativeapproachesandhaveexperiencethatcanexpeditepartnershipnegotiations

- Existingrelationshipsareimportant.Trustiscrucialtopartnershipformation,existingrelationshipsimprovetrust

- Shorttermguaranteestosupportpiloting,testingofalternatedataandtrustbuildingcanhelp.Underwritingriskintheshorttermincreaseswillingnesstoadoptinnovativeapproachesduringtheearlystagesofpartnership

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ExecutiveSummary(4/4)

Thestructureofthisreport

Ø ThisBaselineReportissetoutintofivesections:

- Section1:Context,Objectives,andMethodologyincludingpurposeandcontextofthisReport

- Section2:Detailsonstudyparticipantsincludingthepartnershipmodelsthey’repursuingandtheactivitiesofboththelastmilefirmsandFIsondevelopingpartnerships

- Section3:Detailsonhowpartnershipsareimprovingtheviabilityoffinancialserviceprovision,theassociatedchallengesandenablingfactors

- Section4:Lessonslearnedincludingongoingchallengestopartnershipdevelopmentandenablingfactors

- Section5:Annex,includinganoutlineofpartnershipresultssofar,briefdetailsofcomplimentarystudiesbeingundertakenbyotherMastercardfundedorganizations

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Context,objectivesandmethodology

Detailsonpartnershipsandstudyparticipants

Detailsonhowpartnershipsareimprovingtheviabilityandscalabilityoffinancialserviceprovision

Lessons:challengesandenablingfactors

Annex1:ResultsfrompartnershipstodateAnnex2:OtherstudiesandactivitiesfocusedonpartnershipsAnnex3:PreliminaryguideforlastmilefirmslookingtobuildpartnershipswithFIs

Contents

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Contextandobjectivesofthestudy

• Thescaleofthesmallholderfarmerneedforfinancingishuge,estimatedatapproximately$30bninSSA

• Therecentlyreleasedreport– InflectionPoint- proposedprogressivepartnershipsasakeytoaddressingbusinessmodelsustainabilitychallengesintheindustry.Buildingonthis,Dalberg,withtheRuralandAgricultureFinanceLearningLab,isstudyingtheimportanceofpartnershipsforfinancialprovision

• This deepdivestudyfocusesonleveragingtheparticipationoftheFundforRuralProsperity(FRP)grantwinnerstogenerateinsightfulanswersforthebroaderruralandagriculturalfinancecommunityoninnovativeapproachestoovercomebarrierstotheprovisionoffinance,specificallyfocusedonthequestionof:

• Thisquestionwillbeansweredthroughanengagementthatspansacross18monthswiththreemajorpointsofactivity:baseline,midpointandendpointdatacollections.Datacollectionwillfocusonreviewingthemotivation,process,businessdynamicsandresultspartnershipformation

• TheFRPwinnersinvolvedinthestudyinclude:Prepeez,Kifiya,EmpresadeComercializaçãoAgricola(ECA)andBiopartenaire

Theobjectivesofthisreport areto:

• Detail thepartnershipsinvestigated,includingtheprocess,methods andmotivationsofboththelastmilefirmsandfinancialservicesinstitutionsforformingpartnerships

• Outlinethebenefitsfrompartnerships,theenablingfactorsthatsupportcreationandthecommonchallenges• Outlinetheresultsand/orimpactsseentodatefrompartnershipformation

Context

Objectiv

es

Inwhatways– ifatall– dobusinesspartnershipsdrivenbytechnologyprovidersorinnovativeagribusinesses(“lastmilefirms,”distinctfrommodelsledbyfinancialinstitutions)improvethe

viabilityandpotentialscalabilityoffinancialserviceprovisiontoruralcustomers?

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Mid-pointcheck-in Endline evaluation2 3

Thedeepdivewillbecompletedover3stages- thisreportdetailsthefindingsfromthepre-visitandbaselineevaluation

Pre-visitpreparation Baselineevaluation

• ReviewavailabledocumentationonFRPwinners

• PrepareinterviewguidesforFRPwinnersandtheirpartners

• ConductmeetingsviaphonewithFRPwinners togaugestateofpartnerships

• Scheduleinitialfieldvisits withFRPwinnersandtheirpartners

• Conductfieldvisits(meetings)withFRPwinnersandtheirpartners

• FinalizebaselineDeepDivereportaftermeetings

• SharefinalizedbaselineDeepDivereport withLearningLabteam

• ModifyFRPwinnerinterviewguide

• HoldcallswithFRPwinnerstodetermineprogress/anymajorchangesinpartnerships

• DevelopshortMidlinereportoutlininganymajorchangesseensinceBaselinestudy

• HoldcallswithFRPwinnerstoprepareforendline fieldvisits

• Modifyallinterviewguidesasneeded

• ConductfieldvisitswithFRPwinnersandtheirpartners

• DevelopendlineDeepDivereportthatfocusesonpartnershipresultswithLearningLabteam

Step

sTools • Pre-visitinterview

guide• FRPwinnerinterviewguide

• FRPwinnerinterviewguide

• FIinterviewguide• Beneficiariesinterviewguide

• FRPwinnerinterviewguide

• FIinterviewguide• Beneficiariesinterviewguide

1a 1b

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ThestudywasconductedthroughinterviewswithFRPwinners,theirpartnersandexperts,inadditiontoreviewofexistingstudiesonpartnerships

Documentreview andpreparation Interviews

Seeannex ofthisreportforfurtherdetailsontheactivitiesundertakentocompletethisBaselinereport,inadditiontorecommendationsforactivitiesfortheMidlineandEndline studies

ReviewpastdocumentationonFRPgrantwinners

Reviewreportsandcurrentstudiesonpartnershipformation

Developinterviewguides

Pre-interviewonphonewithFRPwinnersonpartnershipactivities

On-the-groundinterviewandoperationaltourswithFRPwinners

Phoneandon-the-groundInterviewswithFIs

On-the-groundinterviewswithfarmergroups

Interviewswithotherexpertsandinterestedstakeholders

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x3

x10

x4

x5

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Contents

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Severalpartnershipmodelsexisttopromoteruralandagriculturalfinance;thisstudyfocusesonpartnershipsbetweenFIsandlastmilefirms

*Notethatthethreemodelshighlightthecoreorminimumpairorpartnersthatconstituteaparticulartypeofbusinesspartnership.Thepartnershipsofteninvolvemorethanthesecorepairs.

FI+technicalassistance(orextension)provider

Partnerroles• FIprovidesliquidityandloanorigination• Technicalassistanceprovidesproductionriskmitigationandsectorknowledge• TAprovideroftenfundedbydonorsorpublicsector

• Productionrisk• Lackofagriculturalsectorknowledge• Highcosttoservee.g.duetocustomeracquisitionanddatacollectioncosts

• FIprovidesliquidityandloanorigination• Lastmilefirmsprovideavarietyofservicesdependingonlocationinthevaluechain.Theyhavestronglinkstofarmersandknowledgeoftheagriculturesector

• Highcapitalcostofservingruralclients(duetoe.g.sparsepopulation,costofdatacollectionetc.)

• FIprovidesliquidityandloanorigination• MobileNetworkOperatorprovidesalowcostcommunication,moneytransferanddatacollectioninfrastructure

FI+Lastmilefirms(agribusinesses,agtech

providers)

FI+MobileNetworkOperator

Challengesaddressed

Partnershipsprovidetheopportunitytoleveragekeystrengthsofpartneringentitiestoincreasebusinessmodelsustainabilityandincreasereachofsmallholderfinance.Intheagriculturalandsmallholderfinancespace,multiplepartnershipmodels*emerge,asoutlinedinthefigurebelow:

• Productionrisk• Lackofagriculturalsectorknowledge

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Fourlastmilefirmswerethefocusofthestudy- theyoperatedifferingbusinessmodelsacrossmultiplevaluechainsandcountriesinAfrica

Source:Dalberginterviewsandanalysis

Who Where What

Biopartenaire(subsidiaryofBarry Callebaut)isacocoaoff-takerwhoalsoprovidesfarmerswithinputsandcollectspaymentafterharvest.Biopartenaireislookingtopartnerin apre-financingschemeforqualityagriculturalinputs.

