digital finance plus readiness in tanzania: full version

CGAP Digital Finance +

Readiness Framework

and Assessment for

Tanzania

1

Agenda

Readiness framework

Access to and reach of mobile infrastructure

Adoption and reach of digital finance infrastructure

Role of the government and regulation

Sector analysis – water

Sector analysis – education

Sector analysis – energy

Sector analysis – health

Sector analysis – agriculture

2

We assessed Digital Finance Plus readiness along

6 dimensions

SOURCE: Client Survey (Oct 2011); McKinsey Quarterly Survey (Jul 2011)

Digital finance plus enabling environmentSector-level digital finance plus assessment

4.1 Sector description

4.2 Sector impact on low-income households

5.1 Financial service needs along the value chain

5.2 Financial gap analysis along the value chain

5.3 Barriers to provision of financial products

4.3 Sector-specific actors and regulation

6.1 Potential applications of DF+ to address barriers

6.2 Viability of observed and potential business models

6.3 Scaling and execution capabilities

4.4 Sector challenges

6

5

4 3

2

1

Readiness

1.1 Technical infra-structure readiness

1.2 Telecom industry readiness

1.3 Level of adoption

3.1 Relevant financial andtelco regulation

3.2 Government support

3.3 Use of DF+ by the government

2.2 Digital finance readiness

2.3 Level of digital finance adoption

2.1 Overall financial sector readiness

3

Digital finance readiness assessment framework detail (1 of 6)

Questions Functional area

1. Access

to and

reach of

mobile

infra-

structure

1.1 Technical

infrastructure

readiness

1.2 Telecom

industry

readiness

Phase

How many nationwide mobile

phone providers exist and how is

the industry changing?

▪ Describe the industry’s structure (number and size of

national and regional players), competitive dynamics,

and where experts see the industry going

How much do mobile services

cost and how have these prices

changed?

▪ Evaluate cost information for a phone, SIM card, 1

SMS, 10 minutes of call time, 1 MB of mobile data,

and trends across geographies

▪ How ubiquitous is mobile

phone and internet coverage

in the country and how might

it change?

▪ What type of networks exist?

▪ What is their quality and how

reliable are they?

▪ Evaluate the percentage of people with coverage by

region and available network speed with a particular

focus on the differences between rural and urban

areas and projected changes over the next 2-3 years

Analyses to conduct

How much of the country actually

uses mobile services?

▪ Examine trends in the percentage of adults with

mobile phone subscriptions and mobile internet

access across regions with a focus on rural vs. urban

How often are these services

used?

▪ Examine frequency of use and types of plans

1.3 Level of

adoption

4



2. Adoption

and reach

of digital

finance

infra-

structure

2.1 Overall

financial sector

readiness

2.2 Digital

finance

readiness

Phase

What products does the financial

sector offer?

▪ Describe products/services offered and their distribution

What types of digital finance

products exist?

▪ List digital finance products (distinguish between payment,

savings, credit, insurance etc.)

Analyses to conduct

2.3 Level of

digital finance

adoption

How many adults have adopted

digital finance products?

What are these products used for?

▪ Determine the percentage of adults using digital finance

products, the percentage of transactions (payment,

savings, insurance) done via them, and reasons for any

low levels of adoption

How many adults and businesses

would be open to using digital

finance products?

▪ Determine the percentage of adults and businesses

familiar with and open to using digital finance

▪ Evaluate this across regions with a focus on urban vs. rural

What is the competitive landscape

in the financial sector and how is it

changing?

▪ Describe the industry’s structure (number and size of

national and regional players), the role and reach of non-

traditional financial players, competitive dynamics, and

where experts see the industry going

What access to them do different

segments of the population have?

▪ Evaluate access to different financial products/services

across regions

How are these products distributed

and what are the minimum

requirements for use?

▪ Describe reach of typical distribution channel

What types of providers offer digital

finance products and how might the

landscape change over the next few

years?

▪ Map products to different types of providers (e.g.,

traditional financial institutions, telcos, microfinance)

▪ Describe major product, technology, and distribution trends

5



3. Role of

the

govern-

ment and

regulation

3.1 Relevant

financial and

telco regulation

3.2 Government

support

Phase

What are government digital

finance regulations?

▪ Examine additional rules specific to digital finance entry,

operations, and end users; these include partnership

requirements to offer products, architecture

(interoperability requirements), e-payment, product

offerings, accounting practices, anti-money laundering,

who can act as agents, and KYC regulation

▪ Identify regulatory gaps and barriers preventing or

slowing the implementation of DF+

What are government regulations

around information tracking?

▪ Examine rules about what data digital finance providers

can keep, use, and sell

What are government finance

regulations?

▪ Examine the rules on who can offer what products and

how they must be sold, and the clarity of these rules

Analyses to conduct

Does the government help expand

mobile/digital payment

infrastructure?

▪ Research on budget and subsidies allocated to these

infrastructures

▪ Identify policies that would help the spread of DF+

Does the government take action

to increase the number of digital

finance players?

▪ Evaluate of awareness raising and budget allocated to

organizations for digital finance

▪ Form qualitative view of the encouragement of new

entrants and joint ventures

3.3 Use of DF+

by the

government

Does the government use digital

finance products?

▪ Identify government benefit programs/transfer schemes

that actively use DF+ (and other spending and salary

payments)

6



4. Sector

analysis

and

challenge

identifi-

cation

4.1 Sector

description

4.2 Sector

impact on low-

income

households

Phase

4.4 Sector

challenges

What is the overall value chain

for the industry and structure at

each step?

▪ Describe actors and industry structure (number of

players, size, and competitive dynamics) for each

relevant step

What is the role of the

government in each step of the

value chain?

▪ Describe the role of public financing/provision,

subsidies, and relevant regulation

What is the significance of the

sector in the country’s economy?

▪ Determine the percentage of GDP accounted for by

sector, the percentage of workforce employed within

the sector, quality of services, productivity and

competitiveness accounting for regional variance and

international comparisons

What trends will shape the

sector?

▪ Describe relevant policy, technology, and macro

changes

What services are and are not

provided to low-income

households and what determines

access to these services?

▪ Describe actual services delivered to low-income

households and identify the variation in provision by

geography, income, and other attributes

What are the key challenges

in the sector?

▪ Overview of key shortcomings in the sector along the

value chain

Analyses to conduct

4.3 Sector-

specific actors

and regulation

What is the sector-specific

regulation affecting the delivery

of services?

▪ Describe sectors specific regulation, including

competitive regulation, product regulation , access

regulation, minimum service standards, customer

protection etc.

7



5. Asses-

ment of

financial

service

needs and

gap

analysis

5.1 Financial

service needs

along the value

chain

5.2 Financial

gap analysis

along the value

chain

Phase

5.3 Barriers to

provision of

financial

products

What financial service gaps exist

at each step of the value chain?

▪ Evaluate financial service needs not being served at

all by current products or being served inadequately

across regions and provide a view of what existing

services are missing

How would the closing of each

gap increase accessibility and

affordability?

▪ Develop a perspective on which gap closings would

have the highest impact

What type of financial needs

exist for interactions across the

value chain?

▪ Evaluate financial product needed at each step

(payment access, financing, mediation, market

information, insurance, savings, etc.) and key

attributes of identified service (speed, simplicity,

timing, etc.)

What barriers to the provision of

the identified financial services

exist?

▪ Identify barriers, including a lack of physical financial

infrastructure (agent network/brick and mortar

financial institutions), information asymmetry between

actors, a lack of a cost-effective provision of the

financial service, etc.

Analyses to conduct

8



6. Digital

finance

plus

solution

feasibility

6.1 Potential

applications of

DF+ to address

barriers

6.2 Viability of

observed and

potential

business

models

Phase

Is there a feasible business

model for the product?

▪ Evaluate if there could be a financially viable business

model for this product given sector dynamics

Is there a feasible go-to-market

model to introduce this product?

▪ Evaluate go-to-market model that could achieve

necessary scale

Could a digital finance product

address the market failure?

▪ Determine if an existing or novel digital finance

product could address the market gap and overcome

the identified barriers

Analyses to conduct

What capabilities would be

necessary for a business to

successfully implement this

model?

▪ Develop perspective on capabilities and distribution

network necessary for a company to implement go-to-

market model and business model

How do those capabilities

compare with those of existing

enterprises?

▪ Map current provider capabilities to required ones

Are there actors capable of scal-

ing the existing business model?

▪ Identify the landscape of the actors in the sector and

evaluate scaling efforts6.3 Scaling and

execution

capabilities

9

Agenda

Readiness framework









10

Summary of mobile infrastructure readiness assessment

1.1 Technical infrastructure readiness

• Tanzania’s four nation-wide MNOs operate a series of networks and standards ranging from 2G to

3.5G networks

• The penetration of these networks ranges from selected cities on 3.5G networks to 85% of the

population on 2G networks

• All major MNOs have committed to and are in the process of making major capital investments in 4G

networks, while continuing to expand coverage of existing 2G networks

1.2 Telco industry readiness

• Tanzania’s telco industry features 4 main competitors, Vodacom, Airtel, Tigo, and Zantel, with the first

3 accounting for 90% of the subscriber base

• Strong four-way competition has led to competitive prices and continued product innovation, with all

players offering mobile money and selected players launching mobile savings and credit products

1.3 Level of adoption

• Mobile phone adoption in Tanzania currently stands at ~60% and, below the regional average of 74%

• However, penetration over the past 4 years has been growing at approximately 10-12% per annum

• The continued extension of network coverage, declining mobile phone costs and growing household

income are expected to raise penetration to 70-80% over the next 2-3 years

11

Tanzania has been rapidly extending mobile coverage,

which has allowed the country to rapidly catch up to its peers

1.1 TECHNICAL INFRASTRUCTURE READINESS

SOURCE: Telegeography; press

Percentage of population living in areas with mobile

phone coverage

%, 2013

Overall assessment

Percentage of population living

in areas with mobile phone

coverage

%, historically

… but coverage is quickly increasing

Tanzania’s mobile coverage is slightly lower

than that of its peers …

Type of network,

% of population

covered

Ethiopia

Ghana

Kenya

Nigeria

Rwanda

South Africa

Tanzania

Uganda

India

Bangladesh

Pakistan

Myanmar

• Tanzania lags its peers in mobile

phone coverage, with 15% of the

population living without access to

a mobile network

• At the same time, mobile coverage

has been growing at close to 20%

per annum over the past 3 years

• Mobile coverage is expected to

reach 90+ % of the population by

2016

99

99

99

95

95

95

90

90

87

85

60

35

85

75

60

50

1312112010 2016

90++19% p.a.

70

85

3G2G

12

Tanzania’s MNOs operate a series of networks covering 60

to 85% of the population, depending on network generation

1.1 TECHNICAL INFRASTRUCTURE READINESS

2G 3.5G 1G 3.5GGene-

ration

2.5G 2.5G 3G 2G 2.5G 2.5G 3G 3.5G 2.5G 2.5G 3G 3G2G 3.5G

Platform GSM GSM GSM W-CDMA W-CDMA ETACS GSM GSM GSM W-

CDMA

W-

CDMA

W-

CDMA

GSM GSM CDMA2000 CDMA2000 W-CDMA W-CDMA

Evolution None GPRS EDGE None HSDPA None None GPRS EDGE None HSPA+ DC-

HSPA+

None GPRS 1x 1xEV-DO None HSPA+

Frequency 900/1800 900/1800 900/1800 Unknown Unknown 900 900/

1800

900/

1800

900/

1800

- - - 900/1800 900/1800 800 800 Unknown Unknown

Launch Nov-01 Apr-06 Apr-06 Dec-08 Dec-08 Sep-94 Aug-00 Aug-06 Aug-06 Q1 2011 May-13 Sep-13 Aug-99 - Nov-06 Nov-06 May-12 May-12

Status Live Live Live Live Live Shut

down

Live Live Live Live Live Live Live Live Live Live Live Live

Network

Details

Jan-14:

~85%; Dec-

11: 65-70%

(est.)

Jan-14:

88%; Dec-

11: 65-70%

(est.)

Jan-14:

~75%; Dec-

11: 65-70%

(est.)

Jan-14:

70% (est.);

Sep-11: Dar

es Salaam

Jan-14:

~70% (est.),

Sep-11: Dar

es Salaam

- Jan-14:

85%

(est.);

Dec-11:

67%

(1,173

BTS);

Dec-10:

63%

(1,057

BTS);

Dec-09:

60%

Jan-14:

80%

(est.);

Dec-11:

62%

(est.);

Dec-10:

60%

(est.)

Jan-14:

50%

(est.);

Dec-11:

35%

(est.);

Dec-10:

30%

(est.)

Jan-14:

70%

(est.)

Jan-14:

~20

cities

and

towns

(est.)

Jan-14:

only

selected

city

centers

Jan-14:

70% (est.);

Dec-11:

60% (est.);

Sep-10:

50% (est.)

Jan-14:

~50% (est.),

main towns

and cities

only

Jan-14:

Zanzibar,

Pemba, and

Dar es

Salaam

Jan-14:

Zanzibar,

Pemba, and

Dar es

Salaam

Jan-14:

Zanzibar

only (plans

expansion

to Dar es

Salaam and

other cities)

Jan-14:

Zanzibar

only (plans

expansion

to Dar es

Salaam)

2G 4G2.5G 2.5G 3G 3.5G 3.5G

GSM GSM GSM W-

CDMA

W-

CDMA

W-

CDMA

LTE

None GPRS EDGE None HSDPA HSUPA None

900 900 900 2100 2100 2100 800/

1800

Jul-99 Apr-06 Jul-07 Feb-07 Feb-07 Feb-07 -

Live Live Live Live Live Live In

deploy-

ment

Jan-14:

85%-90

(est.);

Dec-11:

75.8%

Jan-14:

85%-

90%

(est.);

Dec-11:

75.8%

Jan-14:

>50%

(select-

ed towns

and

cities)

Jan-14:

70%

(est.);

available

in

around

40 towns

and

cities

Jan-14:

70%

(est.);

available

in

around

40 towns

and

cities

Jan-14:

70%

(est.);

available

in

around

40 towns

and

cities

Laun-

ched six-

month

trial in

Msasani

Penin-

sular

district of

Dar es

Salaam

with

NSN in

Jan-13

2G network at ~85% 2G network at ~85% 2G network at ~85% 2G network at ~70%

SELF-REPORTED FIGURES MIGHT BE OVERSTATED

//upload.wikimedia.org/wikipedia/en/8/8d/Bharti_Airtel_Limited_logo.svg


http://en.wikipedia.org/wiki/File:Tigo.JPG


13

93 7

The top four MNOs in Tanzania own 99% of the mobile

market (1/2)

1.2 TELECOM INDUSTRY READINESS

Assessment

Number of mobile phone providers in Tanzania

Growing number of providersHigh market shares of top three operators

2013

8

12

8

11

7

2010

7

Market share of top 3-5 players, %Number of MNOs1 No

84 15

93 7

83 17

100

1 Mobile network operator

SOURCE: WCIS

98

2

82 17

Tigo Tanzania 6,297

52

Zantel 1,803

8,996

Vodacom Tanzania 10,289

Benson Informatics

0

Smile Tanzania

0Telesis

Hits

1

3

Sasatel 4

TTCL

Airtel Tanzania

Number of subscribers

000s

100

55 24

1089

72 28

100

4

12

8

8

3

Ghana

Kenya

Nigeria

Rwanda

South Africa

Tanzania

Uganda

5

6

1Ethiopia

1

1

1

1

India

Bangladesh

Pakistan

Myanmar

Top 3

Top 4

Top 3

Top 3

Top 5

Top 3

Top 5

Top 3

Top 5

Top 3

Top 5

Top 3

Top 5

Top 1

Top 3

Top 3

Top 3

Top 1

Top 5

Top 5

Top 5

MNO

• Tanzania’s mobile phone industry is dominated

by 4 relevant players that control more than 99%

of the market; this consolidation is similar to that

observed in peer countries

• The number of providers has roughly stayed the

same over the past few years

• All major providers cover the key population

centers allowing for significant competition





14SOURCE: WCIS; Telegeography; BMI

Assessment

Airtel

Benson

Tigo

Zantel

Vodacom

Tanzania

Number of subscribers

000s; 2013

0

0

10,289

8,996

4

52

3

1

6,297

1,803

TTCL

Smile1

Description/history

Telesis

1 Smile is a wireless broadband operator, it does not offer voice services

Hits

Sasatel

Tanzania’s MNOs have taken different strategies to acquire and retain customers

• The Tanzanian mobile phone market

features strong competition with

incumbents and new entrants

actively competing for market share

• Players compete <_> diverse

strategies including innovative

service offering (Vodacom), network

coverage (Airtel), and low pricing

(Zanzibar Telecom)

• Ahead of competition on introducing innovative

services but only regains subscribers after

2011/2012 loss

• Substantial investments resulted in the widest

mobile broadband coverage, but high prices

limit service uptake

• Aggressively expanding coverage, low tariffs,

and promotions enable it to quickly gain

market share

• Owns modern infrastructure, capable of

providing fast data services, but reliance on

CDMA blocks smooth migration to LTE

• High prices and limited coverage prevent quick

customer uptake despite modern infrastructure

• Simple tariffs and affordable broadband

enable growth but lack of scale prevents fast

expansions

• 20 years of mobile experience in Tanzania

combined with developed infrastructure

enables it to maintain third place in the market;

recently aggressive in marketing

The top four MNOs in Tanzania own 99% of the mobile

market (2/2)






15

Tanzania’s MNOs offer an advanced set of digital finance

products

SOURCE: GSMA “Mobile Money Tracker”; Operators websites

Similar services offered by playersSimple mobile payments offering

Rwanda

Ghana

Kenya

Tanzania

Uganda

0

1

1

2

3

3

3

4

4

4

4

7

0

0

1

1

0

0

0

1

1

3

3

0

Simple digital

payment

product1

Advanced

digital

payment

product2

Number of MNOs offering digital finance products Description of product offering for biggest telco providers

Airtel

MIC

Tanzania

Limited

Vodacom

Tanzania

Zantel

South Africa

India

Nigeria

Bangladesh

Pakistan

Ethiopia

Myanmar

Basic Advanced

1 Simple: operator offers only bill payments, airtime top up, domestic money transfers, bulk payments, merchant payments

2 Advanced: in addition to the above, operator offers services such as loan repayments, debit, insurance, other banking products

Assessment

• Vodacom leads

the digital financial

service innovation

in Tanzania

offering the

broadest digital

finance product

portfolio

• Tanzania’s telco

industry compares

favorably with

other countries

based on its

offering of digital

finance products






16

Mobile phone access remains relatively expensive in Tanz-

ania, smaller players/new entrants provide lower price options

Assessment

5

10

11

6

5

14

70

50

45

54

50

47

6

6

5

5

4

3

Cost per

sec1

Cost per

SMS

Cost per 1

MB2

Airtel

Benson

Tigo

Zantel

Vodacom

Tanzania

New entrants and smaller players are providing lower cost

options

SOURCE: WCIS; company websites

TTCL

Smile3

1 For calls to other networks (off-net); 2 Based on monthly bundled plan of 5GB except Smile for which 3GB data plan was analyzed;

3 Smile Tanzania offers only mobile broadband services

n/a n/a

n/a4

5

7

8

10

11

13

14

Cost of comparable monthly prepaid access1

USD at PPP

n/a

n/a

n/a

n/a

South Africa

Tanzania

Uganda

Nigeria

Ethiopia

Kenya

Rwanda

Ghana

Pakistan

Bangladesh

India

Myanmar

Mobile phone access remains relatively expensive

in Tanzania

• Tanzania’s mobile

phone sector offers

a healthy set of

prices with new

entrants providing

low-cost

alternatives to

incumbents


in TZS





17

Mobile phone penetration in Tanzania remains below peer

average, however penetration is rising quickly

1.3 LEVEL OF ADOPTION

12

27

58

60

63

67

69

70

72

73

109

138

2

3

1

1

2

2

1

1

9

n/a

n/a

n/a

Mobile pene-

tration1

% of population

Mobile

internet

penetration

% of population

1 Not adjusted for multi-SIMming, i.e., individuals may own more than one SIM card and be counted multiple times

60

55

50

42

201312112010

+12% p.a.

