28February/1March2017
LastmilepartnershipsforsmallholderfinanceEarlyfindingsfromastudyoffourvaluechain/technologyFRPwinnerslookingtopartnerwithfinancialinstitutions
Webinar
Agenda
Contextandobjectives
Preliminaryguideforlastmilefirms,andfurtherreading
Supportingfactors
1
3
2
5
4
Partnershippotentialandmotivations
Challengestopartnershipformation
Contextandobjectives
NGO/Publicagency
Farmeraggregation
Technicalassistance
Loanoriginationandcollection
R&Dandotherbackoffice
Marketaccess
Costofcapital
Valuechainactor Financialinstitution
Farm
ersu
pport
Fina
ncing
Financingmovesoffvaluechainactorbalancesheet
Leveragesexistingvaluechainactor-farmerinteractions
NGO/publicagencysupportsfinancialinstitutionsandagri-productdevelopmentandsystembuilding
Guaranteedthroughbuyerparticipation
Buyerhasincentivetotrainfarmerstoincreaseproductionqualityandvolume
NGO/publicagencysupportsvaluechainactorwithfarmeraggregation
Closerelationshipalsolowersriskforthefin.
institution
Changeincostbearingresponsibility
ILLUSTRATIVE
InInflectionPoint,wecalledfor“progressivepartnerships”thatsharecostandrisktoachievefinancialsustainability
WearenowstudyingthepotentialandprocessofbuildinglastmilebusinesspartnershipsbetweenvaluechainplayersandFIs
• “Lastmilefirms”referstoagribusinesses (a.k.a.“valuechainactors”),orag-focusedtechnologyplatforms
• Businesspartnershipsreferstomutuallybeneficialcollaborationbetweenindependentprivatesectororganizationstoincreasebreadthordepthofservicestosmallholders
• Inparticular,wearestudyingfourlastmilefirmswhoalreadytouchsmallholdersandareseekingfinancialinstitutionpartnerstoofferfinancialsolutionstothefarmers
• Thisisan18-monthongoingstudy(into2018),andwehavecompletedbaselinedatacollection,primarilythroughinterviews/fieldvisitsanddocumentreviewwithlastmilefirms,potentialpartners,andfarmerswherepossible
• Mostpartnershipsareinearly/potentialstages,sowe’refocusedonthemotivation andprocess offormingthesepartnerships; inthefuturewewillanalyzebusinessdynamicsandresults
FourFRPwinnerswerethefocusofthestudy– theyoperatedifferentbusinessmodelsinfourdifferentcountriesinAfrica
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.
Kifiya hasdevelopedatransactionplatformandispartneringwithfarmercooperatives,insurancecompaniesandMFIstoprovidemobilepaymentsolutionstofarmers. Kifiya hasalsodevelopedamicro-insuranceproductforfarmers thatitisworkingwithinsurancecompaniestodeliver.
ECA
*
*Kifiyaisbestdescribedasatechnologyproviderratherthananagribusiness.Forthepurposeofthisstudy,wehavefocusedKifiya’sagri-focusedactivities
Partnershippotentialandmotivation
Whywouldagribusinessesandag-focusedtechnologyplayersseektopartnerswithFIs?