EmpresadeComercializaçãoAgricola(ECA) isanoff-takerofmaizeworkinginMozambique.TheyhavebeenattemptingtobuildapartnershipwithVodacomtofacilitatemobilemoneytransactions.Theyalsoprovideon-lending.

Prep-eez,runsan informationdeliveryandcommunicationplatform.Theplatform:(1)Providesinformationandextensionsupport;(2) Collatesdataonfarmers, and(3)ProvidesanavenueforFIstoconnectwithfarmersandlenddirectly.Prep-eez alsoprovideson-farmservicesandisanofftaker.

Kifiyahasdevelopedatransactionplatformandispartneringwithfarmercooperatives,insurancecompaniesandmicro-financeinstitutionstoprovidemobilepaymentsolutionstofarmers. Kifiya hasalsodevelopedamicro-insuranceproductforfarmers thatitisworkingwithinsurancecompaniestodeliver.

ECA

*

*Kifiyaisbestdescribedasatechnologyproviderratherthananagribusiness.Forthepurposeofthisstudy,wehavefocusedKifiya’s agri-focusedactivities

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ThelastmilefirmsstudiedundertakearangeofactivitiesthatcansupporttheprovisionofruralandagriculturalfinancebyFIs

Customeracquisitionanddistributionchannelsarethemainvalue-addthelastmilefirmsinourstudyprovide– atleastasreflectedbythedemand

fromthefinancialinstitutionsinterviewed

*FinancialproductdesignincludesadvisingFIson(i)howandwhenaproductshouldbedelivered,(ii)whatproductsareneededand(iii)developingproducts,includingprovisionoftechnicalexpertise

Customeracquisition

Distributionchannelforproducts

Dataoncustomers

Assesscredit

worthinessoffarmers

On-lendingtofarmers

Financialproductdesign*

Technicalassistanceandfarmertraining

Biopartenaire

ECA

Prepeez

Kifiya

Key: None Medium High

Areaswherelastmilefirmsprovidevaluetofinancialinstitutionsthroughpartnership

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Afourslideloopispresentedoneachlastmilefirm,outliningpartnershipdetailsandactivitiestheyarepursuing

Theslideloopoutlinesthedetailsofeachofthelastmilefirmsandtheirpartnerswhoparticipatedinthestudy,andthepartnershipfeatures,motivationsandactivities

Slide1:Firmdetailsandpartnershipmodel

Slide2:Detailsofpartnershipapproachbyfirm,pluscountrycontextandpotentialimpactonfarmers

Slide4: AreasandquestionsforreviewinMid-pointandEndline studies

Slide3: FIpartnerdetails,includingdetailsofinterestandpartnershipactivitieswithlastmilefirm

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BiopartenaireisaCôteD’IvoirebasedsubsidiaryofBarryCallebaut,aB2Bchocolateandcocoasupplierandmanufacturer

Org. Type: Agribusiness

Keycontact: ProjectManager:AndresTschannen

Location: Côted’Ivoire

Businessdetails:

Biopartenaireisaspecializedvillage-to-portcocoabeansupplier.Thefirm:1) Providesfarmerswithqualityinputsforcocoa

productionandcollectspaymentatharvesttimebytakingdeliveryofthecocoa

2) Deliverson-the-groundextensionsupport - suchascocoatreepruning,agribusinessandfinancialliteracytraining

3) Providespre-financingforinputstonon-coopfarmersfromitsbalancesheet

4) PartnerswithAdvans(MFI)tosupportfarmersavings,whichBiopartenaireusesascollateral

BarryCallebauthasbeeninpartnershipwithAdvansforthreeyears,and aimstoconvinceFIstolenddirectlytofarmers

Biopartenaire currentpartnershipmodelforsavingproduct

Savings

Advansprovidesfarmerswithasavingsproductandamobilechannelfordeposits

Farmergroups- eachfarmergrouphasavillagecoordinatorwhoactsasadistributionpointforinputs

BiopartenaireprovidesAdvanswithacustomerbasefortheirsavingsproduct

Biopartenairesustainabilitydepartment

Biopartenaireprovidescredit,usingthesavingsascollateral

Source:Biopartenairedocumentation,fieldvisitwithBiopartenaireteam,interviewswithcurrentandpotentialBiopartenairepartners,Dalberganalysis

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BiopartenairehassuccessfullybrokeredapartnershipwithAdvans,andislookingconvincetheMFItolenddirectlytofarmers


Motivationforpartnership Processonapproaching FIs andvalueproposed

Businessandorganization dynamicsofpartnership

• Removelending fromtheirbalancesheetandeventuallyhanditovertoMFIs(promotedirectlendingtofarmers)

• Financefarmersoutsidecoopswhoareexcludedfromformalfinance

• LeverageAdvans’branchlessbankingsystem toprovidefarmerswithfinance

• ApproachedFIswithafinanceproductwhichtheycouldimplement(easedburdenofdevelopingafarmer-tailoredproduct)

• Leveragedthebrand(andsize)ofBarryCallebauttogaintractionwithpotentialpartners

• FocusedonapproachingMFIsratherthanbanks;MFIsaremoreflexibleonthetypesofcollateraltheyuse,whilebanksarereluctanttoworkwithfarmers

• Partnerships withFIsarehandledwithinBiopartenaire’ssustainabilitydepartment

• Developedananopen-endedMoUwithAdvans,whichallowsforflexibilityinimplementationinordertodrawlearningsfromthepilotphase

• BiopartenairecommunicatesdirectlywiththeDirectorofAdvansinadditiontoaProjectManagerintheCocoaDepartmentatAdvans

DetailsofBiopartenairepartnershipactivitiesandnegotiations:

• ThecocoavaluechaininIvoryCoastiswellstructuredandinvolvesalargenumberofthecountry’sruralpopulation.ThishasdrawntheinterestofMFIs,andcreatestheopportunitytopromotepartnerships

• Whilethegovernmenthasworkedtopromotefinanceforfarmers,muchofthetaskhasfallenonoff-takers.Moreover,fewfarmershavetitledeedsandcanthereforenotusetheirlandascollateral,creatinganeedtopromotepartnerships

Howcountrycontextisimpactingpartnershipdevelopment

Potentialimpactonfarmers• Mostfarmershavenoaccesstoformalfinancialservices,anduseexpensiveloansharks.Biopartenaire’smodel

ensuresthatthefinancegoestowardsinputprovision,thereforeincreasingyieldandincome.Itisalsomoreaffordablethatinformalfinance,reducingexploitationoffarmers

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AdvanspartneredwithBiopartenairetoincreaseitscustomerbase,andexpectsprovisionofcredittooccurthroughBiopartenaire


DetailsofBiopartenaire’spartnershipwithAdvans:

• [Motivation/roleofpartner]BiopartenaireactsasanacquisitionchannelandprovidespreselectionoffarmersthroughKYCinformationcollectedbyon-groundteams.Advanshaslittlevisibilityintothefarmerse.g.onproduction,incomeandexpenditure.