Overall assessmentGrowing mobile penetrationTanzania’s mobile penetration is similar to its peers

Ghana

Nigeria

South Africa

Tanzania

Kenya

Mobile penetration

% of population

SOURCE: Analyses Mason; WCIS

Uganda

India

Rwanda

Bangladesh

Ethiopia

Pakistan

Myanmar

2013

• Tanzania’s mobile phone

penetration is below its regional

peers

• Over the past 3 years, Tanzania

has added approximately 5% of its

population to the subscriber base

annually

• Often penetration does not fully

reflect true access of different

people within a household, leaving

some question as to female access

to services

18

Access to mobile phone for rural, unbanked, and low-income

households is substantially lower than middle-/high-income households

Tanzania’s mobile phone access differs by household groups

SOURCE: FITS household survey

2012

• A substantial gap in mobile

phone access exists

between the group of

rural/unbanked/low-income

households (55-57%) and

the group of middle-/high-

income households (76%)

Household

consumption

above$2/day

Rural

Unbanked

Household

consumption

below $2/day

76.0

57.0

58.0

55.0

63.0

Households

that have or

can borrow a

mobile phone

Assessment

Percentage of total households

1.3 LEVEL OF ADOPTION

19

Agenda

Readiness framework









20

Summary of digital finance infrastructure readiness

assessment

2.1 Overall financial sector readiness

• Tanzania’s banking sector includes 50 licensed banks and a number of regulated and unregulated

microfinance institutions

• Despite the large number of licensed institutions, the formal banking sector serves only 14% of the

population, focusing predominantly on the urban salaried workers and commercial lending

• A number of attempts by large commercial banks to extend their products to the unbanked have

resulted in significant write-offs and their subsequent withdrawal from this segment

• Micro-finance institutions are the only players extending significant credit to low-income households,

credit procedures and collateral / guarantor requirements are however burdensome and constitute a

serious barrier to credit

2.3 Level of digital finance adoption

• Mobile money has experienced exponential growth over the past 5 years

• Starting from virtually no use in 2009, mobile money uptake has increased to over 11 million users in

2013, which equals 49% of the adult population

• Key uses of mobile money are sending and receiving money (predominantly from remittances

payments,) which account for almost 70% of all mobile money transactions

2.2 Digital finance readiness

• A notable barrier to mobile money adoption is still the lack of access to mobile phones for significant

parts of the population

• Rural penetration of mobile money remains relatively low and account activitiy while growing is still

low

21

10

14

19

40

50

Uganda

Rwanda

South Africa

Kenya

Tanzania

Tanzania’s banking sector includes 50 licensed banks, with the top 10

banks accounting for ~75% of lending and ~85% of deposits

Number of licensed banks

Assessment

255,553

303,036

319,813

399,950

413,818

438,583

491,904

654,446

1,354,770

1,806,865

444,562

313,715

556,359

686,711

700,927

886,162

1,291,335

2,288,263

2,582,328

3,918,095

20.6

15.4

7.5

5.6

5.0

4.7

4.6

3.6

3.5

2.9

23.4

15.4

13.7

7.7

5.3

4.2

4.1

3.3

2.7

1.9

2.1 OVERALL FINANCIAL SECTOR READINESS

…and market share is split among the leaders

M/s, %

Top 10 banks hold 73.3% of the loan market

Top 10 banks hold 83.6% of the deposit market

Top 10 banks in Tanzania by deposits, 2012

Top 10 banks in Tanzania by loans, 2012

Total loan volume in TSH millions

Total deposit volume in TSH millions

Tanzania has more banks than its peers…

• Tanzania has a diverse

banking sector with over 50

licensed players

• While the formerly state-

owned banks still dominate,

a number of regional and

international banks have

achieved considerable

market share

SOURCE: Bank of Tanzania

22

Tanzania’s banking sector has become more competitive,

but it still lags peer countries

0.56

0.30

0.10

0.35

0.47

0.27

0.11

0.19

Ethiopia

Kenya

Uganda

Bangladesh

Tanzania

Ghana

Nigeria

India

Rwanda

South Africa

n/a

2005 2010

0.59

0.36

0.31

0.29

0.27

0.24

0.22

0.16

0.15

0.15

• Tanzania’s

competitiveness

has substantial

improved over the

last couple of

years

• Compared to ist

regional peers

especially South

Africa and Rwanda

competitiveness

remains low

Top 3 banks’ market power (Lerner index) Assessment


SOURCE: Tanzania Banking Survey

23

A high use of non-bank products compensates

Tanzania’s low penetration of bank product

Assessment

29

41

14

33

23

34

26

21

14

38

18

44

10

19

7

9

7

9

8

8

16

17

30

15

24

42

14

10

25

33

26

40

28

44

41

30

63

75 11

Rwanda

Nigeria

Zambia

Uganda

Zimbabwe

Ghana

South

Africa 4

Tanzania

Botswana

Kenya

Financially excluded

Use informal mechanisms only

Have/use non-bank products

Have/use bank products

34.4

13.7

20.1

7.3

38.7

51.4

6.8

27.6

Rural Urban

Tanzania lags peers in bank product use Gap driven by rural consumers


• Tanzania has the lowest rate of

bank product use among its

peers

• Low penetration is driven by the

focus of the formal banking

sector on the urban salaried

worker

• Uncollateralized lending to low-

income households is virtually

absent from the system

• Tanzania’s high level of non-

bank financial product use is

driven predominantly by a rise in

mobile money use

• Non-bank product use is

particularly high in urban areas

where over half of urban

consumers use mobile money

Percentage of adult population with

particular financial products, 2013

Percentage of adult population with

particular financial products, 2013

SOURCE: FinScope

24

MFIs are the only financial institutions extending significant credit to

low-income households

Tanzania market profile

MFIs Borrowers

AccessBank – TZA 15,819

Akiba 27,111

BRAC – TZA 104,225

ECLOF – TZA 5,051

Equity Bank Tanzania 7,176

FINCA – TZA 82,288

IDYDC -

K–Finance 572

MBF 2,478

Mbinga Community Bank 6,053

Mtoni 1,351

MuCoBa 5,601

Mwanga Community Bank 8,314

NMB -

Opportunity Tanzania 8,959

PRIDE – TZA 100,055

PTF 6,108

SEF – TZA 1,198

SELFINA 7,746

Tujijenge 8,265

Victoria Finance 155

VisionFund TZA 33,394

YOSEFO

Loans

USD

32,596,119

46,766,487

20,267,459

1,467,041

60,487,310

29,593,107

354,157

194,029

212,031

908,172

2,004,364

4,024,608

5,140,608

773,508,940

6,206,129

37,028,179

1,147,468

263,569

4,002,088

775,268

342,857

7,080,836

2,521,617 18,120

1. NGO MFI

(not regulated)

2. Microfinance companies

(regulated by BoT with lower capital

requirements than regular banks)

3. Commercial and community banks

(regulated by BoT)

4. Savings and credit cooperative

societies

(regulation limited to annual audit)

Tanzania recognizes 4 types of

microfinance institutions with

different levels of regulation

Lending to low-income households

requires:

- Significant collateral

- Multiple guarantors

- An involved application process

with often multiple visits

- rates vary between 30-80 p.a.


SOURCE: Tanzania Banking Survey

25

Tanzanian access to formal sector finance has increased in

recent years largely because of the adoption of mobile money

Adults served

by the

non-bank

formal sector

Banked adults

55.9

13.1

13.8

9.1 6.3

Insurance

13.0

49.0

1.1

Use mobile

money

4.5

MFI/SACCOS

member

4.4

Assessment

13.6m

2.8m

3.4m

1.9m

11.9m

0.2m

3.1m

1.3m

Percent

1.1m

1.0m

% of adults 2009% of adults 2013

This increase in non-bank service is driven

by mobile money

Growth has been driven by the non-bank

formal sector

2.2 LEVEL OF DIGITAL FINANCE ADOPTION

• The rise of mobile

money is driving

Tanzanians’ increased

financial access

• Banks and insurance

providers have also

played a substantial role

in this rise as each

industry increased users

by over 1 million

between 2009 and 2013

• MFI/SACCOS

membership remained

relatively constant,

suggesting enrollment

may have plateaued

SOURCE: FinScope

26

Approximately 70% of mobile money users predominantly

use the service to send or receive money

25.6

Pay bills,

fees, and

business

transactions

37.6

Save or store

money

33.1Send money

Receive money

9.9

Assessment

8.0

Percent

2.4

Uses of mobile money

2.2 LEVEL OF DIGITAL FINANCE ADOPTION

• While mobile money

has seen significant

growth, subscribers

predominantly use it

for sending and

receiving money

• Efforts to expand

usage to general

business transactions

are in early stages

11.9

Use mobile

money

9.1

6.2

SOURCE: FINSCOPE

Millions, in million Households, in

million

27

Use of mobile money differs substantially between

rural/unbanked/low-income and mid-/high-income households

Tanzania’s mobile money penetration

SOURCE: FITS household survey

• Tanzania’s mobile phone

penetration is in line with its

peers

• Over the past 3 years,

Tanzania has added

approximately 5% of its

population to the subscriber

base

• Often penetration does not

fully reflect the access of

different people within the

household, leaving some

question as to female access

to services

Household

consumption

above$2/day

Rural

Unbanked

Household

consumption

below $2/day

53.0

29.0

29.0

25.0

35.0

Mobile money

user in houshold

Assessment

2.2LEVEL OF DIGITAL FINANCE ADOPTION

2012, Percent

28

Of the non-users of mobile money, the majority quote the

lack of a mobile phone as the key barrier

Assessment

PercentFor products beyond payment, more fun-

damental product questions need to be

addressed first, not addressed in chart

The lack of a mobile phone is the main

barrier to mobile money adoption

2.3 DIGITAL FINANCE READINESS

• The lack of a mobile

phone remains a

serious obstacle to

adoption for mobile

payments

• For other mobile

products such as

insurance and credit,

knowledge of the

product itself is the key

barrier

• Digital finance can

address these problems

more effectively than

bricks and mortar

branches by using

mobile technology to

educate and reach

potential consumersHigh fees

Knowledge

about registration

4.5

8.3

Distance to mobile

money agent8.5

Don’t have

mobile phone60.4

4.8

5.6

Don’t know

product

Cannot

afford15.4

Does notknow howit works

Does notknow whereto purchase

64.2

Insurance

Credit product

8.0

Don’t know

product

Cannot

afford35.2

Does not

know where

to purchase

37.5

SOURCE: FinScope

29

Agenda

Readiness framework









30

The telco industry is regulated by the Tanzanian Communication Regula-

tory Authority that is implementing a series of key regulatory initiatives (1/2)

Telco regulatory framework

• Tanzanian Communication

Regulatory Authority

• Provide effective

competition

• Protect consumer interest

• Regulate rates and

changes

• Manage radio frequencies

Stability • In place since 2003, and

has introduced significant

regulation

i. Interconnection fees regulation

Termination charge set by TCRA, TZS

• Significant focusing of lowering termination charges to

increase competition among mobile phone subscribers

• Introduction of rate schedule that is designed to reduce

termination charges from 112 TZS to 26.96 TZS by 2017

26.9628.5730.5832.4034.12

112.00

2017161514132012

Telco

Regulatory playing field Key regulatory initiatives

3.1 RELEVANT FINANCIAL AND TECLO REGULATION

Regulator

Task

31

The telco industry is regulated by the Tanzanian Communication Regula-

tory Authority that is implementing a series of key regulatory initiatives (2/2)

Telco regulatory framework

ii. Mobile SIM registration

Telco

Key regulatory initiatives

• Compulsory registration of all active SIM cards

nation-wide

• Hosted June 2009, final deadline postponed to 2013

• Disconnection of 650,000 subscribers for failure

to register

iii. Mobile number portability

• Regulatory initiative to enable the portability of

mobile numbers when switching MNOs

• Part overall reform package aimed at increasing

competition between MNOs

• Originally planned for 2013, postponed to 2014 to

allow for technical implementation

iv. Universal Service Access Fund

• Dedicated financing vehicle to increase mobile

connectivity in rural areas

• Bid-based tenders for subscribers to expand

coverage to underserved areas

• A number of contracts awarded in 2013 to all

four major MNOs


32

The banking sector is regulated by the Bank of Tanzania

Banking regulatory framework

• Bank of Tanzania

• Prudential regulation

• Operational guideline and

regulation

• Sector-wide and player-

specific risk management

• Further financial inclusion

• Regulator for over 15 years

i. Credit bureau

• The BoT has recently licensed two credit bureaus to

compile data from all licensed banks and MFIs

• Credit bureaus are currently establishing reporting

relationships

Telco

Regulatory playing field Key regulatory initiatives

i. National ID card system

• Tanzania is introducing a national ID system that uniquely

identifies each citizen

• In conjunction with the credit bureau, this system is

expected to significantly raise credit provision

i. Agency banking

• The BoT has recently introduced a new agency banking

framework enabling the delivery of banking service through

licensed agencies

• Agency banking is expected to substantially lower cost and

widen access to financial services

Stability

Regulator

Task


33

Agenda

Readiness framework


Sector analysis and challenge identification

Assessment of financial service needs and gap analysis

Digital finance plus feasibility assessment





SOURCE: Source




34

Key takeaways: Agricultural sector analysis and challenge

identification

AGRICULTURE – SECTOR ANALYSIS AND CHALLENGE IDENTIFICATION


4.3 Sector-specific actors and regulation



• The Agriculture sector suffers from low productivity, which can be understood by evaluating several drivers across the

value chain (land, inputs, mechanization, extension, aggregation, marketing), including

– Small average plot size per farmer relative to peers, lack of widespread access to improved seeds and fertilizer, weak

irrigation infrastructure, inadequate provision of extension services, low access to agronomic information, and low

producer prices due to lack of bargaining power and poor dissemination of market information

• The government has recently relaxed its regulation of the sector – farmers are able to circumvent the burdensome

(government-controlled) cooperative legislation to self-organize into free-enterprise associations. Export restrictions on

cereals have also been relaxed, enabling farmers to net higher incomes

• However, there is still inadequate public investment in the sector – the government has only dedicated 6% of the

national budget to the sector, falling short of its 10% commitment under the Maputo Declaration

• The great majority of farmers in Tanzania are smallholders – there are estimated to be more than 5 million farming

households in the country

• A majority of smallholders are subsistent agriculturalists – they consume a majority of what they produce and bring a very

small surplus to market

• Tanzania is highly dependent on agriculture for economic output and employment, as it constitutes 27% of GDP and

accounts for ~75% of employment

• Two out of three Tanzanian farmers produce food crops - 85% of cereal production consists of maize and rice (paddy),

which are the two most important crops

• The sector has several stakeholders – inputs (seeds, fertilizer, chemicals) are supplied by major international input

companies and local agro-dealers, production is mostly done by smallholder farmers, with a few large-scale commercial

farms for cash crops (e.g., horticulture, legumes), extension support is provided by the Ministry of Agriculture,

aggregation (where it exists) is done by producer associations, and marketing is done by traders; several local and

international NGOs also play along the value chain

35

Tanzania is highly dependent on agriculture for economic output

and employment, similar to other developing economies in Africa

SOURCE: World Bank (2010); CIA Factbook; team analysis

Other

75

5

20

Agriculture

100% =

2011

Industry

Services

25.59 million

employed

With a strong majority of the workforce employed by agriculture, this sector will be critical to reducing poverty

4.1 AGRICULTURE – SECTOR DESCRIPTION

Mozambique

5%

10%

15%

20%

25%

30%

35%

250 500 750 1,000 1,250 6,000 10,000 50,000

0%

-5%

0

Tanzania

Kenya

Uganda

Zambia

China

South

Africa

Brazil

USA

GNI/Capita

% of agriculture contribution in national GNI Workforce breakdown by sector, %

http://iconbug.com/download/size/256/icon/8086/button-flag-zambia/

http://iconbug.com/download/size/256/icon/8086/button-flag-zambia/

36

100

90

80

70

60

50

40

30

20

10

0

2020E2015E20102000

The majority of agricultural activity is focused on cereal

production

SOURCE: Kilimo Kwanza; ASDP; ASDS; CAADP Compact. CIA Factbook; FAO (2013)