Topline(revenue)motivations• Improvedfarmerproductivity(especiallyforoff-takers)• Increasedsalesvolumesoverexistinginfrastructure(forinputproviders/techplatforms)• Opportunitiesforrolloutofnewfinancialproducts• Increasedfarmerloyaltybecauseofexpandedoffering
Reducingcostsandrisks• Reducedbalancesheetpressure(forVCAsalreadylending)• Reducedadministrationcosts(forlenders)• Lowertransactioncosts• Piggy-backontechnologyinvestment
Biopartenaire providesbundledproductivitysolutionmotivatedbycocoasupply;wantstooutsourcelending
Biopartenaire currentpartnershipmodelforsavingproduct
Savings
Advansprovidesfarmerswithasavingsproductandamobilechannelfordeposits
Farmergroups- eachfarmergrouphasavillagecoordinatorwhoactsasadistributionpointforinputs
BiopartenaireprovidesAdvanswithacustomerbasefortheirsavingsproduct
Biopartenairesustainabilitydepartment
Biopartenaireprovidescredit,usingthesavingsascollateral
Source:Biopartenaire documentation,fieldvisitwithBiopartenaire team,interviewswithcurrentandpotentialBiopartenaire partners,Dalberganalysis
Modelandmotivation:• Provideextensionandinputs(facilitatedbycredit)cost-neutrallyto
increasefarmerproductivitytosecurequalitycocoasupply• Movedirectfarmerlending(andrelatedrisks)frombalancesheet,
leverageAdvans’branchlessbankingsystemtoreachfarmers
Potentialsuccessfactors:• WorkwithMFIgivenmotivationandreach,high-levelstrategicbuy-in• FlexibleMOUforexperimentation,startwithsavingsproduct• SupportofIFCrisk-sharingagreementforcurrentlending
Unknowns:• CanBioPartenaire KYCdataandinsightonthe“right”farmersbe
enoughtoenableanurbanMFItostartlendingdirectlytofarmers?• Howtoquantifytherisks(e.g.side-selling)andbenefitofoutsourcing
lending
Whatisthevaluepropositionforfinancialinstitutions?AframeworkforhowlastmilepartnersreduceFIcost/risk
ProductdevelopmentincludesadvisingFIson(i)howandwhenaproductshouldbedelivered,(ii)whatproductsareneededand(iii)developingproducts,includingprovisionoftechnicalexpertiseSource:Stakeholderinterviews,Dalberganalysis
Lastmile firmsoffer… Customeracquisition Productdistribution/collection Productdevelopment* Credit riskmanagement
FarmeraggregationGroupfarmerstogethertoeasepromotion/deliveryofservices
Providesaccesstolargenumbersoffarmers,reducingsalesandmarketingcosts
Agribusinessesactaschannelsthroughwhichtosellproductsandcollectrepayments
Riskisdiversifiedandreducedbyprovidingtogroups,ratherthanindividuals
Accesstomarket/off-takingProvideaguaranteedmarket,ensuringfarmershaveincome
Off-takingprovidesknowledgeofwhat financialproducts toofferwhichcustomers
Off-takers canmakerepaymentsonbehalfoffarmersoncollectionofproduce
Knowledgeoffarmerincomeandcrop cyclescaninfluencehow productsaretailored
Off-taking guaranteesfarmersamarketandcashflow,therebyreducingriskofdefault
TechnicalassistanceProvidetraininge.g.agronomicpractices,financialliteracyetc.
Trainingonfinancialliteracy/agribusinesspromotesuptakeoffinancialproducts
TAcanhelpincreasefarmeryieldsandcashmanagement,reducingdefaultrisk
InterfacewithfarmersActas“feetontheground” andhandle farmerinteractions
Interactionsoffieldagentswithfarmerscanbeusedtomarketfinancialproducts
Assistwithdisbursing andcollectingfunds,reducingFIadminandfollowupcosts
Knowledge gainedfromfarmersisusedtoinfluenceproductspecifications/terms
Canusefarmerinteractionstoeducate onrepaymentterms$providereminders
Know-Your-Customer (Data)Collect farmerdata,e.g.income,farmsize,expenditure
DataprovidedtoFIshelpstarget highpotential/prioritycustomersfor givenproduct
KYCdatahelpsFIsdeterminecashflowcyclesand timing forcashdisbursement
DataprovidedtoFIsisusedtostructure appropriate creditandinsuranceproducts
Data onfarmershelpsselectandgainapprovalsforthemostcreditworthyfarmers
AreasofFIcostreduction AreasofFIriskreduction
Key: Doesnotcontribute Somewhatcontributes Stronglycontributes
Kifiyahasbuiltanagentandpaymentsinfrastructureandwantstoincreasetransactionvolumesandproductsales
*Asnotedearlier,Kifiyaisforemostatechnologyplatformprovider.Theyarecurrentlydevelopingagriculturefocusedproductsandpartnershipsinordertoincreasethevolumeoftransactionsthroughtheirplatform
Kifiya partnershipmodel
Farmers
Kifiyaplatform
Multi-purposecooperatives(containsKifiyaagent)
Provideextensionsupport,inputs,financeproductsetc.