• [Additionalvaluepropositions]Biopartenairereducesriskbyrequiringfarmerstosave20%oftheloanamountbeforereceivingcredit.Biopartenairealsohasa50%-50%risksharingagreementwiththeIFCtocovertheremaining80%oftheloan,thiswaskeytobringingAdvansonboard.BiopartenairewouldlikeAdvanstolenddirectlytofarmers– negotiationisongoing

• [Organizationaldynamics]ThepartnershipwasformedthroughdiscussionswiththeDirectorofAdvans,andismanagedbyAdvans’ProjectManagerforpartnershipsincocoadepartment.Theyhaveanopen-endedMOU,andbothdescribethepartnershipasbeinginan“experimentalphase”withtheaimofdeterminingwhatworksbestbeforescalingup.BiopartenaireworkscloselywithAdvans,e.g.theyhaveorganizedco-trainingsessionswithAdvansfortheirstaffandcooperatives

Overview:Advanshasenteredthecocoavaluechainduetoitspotentialforimpact.TheirinterestinBiopartenairecomesfromi)afocusonenlargingthecustomerbase,ii)thedesiretoincreasetheloanportfoliointhemidterm,andiii)strongsynergiesduetoBiopartenaire's involvementinsomeofAdvans’processes(Advanshasseenincreasedproductivity)

Details

Currentpartner

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TheMidlineandEndlinestudyshouldfocusonassessingtheoperationalmodelsbetweenBiopartenaireandpartneringFIs


AtthetimeoftheBaselinevisit,BiopartenairewaslookingtoconvinceAdvanstolenddirectlytofarmers. Assuch,theMidlineandEndlinestudiesshouldfocusonthefollowing:

Ø AreanyofBiopartenaire’spartnerslendingdirectlytofarmers?Whatinfluencedmaintenanceorachangeinthepartyholdingthelendingportfolioontheirbalancesheet?

Ø Whatwerethekeysuccessfactorsforgettinganynewpartnershipsinplace,ifthishasoccurred?

Ø Ifnewlysoughtpartnershipagreementshavenotbeenachieved,whathavebeenthemajorimpediments,challengesandstickingpoints?

Ø Whathasbeentheresultofthepartnerships?Howmanyfarmershaveusedtheservicesonofferandwhathasbeenthevolume– bothnumberandsize- oflending/insuranceproducts?

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Empresa deComercializacao Agricola(ECA)isanagro-processingcompanythatworkscloselywithMozambicanmaizefarmers

*CDMisasubsidiaryofSABMillerSource:ECAdocumentation,interviewswithcurrentECApartners,Dalberganalysis

Org. Type: Agribusiness

Keycontacts: ManagingDirector:Grant TaylorAdministrationandFinanceManager:AlisonTaylor

Location: Mozambique

Businessdetails:

ECAisanagribusinessthat:1) Buysmaizefromfarmers,andprocessesand

sellsittobothlocalandinternationaloff-takerslike CargillandCDM*

2) Providesinputfinancingtofarmers;ECAdistributeandcollectthemoney,whichtheydeductfromtheharvesttopaytheinputfinanceloan

ECA receivesafinancingfacility(loan)fromBancoTerraMoçambique (BTM)thatthey usetofinanceinputsupplyfor itsfarmers.In2016ECAenteredintoanagreementwithCDMtopre-financethecrops

ECAlookingtopartnerwithVodafonetoimplementmobilepaymentsolutionforitsfarmerstoimproveoperationalefficiencyandreducecosts;alsolookingatBancoOportunidade

InitiallyenvisionedECApartnershipmodel

Loanfacility Mobilemoney

Farmers

ECAdeductsinputloanpaymentsafterharvest,andpaysfarmers(currentlypaycashbutworkingtowardsmobilepayments)

AnnualloantoECA

ECA

ECA

ECAbuysanddistributesinputstofarmers

Off-takerpurchases

(undernegotiation)MobilepaymentssolutionforECAfarmers

PurchasemaizefromECA

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ECAhasfacedchallengesinsecuringpartnerships,largelyduetotheoperatingenvironmentinMozambique

Source:ECAdocumentation,interviewswithcurrentECApartners,Dalberganalysis



• Tosupportimprovedworkingcapitalmanagementbyhavingbanksoroff-takerspre-finance inputsforfarmers

• Toprovideanefficientmobilepaymentssolutionforfarmersthatlowerstransactioncostsandimprovessecurity

• Promotebusinesstoabroadrangeofbanksandoff-takersthroughin-personmeetingsandexistingrelationships

• Utilizesupportfromexternalplatformsanddonors- e.g.AgDevCo,GrowAfrica-todevelopconnectionsand supportpartnership formation

• AgreementwithBTMisastandardcontractwiththeagribusinessunit.It’ssupportedbyaguaranteeprovidedfromRabo Foundation

• Pre-financingagreementwithCDMwassignedin2016andthiscoverstheannualcontractofproductrequiredbyCDM

DetailsofECApartnershipnegotiations:

• Mozambiqueisexperiencingpoliticalturmoil;conflictintheregionECAoperateshasdisplaced1000farmerswhowereworkingwithECAandledtoCargillpullingoutofanagreementtopre-financeinputs

• ThepoorcommunicationinfrastructureandweakmobilemoneyecosystemhasmadeVodafonereluctanttoenterintopartnershipwithECA,astheywouldhavetotakeupthecostofsettinguptheinfrastructurethemselves

• Therehasbeenmajorexchangeratedepreciationandthecentralbankhasextremelylimitedliquidity.Thishasdrivenupinterestrates,increasedcommercialbankcapitalrequirementsandreducedtheamountavailableforlending

• Alllandbelongstothegovernment;farmersdonotownlandandthereforehavenocollateral.ThismakesitdifficulttostructureapartnershipwhereFIswilllenddirectlytofarmers


Potentialimpactonfarmers• ContinuedsupportfromBTMandCDMwouldallowECAtocontinuepre-financingagriculturalinputs,thereby

increasingfarmeryieldandincome

• SuccessfulpartnershipwithVodafonewouldreducetheriskoffarmerscarryingcasharoundduringtheharvestseason,particularlyinthewakeofpoliticalturmoil

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Duetotheoperationalrisksandinvestmentrequired,ECA’spartnersrequireassurancesofareturnoninvestmentinordertoconsiderpartnership

Source:Biopartenaire documentation,fieldvisitwithBiopartenaire team,interviewswithcurrentandpotentialBiopartenaire partners,Dalberganalysis

ECA’scurrentandpotentialpartnersandthedetailsoftheirinterest:

• [Motivation]BTMdoesnothaveinterestinincreasingactivitieswithECAatthismoment,theydo,however,highlightthatthestrengthanduniquevalueofECAcomesthroughthestrongrelationshipandtrusttheyhavebuiltwithfarmers

• [Process– maintainrelationship] BTMhasalongrelationshipwithECAbutwillnotdealdirectlywithfarmersasitistoorisky.Theyadvisethatit’sdifficulttogenerateprofitinagriculture,whichheightensreluctancetoworkdirectlywithfarmers

• [Businessdynamics]ThebankprovidesECAwithanoverdraftfacility;ECAbuysinputs,distributethemandcollectthemoney,whichtheydeductfromtheharvesttopaytheinputfinanceloan.Rabo Foundationgivesa90%guaranteeontheexposureontheloan.BTMfinancesECAandotheragribusinessesbecausethereareguaranteesinplacetoprotectthebank

• [Motivation]VodacomisinterestedinsupportingfarmersandincreasingtransactionvolumesofmobilemoneyinMozambique.Theywillbemorewillingtopartneroncesufficientopportunitytoaddvaluebygoingcashlessisapparent

• [Businessdynamics– riskstopartnership]Liquiditymanagementformobilemoneyagentsisaproblem– alimitedmobilemoneyecosystemresultsinfarmerswithdrawingalltheircashatonce,creatinglargepeaksanddipsinsupply.Thisisinadditiontothesecurityconcernsofhandlinglargeamountsofcash,andthelogisticalbarrierstoacquiringthecashnecessaryfordailyoperation sincethereisonlyonebankinECAsareaofoperation

Overview:BancoTerraMoçambique wasstartedasanagricultureandfoodbank,buthassincediversifieditsportfolio,withagricultureaccountingfor40%ofitsportfolio.TheyhaveinterestinworkingwithalllargeagribusinesseslikeECA

Details

Currentpartner

Potentialpartner

Overview:VodacomisamobilemoneyproviderinMozambique.ECAhassoughtapartnershipwithVodacomtosupporttheusemobilemoneyservicestopayfarmers.NegotiationhasstalledwithVodacomcitingconnectivitychallengesandinsufficientdevelopmentofthemobilemoneyecosystemasmajorimpedimentstoinvestment

Details

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TheroleofthechallengingMozambicancontextshouldcontinuetobestudiedintheMidlineandEndline phasesofthedeepdive

AtthetimeoftheBaselinevisit,Cargillcancelledanagreementtopre-financefarmersduetopoliticaltensioninMozambique,whileCDMhasjustcomeonboardtodoso.Consideringthesevaryingdecisionsinthesamecontext,theMidlineandEndline studiesshouldfocusonthefollowing:

Ø Whichpartnershipshavebeenbrokeredorbrokenoffsincethebaselinestudy,andwhatarethebusinessdynamicsofthisagreement?