Market value by

agricultural product

%

Area planted by crop

type

100% = 8.8 million ha

Area planted by

cereal type

100% = 5.8 million ha

70

16

10

4

Maize

Paddy

Sorghum

Millet

Wheat

2010

1

72

15

8

6

Crops

Livestock

Hunting and

forestry

Fishing

2010

100% =

TZS 4.1 trillion

66

11

11

7

Cereals

Pulses

Oil seeds &

oil nuts

Cash crops

Roots & tubers

Fruits &

vegetables

2010

31

Agriculture

Services

Manufacturing/Industry

Key takeaways

Real GDP by sector

%• Agriculture

contributes a

significant share to

GDP, although the

relative GDP

contribution is

projected to

decline over time

• Cereal production

comprises the

largest share of

agricultural

production, with

maize being the

most important

crop


37

The Tanzanian agriculture sector suffers from low productivity

as evidenced by the poor yields in its major crop

SOURCE: Ministry of Agriculture; FAO (2013); FAOSTAT

Tanzania scores at the bottom of its peers in maize yields

Zambia 2,244

Uganda 2,686

Mozambique 854

Tanzania 1,366

Kenya 1,393

Malawi 1,650

Ghana 1,737

Ethiopia 2,137

749

1,667

2,193

1,240

1,871

3,059

2,655

2,499

2008 2012

CAGR

%

-2

4

9

2

7

5

-2

-3

Maize yield

Kg/ha

Key takeaways

• One of the major

impediments to agricultural

growth is the low

productivity of land and

labor

• Maize yields of 1.2 MT/ha

are ~40% lower than

peers’ average

• Tanzania’s maize

productivity has declined

even as peers have

registered large

productivity gains over a 5-

year period

• Key factors driving the

poor performance include

– Low public expenditure

on R&D, inadequate

financing, poor

production techniques,

underdeveloped

markets, poor rural

infrastructure


38

Growth in the agricultural sector is hindered by a number of

bottlenecks along the value chain and beyond

▪ Small arable land

utilization: only

30% of potentially

productive area

under agricultural

production

▪ Limited average

plot size:

smallholders

control 0.9-3.0 ha

on average

▪ Onerous

administrative

procedures:15-

step process to

obtain a land title

▪ Inconsistently

enforced land

rights

▪ Low fertilizer

application: Only 9

kg/ha used, ~40%

lower than peer

average

▪ Weak demand for

improved seeds:

farmers are unable

to purchase even

limited offerings on

market, only

absorbing 40% of

stock

▪ Underdeveloped

capacity of agro-

dealers: lack of

business skills and

unattractive margins

to serve

smallholders

▪ Inefficient

government input

subsidies: late

payments and non-

functioning vouchers

▪ Farmer information

constraints:

inadequate agrono-

mic knowledge on all

aspects of production

▪ Inadequate

extension services:

too little staff with

inadequate resources

and underdeveloped

capacity

▪ Low level of

mechanization: only

24% use animal

traction and 13% use

mechanical power

▪ Budget constraints:

insufficient allocation

and late

disbursement of

funds by government

to extension works

▪ Heavy reliance on

natural elements:

predominantly rain-

fed agriculture is

highly susceptible to

adverse weather

conditions

▪ Unavailability of

long-term storage:

only 1% of farmers

have access, forcing

remainder to sell at

low prices to avoid

spoilage

▪ Cash flow

constraints:

farmers have urgent

need for cash so

can’t afford to hold

produce

▪ Underdeveloped

physical

infrastructure:

dearth of all-weather

roads in rural

regions

▪ Low level of

private investment:

smallholders and

enterprises lack

access to financing

▪ Weak market

linkages:

underdeveloped

relationships

between agro-

processors and

producers,

especially in value-

adding schemes

Ch

all

en

ge

s

▪ Low level of

commercialization:

majority of produce

consumed in the

home

▪ Non-consolidated

aggregation/off-

take: fragmented

producer base with

weak negotiating

power

▪ Poor price

discovery: non-

transparent

commodity pricing

▪ Weak market

linkages:

underdeveloped

relationships

between agro-

processors and

producers

1 432 65

1.1

1.2

1.3

1.4

2.1

2.2

2.3

2.4

3.1

3.2

3.3

3.4

3.5

4.1

4.2

4.3

5.1

5.2

5.3

5.4

6.1

6.2

4.4 AGRICULTURE – SECTOR CHALLENGES

39

Several actors are involved in the agricultural value chain

Private

sector

Govern-

ment

FBO

NGOs

Key value-chain focus

Stakeholder Examples Land Input

Prod-

uction

Sto-

rage

Marke-

ting

Pro-

cessingDescription

Seed and

input

companies,

agro-dealers

Mix of international and local companies

import/produce seed, fertilizer, and crop protection

products; distribution happens at the local level by

agro-dealers

Commercial

farms

Large scale, mechanized crop production and value-

added processing ; could also involve model plots

and outgrower schemes for and knowledge transfer

initiatives to involve smallholders

Traders Small-scale traders purchase commodities at the

farmgate and sell them on to agro-processors (e.g.,

mills, food processors)

Warehouse

receipt

program

Warehouse operators provide infrastructure and tools

for fumigation, storage; and packaging of

commodities. Collateral managers also provide

receipt verification, financing, and deposit insurance .

Development

institutions,

social

enterprises

Organizations provide support to farmers and fund

initiatives all along the value chain, including by

providing inputs, giving agronomic and business skill

training, and enhancing market linkages

Extension

agents

Free locally based government agents providing

farmers with training on an ad hoc basis, including

through field demonstrations and test plots

Farmer

cooperatives,

SACCOs

Producer associations whose objectives include

increasing access to improved inputs, extension

services and market; some organizations, like

SACCOs, have a long history of effectively providing

loans and facilitating access to capital


http://www.sxc.hu/browse.phtml?f=download&id=958086&redirect=photo




40

Currently, Tanzania is only utilizing

~30% of 37 million hectares of arable land

SOURCE: FAOSTAT

Non-arable

50.5 mil ha (53%)

11

15

20

30

31

41

48

65

Mozambique

Zambia

Kenya

Ghana

Tanzania

Ethiopia

Uganda

Malawi

Share of arable land used under agricultural

production, %

Total arable

land

Million ha

Total Tanzania land

100% = 88.5 million haArable land utilization

100% =

Non-arable

Arable

2011

88,580

58

42

5

14

36

37

16

27

23

49

1


41

Key takeaways

3

1

5

17

18

32

36

42

Uganda

Mozambique

Tanzania

Ethiopia

Ghana

Zambia

Kenya

Malawi

SOURCE: Ministry of Agriculture; FAO; FAOStats; IFPRI

8

9

22

29

49

28

30

2

Tanzanian farmers make negligible use of fertilizers on their plots

2007 2011

CAGR

%

-8

-7

11

13

7

15

29

10

Fertilizer usage

Kg/ha

Tanzania has very poor usage of inputs: fertilizer


• Although fertilizer use

in Tanzania has gone

up in the past few years,

Tanzanian farmers continue to

apply ~40% less fertilizer/ha

than their peers’ average

usage

• Low fertilizer usage is driven

by a few factors

– Poor access to credit:

both farmers and

importers/wholesalers

suffer from financing gaps

– Farmer information

constraints: inadequate

agronomic knowledge on

proper use of fertilizer for

specific crop types and

ecological conditions

Related to

financing gap2

42

…as they face several challenges in accessing and purchasing

them, despite their many benefits

83

17

100% =

2011

37.2 M ha

Planted area with improved seeds, %

With improved

seeds

Without improved

seeds

Tanzanian farmers make little use of

improved seeds …

SOURCE: FAOStats; team analysis

Tanzania has very poor usage of inputs:

improved seeds

• Demand for improved seed by Tanzanian farmers is diminished

because of number of factors, including

– Lack of smallholder pricing power: fragmentation of farmer

base inhibits negotiating power through bulk purchases

– Inadequate access to financing: credit provision for farmers

and agro-dealers is limited; banks do almost no lending to the

former, and do limited lending to latter via credit guarantees

– Poor government subsidy program administration:

government subsidy payments to agro-dealers are often late and

sometimes subsidy vouchers are not honored at point of

redemption

– Underdeveloped capacity of agro-dealers: low incentive to

serve smallholders because of the high cost of service and lack of

business skills to weather low-margin business

Related to

financing gap


2

43

67

33

100% = 5.8 M households

Households receiving extension

advice, %

Extension advice

received

Extension advice

not received

SOURCE: National Sample Census of Agriculture 2007/2008; Wageningen University and Research Center; IFPRI

… and even those receiving them face serious challenges in the

quality and efficacy of services provided

Relatively few smallholder households

have access to extension services…

Tanzanian farmers receive low-quality extension

services to assist them in their cultivation practices

• Extension services are essential to enhancing agricultural

productivity by teaching smallholders farm management skills

including, inter alia, correct land preparation, timely planting, pest and

disease control, and soil nutrient balancing

• Extension in Tanzania is almost entirely financed by the

government via the Ministry of Agriculture Food Security and

Cooperatives (MAFC)

• The provision of adequate extension services is limited by a few

factors, including

– Low budget allocation: insufficient funding to hire an adequate

number of personnel and provide them with resources to carry out

impactful demonstrations and field experiments

– Late budget disbursement: sporadic and often delayed

payments of extension workers and for tools

– Poor capacity: extension workers suffer from low education

levels and weak morale, thus limiting their ability to counsel

farmers

– Weak transport infrastructure: absence of reliable means

(roads, public transport, etc.) for extension workers to reach

farmers

Related to

financing gap


3

44SOURCE: National Sample Census of Agriculture 2007/2008; IFAD; Team analysis

1.8%

2.1%

Not stored 16.4%

In locally made traditional structure 33.6%

In sacks/open drum 44.5%

In airtight drum

In improved locally made structure

Few Tanzanian farmers have access to proper storage options …

Method of harvest storage

%

… due to the absence of infrastructure

and financing options

Although 90% of smallholders store their produce, most

use suboptimal conditions and put their commodities at riskRelated to

financing gap

Ideal storage

methods

• Having adequate access to storage

facilities is important because it enables

producers to maintain the integrity of

their surplus produce; post-harvest

losses range from 25 to 35% of yield in

areas where that lack proper facilities

• Storage is also crucial to enable farmers

to hold their post-harvest commodities to

take advantage pricing cycles

• However, a dearth of storage

infrastructure, a lack of access to

credit, and their immediate need for

cash prevents farmers from investing in

storage infrastructure and/or holding on

to their commodities for the desired

length of time


4

45SOURCE: National Sample Census of Agriculture 2007/2008; Team analysis

0%

1%

1%

1%

2%

3%

5%

5%

15%

67%

Government regulatory problems

Marketing problems

Cooperative problems

No buyer

Lack of market information

No transport

Crop market too far

Transport cost too high

No problem

Open market price too low

Low prices are the biggest driver of dissatisfaction for farmers

Several challenges remain in redressing

marketing gaps

Farmers experience various marketing

problems when selling their produceRelated to

financing gap

• Most households report that the open

market price for their produce is too low;

this is driven by a number of factors,

including

– Non-consolidated aggregation/off-

take: fragmentation of producer base

leads to weak negotiating power against

traders

– Poor price discovery: inadequate

farmer ability to discern market prices

and drivers

– Weak market linkages: few

relationships between farmers and agro-

processors/other end customers in high-

touch production and marketing

arrangements (e.g., outgrower schemes,

contract farming)

– Government policy: export bans on

staple crops prevent farmers from taking

advantage of higher prices in neighboring

countries


5

46SOURCE: Comprehensive Africa Development program (CAADP); TAFSIP

99

1

Share of agro-products processed, %

Not processedProcessed

Tanzania does negligible value addition

to its agro product The challenges to the agro-processing industry are manifold

The level of value addition through agro-

processing in Tanzania is very lowRelated to

financing gap

• Tanzania is exporting unprocessed agro-products when the

agro-processing industry cannot meet domestic demand

• Only an estimated 1% of Tanzania agricultural produce is

processed compared to between 20 and 70% for some

medium-level third-world countries

• The low capacity in agro-processing is driven by a number of

factors, including

– Poor physical infrastructure in rural areas, with a dearth

of all-weather roads

– Limited private-sector participation and a low level of

investment by farmers and agribusiness enterprises,

accentuated by the reluctance of banks to lend for

agricultural and agro-industrial investments

– Limited knowledge of value-adding opportunities and

innovative marketing approaches such as contract farming,

outgrower schemes, warehouse receipts, commodity

exchanges, options trading etc.


6

47

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

12-201311-1210-1109-1008-0907-08

% of the total budget

Total government budget

Total agriculture sector budget

Key takeaways

SOURCE: Calculations based on MAFAP public expenditure database for the URT

Comparison between agriculture sector

budget against total government budget,

TZS Billions

Government spending in agriculture and related services is low

Public expenditure in direct and indirect support

of the agriculture sector has lagged targets

1 Agricultural research, extension services, payment to producers, storage, training, inspection etc.

• The Comprehensive Africa

Agriculture Development program

(CAADP) targets 6% annual

growth in the agricultural real

GDP by allocating 10% of the

national budget to the

agricultural sector1

• However, this is not the case as

the agriculture sector has only

been getting an average of ~6%

of the national budget for the

past 6 years

• TBD


6

48

A number of stakeholders are driving several initiatives to

improve value chain dynamics

Description

Southern Agriculture

Growth Corridor for

Tanzania (SAGCOT)

• Facilitating the establishment of linkages between

smallholders and large commercial farms

• Modern irrigation system will increase productivity

Agricultural Sector

Development

Program (ASDP)

• Improvement of farm inputs accessibility

• Construction and rehabilitation of infrastructure

• Promotion of agricultural mechanization

Agro-dealer program

• Improved input use and increased output

• Increased number of traders involved in agribusiness

Marketing

Infrastructure, Value

Addition, and Rural

Finance (MIVARF)

• Kilimo Kwanza (Agriculture First) is an initiative aimed

at mobilizing all sectors of the economy to bring about

an agricultural revolution in Tanzania.

• The pillars of Kilimo Kwanza are: financing, policy,

and regulatory incentives for increased private sector

investments

Rural Micro, Small,

and Medium

Enterprise Support

Program (MUVI)

• Radio Stations used to spread the message regarding

the Muvi programs

• In rural areas, stations took the initiative to get the

local people to assist with the training to interview

people with the aim of covering issues/areas within

the Muvi program

Southern Highlands

Food Systems

Program (SHFS)

Main sponsor (s)

• The Southern Highlands Food Systems Project is

under implementation by FAO in Tanzania, with

funding from Germany

Type

• Improve productivity

and security in the

southern region

• Improve production

and productivity

• Enhance input

access and build

capability

• Increase financing

and development of

market

infrastructure

• Provide financing

services

• Enhance technical

support and

capacity building


49

Agenda

SOURCE: Source





Readiness framework








50

Key takeaways: Agriculture sector financial service need and

gap analysis

AGRICULTURE – FINANCIAL SERVICE NEEDS AND GAP ANALYSIS

5.1 Financial service need along value chain

5.2 Financial gap analysis along value chain


• Similar to many peer countries in SSA, there is a clear disconnect between the importance of agriculture to the Tanzanian economy

and general access to financing – although agriculture accounts for ~30% of the GDP, only ~10% of commercial lending goes to the

sector

• Even where financial products are offered to farmers, they are only available to a small niche relative to the wider smallholder base –

beneficiaries tend to belong to strong producer associations, grow horticultural or other types of cash crops and have strong relationships

with a monopsonic value chain actor (e.g., outgrower and contract farming schemes with agroprocessors)

• The needs of smallholders are only being met to a limited extent

– Loans: minimal access of credit to farmers; few national banks lend to select producer associations with extremely high collateral

requirements at market rates of 25%; MFIs (e.g., FINCA, Pride) also lend to producer associations, but at high rates of 50-200%,

while village-level moneylenders extend credit at extremely burdensome rates of up to 300%

– Insurance: extremely rare, except for nascent efforts within “closed loop” market ecosystems in which a partnership of value chain

actors (e.g., Sacau project by Monsanto, Yara, Barclays) provide weather-indexed crop insurance bundled with other financial

products (e.g., input credit) and collateralized with warehouse deposits, often only covering the value of inputs (not the entire harvest

value)

– Agronomic, weather, and market information: only 7,000 extension workers nationally, thus providing minimal frequency and

quality of agronomic support to farmers; however, there are a number of mobile-based applications (e.g., Tigo Kilimo by Tigo, by

Kilimo Salama by Snygenta Foundation), directly reaching farmers via helplines and SMS to provide advice on farm management,

weather forecasts, market price information, etc.