One-stop-shopforMPCtofacilitatetransactions
Insurance Lending(7MFIs)
Transitcompanies
Utilitycompanies
Modelandmotivation:• Wantspartnerstodeliverfinancialservicesatscaleby
leveragingitsDFSinfrastructure(feesandcommissions)
• Lookingforinsurancecompaniestounderwriteriskandscaleupthemicro-insuranceproducttheydevelopedforfarmers
Potentialsuccessfactors:• FIpartnersmotivatedbycustomeracquisitionandgovernment
incentives• Best-in-classmicro-insuranceproductdesign(100xmore
precisesatellitedata,60%costsavingsindelivery)
Unknowns:• Actualresultsoftheinsuranceproductrollout• Progressonexpandingagentnetwork(catalystforpartnership?)
Challengestopartnershipformation
Despitethepotentialbenefitsforimprovingviabilityoffinancialserviceprovision,commonchallengesareexperiencedforpartnershipdevelopment
SOURCE:Discussionswithgranteesandtheirpartners,Dalberganalysis
FIchallenges• Trustingdataintegrity:significanttestingandanalysisrequiredbeforeusingthedata,andstillFIdatamynotbeoftherightformat/quality
• Institutionalandsystemsrigidity:Riskaversionandlayersofhierarchyacrossdepartmentsmakeithardtogreenlightanynewproductsorpartnerships
Lastmilefirmchallenges
• FindingtherightcounterpartswiththeFI,movingbeyondCSRteamandgettingbuy-inacrosssiloes• Provingcommercialviability,orachievingascalethatiscompellingforthefinancialinstitution(especiallychallengingforstartupsorbusinessmodelswhereFIpartnershipessential)
Generalchallenges
• Agreeingtotheoperationalmodel– Partnersmaystruggletoalignonrolesandresponsibilities,whichcanbetime-consumingand/orleadtodissatisfaction.
• Agreeingtocostandrevenuesharingespeciallyintheabsenceofbestpractices;e.g.,costsofeducatingandtrainingfarmers,whichmaybebreakthemodelforanyonepartner,orrevenuesfromajointinsuranceproduct
Prep-eez hasgeneratedalotofinterestbutitspioneeringmodelanddataaspirationsrequireFIstothinkoutsidethebox
Opportunityandmotivation:• Wealthoffarmerdata(KYC,etc.)offeredtomultipleFIsfor
developingnewproducts,andplatformfordeliveringthem
• Positionasinputsellerandoff-takeralignsPrep-eez withgoalofincreasingfarmerpurchasingpowerandproductivity
Challenges:• FIsmotivatedbypotentialformarketshare,buthaveto
secureinternalapprovalsacrossdepartments,somemorerisk-aversethanothers
• FIshaveneverworkedwiththiskindofalternativedatabeforesolackcertaintyonproductdesign andbusinessmodel
• Highinterestrateenvironmentdampensfarmerdemandforcredit
Pre-peez envisionedpartnershipmodel
OtherPrepeezBUs
Prepeezplatform
Insurance
(undernegotiation)
Creditandsaving
(undernegotiation)
Farmers
Farmandfarmerdata
Extensionsupport
Purchaseproduce
Accessfarmerprofiles
Accessfarmerprofiles
Provideinputs
Source:Dalberganalysisandinterviews
ECAMozambiquefacesanuphillclimbthankstosocialandpoliticalunrest,andanunderdevelopedmobileecosystem