Ø Whatwerethekeysuccessfactorsforgettingpartnershipsinplacedespitethechallengingcontext?Whatfactorsmadesomepartnersgetintopartnershipandotherspullout?

Ø Ifpartnershipagreementshavenotbeenachieved,whathavebeenthemajorimpediments,challengesandstickingpoints?

Ø Ifpartnershipsareinplace,whathasbeentheresult?Howmanyfarmershaveusedtheservicesonofferandwhathasbeenthevolume– bothnumberandsize- oflending/insuranceproducts?

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Prepeez isaGhanaianbasedagribusiness/techfirmfocusedondevelopingaplatformtoconnectfinancialservicestosmallholderfarmers

Source:Dalberganalysisandinterviews

Org. Type: Technologyplatformprovider

Keycontact: CEO:Kow A.Sam(calledSam)

Location: Ghana

Businessdetails:

Prep-eez runsan informationdeliveryandcommunicationplatform.Theplatform:1) Providesinformationandextensionsupport

usingintegratedvoicerecognition(IVR)2) Collatesdataonfarmers,suchasfarmsize,

cropsgrown,cropstatusanddemographics3) ProvidesanavenueforFIstoconnectwithand

lenddirectlytofarmers(stillunderdevelopmentandnegotiation)

Prepeez alsohavefieldagentswhodeliveron-the-groundextensionsupport- suchascocoatreepruning- andusesmartphonestocollectdataonfarmers.Prepeez alsoactasaninputproviderandoff-takerforthefarmersitworkswith

Prepeez iscurrentlynegotiatingpartnershipswiththeGhanaAgricultureInsuranceProgramme(GAIP),FidelityBankandEcoBank

Pre-peez envisionedpartnershipmodel

OtherPrepeez BUs

Prepeezplatform

Insurance

(undernegotiation)

Creditandsaving

(undernegotiation)

Farmers

Farmandfarmerdata

Extensionsupport

Provideinputs

Purchaseproduce

Accessfarmerprofiles

Accessfarmerprofiles

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Prepeez isseekingpartnershipswithmultiplefinancialinstitutionsinGhana;negotiationsremainongoing




• Capitalizeon‘KnowYourCustomer’(KYC)informationbeingcollectedonfarmers

• Allow farmerstobetteraffordinputsandextensionsupportsuchaspruningservices

• TouseplatformtofacilitateWarehouseReceipt financing(notcurrentlyavailable) thatcapitalizesonpricechangesincocoa(govtsetsannualpriceinOctober)

• HaspreparedapitchandapproachedmostFIsinGhana.SpecificfocusgiventoFIswhoareknowntotargetsmallholderfarmersandbeopentoinnovation

• Leverageexistingcontacts togainintroductionstothecorrectpeoplewithinFIs

• PromotethemarketsizeandopportunitytocapturethatmarketasmajorsellingpointtoFIs

• Negotiation focusedonthecreationofMoUs.On-goingnegotiationonwhatformtheproducttakes,thebusinessmodelandwhosigns-offwithFIsresultingindelaysachievingfinalagreement

• Noformalstructure forregularcommunicationorliaisonisinplace.Sam(Prepeez CEO)isdrivingallliaisonandnegotiation

DetailsofPrepeez partnershipnegotiations:

• Ghanaisprivatesectorfriendlywithacompetitivebankingindustry.Thisresultsintheneedtopromotetheeconomicandbusinesscaseforpartnershipformation

• Ghanacurrentlyhashighinterestrates(circa35%)whichlocksmostfarmersoutofthemarket.Partnershipsmustbedevelopedinordertocreatesufficientvaluesofarmersstilldemandthefinancialservicesonoffer

• Thegovernmenthasmonopolybuyingpowerandsetsandannualpriceforcocoa.Thiscanimpactpartnershipopportunities


Potentialimpactonfarmers• Financialservicescurrentlyunavailable.Willimproveabilitytopurchaseyieldimprovinginputsandextension

• WRSwillallowdelayofsellingcocoatocapitalizeonhigherpricewhilststillgettingaccesstosomecashflow

• Packagedinsuranceofferingwillallowfarmerstodelaysaleofproducewithgreaterpieceofmind

25

FIsareinterestedinpartneringbecausePrepeez providesagatewaytoalargecustomerbaseandaccesstousefulfarmerdata


PotentialpartnersPrepeez isinnegotiationwithandthedetailsoftheirinterest:

• [Motivation]Prepeez providesacquisitionchannelthroughKYC,on-the-groundteamandexpertiseonagricultureneeds

• [Process– approvals]Fidelityiscurrentlyseekinginternalapprovalsinordertotakethepartnershipforward

• [Organizationdynamics]PartnershipisbeingnegotiatedbyFidelity’s‘inclusivebusinessunit.’ThisunitfocusesontheBOP

• [Motivationandprocess]Themarketsizeofagriculturecreatesacompellingvalueproposition.Ecobank iscurrentlyassessingthebusinesscaseandassociatedrisk.AssessmentbytheCreditDepartmentandDigitalTransactionsteam

• [Organizationdynamics]TheDigitalTransactionteamleadsnegotiation.They’reanentrypointforotherfinancialproducts

• [Motivation]Prepeez bringslargeamountsofdatawhichisvaluableforGAIP indevelopinginsuranceproducts.PrepeezalsoanattractivepartnerforGAIPbecausetheylowertransactioncostsbynotonlyprovidingachanneltodistributeinsurancebutalsohaveanon-the-groundteamwhocaneducateandconductduediligenceonfarmers

• [Process]GAIPiscurrentlynegotiatingproductandrevenuesharingdetailswithPrepeez andalsoseekinginternalapprovals

Potentialpartner

Potentialpartner

Potentialpartner

Overview:FidelityBankstrategyisfocusedonbuildingthecustomerbaseandincreasinglevelofdeposits.TheyareseekingpartnershipssuchasPrep-eez thatsupportcustomeracquisitionefficientlyandwithlimitedcost

Details

Details

Overview:EcoBank hasastrategydirectivetodomoreworkinagriculturebutdon'thavethesystems,connectionsorstructuresinplacetobeabletodothis.Prep-eez canprovidedataandconnectiontofarmers

Details

Overview:GAIPwasspecificallyset-uptoincreaseinsuranceintheagriculturesectorwithallinsurancecompaniesmandatedtocontributetoGAIP’spoolofriskcapital.Theyareactivelylookingforpartnerstohelpdeliverinsurance

26

Prepeez hasyettolock-inpartnerships,meaningoutcomeshavenotbeenseen;thisshouldbefurtherassessedintheMidlineandEndline study


AtthetimeoftheBaselinevisit,nopartnershipswithfinancialserviceprovidershadyetbeenlockedin,withthehopebeingthatformalagreementwouldbeachievedbeforetheendof2016.Assuch,theMidlineandEndline studiesshouldfocusonthefollowing:

Ø Whichpartnershipsareinplace?Whatmechanismisbeingusedforthispartnership(e.g.MoU?)andwhatarethebusinessdynamicsofthisagreement?

Ø Whatwerethekeysuccessfactorsforgettingthepartnershipinplace?

Ø Ifpartnershipagreementshavenotbeenachieved,whathasbeenthemajorimpediments,challengesandstickingpoints?

Ø Ifpartnershipsareinplace,whathasbeentheresult?Howmanyfarmershaveusedtheservicesonofferandwhathasbeenthevolume– bothnumberandsize- oflending/insuranceproducts?