• Smallholder farmers and other players have a range of finance-related needs across the value chain, including

– Loans: short and long term lending for acquisition of inputs (seeds, fertilizer, agro nutrients), access to mechanization during plan-

ting (tractor rentals), harvesting once crops are ready (extra labor hire), to market based on pricing cycles

– Insurance: protection against extreme hydrological conditions (e.g., drought, excess rainfall) to recoup investment in inputs and

labor

– Agronomic, weather, and market information: knowledge on farm management best practices (e.g., input application, disease

control), localized weather forecasts, and market prices by crop and geography

– Smallholder farmers/SMEs in the agriculture sector are a low priority segment for most financial institutions due to the

unmanageable risk and high cost-to-serve, low presence of collateral, and variability of harvest performance

51SOURCE: IMF; Central Bank data

30

22

30

24

29

25

44

2831

144

68

101112

15

NigeriaKenyaMozam-

bique

Sub-

Saharan

Africa2

EthiopiaTan-

zania

Malawi GhanaUganda

Agriculture as a share of GDP and commercial bank lending, 20081 , in %

% Lending% GDP

1 2008 reflects latest available data

2 Commercial bank lending across SSA is estimated at <10%, with the exception of Malawi, Tanzania and Uganda

5.1 AGRICULTURE – FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN

As in much of SSA, a clear disconnect exists between the importance of

agriculture to the Tanzanian economy and general access to financing

Key takeaways

• Agriculture is a

key driver of

the Tanzanian

economy,

contributing

28% of GDP

• The agriculture

sector has

limited access

to commercial

bank lending:

it receives on

average 2-3

times less

credit than its

fair share

based on GDP

contribution

52

Many of the value chain gaps are related to limitations in the

meeting of smallholder and other actors’ financing needs

The nature of the agricultural sector makes providing financing less desirable

• Unique risks

– High operational and price risks due to weather, disease/pests, makes it hard to

diversify for banks in many monoculture regions

– Seasonal and multiyear cycles

• Time inconsistency

– Lag exists between investment needs and expected revenues

– Need patient capital with a long horizon and a tolerance for risk

• High transaction costs

– Loans are often in small amounts

– Borrowers are often dispersed in remote/rural areas with no distribution access

• Informality leads to a lack of collateral and information

– Absence of land titles or registered assets

– No financial statements or credit score from credit bureau

• Low level of financial literacy

– Limited understanding of the benefits of financial services and products

• Governance

– Substantial government intervention is increasing uncertainty

– Subsidies and repeated debt forgiveness are creating a moral hazard


53

Financing for staple crops, which constitute the largest share of

Tanzanian production, is especially challenging

SOURCE: Expert interviews; literature review

Markets for staple

crops are often

highly politicized

Staple crops

require significant

economies of

scale to attract

financing

Lack of product

differentiation

makes it harder to

finance staple crop

value chains

• Small producers often compete with larger, more

efficient producers in the country/region

• Scale is often required to ensure quality (e.g.,

through mechanization, storage infrastructure)

• The presence of multiple traders and

intermediaries increases the risk of diversion and

side selling unlike in cash crops, which are more

integrated

• Food reserve purchasing by governments creates

unpredictability

• Legacy of government supply/subsidy of inputs

distorts the market but is hard to reform


54

Smallholder farmers and other value chain players have a range

of finance-related needs across the agricultural value chain

SH = smallholder

AD = agro-dealer

EA = extension agents

PS = other private sector

Gov = government

1 432 65

Fin

an

cin

g n

ee

ds

• PS: long-term

loans to private

enterprise to:

a) build agro-

processing plants;

and b) on-lend to

farmers

participating in

outgrower/contract

farming schemes

• SH: market

information

systems to enable

easy price

discovery

• SH: depository

accounts

(checking and

saving) to park

cash following

commodity sales

• SH: payment

receipt for

commodity

transactions

• SH: short-term

loans and credit

guarantees to

store commodities

until ideal market

period

• PS: long-term

loans to

rehabilitate

warehouses and

expand capacity

• PS: deposit

insurance to

protect stored

commodities from

fire, theft, etc.

• Gov: long-term

loans to

build/refurbish

roads and other

“last mile” rural

infrastructure

• SH: long-term

credit to

purchase/

lease/rent tractors

and other

advanced

equipment/

machinery

• SH: agronomic

information

transfer from

agricultural

professionals

• SH: weather-

indexed

insurance policy

to cover drought-

related losses

• EA:

salaries/payment

receipt to fund

transmission of

agronomic

expertise and

carrying out of

experiments with

farmers

• SH: short-term

loans to purchase

seeds, fertilizer,

and agro nutrients

• SH: third-party

credit guarantees

to procure inputs

• SH: payments to

facilitate

transactions with

suppliers

• SH: weather-

indexed

insurance policy

to indicate credit-

worthiness for

input purchases

• AD: short-term

loans to maintain

inventory and

extend credit to

SH

• SH: long-term

credit to expand

plot through lease

and/or purchase of

additional land


55SOURCE: Organization websites; press search; expert interviews; team analysis

A number of players meet the sector’s financing

needs to a very limited extent

Number/reach of existing initiatives

Minimal Moderate

LimitedN/A

Minimal but efforts underway

1 432 65

Information

Short term

Long term

Product/receive-ables finance

Credit

Value chain lending

Physical asset collateralization

Insurance

Credit guarantees

Savings

Payments

5.2 AGRICULTURE – FINANCIAL GAP ANALYSIS ALONG THE VALUE CHAIN

56

DF+ can address some of the financing gaps in the agriculture

value chain (1/3)

Input

provision2

1.1

Value chain

gap

DF+

so-

lutionDrivers

Finance

need Existing services Barriers

►Lack of access to short-term credit for smallholders to purchase inputs

• Farmers participating in closed-loop agriculture eco-systems (e.g., Sacau project by Monsanto, Yara, ETG and Barclays) receive purpose-tied loans based on future sale to off-takers (e.g., large traders, agro-processors)

• Donor direct financing/credit guarantees within specific initiatives (e.g., AGRA in the SACGOT program)

• Government input subsidy program

• Banks’ reluctance to lend to farmers in the absence of collateral

• Harvest risk posed by crop exposure to extreme weather variability

• Weak market dynamics –insufficient off-taker demand for non-high-value food crops

2.1Inadequate

fertilizer

application

2.2

Inadequate

use of

improved

seeds

►Dearth of third-party credit guarantees

►Insufficient utilization of mobile payment platforms to facilitate transactions with suppliers

• Widespread use of mobile money apps like Tigo-Pesa, M-Pesa, and AirtelMoney –~50% of adults are currently subscribers

• Mobile phone penetration is relatively high (75% of the population) – but the poorest smallholders do not own handsets

2.4

Inefficient

government

input

subsidies

►Non-digitization of input vouchers and administrative complexity of redemption process

• Government program disburses paper-based vouchers to DALDOs1 for distribution to smallholders –the processes of application, verification and redemption ends with agro-dealer payment entailing 7+ handoffs

• Agro-dealers, who rely on subisdies for up to 20% of total sales, are thus often paid up to 12 months late

• Lack of adoption of digital platforms/mobile money, malfeasance by district-level government officials

1 District Agriculture and Livestock Development office

DF+ solution

Add-on to core

DF+ solution)(

5.3 AGRICULTURE – BARRIERS TO PROVISION

57


value chain (2/3)

Production3

1.1

Value chain

gap

DF+

so-

lutionDrivers

Finance


►Low levels of farmer education on agronomic best practices (e.g., land preparation, input application, disease diagnosis)

• Smallholders have very low levels of formal schooling and employ age-old tactics, not having adopted many modern techniques

• Infrequent and poor quality access to government extension services

• Mobile-based applications (e.g., TigoKilimo) are beginning to provide customized agronomic advice

• Lack of widespread training programs, demonstration plots, field trials etc.

• Remoteness and dispersion of farmsteads

• Infrequent use of mobile solutions even where subscribed

3.1Farmer

information

constraints

3.2

Heavy crop

and

economic

losses to

weather

variability

►Insufficient access to localized market information

►Crop exposure to extreme weather conditions without insurance protection

( )

( ) • Few widely accessible market price indices exist

• Mobile-based applications (e.g., TigoKilimo) are beginning to provide localized market data

• Farmer distance from physical markets

• Monopoly of information by traders

( )

( )

• Weather-indexed crop insurance plans are bundled with other financial products and available to farmers participating in closed-loop market ecosystems with major value chain actors

• Absence of deep microclimate data

• High insurance plan premiums • Exclusion of the majority of

smallholders from integrated value chain ecosystems

DF+ solution

Add-on to core

DF+ solution)(

5.3 AGRICULTURE – BARRIERS TO PROVISION

58


value chain (3/3)

Storage

and

Distri-

bution

4

1.1

Value chain

gap

DF+

so-

lutionDrivers

Finance


►Insufficiently developed warehouse infrastructure

• The majority of smallholders currently sell their produce to small-scale traders at the farmgate immediately following harvest

• The value of crops can be up to 60% higher during times of peak market prices

• Warehouse Receipt Systems are being implemented in certain value chains –farmers deposit produce after harvest and receive a medium-term loan for a portion of crop value until the full balance is settled, with the ultimate sale occurring in more ideal market conditions

• Sparse presence of storage facilities

• Poor management and operations of warehouses

• Farmers’ immediate cash need after harvest

4.1Unavailability

of storage

warehouses

4.2Farmers’

post-harvest

need for

liquidity

►Farmers’ inability to hold on to crops until optimal market conditions

DF+ solution

Add-on to core

DF+ solution)(

5.3 AGRICULTURE – BARRIERS TO PROVISION OF FINANCIAL PRODUCTS

59

Agenda





Readiness framework








60

Key takeaways: Agriculture sector Digital Finance Plus solutions

feasibility

AGRICULTURE – DIGITAL FINANCE PLUS SOLUTION FEASIBILITY




• DF+ can play a positive role in helping to address several of the financing gaps faced by smallholders in

agriculture by facilitating financial linkages between value chain actors, decreasing transaction costs, promoting

transparency in the flow of commodities and financial products, powering the aggregation and analytics of

data (behavioral, agronomic, and market), and enhancing contract enforceability

• Consequently, several value chain actors are partnering to provide innovative applications that enhance farmer

access to financing and increase farmer incomes. The most noteworthy products already in operation and/or

under development for the near term include: i) Warehouse Receipt System based post-harvest credit provision; ii)

input loans through closed-loop agriculture ecosystems; iii) information portals for agronomic, weather, and market

data; iv) e-wallets for input subsidy administration; and v) weather-indexed crop insurance to protect against extreme

weather conditions

• The current landscape of DF+ solutions is mostly driven by value chain actors, including seed and fertilizer

companies (e.g., Monsanto, Yara) and agro-processors (e.g., ETG), with the notable exception of the most

successful agronomic information portal, which is primarily driven by Tigo, a telco company

• Financial institutions lend directly to producers or producer associations in extremely rare cases –

however, banks like NMB and Barclays are extending credit with heavy collateralization/security guarantee through

value chain actors

• Scaling of DF+ solutions is hampered by several non-finance-related challenges, including

– Producer organization and entrepreneurship: many farmers are not encompassed in market-based

associations and lack the business knowledge to self-organize and form enterprising collectives

– Supply/demand market dynamics: the provision of financing is closely linked with robust markets for

particular crops, consequently favoring producers of high-value crops with market for agro-processing and

export (e.g., white maize, sunflower, coffee)

61

The in-country interviews have generated new insights into the

agriculture sector (1/4)

“For all the efforts to make farmers

entrepreneurs and link them to

markets and such – we should

keep in mind that many

smallholders are simply not

attractive/eligible for such

enablement”

– Seed company executive

“Simply providing credit does not

address more fundamental

questions – is there a sustainable

growing demand for the crop being

grown by the farmer? And does the

farmer think, act, and manage his

farm like a business?”


Key insights Indicative quotesInterviews conducted

• Bill and Melinda Gates

Foundation (BMGF)

• East Africa Seed Co.

Ltd

• Faida Market Link

(Faida MaLi)

• Ministry of Agriculture

• Monsanto

• President’s Delivery

Bureau

• Syngenta

• Seed Co Tanzania

• Tujijenge

• Tanzanian

Horticultural

Association (TAHA)

• Tigo

• USAID

1. Supply/demand dynamics in the market, as well as the

entrepreneurial profile of farmers, are the fundamental

drivers of commercial viability of credit provision and

other financing support

• Credit is best targeted at particular types of farmers, with

characteristics including

– Entrepreneurial saavy and commitment: young, early

adopters who have already demonstrated a desire for

business improvement through installation of irrigation

systems, crop rotation, hybrid seed usage, etc.

– Ideal farm size/crop profile: farm sizes of 5-50ha, (not

too small, but not so big that they are commercial size

with access to “regular” credit from VC actors

and/financial institutions); produce horticultural, dairy,

white maize, etc.

– Demand-driven need for loan capital: Year-over-year

on demand growth for a crop that is not imported,

providing an impetus for farmers to grow their

businesses, for which they will need investment

2. Many of the new financial products being offered are only

available to a small niche of farmers relative to the wider

smallholder base

• Farmers who are eligible for input credit, crop insurance,

warehouse receipts, etc., usually: a) belong to a strong

producer collective; b) grow horticultural or other types of

cash crops; and c) have a strong relationship with a

monopsonic value chain actor (e.g., outgrower schemes to

supply a brewery with barley)

6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS

62




“We have had 40 years of

socialism in this country – we have

to teach farmers fundamental

things before we erase the

everything-is-for-free attitude and

the fundamental ignorance about a

capitalistic market system”

– Producer association

executive

“We can show great results for our

work – farmers whom we have

helped are demonstrably better off

- but we have barely scratched the

surface and expanding our efforts

requires donor financing”

– Producer association

executive

3. Organization, farmer education, and aggregation are

major prerequisites to providing input financing, linking

to markets, etc. The following interventions are generally

required

• Association: organizing farmers into formal associations with

a collective mission, constitution, negotiation power etc.

• Training: farmer education on use of inputs and collective

marketing; business and technical skills training including

“farming as business”

• Aggregation and storage: building/renovating storage

facilities and mobilized associations to implement WRS;

achieving certification by Tanzania Warehouse Licensing

Board

• Mindsets and behaviors: make farmers more entrepreneurial.

“We have had 40 years of socialism in this country, so many

still have some version of everything-is-for-free and the state-

takes-care-of-all attitudes”

4. Donor support is still key to enabling producer

supporting organizations

• Successful NGOs helping farmers to organize have

succeeded in achieving significant results in enhancing

farmer incomes – one succeeded in increasing farmer

income from for paddy from Tsh 200/kg to 450/kg by

facilitating building and management of warehouses

• However, donors heavily subsidize renovation of warehouses

and introduction of improved storage and management

practices – the NGO still relies on funds for financing its own

operational needs

• Bill and Melinda

Gates Foundation

(BMGF)


Ltd


(Faida MaLi)

• Ministry of

Agriculture

• Monsanto


Bureau

• Syngenta


• Tujijenge

• Tanzanian

Horticultural

Association (TAHA)

• Tigo

• USAID


63



“We provide loans to farmers – but

our conditions are often highly

prohibitive, and our rates are

fundamentally unattractive”

– MFI executive

“It is ultimately good business for

us to enable farmers to buy higher

quality inputs – but we can’t go at it

alone”


“We have big plans for the future,

but first we have to get farmers

comfortable with us”

– Telco executive


5. Most farmers have some access to credit – but it is often

through informal networks and entails extremely

burdensome terms

• Several actors lend money to farmers – local moneylenders,

who charge exorbitant rates (up to 300%) and MFIs whose

rates are also high (50-200%). A few banks (NMB, Stanbic)

also do extremely selective lending at reasonable rates (e.g.,

25%) but in highly controlled circumstances (e.g., with WRS

deposits as collateral and guaranteed off-takers)

6. Seedcos and other major input suppliers are willing to

participate in closed-loop marketing ecosystems in which

they contribute to farmer financing

• Syngenta, Yara, and other input suppliers have collaborated

with FIs like Barclays to launch pilot initiatives to help

“emerging farmers” secure comprehensive financing for

procuring inputs and selling produce directly to agro-

processors

• The objective is to ultimately create wider demand for their

own goods, as farmers who experience commercial success

buy hybrid seeds and fertilizer more frequently

7. Building farmer trust and fidelity is an essential

prerequisite to commercializing mobile solutions like agro

information apps

• Tigo enables farmers who sign on to its TigoKilimo to use

highly discounted services to prove its efficacy and build trust

before eventually moving onto higher profit generating

features

• Bill and Melinda

Gates Foundation

(BMGF)


Ltd


(Faida MaLi)

• Ministry of

Agriculture

• Monsanto


Bureau

• Syngenta


• Tujijenge

• Tanzanian

Horticultural

Association (TAHA)

• Tigo

• USAID


64




“We have nearly $100,000 in

unpaid vouchers from the

government from last year’s

harvest season”

– Agro-dealer executive

• Bill and Melinda Gates

Foundation (BMGF)


Ltd


(Faida MaLi)


• Monsanto


Bureau

• Syngenta


• Tujijenge

• Tanzanian

Horticultural

Association (TAHA)

• Tigo

• USAID

8. An E-wallet in which all of farmers’ financial transactions

are put in a virtual bank account and are facilitated by a

payment platform could have a tremendous impact on

making financial flows transparent and efficient

• SeedCos report that up to 20% of all revenue is driven by

government input subsidy schemes

• High degree of inefficiency in the issuing, circulation, and

processing of vouchers; a single batch of vouchers can pass

through 7 steps from issuance to redemption

• This leads to frequent cases of system corruption and

frequently late payments to agro suppliers


65

DF+ can help in addressing some of the gaps

in the Agriculture value chain


Detail

follows

Value chain segment ChallengesProduct

evaluation

Finance

as barrier

DF+

potential

No other

barriers

Assessment of applicability of DF+ solution

1.1 Small arable land utilization

1.2 Limited average plot size

2.1 Inadequate fertilizer application

2.2 Weak demand for improved seeds

2.3 Underdeveloped capacity of agro-dealers

2.4 Inefficient government input subsidies

3.1 Farmer information constraints

3.2 Weak extension services

3.3 Low levels of mechanization

3.4 Heavy exposure to weather variability

4.1 Unavailability of storage warehouses

4.2 Post-harvest need for liquidity

4.3 Underdeveloped rural infrastructure

5.1 Low levels of commercialization

5.2 Non-consolidated aggregation/off-take

5.3 Poor access to market information

5.4 Weak market linkages

6.1 Low level of private investment

Land

Input provision

Production

Storage & Distribution

Marketing

Processing

high low

66

Based on the analysis of the current state and barriers to scale,

we suggest 5 DF+ applications for your further consideration

Top challengesDescriptionDF+ product

Unavailability of storage

warehouses

4.1 1. Product financing

2. Storage facilities

3. Qualities and standards

4. Market price information availability

• Inventory-based credit

provision to farmers for

certified commodities held in

storage at warehouses

• Digital Warehouse

Receipt System-

based medium-term

loans

Addressed Agriculture sector

challenge

A

Post-harvest need for

liquidity

4.2

Inadequate fertilizer

application

2.1 1. Product financing

2. Farmer eligibility

3. Value chain actor coordination

4. Side-selling risk

• Post-harvest, off-take-linked

input loan for farmers in

agriculture value chain

ecosystems

• Input credit for small-

holders in closed-

loop ecosystem of

integrated value

chain actors

B

Inadequate usage of

improved seeds

2.2

Inefficient government input

subsidy program

2.4 1. Farmer education

2. Mobile phone penetration

3. Privacy

4. Product financing

• Mobile phone platform for

digital issuance, verification,

and redemption of input

vouchers

• E-wallet for

government input

subsidy

disbursement

C

D Heavy crop losses to

extreme weather

3.4• Insurance product to mitigate

the risk of extreme weather

events with digital purchase,

claims filing, resolution, and

payout

• Weather-indexed

crop insurance

enabled by digital

platform


2. Weather condition and crop yield

correlation modeling

3. Depth of historical weather data

Farmer information

constraints 3.1• Digital portal for collection

and dissemination of

agronomic, weather and

market data, with extension

of financial products based

on detailed consumer profile

• Mobile system for

agriculture informa-

tion dissemination

and collection of

smallholder data

E 1. Primary information access

2. Usability of collected data

3. Marketing

4. Distribution


67

Digital Warehouse Receipt System-based medium term-loans

(1/3)