*CDMisasubsidiaryofSABMillerSource:ECAdocumentation,interviewswithcurrentECApartners,Dalberganalysis
ECA
Initiallyenvisionedpartnershipmodel
Loanfacility Mobilepayments
Farmers
ECAdeductsinputloanpaymentsafterharvest,andpaysfarmers(currentlypaycashbutworkingtowardsmobilepayments)
AnnualloantoECA
ECA
ECAbuysanddistributesinputs
tofarmers
Off-takerpurchases
(undernegotiation)
PaymentssolutionforECAfarmers
PurchasemaizefromECA
Opportunityandmotivation:• Outgrower schemewithcloserelationshipswithsmallholders
cultivatedovertime,andlinkstolargebuyerdemand
• Mobilepaymentscanincreaseefficiencyofoperationsandreducecashrisks
Challenges:• Underdevelopedmobilemoneyecosystem(liquidity
challengesforagents)andconnectivityissues• Bankingsectorgenerallynotinterestedinsmallholdermarket• Socialandpoliticalunrestthreateningoff-takeragreements
andgeneraloperations
Factorsthatsupportpartnershipformation
Supportingfactorsinlastmilebusinesspartnershipformation(1/2)
SOURCE:DiscussionswithFRPwinnersandtheirpartners,Dalberganalysis
Category Supportfactor Waysinwhichenablingfactorpromotespartnershipsforfinancialprovision
FIswhohaveastrategyfocusedonagricultureorworkingwiththebottomofthepyramid aremorelikelytobeinterestedinpartnershipasdoingsohelpstofulfiltheirmandate.
FIswhohaveateamspecificallydedicatedtoforming/managingpartnershipsaremoreopentoinnovativeapproaches,haveexperienceinpartnershipbrokeringandarebetterabletodealwithissuesthatposechallengesinpartnershipformation.
ExistingrelationshipsbetweenAgribusinessmanagementandFImanagementcanplayanimportantroleingainingrequiredapprovals.Thesecouldtaketheformofhavingpreviouslyworkedtogether,socialnetworksetc.
Policiesthatpushinclusivefinancialserviceprovisionarelikelytoboostpartnerships.Likewise,policiesthatempowerruralcommunitiesorotherwisecreateanenablingenvironment.
Astableoperatingenvironmentispredictableandlowrisk,whichencouragesFIstotakeonnewpartnershipsandnon-traditionalavenuesofprovidingfinance.
Marketswithmorecompetitivedynamicspromotepartnerships;FIsaremorewillingtotakeinnovativeapproaches toincreasetheirmarketsharethanwhenafewkeyplayersdominate,withnoincentivetoserveruralpopulations.
Externalenvironment
Governmentpolicies
Socio-economicstability
Privatesectorcompetition
Partnercharacteristics
FIstrategy
Partnershipteams
Existingrelationships
Supportingfactorsinlastmilebusinesspartnershipformation(2/2)
SOURCE:DiscussionswithFRPwinnersandtheirpartners,Dalberganalysis
FIsarereluctanttotrustalternativedataorworkinproductstheydon’tunderstand.Well-designed,shorttermguarantees eitherfromtheagribusinessorathirdpartycansupporttrustbuilding.
FIsoftenhavelimitedinternalcapacitytodevelop/testproductsforsmallholderfarmers.Externalsupportfromtechnicalexpertscanhelpbuildtrustintheofferingofthelastmilepartner.Donor-fundingforTAmaybecatalyticiftheFIiscommittedstrategicallytoag,andsomeskininthegame.