27

Kifiyahasdevelopedatransactionplatform,agentnetworkandmicro-insuranceproductthattheyarescalingupacrossEthiopia


Org. Type: Payment ServiceProviderandEnabler ofDigitalFinancialServices*

Keycontact: Director:MyriamSaid

Location: EthiopiaBusinessdetails:

Kifiyadevelopsdigitalfinancialservicesinfrastructure(transactionplatformsanddistributionchannels)that:1) Providepaymentservices (such asforutility

billsandtransittickets) throughagentsandamerchantnetwork

2) Partnerwith andenableMFIstoprovidebranch-lessbankingservices throughcooperatives

3) Developanddelivermicroinsuranceproductstosmallholderfarmers

ThemainareaofinterestforthisstudyisthepartnershipsKifiyaiscurrentlydevelopingwithEthiopia’slargestinsurancecompanies- EthiopianInsuranceAgencyandOromiaInsuranceAgency-toscaleanddelivertheirmicro-insuranceproduct

Kifiya partnershipmodel

Farmers

Kifiyaplatform

Multi-purposecooperatives(containsKifiyaagent)

Provideextensionsupport,inputs,financeproductsetc.

One-stop-shopforMPCtofacilitatetransactions

Insurance Lending(7MFIs)

Transitcompanies

Utilitycompanies

*Asnotedearlier,Kifiyaisforemostatechnologyplatformprovider.Theyarecurrentlydevelopingagriculturefocusedproductsandpartnershipsinordertoincreasethevolumeoftransactionsthroughtheirplatform

28

Kifiyaiscurrentlyincreasingthedepthofpartnershipswithinsurancecompanieswhocanscalethemicro-insuranceproductthey’vedeveloped




• Kifiya wants partners to create anecosystem that can enable thedelivery of financial services at scaleby leveraging its DFS infrastructure

• Kifiyaisalsolookingforinsurancecompanieswhocanunderwritetheriskandscaleupthemicro-insuranceproducttheyhavedevelopedforfarmers

• Kifiyatargetsthe biggestMFIsandinsurancecompanies(bymarketshare)aspotentialpartners

• Kifiyacapitalizesonexistingconnectionstogainanaudiencewithpotentialpartnersandpresentapitchdecktothoseinterested

• Kifiyahasbuiltaconsortiumthatincludesgovernmentagenciesthathaveastakeinmicroinsurancedevelopment

• Asteeringcommitteeandworkinggrouphavebeenformed whichinclude: Kifiya,insurancecompaniesandgovernment reps. Thecommitteedetermines rolesandresponsibilitiesinadditiontoareasofoperation

• KifiyauseMoUswithpartnerswhichstipulaterevenuesharingarrangements

DetailsofKifiyapartnershipnegotiations:

• TheprivatesectorinEthiopiaissmall.Mostorganizationshavesignificantgovernmentownershipandinvolvement.Thegovernmentstipulateswhereorganizationscanoperateandwhattheycanoffer

• AllfarmersinEthiopiaaremembersofcooperatives.Workingwithfarmersrequiresworkingthroughcooperatives

• Thegovernmenthasprioritizedmicro-insuranceforfarmersasanareafordevelopment.Thegovernmenthasatargetof5.6millionfarmersreceivingmicro-insuranceby2021

• RecentlyreportedunrestinpartsofEthiopiamayimpactwhereKifiyaisabletooperateandwithwhom


Potentialimpactonfarmers• FarmerswillbeabletoaccessmoreproductswithgreatereaseduetomultiplepartnersusingKifiyaplatform

• Veryfewfarmershaveinsurance(currentlylessthan10,000farmershaveagrimicroinsuranceandthesearepilotprojects),ahighqualityandaffordablemicro-insuranceproductwillmitigatetheimpactofunforeseenevents

29

Insurancecompaniesaremandatedbythegovernmenttoinsureoverfivemillionfarmers,theybelieveKifiyacanhelpthemachievethis


• [Motivation]EIChavelimitedinternalcapacityforinnovation/productdevelopment(e.g.theyemploynoactuaries)andabilitytorapidlygrowcustomersnumbers.Theystate“WeseeKifiyaasthebrainsofourorganization“

• [Processforselection– suitsneeds]EICismandatedbythegovernmenttoincreasethenumberoffarmersaccessinginsurance.EIChaveselectedKifiyaaspartner because:(1)Kifiya’s platformandagencynetworkwillallowinsurancetobedeliveredmorecheaply(EICestimate60%cheaper),(2)Kifiyahasdevelopedaninsuranceproductthatissuperiortoanythingelseonthemarketand(3)Kifiyahaveaprovencapacitytosuccessfullyroleoutnewandinnovativeproducts

• [Organizationaldynamics]ThepartnershipisbeingledbyEICsDirectorforMicro-insurance

Kifiya’s majorpartnersintheinsurancesectorandthedetailsoftheirinterest:*

*NotethatwhilstKifiyahasamultitudeofpartners,duringthefieldvisitandforthepurposeofthisstudywehavefocusedonpartnershipswithFIsworkingintheinsurancesector.Thesepartnershipnegotiationsareviewedasthemostrelevantforthedeepdivequestion

• [Motivation]Increasingsalesofmicro-insurancetofarmersisapriorityareaforOIA.TheirinterestinKifiyastemsfromthebeliefthattheKifiyaplatformandagencynetworkwillsignificantlylowerthecostofdeliveringinsuranceproducts.Inaddition,theKifiyamicro-insuranceproductisdeemedsuperiortothemicro-insuranceproductsOIAcurrentlyhasonoffer(Kifiya’s productusessatellitedataworkingona1x1kmpatternwhilstOIA’sproductworksona10x10kmpattern)

• [Process]OIAisnotconcernedaboutthebusinesscaseforpartnership,customeracquisitionismostimportantfactor

• [Organizationaldynamics]OIAhaveamicro-insuranceteamwhoisinchargeofleadingandmanagingthepartnership

Details

Details

Overview:TheEthiopianInsuranceCorporation(EIC)isstateownedandaccountsfor40%oftheinsurancemarket.TheyseekpartnerssuchasKifiyatohelpthemprovideinsurancetothemajorityofEthiopians

Currentpartner

Currentpartner

Overview:OperatingintheOromiaregion,theOromiaInsuranceAgency(OIA)isthesecondbiggestinsurancecompanyinEthiopia.Theyseekpartnerswhocanhelpthemincreasetheircustomerbase

30

PilotingofKifiya’s micro-insurancehasoccurred,theMidlineandEndlineshouldfocusontheresultsfromfurtherroll-outoftheproduct


AtthetimeoftheBaselinevisit,pilotingofthemicro-insuranceproductbyEICandOIAhadjustbeencompleting.FurtherscalingandrolloutisexpectedtocoincidewiththebeginningofthegrowingseasoninMarch2017.Assuch,theMidlineandEndlinestudiesshouldfocusonthefollowing:

Ø Whathavebeentheresultsfromthepartnershipsthatareinplace?Howmanyfarmershavebeenserved,whathasbeenthepayoutratiosandwhathavebeentherevenueandcostimplications?Whathasbeenthefeedbackfromfarmers?

Ø Arethereanynewpartnershipsinplace?Haveanydetailsaroundtheexistingpartnershipschanged?

Ø ArethereanynewproductsoractivitiesKifiyaisundertakingandaretheyworkingwithnewpartnersontheseproducts?

Ø WhatprogresshasbeenmadeontheexpansionofKifiya’s agencynetworkandhowisthatimpactingthedevelopmentofpartnerships?