Financial

instrument

Credit provision based on

warehouse crop deposits

Target

audience

Smallholders participating

in WRS

Product

provider

Financial institutions +

agro-processors

Value proposition Product details

Overall value proposition

• Providing farmers access to credit

based on deposited collateral

• Improving farmer income by allowing

choice on when to sell in the pricing

cycle

• Reducing post-harvest losses due to

poor storage conditions

• Smoothing the supply of produce and

price volatility in the market

• Helping to create commodity markets

that promote aggregation, competition,

and trade

Core product features

• Mechanism to mobilize credit to farmers by creating secure collateral for processors and

traders

• After harvest, the farmer deposits crop in a licensed warehouse and receives a certificate

verifying the quantity and quality grade of the commodities

• Based on the certified amount, the bank extends a short-term loan to the farmer for a

certain portion of the crops’ value (percentage of total commodity X average price of

commodity over benchmark period)

• Before the loan matures (6-to 9-month period), the farmer sells his crop to an agro-

processor or trader who pays the entire value of the crops into the WRS bank account

• The bank deducts the principal and interest owed, then deposits the balance into the

farmer’s mobile money account

Potential extensions

• Purpose-tied savings accounts: farmers may elect to leave a portion of post-harvest sales

in the mobile account for an interest-bearing savings account, which they can use to

procure inputs at the beginning of the next planting season

• Futures contracting: farmers and agro-processors can enter into agreements to produce

and trade commodities of a specified quantity, quality, price, and timing; the agreements

are considered completed once commodities are deposited into warehouse

DF+ specific value proposition

• Digital issuance of warehouse deposit

certificate

• Mobile money transfer by bank into

farmer account for interim credit and

final sale amount

Product summary

• Inventory-based credit provision to farmers for certified commodities held

in storage at warehouses

Financial needs addressed

• Farmers’ need for liquidity in the immediate aftermath of harvest

• Farmers’ option to sell produce at time of peak prices

A


68

Digital Warehouse Receipt System-based medium term loans

(2/3)

Low High

Detailed impactFeasibility assessment: business model

Feasibility assessment: enabling

environment

Feasibility

• Moderately feasible: successful WRS

schemes have been implemented in

Tanzania, but widespread scaling is

hampered by the lack of a few key

enablers, including storage infrastructure

and quality and grading standards

Potential impact

• High impact: farmers net significantly

higher incomes (up to 65% for some

crops) when given access to

adequate storage facilities and short-

term liquidity to meet their immediate

cash needs

Government regulation

• GoT has developed

Warehouse Receipt Act laws

and a Warehouse Licensing

Board to facilitate WRSs

Telco

• Integrating new farmer WRS

accounts with a mobile money

platform is relatively easy

Product financing

• The upfront cost of renovating

and operationalizing warehouses

is high and may require donor

financing; in steady state, WRSs

can become commercially

viable/self-financing

• Net earnings per

kilogram through WRS

are 20-65% higher than

non-WRS subscribers –

e.g., for cashew, prices

through middlemen were

1,000 TShs/kg, whereas

prices through WRS

were1,300 TShs/kg; for

sunflower, prices were

450 TShs/kg through

middlemen and 650

TShs/kg through WRS

Storage facilities

• Famers who are members of producer associations or

cooperatives often have access to physical storage

infrastructure, although best-practice fumigation and

packaging, as well as professional management, are a

challenge

A

Qualities and standards

• Quality standards need to be specific enough to give

clear definitions of quality grades – Tanzania Bureau of

Standards currently has moderate capability in this area

Market price fluctuation and information availability

• General price increase in the harvest season is

essential enabler and present in Tanzania; however,

tracking prices for certain commodities can be a

challenge in the absence of location-specific indices


69

Digital Warehouse Receipt System-based medium-term loans

(3/3)

Case examplesGo-to-market model

NMB Warehouse Receipt System

• NMB has implemented a WRS financing

system in Tanzania

• ~30 warehouses have been licensed, with

ownership by farmer associations as well as

private operators

• About 7 crops are covered under the scheme

(coffee, pigeon peas, cashew, paddy,

sunflower and sesame)

• Initiatives are underway to establish a

Commodity Exchange for efficient marketing

• In 2011, NMB conducted $73 million of

business through the WRS schemes

A

• Agro-processors and banks

consult with producer

organizations to develop

WRS based on buyer and

seller needs

• Banks and agro-processors

receive support from

development institution to

upskill and license existing

warehouses

• Operation and

management of

warehouses is conducted

by farmer organizations or

subcontracted to private-

sector players


70

Input credit product for smallholders in closed-loop ecosystem of

integrated value chain actors (1/3)

Financial

instrument

Input loan by repayment

linked to harvest

Target

audience

Smallholders in integrated

market ecosystems

Product

provider

Input companies + off-

taker + warehouse



• Provides farmers with access to

purpose-tied credit to purchase the

most critical production factors

• Improves yield (quality, consistency,

and volume output) of crops and

secures higher prices for farmer

produce

• Enhances sales of input suppliers –

virtuous cycle of farmers investing in

improved inputs

• Guarantees off-takers quality supply of

produce at a specified time and scale,

with pre-agreed price/pricing formula


• A contract farming arrangement integrating smallholders with major value-chain market

actors to link them with financing, provide them with comprehensive agronomic support

and guarantee off-take at the end of harvest

• Highly organized, entrepreneurial group of “emerging farmers” (e.g., an “apex” comprising

200 farmsteads, each with minimum 5 ha and growing a horticultural crop) are included in

a closed-loop system of seed and fertilizer suppliers (e.g., Monsanto), a warehouse, an

off-taker (e.g., sunflower processor), and a financial institution

• Farmers receive SMS-based vouchers from FI for acquisition of fertilizer, seed etc., with

the primary risk born by the off-taker and secondary guarantee by input companies

• Post-harvest, farmer delivers harvest to off-taker on pre-agreed quantity, quality, and price

basis

• Off-taker deducts cost of input before depositing balance of payment to farmers’ mobile

account


• Crop insurance: weather protection insurance could potentially be bundled with input, with

portion of premiums paid by input companies to incent farmer seed purchases


• Convenient payment platform

eliminates need for paper vouchers

and cash

• VC actors can track the flow of funds

and better enforce repayment

Product summary

• Post-harvest, off-take-linked input loan for farmers in closed-loop

agriculture value chain ecosystems


• Smallholder access to credit for input purchase

• Convenient tracking and facilitation of financial flows between VC actors

B


71



Low High



environment

Feasibility

• Moderately feasible: successful cases of

integrated ecosystems have been

implemented, proving concept feasibility.

However, scaling to wider smallholder

base is inhibited by supply/demand

dynamics and farmer characteristics

Potential impact

• High impact: farmers with improved

access to inputs, complemented with

on-farm support, have grown yields of

major crops by up to 3 times


• No known government

policy constraints

Telco

• Widespread adoption of M-

Pesa, Tigo-Pesa, and other

mobile money providers;

building the user interface will

be the only additional effort

required

Product financing

• Value chain actors like input

companies and agro-

processors are willing to take

risk for FI credit provision, in

controlled circumstances as

outlined

• Improved access to

hybrid seeds in closed-

loop systems have led to

dramatic improvements

in yield – in white maize,

for example, yield has

jumped from 1-1.5

tons/ha, to 4 tons/ha

Value chain actor coordination

• Successful closed-loop system requires presence and

coordination of all major VC chain actors

• Pilot projects have proven coordination capability successful,

although only on a small scale so far

B

Side-selling risk

• Due to lack of legal enforcement mechanisms and the

volatility of prices on the open market, only monopsonic

off-takers are relatively protected from side-selling by

farmers

Farmer eligibility

• Smallholders have to be organized into associations, adopt

an enterprise mindset, have reasonably large landholdings,

and grow crops that off-takers desire (e.g., white maize,

sunflower) for value addition, among other requirements

• Currently, a relatively small share of farmers fulfill most of the

requirements above – the majority of farmers grow food

crops, have small plots, and are not effectively organized


72




Sacau project (Monsanto, Yara, Barclays, ETG)

• Monsanto partnered with other input suppliers

and a financial institution to provide farmers

with financing and agronomic support

• Closed-loop system with a contract-farming-

type arrangement in which the off-taker is

guaranteed purchase at a certain price after

harvest

• Identified about 200 “emerging farmers”

producing white maize, with landholdings of 5-

10ha; bank provided 100% input financing

based on a 75% credit guarantee provided by

value chain actors

• Resulting improvements of up 30% in yields,

with commensurate increases in farmer

incomes

C

• Input suppliers,

mechanization service, off-

taker, and financial

institution form a

partnership to target a

specific segment of

producers (based on crop,

geography, entrepreneurial

characteristics, etc.)

• Farmers are provided with

integrated, end-to-end

financial products, as well

as farm management

support and business

training


73

E-wallet for input subsidy disbursement and integrated hosting of

all farmer financial flows (1/3)

Financial

instrument

Digital wallet for input

subsidy voucher disbursal

Target

audience

Smallholders eligible for

input subsidies

Product

provider

Government + input

supplier + telco



• Subsidies are used for their intended

purpose – minimal opportunity for

intermediate actors to misappropriate

• Reduces transaction cost: the current

process requires 7-different handoffs

between various government officials,

private sector actors, and farmers

• Encourages agro-dealers to meet seed

and fertilizer demand as they can

easily redeem vouchers

• Value chain actors have transparency

into the flow of inputs and funds in the

system


• Eligible farmers receive a defined percentage government subsidy on a specific number of

bags of fertilizers and seeds on unique mobile accounts

• Electronic vouchers with unique PINs for the subsidy amounts are issued by Ministry of

Agriculture to farmers on SMS, which they receive based on their digital identity card

• At the agro-dealer site, the farmer presents voucher PIN and pays for the balance using

mobile money

• If the farmer is a participant in a Warehouse Receipt System (WRS) scheme, digital

account is used for payment upon deposit of harvest

• Participating agro actors are able to trace aggregated and sanitized data on flow of inputs

and funds in value chain


• Post-harvest payments: WRS-linked farmers can conduct all financial transactions using

the same mobile money account

• Loan extension: over time, data collected on farmer usage of inputs and harvest

output/sale at the end of the agro cycle can be used to assess need and worthiness for

purpose-tied loans by financial institutions


• Convenient payment platform

eliminates need for paper vouchers

and cash

• Unique digital tag identifies individual

farmers

Product summary

• Mobile phones platform to enable farmers to conduct basic

transactions and make payments for direct input access


• High administrative expense of running input subsidy programs

• Frequent issues faced by agro-dealers in redeeming vouchers

• Misuse/misappropriation of government subsidies

C


74



Low High



environment

Feasibility

• Highly feasible: widespread

mobile phone ownership and

mobile money usage make

voucher system addition

relatively easy

Potential impact

• High impact: Smallholders will be able to

improve crop yields by having easier access

to improved seeds and fertilizer. Agro-

dealers will be able to redeem value of

government vouchers, and therefore

become more willing to meet farmer demand


• No known government policy

constraints

Telco

• Widespread adoption of M-

Pesa, Tigo-Pesa, and other

mobile money providers;

building the user interface will

be the only additional effort

required

Product financing

• The Government of Tanzania,

backed by the World Bank,

already runs a large input

subsidy program; funding

development of e-wallet

system easily paid for through

subsequent savings realized

• Agro-dealers estimate

that up to 20% of their

entire business is funded

through government

input subsidies; frequent

delays and the several

hand-offs required for

redemptions drastically

erode profit margins

• In the Nigerian pilot

program, a 2-year

program has reached 5

million farmers and is

estimated to have

enhanced the food

security of 25 million

people in rural farm

households

Mobile phone reach

• E-wallets require access to mobile technology by

smallholders; currently, Tanzania has a very high

penetration of mobile access, with ~60% of the

population having access, including the rural farmer

base

Farmer education

• Extension workers, NGOs, and other agriculture

actors will need to train farmers on usage of virtual

system, but this is a relatively easy task given high

levels of literacy and mobile phone usage

Privacy

• Collection of metadata may be non-objectionable,

but farmer-specific information has the potential for

misappropriation

C


75




Nigeria Ministry of Agriculture: E-Wallet

program

• The Nigeria Agro E-Wallet program has

achieved great success in reducing transaction

costs and addressing corruption in the

traditionally government controlled

procurement and distribution of seeds and

fertilizers

• Over a 2-year period, the program has

reached 5 million farmers and is estimated to

have enhanced the food security of 25 million

people in rural farm households

C


collaborates with telco to

create a farmer database

with biometric information

uniquely identifying each

individual

• At the beginning of crop

season, MoA deposits the

value of all input vouchers

distributed into its own

mobile money account

• Agro-dealers unlock access

to mobile funds by inputting

PIN codes sent to eligible

farmers via SMS


76

Weather-indexed crop insurance product enabled by digital claims

processing and payment platform (1/3)


Financial

instrument

Digital platform for purchasing of plan,

processing of claim, and disbursement of payout

Target

audience

Producers of eligible crops procuring inputs

from approved agro-dealers

Product

provider

Insurance + Seedco + Telco + development

institution


• Weather-indexed insurance product to mitigate the risk of extreme weather events that is tacked onto

purchase of improved input and administered entirely via mobile phone and remote sensing

technology

• Premium is shared 50/50 between seedco and farmer and added onto purchase price

• Each purchased bag of seed/fertilizer/chemical contains a scratch card with a unique code, which is

logged into mobile application by farmer for official registration, with insurance details, including

policy numbers and terms and conditions

• Micro-climate-level hydrological data is continuously collected using satellites and automated

weather stations

• Claims process is automated – at the end of each year’s growing season, that year’s hydrological

condition is automatically assessed vs. historical indexes to determine the level of adverse variance;

farmer receives SMS with determination of payout

• If payout is determined to be necessary, fund is automatically disbursed via mobile payment solution


• Linking with input credit: farmers can be extended loans and other financial products because of the

protection the enjoy

• Linking with agro-marketing scheme : processors and other off-takers can get into pre-contracted

sales


• Digital sign-up for insurance policy by

farmer

• Remote hydrological data collection and

automated claim assessment by insurance

company

• Digital receipt of claim disbursement by

farmer


• Makes insurance more affordable by

reducing the transaction cost of

underwriting and claims assessment

• Drives farmers to invest in improved inputs

with security that losses will be mitigated

• Opens the door to farmer access to more

financing by value chain and FI actors

• Increases overall crop yields and farmer

incomes

Product summary

• Weather-indexed insurance product to mitigate the risk of extreme

weather events whose purchase, management, claims processing,

and payout is digital


• Protection from the financial risk posed by extreme weather conditions

• Addressing the need for an affordable insurance product with

convenient plan management and payout disbursement options

D


77





environment

• Where targeted insurance

products have been

applied, policyholders

have experienced

wholesome results in

catastrophic events

• Some of the positive

outcomes associated with

crop insurance coverage

include

– 19% increased

investments and

16% higher incomes

to uninsured

neighbors

– Nearly 100% of

participants were

able to secure other

types of financing

because they had

insurance

Establishing the relationship between weather and crop

yield

• The strongest correlations can be drawn where rainfall

deficit is the trigger, a single crop is concerned, and

there is a marked rainy season and no irrigation; the

absence of more complex variables like humidity, hail,

etc., make establishing relationships difficult

Depth of historical weather data

• Severe limitations in reliable access to long-term

hydrological data on which to base crop indices

• On average, 10-20 years of historical rainfall data is

required, which can be absent for large parts of

Tanzania

Scale

• Actuarial profitability through spreading of risk is driven

by coverage of the full spectrum of producer

populations, including farmers in areas of low

hydrological risk; may be difficult to convince farmers

facing low risk to pay insurance premiumsGovernment regulation

• No known government policy constraints

Telco infrastructure

• High mobile phone penetration, even

among the rural farmer base

Product Financing

• Development foundations and non-profit

actors (e.g., IFC, Syngenta Foundation)

have proven willing to fund part of the

plan development and underwriting cost

• Seedcos have shown willingness to

share cost of farmer payment of

premiums

• However, most insurers in this space

can only extend services to cover

farmers producing specific crops using

specific inputs, with the implicit risk-

sharing/financial support by value chain

players and development actors

Feasibility

• Feasible: value chain actors and development

institutions have proven technical ability and the

financial will to create the right types of

insurance products, although they are somewhat

inhibited by the absence of historical data

Potential impact

• High: successful cases of payouts have

encouraged farmers to invest in inputs and

farming best practices; however, certain types of

insurance only cover the value of input and not

the entire harvest

Low High

D


78




• Development institution partners with

insurance company and seedco to define

a target farmer population and specific

crop types

• Consortium models risk by specific crop

type, develops crop indices, and secures

historical data

• Creates automated claims resolution

algorithm that will be triggered on an

annual basis

• Partners with national weather service to

capture data at weather stations in all

relevant districts

• Taps into seedco’s distribution network of

agro-input dealers; trains them on

marketing techniques and farmer

education on insurance benefits

• Telco builds weather insurance interface

into existing payment platform

Kilimo Salama – IFC, Syngenta

Foundation and Safaricom collaboration

• Weather index, area yield index, and

satellite-based index insurance schemes

against perils including drought, excess

rain, and disease

• Average cost of premium is 5-10% of the

value of insured inputs/harvest

• 185,000 farmers reached in Kenya,

Rwanda, Tanzania

• Total insurance portfolio of $25.4 million

and total payouts of $356,707

D


79

Voice-enabled mobile information system for the dissemination of

agronomic information, market prices, and weather data (1/3)

Target

audience

All smallholders with mobile

telephone access

Financial

instrument

Product

provider

Farmer helpline for agronomic

information, market prices, and

weather forecast

Partnership includes development

institution, telco, and government


E


• Mobile-phone-based application with dual access points to agronomic, hydrological, and market

information

• First option is a weekday, business hours helpline, with real-time access to an agricultural expert for

complex queries (e.g., diagnosis of crop disease). English, Swahili, and local vernacular options. Allows

upload of images

• Second option is a 24-hour Audio Voice Recorder (AVR) dial-in number powered by a menu-based issue

resolution system for more routine queries (e.g., location of agro-dealer)

• Staffed with MSc graduates and database with content on land preparation, planting, pest management,

etc.