Digital/mobileplatformsfacilitatedatacollectiononcustomers,disbursementsandrepaymentsoffundsinruralareas.Indoingsotheyserveasago-betweenbetweenthefarmers,agribusinessandFI,easingtheoperationswithinpartnerships
Presenceoffacilitators
Guarantees
Technicalsupport
Digital/mobileplatforms
Eventhoughsomesupportingfactorsarenotwithincontrol,partnerscancapitalizeonthefactorsthatare:seekingorganizationsthathavepartnershipteamsinplace,reachingouttopotentialprovidersofguarantees,obtaining
technicalsupportandleveragingdigitalplatforms
Supportingtestingsuchaspilots
Pilotsareausefulwaytotestwhetherpartnershipswillworkandwhethervaluereallyexistsforallstakeholdersinvolved.Facilitatorscanplayanimportantroleinmanaging,brokeringagreementandcapturinglessonsfrompilot
Category Supportfactor Waysinwhichenablingfactorpromotespartnershipsforfinancialprovision
PreliminaryguideforlastmilefirmsseekingtobuildpartnershipswithFIs
1.Seekpartnersw/alignedinterestsandrelevantexperience• Lookforfinancialinstitutions(FIs)withastatedstrategyinagricultureorservingtheBoP• LookforFIswithastrongdistributionfootprint• LookforFIsthathaveateamspecificallyfocusedonpartnerships• LookforFIswhereexistingrelationshipsexist• ConsiderFIswithahistoryandcultureofinnovationthatisreinforcedbyseniormanagement• LookforFIsthathaveworkedwithdonoragenciesinthepast
2.Highlightvalueproposition• Createapitchdeck• Adjustpitchdocumentationbasedonfeedback• EmphasizefactorsthatFIsaremostinterestedine.g.,marketsize,customeracquisition,costsavings,etc.• Highlighthowpartnershipcanreducebankrisk• Provide“real-life”demonstrations• TalktomultipleFis• BepreparedtopresenttomultiplepeoplewithintheFI
3.Developastructuredprocessfornegotiation,buildlinkages,andcommunicateopenly• Agreeoncommunicationnormsandprocesses• Beclearonnon-negotiables• Understandthebusinessmodelandhighlightincentivesforeachparty• Buildinoptionsforre-negotiatingterms,linkedtophasedrollout• LookforFIsthathaveworkedwithdonoragenciesinthepast• LookforFIsthathaveworkedwithdonoragenciesinthepast• Considerindependentarbiters(e.g.,donors)forcoordination,honestbrokersupport,andevenrisksharing
Guideforlastmilefirms:Seekingandnegotiatingpartnerships
Guideforlastmilefirms:Workingtogetherinpartnerships
1.Alignonvisionandclarifyrolesandresponsibilities
• Alignonavisionofwhateveryoneistryingtoachieve• Alignonrolesandresponsibilities• Seektosolvechallengestogether
2.Createsystemsforopencommunicationanddynamicfeedback
• Agreeoncommunicationnormsandprocesses• Createoutletstoensurecommunicationisopenandtransparent• Buildlinkageswithandengageseniormanagement
• Startwithapilotor“testphase”forthepartnership• Visitothersimilarpartnerships,andvisiteachother’soperations• Alignonallocationandcontributionofresources
3.Alignonavailablecapabilitiesandresources
4.Createaccountabilitymeasures
• Proactivelymonitorresultsandoutcomesandfostera“learningculture”• Wherefeasible,makethepartnershiprecognizableandautonomous• Developanescalationmechanism
Seeourlearningbriefandreportdeckhere formoreinformation
LearningBrief02:Bettertogether
Baselinereport
Furtherorupcomingreading• LearningLabandISF(2016)InflectionPoint• LearningBrief01:Thebusinesscasefordigitally-enabledsmallholderfinance• InitiativeforSmallholderFinanceBriefingNotes
• LendingaHand:Howdirect-to-farmerfinanceprovidersreachsmallholders• ValueChainFinancing:Howagro-enterprisesserveasalternateaggregationpointsfordelivering
financialservicestosmallholderfarmers• TheRiseoftheDataScientist:Howbigdataanddatasciencearechangingsmallholderfinance
• IDHSustainableTrade:ServiceDeliveryModelresearch• OpportunityInternationalValueChainPartnershipsinPractice• AGRAFISFAPstudyofhybriddata:Farmmanagementinformationsystem(MIS)data
forusebyfinancialinstitutions• MercyCorpsAgrifinAccelerateongoingworkwithpartnership-basedplatforms
includingPatientProcurementPlatforminTanzaniaandDigiFarm inKenya
THANKYOU