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Contents

32

Viabilityversusscalabilityinthecontextofthedeepdivestudy

Scalabilitywasnotdiscussedbyinterviewparticipantsduringthebaseline,theEndline studyshouldinvestigatetheimplicationsofchosenpartnership

modelsforscalingservices

SOURCE:Dalberganalysis

• Viabilityfocusesonunitcost,andcentersonwhethertheproposedsolutionisfeasibleandsustainable

• Viabilitylooksattheabilitytoimplementasolutionwithareasonablechanceofsuccess,withoutnecessarilytakingintoaccountthecoverageofimplementation

• Inthisstudy,“viability”considerswhetherthevalueaddbroughtbypartnersprovidesenoughfinancialincentiveforallpartnerstosustainthepartnership

Viability• Scalabilityisabouttheeaseofincreasingreach,andfollowsproductofviability,i.e.aviablesolutioncanpotentiallybescaled

• Scalabilityisinfluencedbyreplicabilityofprocessesandeaseofcustomeracquisition(howtheeconomicsofimplementingthesolutionchangewithmorecustomers)

• Manyofthepartnershipsstudiedinthebaselineareatearly/pilotstage,duringwhichscalabilityischallengingtotest.Howpartnershipsimprovescalabilityisthereforenotreviewedinthisreport

Scalability

Thissectionoutlinesinitialanswerstothequestiononwhetherlastmilepartnershipsimprovetheviabilityandscalabilityoffinancialserviceprovision.Webeginwithdefinitionsofkeyterms

33

Partnershipsimproveviabilityaslastmilefirmsshare(reduce)costsandriskthroughleveragingtheactivitiestheyundertakewithfarmers

Last milefirmactivities Descriptionofactivity Customer

acquisition

Productdistribution/collection

Productdevelopment*

Credit riskmanagement

Farmeraggregation

Groupfarmerstogethertoeasepromotionanddeliveryofservices

Accesstomarket/off-taking

Provideaguaranteedmarket,ensuringfarmershaveincome

Technicalassistance

Providetraininge.g.onagronomicpractices,financialliteracyetc.

Interfacewithfarmers

Actas“feetontheground” andhandlefarmerinteractions

Know-Your-Customer (Data)

Collectdataonfarmerse.g.income,farmsize,expenditureetc.

üüü

üüü

ProductdevelopmentincludesadvisingFIson(i)howandwhenaproductshouldbedelivered,(ii)whatproductsareneededand(iii)developingproducts,includingprovisionoftechnicalexpertiseSource:Stakeholderinterviews;Dalberganalysis

ü

üüü

üü

üüüü üü

ü üKey:

Areasofcostreduction Areasofriskreduction

ü üüDoesnotcontribute Somewhatcontributes Stronglycontributes

Financialinstitutionsreducecostsandriskforlastmilefirmsbyloweringthecostofcapitalandbyprovidingadditionalmeansbywhichtomonetizeelementsoftheirbusinessmodels

üüü

üü üü

ü

34

Detailsofhowpartnershipsshare(reduce)costsandriskforFIs

Customeracquisition

Productdistribution/collection

Productdevelopment*

Credit riskmanagement

FarmeraggregationGroupfarmerstogethertoeasepromotionanddeliveryofservices

Providesaccesstolargenumbersoffarmers,reducingsalesandmarketingcosts

Lastmilefirmsactaschannelsthroughwhichtosellproductsandcollectrepayments

Riskisdiversifiedandconsequentlyreducedbyprovidingtogroups,ratherthanindividuals

Accesstomarket/off-takingProvideaguaranteedmarket,ensuringfarmershaveincome

Off-takingprovidesknowledgeofwhatfinancialproducts to offerwhichcustomers

Off-takers canmakerepaymentsonbehalfoffarmersoncollectionofproduce

Knowledgeoffarmerincomeandcrop cyclescaninfluencehowproductsaretailored

Off-taking guaranteesfarmersamarketandcashflow,therebyreducingriskofdefault

TechnicalassistanceProvidetraininge.g.onagronomicpractices,financialliteracyetc.

Trainingonfinancialliteracy/agribusinesspromotesuptakeoffinancialproducts

TAcanhelpincreasefarmeryieldsandcashmanagement,reducingdefaultrisk

InterfacewithfarmersActas“feetontheground” andhandle farmerinteractions

Interactionsoffieldagentswithfarmerscanbeusedtomarketfinancialproducts

Assistwithdisbursing andcollectingfunds,reducingFIs’adminandfollowupcosts

Knowledge gainedfromfarmersisusedtoinfluenceproductspecifications/terms

Farmerinteractionscanbeusedtoeducate onrepaymenttermsandprovidereminders

Know-Your-Customer(Data)Collectdataonfarmerse.g.income,farmsize, expenditureetc.

DataprovidedtoFIshelpsthemselecthighpotential/prioritycustomersforproducts

KYCdatahelpsFIsdetermine cashflowcyclesand timing forcashdisbursement

DataprovidedtoFIsisusedtostructureappropriate creditandinsuranceproducts

Data onfarmershelpsselectandgainapprovalsforthemostcreditworthyfarmers

Areasofcostreduction Areasofriskreduction

ProductdevelopmentincludesadvisingFIson(i)howandwhenaproductshouldbedelivered,(ii)whatproductsareneededand(iii)developingproducts,includingprovisionoftechnicalexpertiseSource:Stakeholderinterviews,Dalberganalysis

Key: Doesnotcontribute Somewhatcontributes Stronglycontributes

35

Observedexamplesofhowlastmilefirmsaresharing(reducing)costsandriskwithFIs

Source:InterviewswithFRPwinnersandtheirpartners,Dalberganalysis

Customeracquisition Productdistribution/collection

Productdevelopment Credit riskmanagement

• Biopartenaire reducescustomer acquisitioncostsforAdvansbyallowing themtoaccessalargenumberoffarmersatonce.Advanswouldotherwisehavetoinvest inmarketingcostsandworktobuildtrustwiththesefarmers

• InGhana,Prepeez intendtoallowmultipleFIstoviewtherecordsoffarmerstheyworkwith;this reducesFIs’costsofseekingoutfarmerswhomtheycanofferfinancialservices

• Kifiya’s platformservesas acentralchannelthatinsurancecompaniescanusetoselltheirproducts,reducingthecostsofestablishingdistributionchannelstoreachfarmers.

• VodacomhasleveragedECA’son-groundpresence andconnectionwithgrowerstotryanddevelopadistributionchannelformobilemoneyandtogrowthemobilemoneyecosystem

• Biopartenaire servesasadistributionchannelforAdvans’savingsproduct

• Kifiya hasdesignedanagri-insuranceproductforfarmers,whichhasreducedthecostforinsurancecompaniestoconducttheirownresearchanddevelopmentfor farmer-tailoredinsuranceproducts.

• Biopartenaire usesits’knowledgeofcocoaagronomiccyclesandfarmerincomestodesignfinancialpackagesandadviseAdvansonhowproductsshouldberolledout

• Prepeez iseducatingfarmersonWRS

• Biopartenaire providesfarmerswithtechnicalassistance(agronomic,agribusinessandfinancialliteracytraining),whichincreasesproductivityandfinancemanagement,therebyreducingcreditrisk

• Prepeez isprovidingeasy-to-accessfarmerandagriculturedata

• ECA provideson-lendingservicestofarmers.Asthelenderandcollectorofcredit,ECAconductsduediligenceonfarmersandabsorbsaportionoftheloss shouldafarmerdefault

36

Stronginterestexistsinusinglastmilefirmdatatobetterservesmallholders;FIsremainunsureofhowtobestusedataandwhetheritcanbetrusted

Source:InterviewswithFRPwinnersandtheirpartners,Dalberganalysis

Ø Lastmilefirmscanprovideanarrayofdatathatcanbeusedtobetterassessfarmers forcreditandinsuranceproducts,suchasdataonfarmsize,cropsgrown,marketpricesetc.