• SMS option for market- and commodity-specific information refreshed on a daily basis

• SMS option for 10-day weather forecasts with a tight focus on agriculture-pertinent variables and specific

to the relevant locale

• User profile is developed for each expert query, with location of farmstead, type of agronomy, size of farm

etc., logged

• Pricing: for SMS and AVR options, farmers pay regular airtime and data tariffs; for agro expert queries,

farmers pay a small premium in addition to regular tariffs


• Credit risk assessment: the rich trove of passively and actively collected data on farmers and their

circumstances (plot sizes, crops planted, yield performance, time to market, propensity for disease, etc.)

can be used to assess smallholder need and worthiness for financial products like input credits, WRS

participation, and linkage with agro-processors, among other things


• Enables the provision of high-quality,

reliable, timely, and affordable

information to the farmer directly via

his/her handheld device

• Decreases the transaction cost of

disseminating yield-enhancing

information


• Creates a two-way communication

channel between farmers and

agricultural experts to address the

information deficit and lack of

extension reach that smallholders

often face

• Helps farmers increase their post-

harvest income through improved

productivity, enhanced crop yields,

better understanding of demand, and

higher sale prices

Product summary

• Mobile-phone based information portal to enable the collection, storage, and

dissemination of agronomic information , localized market price information and ag-

specific weather forecasts to benefit smallholder yield outcomes

Addressed financial need

• Smallholders’ lack of awareness of cultivation and harvest best practices, insights

into hydrological conditions and commodity-specific market prices

• Credit profile and financial information absence on farmers


80



Detailed impactFeasibility assessment: business model Feasibility assessment: enabling environment

Access to primary information

• Market and weather data has to be timely and location-

specific to be relevant to farmers; capability of market

information providers and national weather service has to

be built further

Marketing

• Radio, widely used in TZ, is the most effective channel for

reaching farmers, with peer-level testimonials of product

efficacy and demoing by “last mile” reach organizations

Distribution

• Language barriers (100+ tribal languages spoken), low

levels of literacy (67%), and format limitations (SMS has

character limits) could be a consideration; however, mobile

penetration is high and the majority speak Swahili

Privacy

• Collection of metadata may be non-objectionable, but

farmer-specific information has the potential for

misappropriationGovernment regulation

• No known government policy constraints


• Tigo is a market leader through its

TigoKilimo platform; plans to reach more

than 2 million users

Product financing

• Development foundations and non-profit

actors (e.g., Rockefeller Foundation, GSMA

Foundation) have demonstrated willingness

to fund pilot versions and to establish the

commercial viability of model

• However, successful revenue generation

models (e.g., through user subscription fees,

population-level data vending to seedcos)

have to be developed further for private-

sector ownership

• Tanzania farmers

with cell phone

access (56% national

penetration) can be

beneficiaries of at

least the basic

offerings of the

service

• Tigo’s program in

Tanzania has already

covered 100,000;

plan to cover 2 million

farmers in the next 5

years

Feasibility

• Moderately feasible: a number of players

have proven the technical feasibility of

creating the service and spurring adoption;

however, ability to create profitable, self-

sustaining business models is still

uncertain; true commercial viability may

require more than 2 million users

Potential impact

• Given the wide reach of mobile technology and

adoption of the service (at steady state), the

number of farmers reached can be

tremendous; those who are informed on how to

best use the service will benefit greatly from it

Low High

E


81




M-Kilimo: GSMA, Development

Fund, mAgri, KenCall (Kenya)

• Farmer helpline initiative to prove

viability of agriculture mobile,

value-added service products

• Objectives are to set up fully

functioning informational service

and to understand farmer needs

• Service available to all Kenyan

farmers with a mobile phone,

irrespective of network affiliation

TigoKilimo: Tigo and Technoserve

collaboration

• Farmer helpline with agronomic,

market, and weather information

access, modeled after successful

M-Kilimo in Kenya

• Pilot of service completed in

Morogoro region, with 150

participating farmers

• Service to scale nationally in 2014

• Development institution (e.g., Technoserve)

partners with telco provider (e.g., Tigo) to create

and brand the mobile-based service, which

undertakes the following

– Defines knowledge scope, codifies required

agronomic information, creates static and

dynamic content management system, and

recruits and trains call center talent

– Creates link with MoA1 for automated sourcing

of price points for defined commodities in

location-specific markets

– Partners with government meteorological

service for automated sourcing of location-

specific reporting

– Establishes the helpline and develops the AVR

algorithm; pilots usage with a select group of

farmers

– Markets to the broader population by

advertising on the radio with farmer testimonials

and demoing through partnership with NGOs

and government extensions works

E

1 MoA …


82

DF+ solutions have different impact … Key takeaways

Imp

act

High

Medium

Low

Low Medium High

Feasibility

• Agriculture is a moderately attractive sector for the

adoption of DF+ solution – currently, few players in

Tanzania are operating on a commercially viable

scale, mostly due to the challenges inherent in the

sector, including the high volatility of harvest, the

fragmentation of the producer-base, and the limited

credit knowledge of smallholders

• However, several players are addressing some of

the systemic challenges, by for example, helping

farmers to self-organize into entrepreneurial

associations (RUDI, Faida MaLi) and creating

mobile-based informational portals for farmer

education (TigoKilimo)

• Additionally, value chain and financial actors are

banding together to innovate products like input

financing (e.g., Monsanto, Yara and Barclays) and

WRS-based liquidity (e.g., ETG and NMB)

• Going forward, mobile phones are going to be

critical to decreasing the transaction cost of

providing farmers informational and financial

services, assessing the credit risk of loan product

applicant and helping farmers link to markets

• WRS-based

credit provision

• Input credit in

closed-loop

ecosystem

• Weather-

indexed crop

insurance

• E-wallet for

digitized

government

input subsidy

• Digital

agronomic info

dissemination

and gathering

for future DF+

application

AB

C

D E

Potential DF+ applications in agriculture can be categorized based

on their feasibility and potential impact

6.2 AGRICULTURE – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

83

Sector readiness dimension

Sector-rele-

vant mobile

infrastructure

reach and

adoption

Readiness of

financial and

digital

financial

infrastructure

65

4 32

1

65

4 32

1

Role of

government

and

regulation

6

54 3

2

1

Severity of

sector

challenges

65

4 32

1

Financial gap

in sector

65

4 32

1

DF+ business

models and

scaling

65

4 32

1

Reach

Reach of mobile

infrastructure

Adoption of mobile

technology

Financial product

offering to sector

Availability of

DF+ solutions

Sector-specific

regulation

Role of

government

Stakeholder

complexity

Non-financial chal-

lenges in sector

Execution and

scalling ability

Depth of financial

gap

Availability of DF+

business models

Sub-dimensions

Applicability of

DF+ solutions

DF+ readiness assessment – DF+ implementation in the

agriculture sector faces varying levels of constraints

▪ 85% of the country are covered by a 2G network, with some concern around the quality of service in the most rural areas

▪ High penetration, at ~60% of households, with some concern around ownership of handsets and proficient usage by poorest farmers

▪ Traditional financial institutions offer limited credit to farmers without value chain actor guarantees or crop deposit collateral; MFIs lend at annual rates of up to 100%

▪ Present but not scaled – WRS-based post-harvest credit provision, input credit in closed-loop ecosystems, and value chain payment facilitation

▪ No regulatory barriers – regulations on formation of producer associations and export controls have been relaxed

▪ Policy priority for the government; but public spending on the sector is below the target of the 10% of national budget

▪ Moderate complexity – several actors involved along value chain, but roles and interaction are relatively well-defined

▪ Severe non-financial challenges related to quality farmer education, organization, enterprise, and supply/demand dynamics

▪ The majority of farmers cannot access credit support for critical steps of input acquisition and post-harvest liquidity

▪ DF+ solutions can play a significant role by facilitating value chain actors’ market linkages, reducing transaction costs and financial transparency

▪ Value chain actors collaborate to share risk and create “closed loop” ecosystems to provide of DF+ enabled financial products in controlled circumstances

▪ Value chain actors have proven that they can successfully execute, but solutions still apply to small niche of “emerging farmers” meetings a set of selective criteria

6.2 AGRICULTURE – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

1

Binding constraint Readiness for scaling

2 3 54 Explanation

84

In the agriculture sector, DF+ solutions have been applied to

enable financing solutions with some success In

terv

en

tio

n

Discovery

Piloting

Scale

Application

Expansion &

differentiation

Global scaling

DF+ solution

maturity

• Growth financing/

subsidy

• Growth financing/

subsidy and

innovation

support

• Implementation

support

• Convene

stakeholders to

discuss

expansion

• Financial and

technical advice

during piloting

phase

• Best practice

sharing

• Operating model

development

activities

• DF+ has helped to address a number of the financing gaps faced by smallholders in agriculture, including by facilitating

virtual market linkages, decreasing transaction costs, and increasing the transparency of financial flows

• Value chain actors acting in concert, as well as a few telcos, have been the main drivers of DF+ solutions, with products

like WRS-based credit provision and off-take-linked input loans enabled by closed-loop ecosystems and risk-sharing

• Scaling and full commercial viability require more active financial institution involvement in the space, as well as improved

organization and entrepreneurship of producers, with development of market demand for more crop types

DF+ business

model in ideation

or early develop-

ment stage

Individual DF+

business models

are being piloted

in controlled

environments

DF+ business

models are rolled

out under market

conditions

Existing DF+

business models

are being

innovated and

differentiated

Successful DF+

business models

are scaling

nationally

6.3 AGRICULTURE – SCALING AND EXECUTION CAPABILITIES

85

Agenda






Readiness framework







86

Key takeaways: Health sector analysis and challenge

identification

HEALTH – SECTOR ANALYSIS AND CHALLENGE IDENTIFICATION


4.3 Sector-specific regulations



• Across health outcomes, from targeted interventions to overall system health, low-income households fare worse than their wealthier

counterparts (~3X the difference in births attended by skilled personnel, 2X the difference in use of contraceptives)

• Government spend benefits the top quintile 2X more than bottom quintile because of the allocation of funds to facilities with lower low-income

house usage

• Low-income households also face substantially higher cost shocks because of healthcare spend

• Low-income households receive the majority of their care in facilities that are government-run or subsidized

• Government involvement in these facilities includes the provision of Rx through a centralized Medical Storage Department, payment of doctor

salaries, provision of subsidized Community Health Fund insurance schemes and offering of free maternal and under-5 care

• Private providers are a much smaller part of the Tanzanian health economy, as they are generally in urban areas; they access private supply

chain Rx/equipment and accept government-run formal sector health insurance (National Health Insurance Fund)

• A variety of health sector challenges affect the cost and quality of the care low-income households receive

• Facilities (particularly rural public ones) lack available Rx, functional equipment, basic utilities, and hospital beds

• The quality of care suffers from continuous Rx and equipment shortages, while medical staff often does not adhere to best practices

• Patients themselves have little knowledge of health problems and potential treatments, most low-income households face significant

logistical and financial challenge seeking care when they decide to do so

• Tanzania’s disease burden is heavily skewed toward communicable diseases (malaria and HIV make up >1/3 of the country’s disease

burden)

• The government spends less than peers on healthcare (lower half of peer countries), elevating the role of donors (providing 40% of funding)

who have focused on communicable diseases leading to divergent availability and quality of treatment for different conditions

• The role of donor- and government-focused efforts are evident in Tanzania’s strong targeted intervention results (e.g., 2nd highest measles

immunizations) but the overall system health is low (e.g., 2nd highest maternal mortality rate among peers)

87

Infectious diseases dominate Tanzania’s disease burden

48

21

17

18

8

10

7

13

8

4

9

6

11

8

8

10

14

14

10

23

16

15

5

4

7

6

5

6

4

5

6

7

14

7

13

7

5

6

6

5

4

4

5

3

5

Ethiopia

Rwanda

Senegal

Ghana

Nigeria

Kenya

South Africa

Uganda

Tanzania

SOURCE: Institute for Health Metrics and Evaluation

4.1 HEALTH – SECTOR DESCRIPTION

Key takeaways

Percentage of years of life lost (top 5 conditions)1

Ordered by percentage of communicable diseases

1 Year of life lost as calculated by WHO

Meningitis

Tuberculosis

Interpersonal violence

Preterm birth complications

Neonatal encephalopathy

Diarrheal diseases

Malaria

Lower respiratory infections

HIV/AIDS

Tanzania’s disease burden compared to its peers

• Tanzania has one of

the highest rates of

HIV/AIDS and

malaria (>1/3) among

its peers

• Donors focus on

communicable

diseases including

providing free HIV

drugs and malaria bed

nets and intervening

in the supply chain to

ensure delivery

• Almost 48% of

Tanzania’s disease

burden is accounted

for by other conditions

with >2% each -

suggesting broad

system improvements

are necessary to

comprehensively

address the country’s

health issues

88

Low per capita health expenditure is driven by comparatively low

government spending, which is only partially offset by high donor funding

Key takeaways

50

72

85

117

Rwanda 120

Nigeria 128

South

Africa915

Ethiopia

Kenya

Ghana

Tanzania 100

Senegal 111

Uganda

External health funding

Percentage of total health care spending

Government health spend

Percentage of total government spend

Per capita total expenditure on health

USD, PPP

SOURCE: WHO

36.1

Kenya 37.9

Tanzania 39.6

Rwanda

South

Africa2.2

Nigeria 8.7

Ghana

48.0

16.5

Senegal 18.4

Uganda 27.6

Ethiopia

23.3

10.8

Tanzania 11.1

Ghana 12.1

Senegal 12.1

South

Africa12.4

Ethiopia 13.7

Rwanda

5.7Nigeria

Kenya 5.9

Uganda

2013Tanzania’s health expenditure in comparison with its peers

• Tanzania’s lower per

capita spend is a

result of the

Tanzanian govern-

ment devoting a

smaller portion of

its national budget

to health care than

some of its peers

• Lack of spending is

evident in the

government-run

National Health

Insurance Fund for

public sector workers,

which does not spend

80% of the revenue

it collects from

payroll tax

• Almost 40% of total

health care

spending in

Tanzania comes

from external

donors; the majority

of these fund go

towards HIV and

Malaria


89

Tanzania performs well on selected and

very targeted interventions

38

36

32

26

25

25

19

19

Uganda

Ghana

Senegal

Kenya

Tanzania

Ethiopia

Nigeria

Rwanda

93

57

71

75

82

87

91

93

95

High

income

Ethiopia

Nigeria

Uganda

Senegal

Kenya

Ghana

Tanzania

Rwanda

16

22

22

26

28

29

31

35

Uganda

Senegal

Ghana

Tanzania

Nigeria

Rwanda

Ethiopia

Kenya

14

Nigeria

High

income

630

Tanzania 460

Senegal 370

Kenya 360

Ethiopia 350

Ghana 350

Rwanda 340

Uganda 310

Tanzania has good outcomes for targeted interventions, average outco-

mes for public health initiatives, but struggles in overall system strength

SOURCE: WHO 2013

2013

1 Unmet needs describe sexually active individuals not using any method of contraception who report not wanting any more children or

wanting to delay the next child; number used is average of male and female

Key takeaways

Measles immunization %

Tanzania produces average outcomes

on broader public health interventions

People’s use of condoms during high-risk sex%

Family health planning shortage1

%

Overall system health remains below

average

Maternal mortality ratioPer 100,000 births

• Targeted interven-

tions, many funded

by external donors,

have helped vault

Tanzania to the top

of its peers on

focused efforts

• Tanzania’s overall

public health results

have improved less

dramatic, reflecting

challenges with less

focused interventions

• Overall, the

Tanzanian health

system remains one

of the weakest

among its peers


90

Current government spending is relatively low and

disproportionately benefits wealthier Tanzanians

Government spending on healthcare

disproportionately benefits the rich1

18

11

20

17

21

37

36

29All 46

Inpatient 56

Outpatient 48

Primary 39

SOURCE: Left-hand side: WHO; Middle: IFC; Right: WHO

1 Benefit incidence compares the cost of providing services with the population who uses the services, as a means of identifying spending beneficiaries

Richest 5th

Poorest 5thPercentage of spend used by

population quintile

Government spending is low, leading to

a substantial private contribution

Percentage of health spend paid for by

government

Uganda 23.1 76.9

Nigeria 31.5 68.5

Tanzania 39.2 60.8

Kenya 40.2 59.8

South Africa 46.6 53.4

Ethiopia 52.9 47.1

Rwanda 54.8 45.2

Senegal 56.9 43.1

Ghana 58.2 41.8

Key takeaways

PrivateGovernment

2013

4.2 HEALTH – SECTOR IMPACT ON LOW-INCOME HOUSEHOLDS

• A disproportionate

share of Tanzania’s

healthcare is funded

by private spending,

resulting in a

structural

disadvantage for low

income households

• The disproportionate

benefit of government

spending for high-

income households is

due to high cost of

specialized hospitals

and teaching institutions

that are not accessible

geographically or

financially for many low -

income households

91

Across quality of care measures, poorer Tanzanians lag their

wealthier peers, health expenses pose a higher burden for them

SOURCE: WHO 2013

Key takeaways

2013

104

84

48

27

84

97

19

38

33

90

37

59

Bottom quintileTop quintile

Overall

infant

care

Public

health

Use of

system

Children under-5

stunted

DTP3 shot receipt (%)

Under-5 mortality (per

1,000)

Contraceptive

prevalence (modern

methods)

Percentage of births

attended by skilled

personnel

Antenatal care (at least

four visits)

Percentage of Non-food

spending on health1

Patients

1 Approximate numbers taken from WHO report where Extreme Poor are defined as being below food poverty line

2 Statistic calculated by examining what income would be in absence of health expenses

Poorer Tanzanians have worse health outcomesPayment is harder for them too

2

Extre-

mely

poor

Poor

Non-

poor

9

19

8

603617

5

4

10047 2816

7039

Over 5% Over 20%

Over 30%Over 10%

• Low-income

households show

systematically lower

health outcomes

across a group of

indicators

• At the same time

health expenditure

constitutes a

significantly larger

share of household

spending for low-

income households

than for high income

households, thus

increasing the risk of

poverty further

• Health spending

accounts for 4.2% of

the nation’s poverty

count2

4.2 HEALTH – SECTOR IMPACT ON LOW-INCOME HOUSEHOLDS

92

Build desire to accessAbility to

access

The Tanzanian health sector includes, government entities,

informal private actors and formal private actors

4.3 HEALTH – SECTOR-SPECIFIC REGULATION

1 In 2010, 17.5% of facilities were ADDOs and 29.9% were traditional DLDBs. The Pharmacy Council of Tanzania now states that ADDO implementation

has been countrywide meaning only a small number of DLDBs exist.