Ø FIsareinterestedinagriculturespecificdatabecausetheyoftenknowlittleabouttheseareasandhavefewotherdatasourcesbywhichtoadequatelyassessofsmallholderfarmers

“Wedon’tknowmuchaboutfarmersandhavelittledataaboutthem- anydatathatcanbeprovidedbyapartnerisuseful”

Ecobank,Ghana

Financialinstitutionsbelievethatthedatalastmilefirmsprovidecanimprovetheviabilityofassessingsmallholdersforfinancialproducts.MostFIsare

currentlyunsureofhowtobestusealternativedataandwhetheritcanbetrusted

Typesofdata

Examples

Ø Prepeez iscollectingsignificantamountsfarmerdata,includingplotsizeandgrowingactivities.FIsinGhanahaveexpressedsignificantinterestinutilizingthisdataforfarmerassessment

Ø Outsideofthisdeepdive,projectsarebeingledbyMercyCorps’Agrifin AccelerateandAGRAontheuseofalternativedataforcreditscoring.Multiplefinancialinstitutionshaveexpressedstronginterestinutilizingalternativedataforimprovingtheirabilitytolendtosmallholderfarmers

Useofalternativedata(perFI)

Pre-conditions

Ø Financialinstitutionsexpressinterestinutilizingalternatedatainordertobettermanageriskinlendingtofarmersandexpandcustomerbase

Ø Financialinstitutionsalsodemonstrateinterestinusingalternatedataforproductdevelopment: “Thedatacollectedshapesyourthinking”– GAIP,Ghana

Ø FIshavealackoftrustinalternatedataprovidedbylastmilefirms.Beforebuyingin,FIsrequirebetterunderstandingofhowtobestusealternatedataandverificationonthedata'squalityandaccuracy

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Contents

38

Despitethepotentialbenefitsforimprovingviabilityoffinancialserviceprovision,commonchallengesareexperiencedforpartnershipdevelopment

SOURCE:DiscussionswithFRPwinnersandtheirpartners,Dalberganalysis

FIchallenges

• Trustingdataintegrity:FIs donottrustthedatabeingprovidedbylastmilefirms.Internalriskmanagementteamsarereluctanttousethisdatawithoutsignificantleveloftestingandanalysis.Alackofuniqueidentifierswithindataalsoinhibitstheabilitytouseit“Weneedtoundertakeduediligencewithextensionproviderstoensuredataintegrity”– OpportunityInternational

• Institutionalandsystemsrigidity:FIsaregenerallyhighlyriskaverseresultinginmultiplelevelsofhierarchyacrossmultipleDepartmentsthatmustapproveanynewproductsorpartnerships.Evenifbuy-inexists,FIsfinditdifficulttoadjustsystemstointegratewithlastmilefirms.

Lastmilefirmchallenges

• FindingtherightdepartmentwithinFIs:manyFIsseeworkwithsmallholderfarmersassittingwithinCSRor‘inclusivebusiness’units.Theseunitsmaynotofferthecommercialproductsortermsthatarebestsuitedtomeetingthelongtermneedsoflastmilefirmorfarmers

• Provingcommercialviability:FIsareoftenlarger,moreestablishedcompaniesthanthelastmilefirmspushingforpartnership.Consequently,itmaytakealotoftimeforlastmilepartnertobuildcredibilityandgrowintoasizethatisattractiveforFIs.Forexample,Vodafone(apotentialECApartner)highlightedthanwhenconsideringpartnerships,“Welookforthesizeofthecompany:themorepaymentstheydothebetter”

Generalchallenges

• Agreeingtotheoperationalmodel– Partnersmaystruggletoalignonrolesandresponsibilities,whichcanbetime-consumingand/orleadtodissatisfaction.Forexample,Advans hasbeenworkingwithBiopartenaire forthreeyearsbutdon’tfeeltheyhavetheoperationalmodelright,“Wedidnotdoagoodjobofclarifyingwhodoeswhatinthebeginning,wefeelitwouldactuallybemoreefficienttohaveourownfootsoldiersonthegroundbecauseoursolutionisquitecomplicated”

• Agreeingtocostandrevenuesharing- Coststoeducateandtrainfarmersonthevalueoffinancialproductscanbesignificant.LastmilefirmsmaylookforsupportfromFIstohelpmeetthesecostswhichtheymaybereluctanttodowithoutdonorsupport

39

Variousenablingfactorsappeartobeplayinganimportantroleinfacilitatingpartnershipformation(1/2)


Category Enablingfactor Waysinwhichenablingfactorpromotespartnershipsforfinancialprovision

FIswhohaveastrategyfocusedonagricultureorworkingwiththebottomofthepyramid aremorelikelytobeinterestedinpartnershipasdoingsohelpstofulfiltheirmandate

FIswhohaveateamspecificallydedicatedtoforming/managingpartnershipsaremoreopentoinnovativeapproaches,haveexperienceinpartnershipbrokeringandarebetterabletodealwithissuesthatposechallengesinpartnershipformation

ExistingrelationshipsbetweenlastmilefirmmanagementandFImanagementcanplayanimportantroleingainingrequiredapprovals.Thesecouldtaketheformofhavingpreviouslyworkedtogether,socialnetworksetc.

Policiesthatmandate/promoteinclusivefinancialserviceprovisionarelikelytoboostpartnerships.Likewise,policiesthatempowerruralcommunitiese.g.landrights allowingforlandtobeusedascollateralincreasewillingnessofFIstopartner

Astableoperatingenvironmentispredictableandlowrisk,whichencouragesFIstotakeonpartnershipsandnon-traditionalavenuesofprovidingfinancethattheywouldotherwisenotconsiderinpolitical/social/economicturmoil

Marketswithmorecompetitivedynamicspromotepartnerships;FIsaremorewillingtotakeinnovativeapproaches toincreasetheirmarketshare,asopposedtomonopolieswhereafewkeyplayershavenoincentivetoserveruralpopulations

Externalenvironment

Governmentpolicies

Socio-economicstability

Privatesectorcompetition

Partnercharacteristics

FIstrategy

Partnershipteams

Existingrelationships

40

Variousenablingfactorsappeartobeplayinganimportantroleinfacilitatingpartnershipformation(2/2)


Category Enablingfactor Waysinwhichenablingfactorpromotespartnershipsforfinancialprovision

FIsarereluctanttotrustalternativedataorworkinproductstheydon’tunderstand.Shorttermguaranteeseitherfromthelastmilepartnerorathirdpartycansupporttrustbuilding

FIsoftenhavelimitedinternalcapacitytodevelopandtestproductstailoredtosmallholderfarmers.Externalsupportfromtechnicalexpertscanhelpbuildtrustintheproductofferingofthelastmilepartner

Mobilesystemsfacilitatedatacollectiononcustomers,disbursementsandrepaymentsoffundsinruralareas.Indoingsotheyserveasago-betweenbetweenthefarmers,lastmilefirmandFI,easingtheoperationswithinpartnerships

Presenceoffacilitators

Guarantees

Technicalsupport

Digital/mobileservices

Someenablingfactorslikegovernmentpolicy,socio-economicstabilityandcompetitivedynamicsarebeyondthecontrolofpartneringentities.Partnersshouldseektocapitalizeonthefactorswithintheircontrolbye.g.seekingorganizationsthathavepartnershipteamsinplace,reachingouttopotential

providersofguarantees,obtainingtechnicalsupportandleveragingdigitalservicestosupportpartnershipformationandsustenance

Supportingtestingsuchas

pilots

Pilotsareausefulwaytotestwhetherpartnershipswillworkandwhethervaluereallyexistsforallstakeholdersinvolved.Facilitatorscanplayanimportantroleinmanaging,brokeringagreementandcapturinglessonsfrompilot

41

Giventhebenefitsofenablingfactors,thereareclearareasthatgovernmentsanddonorsshouldconsidersupportingforpartnershipdevelopment

Guarantees:DonorsshouldprovideshorttermguaranteesthatsupportpilotsandunderwritetheperceivedrisksofpartnershipsbetweenlastmilefirmsandFIs.Donors

shouldavoidlongtermguaranteeswhichpartnershipsbecomedependenton,andwhichacttoreduceriskfortheFIratherthanthelastmilepartnerorsmallholderfarmer

WorkwithFIswhohavedemonstratedaninterestinagriculture:FIsshouldbetakingclearandactivestepstoworkintheagriculturesectorbeforedonorsupportisgiven.Thisshouldinvolvestatedstrategyandtheset-upofagriculturefocusedteams.Donorsshouldavoid

supportingFIswhohavedonelittlemorethanpaylipservice

Addresssystemicchallenges:Systemicchallengesincludeinsufficientinfrastructureandalackoftrainingforfarmersonfinanceandagronomicpractices.Supportingareasofpublicgoodwillbuildtheecosystemneededforpartnershipdevelopment.Donorsshouldavoid

supportthatdoesnotdemonstrateclearbenefitsforecosystemandpartnershipdevelopment

1

2

3

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Contents

43

Annex1:Fewresultsareyettobeseen,theMidlineandEndline studiesshouldseektohighlighttheimpactfrompartnerships


Summaryofresultsfrompartnershipssofar:

Givenlimitedresultstodate,theMidlineandEndline studiesshouldgivesignificanttimetomeasuringresults,namely:• Howmanyfarmersreceivedfinancialproductsasaresultofthepartnership?• WhatwasthefinancialimpactonboththeFIandthelastmilefirmfromthepartnership?• Whatwastheimpactonthefarmers/beneficiariesfromthepartnership?• Weretherenewpartnershipsformedorpartnershipsthatwereabsolvedovertime?Whatwasthedriverof

change?• Whataretheothermajorissuesthathavebeenexperiencedthroughthelifeofthepartnership?• Havethepartnershipsimpactedtheruralandagriculturalfinanceecosystemwithinthetargetmarket?

Biopartenaire ECA Kifiya Prepeez

• 1000farmersareusingAdvans’savingproductascollateralforcredit

• Advansseesthepartnershipasbeinginanexperimentalphase,andishopingtoscaleupservicesafterdrawinglearningsfromthepilot

• Morethan4,000 farmersreceiving on-lendingfromfacilityprovidedbyBancoTerra

• BancoTerraislikelytokeepworking withECAbecausetheirloanisguaranteed

• VodafoneiswillingtoworkwithECAifmobilemoneyandcommunicationinfrastructureimproves

• ~2,000 farmersparticipatedinmicro-insurancetrialwith75%receivingsomeformofpayout

• Programtobescaledupinearly2017;insurancecompaniesseestrongvalueinaccesstofarmers,astrongproductandthedistributionchannelKifiyaprovides

• Partnerships arenotyetinplace,MoUsarecurrentlyundernegotiation

• FidelityandGAIPbothseeastrongvaluepropositioninPrepeez(customeracquisitionandfarmerdata,respectively)

44

Annex2:ThisstudyalignswithotherpartnershipfocusedactivitiesbeingundertakenbyMercyCorpsandAGRAonimprovingsmallholderfinance

*PatientProcurementPlatforminTanzaniaandDigiFarminKenya

• AGRAiscurrentlyconductingastudylookingatdatabeingcollectedbyagribusinessesandwhatFIrequiretobeuseandtrustthisdata forcreditassessments

• MercyCorps’AgriFinAccelerate(AFA)programissupportingthedevelopmentoftwopartnershipbasedplatforms*tobringmultipleplayers(FIs,inputsuppliers,extensionservicesandmarketbuyers)together

• Financialinstitutionsseekpartnershipsforarangeofreasons,includingaccesstoalternativedata,customeracquisitionandloweringtransactioncosts.Whattheyvaluedependsontheinstitutionsstrategy• Technicalsupportcanplayavaluableroleinsupportingpartnerships,particularlybyunderwritingriskwhilstthevalueofthepartnershipandthedataitbringsisbeingverified.TechnicalsupporthelpsincreasetheconfidenceofFIswholackknowledgeonfarmersandfarmer-specificdata

• Partnershipformationcanbealengthyprocesswhichrequiresmultipleiterationsandroundsofnegotiationduetotheamountoftimeittakestobuildtrustandalignonthebusinessmodel• FIsstateaneedforthedatatobeinaformthatcanbeeasilyprocessed,andthedifficultyofworkingwithdataprovidedwhendataneedsandspecificationsofFIshavenotbeenconsideredfromthebeginning

A&B

• FIsexpressstronginterestinusingalternativedatabutdon’ttrusttheintegrityofthedatabeingcollected.FIsarealsounsurewhichdatapointsprovidethebestdecisionmakinginformation• Noclearsystemsorstandardsfordatasecurityandintegrationofdatacollection/sharingsystems• LimitedknowledgeofagriculturewithinFIs

• Buildingtrustbetweenpartnersinadditiontodeterminingrolesandresponsibilitiestakestimeanddelayspartnershipformation• Determiningrevenuesharearrangements isdifficultwherenohistoricalprecedentexists• PartnerreticenceonsharingdataduetoconcernsaboutlosingIPanddatanotbeing‘clean’ foruse

RecentActivities

Challengesidentified

forpartnershipformation

Wherefindingsalignwith

thisBaselineReport

45

Annex2: Additionalfurther,orupcomingreading

• LearningLabandISF(2016)InflectionPoint• LearningBrief01:Thebusinesscasefordigitally-enabledsmallholderfinance• InitiativeforSmallholderFinanceBriefingNotes• LendingaHand:Howdirect-to-farmerfinanceprovidersreachsmallholders• ValueChainFinancing:Howagro-enterprisesserveasalternateaggregationpointsfordeliveringfinancialservicestosmallholderfarmers

• TheRiseoftheDataScientist:Howbigdataanddatasciencearechangingsmallholderfinance

• IDHSustainableTrade:ServiceDeliveryModelresearch• Forthcoming:OpportunityInternationalValueChainPartnershipsinPractice

46

Annex3: Preliminaryguideforlastmilefirms- Seekingandnegotiatingpartnerships

1.Seekpartnerswithalignedinterestsandrelevantexperience

Considerations

Lookforfinancialinstitutions(FIs)withastatedstrategyinagricultureorservingtheBoP

LookforFIswithastrongdistributionfootprint

LookforFIsthathaveateamspecificallyfocusedonpartnerships

LookforFIswhereexistingrelationshipsexist

LookforFIsthathaveworkedwithdonoragenciesinthepast

ConsiderFIswithahistoryandcultureofinnovationthatisreinforcedbyseniormanagement

47

Annex3: Preliminaryguideforlastmilefirms- Seekingandnegotiatingpartnerships(continued)

2.Highlightvalueproposition

Considerations

Createapitchdeck

Adjustpitchdocumentationbasedonfeedback

EmphasizefactorsthatFIsaremostinterestedine.g.,marketsize,customeracquisition,costsavings,etc.

Highlighthowpartnershipcanreducebankrisk

Provide“real-life”demonstrations

TalktomultipleFIs

BepreparedtopresenttomultiplepeoplewithintheFI

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Annex3: Preliminaryguideforlastmilefirms- Seekingandnegotiatingpartnerships(continued)

3.Developastructuredprocessfornegotiation,buildlinkages,andcommunicateopenly

Considerations

Agreeoncommunicationnormsandprocesses

Beclearonnon-negotiables

Understandthebusinessmodelandhighlightincentivesforeachparty

Buildinoptionsforre-negotiatingterms,linkedtophasedrollout

LookforFIsthathaveworkedwithdonoragenciesinthepast

Considerindependentarbiters(e.g.,donors)forcoordination,honestbrokersupport,andevenrisksharing

49

Annex3: Preliminaryguideforlastmilefirms– Workingtogetherinpartnerships

1.Alignonvisionandclarifyrolesandresponsibilities

Considerations

Alignonavisionofwhateveryoneistryingtoachieve

Alignonrolesandresponsibilities

Seektosolvechallengestogether

2.CreatesystemsforopencommunicationanddynamicfeedbackConsiderations

Agreeoncommunicationnormsandprocesses

Createoutletstoensurecommunicationisopenandtransparent

Buildlinkageswithandengageseniormanagement

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Annex3: Preliminaryguideforlastmilefirms– Workingtogetherinpartnerships(continued)

3.Alignonavailablecapabilitiesandresources

Considerations

Startwithapilotor“testphase”forthepartnership

Visitothersimilarpartnerships,andvisiteachother’soperations

Alignonallocationandcontributionofresources

4.CreateaccountabilitymeasuresConsiderations

Proactivelymonitorresultsandoutcomesandfostera“learningculture”

Wherefeasible,makethepartnershiprecognizableandautonomous

Developanescalationmechanism

business partnerships baseline report

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