Govern-

ment role

Informal

private

• ~47.5% Accredited

Drug Dispensing

Outlets (certified

informal duka la

dawa baridis)1

• Medical Storage

Department run by

the government

provides Rx and

equipment to public

facilities

• Government

negotiates

discounted rates

with equipment and

Rx providers

• 32% of pharmacies

are public

• Dispensaries ~4,700 (68% public) have nurses conduct

normal deliveries and basic curative care

• Health centers ~500 (71% public) include minor

surgeries, augment coverage with outreach

• District hospitals ~85 are first level of referral, have

inpatient and diagnostic services

• Regional hospitals ~20 offer specialized secondary

care, have surgeons

• National referral hospitals ~5 provide some tertiary

care, have research and educational training

• 41% of hospitals are government-run

• In rural areas, faith-based-organizations often control

the majority of care

• ~80,000 traditional healers

• Full government

financing of basic

services to all

providers (though

73% pay for free

maternal services)

• National Health

Insurance Fund for ~2

million public sector

workers and family

• Community Health

Fund insurance

available to 90% of

Tanzanians in the

informal sector but

little uptake; 1.7

million members;

does not include

catastrophic care

• The government

leads these

campaigns, many

funded via external

sources (e.g.,

Global Fund,

PEPFAR) with

earmarked purpose

(thus the

government uses

little discretionary

funds)

Formal

private

• ~13K

pharmaceutical

dispensaries

• Other dispensaries

are private, not-for-

profit, and faith-

based facilities

(~14%) and retailers

(8%)

• Global Fund ~1/5 of

HIV/AIDS

expenditures

• PEPFAR and UNICEF

also fund

• Ability to access also

determined by

transport and

accommodations

• NGOs (e.g., GIZ) in

collaboration with

the government run

informational

campaigns on

reproductive health,

maternity, HIV

• Medical schools

produce ~2,000

graduates/year in

5-year programs

• Government

subsidizes ~50% of

medical student

tuition costs

Labor

Provision of care

Infra-

structure

Rx/

equipment

Input production/distribution

Rx and

equipmentMedical training

1 2 3 4

93

The Tanzanian government has launched several national health

efforts including a multifaceted eHealth initiative

eHealth initiatives Key government efforts

Health Sector Strategic Plan III

• Outlines priorities from 2009-2015 with a focus on MDGs

• Focus areas include increasing access to referrals hospitals,

better maternity and child care, primary care strengthening, and

public-private partnerships

• Pay for performance initiatives reward districts and facilities for

meeting quality outcomes for the populations that they see;

facilities then distribute these funds to their health workers as

they see fit

Implementation

• Regional administration and local government (PMO-RALG)

monitor, supervise, and coordinate implementation

• 2009 National Public-Private Partnership Policy outlines a

regulatory and institutional framework for expanding private

provision of public services (formal arrangements were formerly

uncommon)

Going Forward

• Tanzania has publicly stated it will meet the Abuja Declaration-

recommended level of spend (15% of government budget on

health), which would require a significant increase in funding

• Current government efforts are focused on

three categories

– Health informatics (basic data collection)

– eLearning (using technology for knowledge

exchange)

– Telemedicine

• Attempting to implement basic computer

systems in facilities and use for management

• Decentralized roll-out on district-and facility-

levels, with regional and national governance

structures providing support

• No clear agenda for digital payment adoption,

as plan was formalized before widespread

adoption of mobile payments

• Facilities are late adopters of digital payments;

thus while the government focuses on mobile-

enabled information products, mobile-enabled

financial products are largely neglected

4.3 HEALTH – SECTOR-SPECIFIC REGULATION

94

3.3 Transport

constitutes a

significant

barrier to care

2.4 Inability to

follow up with

patients and

tracking them

through a

unified system

2.6 Hospital

shortage

creates large

distances to

seek care

2.7 Facilities lack

ability to ac-

quire and

maintain

appropriate

equipment

4.1 Households

do not seek

treatment in

appropriate

health

facilities when

condition

warrants it

Further detail

follows

Low staff

motivation

leading to

attendance

and retention

problems

2.3 2.5 Lack of basic

access to

utilities

especially in

rural facilities

Counterfeit

drugs enter

supply chain

1.2

Supply chain

deficiencies

compromise

reliable and

timely delivery

of critical Rx

1.3

1.1 Temporary

and

systematic

shortfall of

drug supplies

in public

facilities

2.1 Systematic health worker shortage

Further detail follows

2.2 Inconsistent

application of

best practices

across

facilities

especially in

lower level

care settings

Households

are unwilling

or unable to

pay for im-

portant health

services

3.2

Inability of

low- income

households to

effectively

access health

expenditure

financing

products

(savings and

insurance)

3.1

Throughout the health landscape, a variety of factors drive

poor outcomes

4.4 HEALTH – SECTOR CHALLENGES

1 Mostly provided in dispensaries, public health efforts, and health centers 2 Mostly provided in district hospitals

Ability to

access

Build desire

to accessLabor

Provision of care

Infra-

structure

Rx/

equipment


Rx and


1 2 3 4

Primary area

of challenge

Patient

1.3

1.2

Secondary

and tertiary

care

Preventive

services1

Basic

healthcare

services2

95

Poor Rx distribution leads to low Rx availability

Drug availability continues to be a challenge in Tanzania

SOURCE: WHO 2013; Kaur et al, A Nationwide Survey of the Quality of Antimalarials in Retail Outlets in Tanzania, Plos (2008)

1 WHO collects metric that is “Median availability of selected generic medicines in public and private sectors (%); South Africa data not available for public facilities

Key takeaways

Public facility selected drug availability1

2013, %

Private facility selected drug availability

2013, %

18

20

23

26

38Kenya

Nigeria

Ghana

Uganda

Tanzania

36

45

48

72

72

80Uganda

Nigeria

Ghana

Tanzania

South Africa

Kenya

• Drug availability across Tanzania is below that of

regional peers

• Drug availability in public facilities is systematically

lower than than in private facilities

• Low drug availability in public facilities is driven by a

number of challenges:

– While government can procure Rx and equipment

at discounted prices, it only adjusts delivery on a

quarterly basis

– Counterfeit drugs pose a significant challenge -

one study found 12.2% of oral antimalarial tablets

were of poor quality, though the government has

cracked down on the illicit counterfeit market

– Insufficient Cold chain storage, facility

capabilities, and data collection make it hard to

manage drug availability effectively

1.1-

1.3


96

The number of doctors and nurses in Tanzania is far

below its peer countries

It is particularly bad in rural areasLow level of overall medical personnel

Distribution of doctors

2012, %

Doctors per 1,000 inhabitants

2013

0.1

0.3

0.6

0.6

0.9

1.2

1.8

4.0

High income 27.1

Tanzania

Ethiopia

Rwanda

Senegal

Ghana

Uganda

Kenya

Nigeria

2.4

2.5

4.2

6.9

7.9

High income 72.4

Tanzania

Ethiopia

Senegal

Rwanda

Kenya

Ghana 10.5

Uganda 13.1

Nigeria 16.1

SOURCE: Left-hand side: WHO 2013; Right-hand side: TSPS, 2006; MOHSW; Touch Foundation; interviews; team analysis,

MHSW Human Resource for Health Country Profile 2013

Key takeaways

2.1

Nurses per 1,000 people

% of health spend paid for by gov., 2013

50

18

31

73

9

20

Other urban

Dar es

Salaam

Rural

Distribution

of population

Distribution

of doctors

• Tanzania has 3 times

less doctors than any

other peer

• This problem is further

exacerbated in rural

areas as less than 1/3

of Tanzanian doctors

work in these areas

while over 70% of the

population is rural

• MOHSW stated

educational institutions

had a 74 percent

shortage of staff at

already limited

teaching facilities

• Medical education

costs are prohibitively

expensive for most

Tanzanians

• Many graduates

cannot find jobs in

Tanzania

84Public Private16


97

Staff management challenges and a low level of medical

expertise further hurt Tanzania’s health system

• A 2012 survey reported that only 13% of

health facilities realized best practice of

having a supervisor visit monthly

• While health workers report their activities to

the government, they rarely, if ever, have

the quality of their clinical work checked or

receive guidance and coaching

Lack of knowledge

• Provision of Artemisinin-based Combination

Therapy (ACT) in the case of uncomplicated

malaria is a clearly outlined national best

practice, yet a 2013 study found that less

than 60% of patients with uncomplicated

malaria in facilities with ACT were given

it

• A 2012 study in Northwest Tanzania found

that while most health workers knew

cervical cancer existed, very few were

cognizant of its cause or the existence of the

HPV vaccine

• This lack of knowledge echoes anecdotal

evidence of health workers providing

outdated and incorrect care

SOURCE: 2.5: Manzi et al. Human Resources for Health 2012, 10:3

Lack of supervisors

Inconsistent application of best practices

• Health workers have reported job

dissatisfaction because of difficulties

multitasking in an environment of staff

shortages, a desire for more structured and

supportive supervision from managers, low

wages, and improved transparency in

career development opportunities

• This dissatisfaction produces problems as

primary care worker absenteeism rates are

often around 40%

• In 2012, doctors held several extended

strikes expressing their dissatisfaction with

their pay and working conditions

Job dissatisfaction

Low staff motivation2.32.2

Provider-provider communication

Provider-patient communication

• Patient health records are maintained on

paper and given to the patient, making it

difficult for different care centers to

determine a patient’s medical history during

their visit and track their health afterwards

• Anecdotal reports indicate different care

centers rarely communicate one another

• Health workers reported in focus groups

that they lacked knowledge of appropriate

referral paths owing to a lack of

communication with other facilities

• Only 10% of those with hypertension

receive ongoing treatment, creating a

status quo where only 1% of those with

hypertension have controlled cases

Inability to track patients2.4

2.2-

2.4


98

Facilities lack

equipment2.7Lack of basic access to utilities

Regular water supply1

%

Regular electricity supply (or generator)2

%

Emergency capabilities – Basic components3

%

2.5

Health workers practices in facilities that lack basic resour-

ces and are inadequately size for the population they serve

SOURCE: Left-hand: MOHSW, TSPS 2006; Right-hand: WHO 2013

1 Year-round water supply in facility, or within 500 m of facility ; 2 Electricity routinely available during service hours, or a back-up generator

with fuel

3 At least 2 qualified personnel assigned for facility, observed duty schedule, overnight beds, 24 hr emergency communications

24334142475057

Private

for-profit

Govern-

ment

Dispen-

saries

Health

centres

Hos-

pitals

Faith-

based

organiza-

tion

Para-

statal

22304656677082

Hos-

pitals

Govern-

ment

Dispen-

saries

Faith-

based

organiza-

tion

Health

centres

Private

for-profit

Para-

statal

001521404462

Hos-

pitals

Private

for-profit

Faith-

based

organiza-

tion

Govern-

ment

Dispen-

saries

Health

centres

Para-

statal

Key takeawaysHospital shortage2.6

Hospitals beds per 10,000

population

5.0

7.0

9.0

High

income56.0

Uganda

Tanzania

Ghana

Kenya 14.0

Ethiopia 63.0

• Tanzania has

only ~1 bed per

1,000 people and

>50% of these beds

are in hospitals

that lack basic

unitilies

• Anecdotal evidence

suggests that the

lack of amenities

and scarcity of these

facilities is more

severe in rural areas

• Poor facility

capabilities are a

large source of

worker

dissatisfaction

• The lack of

amenities leads to

unnecessary

referrals and

misdiagnoses

• There is a systemic absence

of functional diagnostic

equipment, particularly in

public facilities. One study

found that only 13% of X-ray

units in facilities were not

defective Donor equipment is

often not suited for facility

(e.g., voltage required

different from that in facility or

facility lacks labor and/or

access to spare parts to repair

machine)

2.5-

2.7

?


99

Tanzania also has demand-side problems – when citizens

want to use health services, many struggle to access them

Inability of low-income households to effectively

access health financing and unwillingness to

spend1

Transport constitutes a significant barrier to

care

1.42.43.0

4.1

Advice

during ANC

Discussion

with male

partner

Knowledge

of pregnancy

risk factors

Distance

to facility

3.33.1-2

1 Approximate numbers taken from WHO report where Extreme Poor are defined as being below food poverty line

SOURCE: WHO

• Transport costs and unfamiliarity with transport system

drive this problem

Determinants of deliveries assisted by skilled attendant

in odds ratios (n = 1,000 females having given birth)

• Tanzanians are unable to obtain formal health financing

(~85% of Tanzanians are uninsured)

• This severely affects low-income households

• One-quarter of extremely poor Tanzanians devote 20% of

their non-food spending to health compared to 7% of non-

poor Tanzanians

• Low-income households are unable to smoothen health

care costs, as evidenced at Sengerema District Hospital

where more than two times the patients seek services

after harvest

• Many of these patients have had their conditions worsen

because they did not seek care earlier

• 31% of consumers in the bottom two quintiles obtain

informal loans for health or emergency expenses

• Cancer treatment, second-line hypertension and diabetes

drugs are prohibitively expensive for low-income

households

• Although 90% of Tanzanians live within 5 km of some

health facility, transport constitutes a major barrier to

receiving care

3.1-

3.3


100

Demand for healthcare services is often

low due to a lack of general health knowledge

Tertiary hospital

8Self-medication

or none10

Dispensary 19

Herbalist/

traditional healer21

District

hospital

42

Non-hospital facility

Hospital facility

1 For ages 15-24

SOURCE: WHO; cancer organizations; WHO; East African Journal of Public Health; BBC; ORCI

Right knowledge of HIV/AIDS1

Lack of knowledge of health

problems

Institutions visited by cancer patients in their first

care-seeking attempt

% (n = 330 cancer patients)

Lack of knowledge of optimal health practice and

appropriate resources Key takeaways

28

28

29

31

35

46

49

51

Nigeria

Senegal

Uganda

Kenya

Ethiopia

Ghana

Tanzania

Rwanda

• >50% of Tanzanians lack

basic HIV/AIDS

knowledge or knowledge

of the health system/ best

practice (as going to a

district hospital would

provide better, relatively

inexpensive care)

• Late cancer treatment is

usually related to lack of

awareness (more than

60% of cancer patients do

not think of cancer when

they first seek treatment)

• The perceived low quality of

health system and long wait

times lead many to self-

treat at ADDO where staff

is untrained and

diagnostic materials and

referrals are unavailable

Patients do not reach appropriate facilities until late

cancer stages given initial care-seeking behaviour

• 70-80% of all cancer patients at ORCI (Ocean Road)

arrive at late/incurable stages

• 90% of all cervix cancer patients arrive at stages IIb,

III, or IV

4.1EXAMPLE


101

Agenda





Digital finance plus solution feasibility

Readiness framework







102

Key takeaways: Health sector assessment of financial service

needs and gap analysis

HEALTH – ASSESSMENT OF FINANCIAL SERVICE NEEDS AND GAP ANALYSIS




• Financial institutions are not providing needed financial products for low-income households as credit and insurance products are

unattractive due to high collection costs, unmanageable adverse selection (especially for catastrophic insurance products) and a high-cost

to serve low-income households

• Tanzanian health facilities do not have access to credit, due to reservations in the financial sector to lend to individual hospitals, at the

same time hospital management often lacks an effective mandate to seek credit and improve the facilities

• The financial products that would widen low-income access are largely unavailable: financial institutions in Tanzania do not offer

purpose-driven savings products and short-term credit for low-income consumers

• An exception is health insurance that covers primary care in public health facilities, which is available to low-income consumers through

the government-subsidized Community Health Fund, but suffers from low uptake and poor quality of care

• Pilots of private provider insurance are limited to small groups, and they currently focus on attractive risk groups

• Financial products that would enable facilities to upgrade care provision are unavailable: there is a severe lack of credit for facilities

• Quality of care issues are further exacerbated by government not adjusting wage payments based on performance

• Various financial service needs exist across the health value chain affecting patients’ ability to access services and the quality and quantity

of services facilities can provide

• Low-income households patients are often informal agricultural workers with volatile cash flows; to resolve liquidity constraints and enable

health treatment at the optimal time, consumers need some combination of savings products or primary care insurance, catastrophic

insurance, and short-term credit

• To provide higher-quality treatment to low-income consumers, facilities need credit to purchase Rx and equipment maintenance,

further government subsidy of doctors’ wages, and the ability to make performance-based payments to increase staff attendance

• Other actors have finance needs that could help improve care at facilities: increased donor financing could allow government purchasing of

more expensive drugs and equipment, and loans for medical education facilities and students could allow expansion of the medical

workforce

103

A number of challenges along the value chain are driven

predominantly by unmet financial needs

5.1HEALTH – FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN

1.1 Temporary

and

systematic

shortfall of

drug supplies

in public

facilities

2.2 Health

workers often

deviate from

best practice

in care

provision

3.3 Transport

constitutes a

significant

barrier to care

2.4 Providers

have

difficulties

following up

with patients

and tracking

them through

system

2.6 Hospital

shortage

creates large

distances to

seek care

Households

are unwilling

or unable to

pay for im-

portant health

services

3.2

2.7 Facilities lack

ability to

acquire and

maintain

appropriate

equipment

Supply chain

deficiencies

compromise

certain Rx

1.3

4.1 Households

do not seek

treatment in

health facilities

when

condition

warrants it

Inability of

low-income

households to

effectively

access health

expenditure

financing

products

(savings and

insurance)

3.1Facilities have

counterfeit

drugs

1.2 Staff are often

unmotivated

leading to low

attendance

and retention

2.3 2.5 Facilities lack

basic access

to utilities

1 Mostly provided in dispensaries, public health efforts, and health centers; 2 Mostly provided in district hospitals

PatientAbility to

access

Build desire

to accessLabor

Provision of care

Infra-

structure

Rx/

equipment


Rx and


1 2 3 4

Primary area

of challenge

2.1 System has

health worker

shortage

Secondary

and tertiary

care

Preventive

services1

Basic

healthcare

services2

BOLD: Challenges with

financial need as a key driver

104

There are low levels of finance provision in

the Tanzanian health sectorMinimal ModerateLimitedN/A

Number/reach of existing financial products

Minimal but efforts underway

Finance for

country's

purchase of Rx

and equipment

Finance for

medical students

Finance for

facilities to hire,

pay, and

incentivize labor

Finance for facility

infrastructure

improvement and

expansion

Finance for

purchasing of

Rx/equipment by

facility

Finance for patients

to pay for desired

health services

Financing for health

education and

demand generation

High

Ability to

access

Build desire

to accessLabor

Provision of care

Infra-

structure

Rx/

equipment


Rx and


1 2 3 4

Patient

Dir

ect

len

din

gIn

su

ran

ce

Sav

ing

s

Payment

Routine

expenses

Catastro-

phic

expenses

Short term

Long term

Specific

type of

expenses

All health

expenses

Donor

financing

Facilities outside referral hospitals are unable to get credit from traditional providers

CHF and TIKA cover basic

medical expenses and are

available to all Tanzanians for low

subsidized prices; though overall

insurance covers <15% of

population

Traditional bank

administration

of small

accounts Is

unprofitable

and end

consumer travel

to make small

deposits has

high opportunity

cost

Donor focus on communicable diseases – HIV, etc.

Lump-sum payments required for treatment as no way exists to enforce payment post-treatment

Under current model

economics do not

justify banks

determining credit-

worthiness of

patients

CCBRT transfers funds to ambassadors who provide information about maternity complications and facilitate proper care

Flexible payment plans allowed by teaching facilities

Some NGOs build and operate their own care facilities

CHF does not cover most secondary or tertiary care while National Health Insurance Fund is accepted at most secondary and tertiary providers

5.2 HEALTH – FINANCIAL GAP ANALYSIS ALONG THE VALUE CHAIN

105

Certain health sector challenges are driven by

financial gaps, some of which DF+ can address (1/3)

Input

production/

distribution1

1.1 Temporary

and systematic

shortfall of

drug supplies

in public

facilities

Value chain gap

► Poor facility-level forecasting of drug demand

• None

► Poor MSD supply chain leads to slow response to requests

• None

DF+ so-

lutionDrivers

Finance


► National budget allocation insufficient to procure sufficient drug supplies

• Donor fin-ancing/pri-vate contri-butions

• Donor financing focused on a limited number of high-profile interventions

• Significant private drug expenditure

• Donor financing insufficient to compensate completely for insufficient budget allocation

( )► Public facilities lack liquidity to purchase drugs from private suppliers

• Short-term loan/liquidity

• Minimal commercial credit available especially for low-level public facilities

• Commercial banks do not view facilities as credit-worthy

• Lack of a business case for purchase of drugs (free provision)

• Facilities lack entrepreneurial management

1.1

• Government funds a set number of medical posts

• Hospitals have insufficient ability to co-finance additional medical personal

• Lack of profitable business model for providing additional care

• Government funding limitations

• Additional wage subsidy

► Demand-side: Insufficient funding across public and private facilities to hire doctors

• Facilities allow for flexible payment periods/installments but absence of unsecured lending to students

• Given low wages and lack of job availability, medical students are risky loan recipients

• Educational loans

► Demand-side: Medical education prohibitively expensive (demand-side)

• No► Supply-side: Lack of qualified instructors

• Long-term lending to expand education

• Informal arrangement with government but expansion requires commercial lending to facilities

• Without government subsidy, demand unlikely

• Lack of entrepreneurialism• Lack of credit-worthiness

► Supply side: Insufficient educational capacity

2.1

• Current lump-sum salary payments with no performance measurement productivity pay

• Ability to track performance• Ability to differentiate payment based on

performance

• No► Lack of productivity-based salary differentiation

• No► Private care settings offer more attractive pay/working conditions

• No► Unclear career path/progression, especially in rural facilities

• n/a► Unfavorable working conditions because of other drivers (capacity constraints, lack of Rx/equipment and training)

• No► Lack of effective supervision, especially in rural settings

2.1 System has

health worker

shortage

2.3 Staff are

often

unmotivated

leading to low

attendance and

retention

Provision of

care2

2.1

2.3

5.3 HEALTH – BARRIERS TO PROVISION OF FINANCIAL PRODUCTS

106



Provision of

care2

2.7 Facilities

lack ability to

acquire and

maintain

appropriate

equipment

Value chain gap

DF+ so-

lutionDrivers

Finance


2.7

2.1

3.1 Inability of

low-income

households to

effectively

access health

expenditure

financing

products

(savings and

insurance)

Ability to

access3

• No► Receipt of donor equipment that does not match facility capabilities

• Inability to hire maintenance workers • Facilities lack cashflow to attract technical workers with the capability to operate machines, particularly in rural areas

• Adequate salaries for maintenance workers

► Lack of skilled maintenance personnel to service existing equipment

► Inability to finance capital purchase from regular cash flows

• Investment lending product

• Lack of equipment loans means full upfront payment required leading to donor dependence; lease-and-own product that allows gradual payment

• Commercial banks do not view facilities as credit-worthy

► Supply: Effective lack of savings products for medical expenses

• Health savings accounts

• No institutional health savings accounts for low-income households

• Low-margin products and unattractive customer group for traditional financial service providers

► Demand: Unfamiliarity with personal health risk management

• No

► Demand: Expectation to receive free care for core medical services

• No

Lack of primary care insurance

• No► Demand: Low willingness to pay for health insurance because of the poor quality of care record

• No► Demand: Unfamiliarity with insurance products and personal health risk management

• State sub-sidized insurance

• Limited pilots combining private insurance with state/donor financing

• Sufficient donor/state financing• Public-private partnerships

► Demand: Prohibitive cost of insurance for low-income households

► Supply: Limited private provision due to adverse selection problems

• Limited pilots typically for group-based and salaried workers

• Fix sum health insurance for hospital expenses based on large group telco subscribers

• Risk-spreading group insurance products

• Inability to sign up attractive risk groups

• Digital pre-mium pay-ment/policy renewal

• Individual microinsurance players evaluating digital premium payment/ policy renewal options

• MNOs offering top-up fixed sum insurance through mobile money accounts

► Supply: High cost of provision due to collection of premium and on-the-ground administration

Lack of health savings accounts3.1


107

3.3 Transport constitutes a significant barrier to care

3.1 Inability of low-income households to effectively access health expenditure financing pro-ducts (savings and insurance)

3.2 Citizens are unwilling or unable to pay for important health servi-ces, parti-cularly for non-donor favored conditions

• Short-term liquidity

• Commercial banks find it hard to cost-effectively serve segment

• Donors find it difficult to transfer funds needed for transport before event

• Informal community financing and pilots of cash transfers for transport

► Liquidity constraint prevent access to high-level care especially in rural areas

► Unfamiliarity with transport leads to avoidance of use

• No



Value chain gap

DF+ so-

lutionDrivers

Finance


Ability to

access3

3.1

► Lack of catastrophic insurance products available

• Private cata-strophic in-surance

• Only national health insurance and private insurance schemes for the wealthy cover these expenses

• Adverse selection• Risk

► Lack of understanding of value proposition of catastrophic insurance

• No

Lack of catastrophic health insurance

► Lack of available credit for medical expenses

• Medical credit

• Very rare lending to low-income consumers

• Collection costs exceed small revenue

► Desire impactful health product or treatment but price point is prohibitively expensive

• No • Donor providing full or partial subsidies for certain segments to purchase certain products

• Identifying target segments• Ensuring subsidies used for desired

purpose• Funding for subsidies

► Lack of understanding of why service is important leads to low demand

• No • Donor piloting of demand generation through ambassador education

• Recruiting ambassadors• Incentivizing ambassadors

3.3

Desire to

access

3.2

4.1 Households lack awareness of symptoms and proper treatment for common health conditions

4.1

4 ► Unaware of local health facilities and way to access them

• No

► Unaware of existence and basic symptoms of prevalent health conditions

• No

• No► Discomfort accessing health facilities

• Community agents incentivized to educate community members and facilitate their health system access

• Recruitment of community agents and outcome-based payment

• Funding for payments


108

Agenda






Readiness framework







109

Key takeaways: Health sector digital finance plus solutions

feasibility

HEALTH – DIGITAL FINANCE PLUS SOLUTION FEASIBILITY




• In Tanzanian health, DF+ is limited to small pilot projects at different stages of the value chain

• These pilots both enhance previously offered payments and financial products through DF+ or offer newly enabled products

• Based on the finance gaps and the ability of DF+ to overcome different barriers, we have identified 6 DF+ products that have the

potential to deliver significant impact e.g.:

– DF+ can enable a more effective system of financial flows through supporting a payment system that incentivizes

community ambassadors to generate demand for health services and a payment system that enables subsidy

transfers to target segments for targeted health interventions

– DF+ can enable an effective new type of payment through a system that ties doctors’ salaries to performance

– DF+ can also aid in the provision of finance products as its use makes existing private insurance and lease-and-own

equipment models more effective while also making a novel maternity savings product possible

• Current DF+ efforts in Tanzania have been implemented only for a limited number of providers but lessons for viability have emerged

• The success of enhancing payments through DF+ (demand generation schemes and subsidy distribution) in various NGO pilots

for single conditions/products suggests a broader applicability to other conditions

• DF+-enabled pay for performance and maternity savings products have shown encouraging results in limited pilots

• The viability of digital private provider insurance and lease-and-own equipment remains to be tested

• Major scaling barriers exist in Tanzania given low system performance, the large role the government plays, patient’s lacking

understanding of financial products (especially insurance), and the lack of management capabilities

• Individual DF+ solutions are unlikely to have a compelling value proposition as a comprehensive reform package is necessary to

address the sector’s core problems

• Scaling of any DF+ solution will require government buy-in given that it directly controls and funds the vast majority of facilities and

medical personnel; limited pilots could be rolled-out in cooperation with the faith-based providers

110

Product

evaluation

Not all identified challenges are caused by a financial barrier or

can be addressed through a DF+ application

6.1 HEALTH – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS

Finance as barrier DF+ potential No other barriers

Medical training2.1 System has health worker shortage

Rx and equipment

1.1 Temporary and systematic shortfall of drug supplies in

public facilities

Counterfeit drugs enter supply chain1.2

Supply chain deficiencies compromise certain Rx1.3

Labor2.2 Inconsistent application of best practices across facil-

ities, especially in lower level care settings

Low staff motivation leading to attendance and

retention problems

2.3

Infrastructure

Inability to follow up with patients and tracking them

through a unified system

2.4

2.5 Facilities lack basic access to utilities

2.6 Hospital shortage creates large distances to seek care

Rx and equipment2.7 Facilities lack ability to acquire and maintain

appropriate equipment

Ability to access

Inability of low-income households to effectively

access health expenditure financing products (savings

and insurance)

3.1

Households are unwilling or unable to pay for im-

portant health services

3.2

3.3 Transport constitutes a significant barrier to care

Desire to access4.1 Households do not seek treatment in appropriate

health facilities when condition warrants it

Inp

ut

pro

du

cti

on

Pro

vis

ion

of

care

Dem

an

d f

or

care

Detail

follows

Value chain segment Challenges

)(


High Low

111

Top implementation challengesDescriptionDF+ product

Staff are often unmotivated,

leading to low attendance and

retention

2.3 1. Government buy-in

2. Fraud

3. Technical execution

4. Funding

5. Perverse incentives

• Incentive payment to primary

care healthcare worker for each

patient seen paid digitally based

on patient SMS confirmation

• DF+ enabled

performance

payments

2.7 Facilities lack ability to acquire

and maintain appropriate

equipment

1. Receptiveness to rural jobs

2. Absence of parts

3. Government buy-in

4. Technical capabilities

• Medical equipment leased to a

facility that works with a qualified

technician to collect cost-sharing

to pay back machine value

• DF+ enabled

Lease-and-own

PPP equipment

model

4.1 Citizens do not seek treatment

in health facilities when

condition warrants it

1. Ambassador education

2. Provider buy-in

3. Operations

4. Village education

• Incentive payment for

community ambassadors to

identify and refer emergency

cases, combined with payment

to cover transport for patient

• DF+ enabled

demand

generation

Inability of low-income

households to effectively

access health expenditure

financing products (savings

and insurance)

3.1 1. Quality

2. Demand generation

3. Operational implementation

4. Financing

• Time-bound, purpose-tied, DF+-

enabled savings products based

on incremental cash transfers

into dedicated account

• DF+ enabled

Maternity

savings product

Inability of low-income

households to effectively

access health expenditure

financing products (savings

and insurance)

3.1 1. Product understanding

2. Facility quality

3. Financial capabilities

4. Operations

• DF+ enabled insurance that

entitles the beneficiary to a full

suite of primary and maternity

care at a local private health

facility

• DF+ enabled

insurance

administration

3.2 Citizens are unwilling or

unable to pay for important

health services

1. Supply coordination

2. Facility adoption

3. Auditing

4. Adoption

• Subsidy payment to private

providers to enable purchase of

essential health products /

service by low income

households

• DF+ enabled

targeted subsidy

programs

Addressed health sector challenge

A

B

C

D

E

F

Based on our analysis of the current state and barriers to scale,

we suggest 6 DF+ applications for further consideration


112

DF+ could enable a new pay for performance system for

providers to increase productivity (1/3)

A

Financial

instrument

Target

audience

Product

provider

Digitally enabled incentives

performance payments

Primary healthcare workers

Organizations overseeing

multiple private providers

(e.g., faith-based providers)



• After seeing a patient, the doctor gives the patient his identification code and asks the

patient to send a free SMS with that code to a centralized database

• The database receives the text message and confirms that it originated from a unique

number not previously used for that identification code

• The provider makes a quick and seamless mobile payment to the associated doctor

making the incentive immediately tangible and more powerful

• The incentive is paid end of week, based on the number of patients seen

• The provider gathers data and tracks patient throughput on a real-time basis


• Government implementation of this process would allow achievement of scale (84% of

doctors are paid by the government)

• This process could also be implemented for other doctor types by tracking procedure

codes and issuing differentiated payments for them

• SMS follow-ups could be enabled through connecting a patient’s phone number with

the procedure that patient received

• A feedback function that provides basic performance data on doctors


• Enables instant payments making

incentives immediate and tangible

• Tracks patient history that could support

care coordination and customized health

information sharing


• Increases labor supply in public clinics

by decreasing absenteeism

• Ability to solicit clinic help in service

demand generation as medical

personnel can increase their salary

through encouraging patients to see

them

• Increased capacity per existing facility

Product summary

• Incentive payment to primary care health workers for each patient seen paid

digitally based on SMS confirmation by patient

Addressed financial gap

• Primary health care worker lack incentives to see more patients which often

leads to high variability in productivity and absenteeism that in-turn,

increases patients’ perception that facilities are poor quality


113

DF+ could enable a new pay for performance system

for providers to increase productivity (2/3)

A Low

High

Feasibility assessment: Enabling

environment Feasibility assessment: Operating model Impact assessment

Technical execution

• Once the database is populated with

identification codes and payment accounts,

the system is only required to check for

duplicate senders

Feasibility

• Product implementation will likely

require government adoption and a

national identification scheme to

prevent fraud

Potential impact

• High impact: Effective electrification of up

to 5 million households (30 million people)

possible

Government buy-in

• Scale requires government buy-in as key

employer, no current signs of uptake

Fraud

• Given the low cost of SIM cards, an individual

could switch mobile phone numbers; ID or

biometric requirements could alleviate fraud risk

Perverse incentives

• While this may encourage providers to spend

less time with patients, quality is likely to

increase overall as more patients are seen

Additional funding

• Likely requires additional funding to finance new

performance bonus

Financial infrastructure

• Continuation of low-cost mobile

payments necessary to ensure

model works

Mobile infrastructure

• High penetration of mobile

money to necessary or else

doctors without mobile phones or

reception will be unfairly

disadvantaged

• Women cell phone access will

need to increase as they are

often the household member

seeking care


• National identification scheme

will likely be necessary to verify

the mobile accounts into which

payments should be made

Reach

• Labor shortage is one of Tanzania’s

biggest problems (0.1 doctor and 2.4

nurses per 1,000 people are the

lowest levels among peer countries)

• 60% of care is received in the public

sector with long wait times and poor

quality

• Absenteeism rates of primary care

providers are nearly 40%

Impact on Problem

• Anecdotal evidence suggests

payment incentives could greatly help

increase service provision and career

attractiveness

• May be the most effective way to

address this problem, given that

recent medical graduates have

struggled to find jobs in Tanzania

because of funding shortages


114

DF+ could enable a new pay for performance system for

providers to increase productivity (3/3)

A


Population Services International

has implemented this model for its community health

workers

• PSI has its community health workers (each with a unique

ID) tell the people they provide medical care/advice to, to

text their ID number to PSI’s central server.

• PSI counts unique phone numbers to determine how many

people the worker provided services to and provides

proportional incentive payments

• This process also registers patients’ mobile numbers in

PSI’s system, allowing it to provide customized information

to these patients

• Begin with a pilot in a small number

of manageable facilities (a set of

faith-based providers, specific

geographic area)

• Build database that can verify if the

mobile number has sent an SMS

with a specific identification code

before and provide payment

appropriately

• Educate doctors about the shift and

help them establish mobile money

accounts

• Audit service in initial implementation

to ensure doctors are being

rewarded appropriately

Catholic Relief Services helped implement a model as part

of Project LEAD in which health workers were paid

according to how many HIV/AIDS patients they got back

on treatment

• Paid a 2,500 TZS incentive for return of patients to facilities

who had stopped treatment and not been seen for 90 days

• Verified when patient entered a unique identifier code at the

clinic


115

Lease-and-own equipment through public-private

partnerships could increase service access and quality (1/3)

B

Financial

instrument

Target

audience

Product

provider

Secured lease-and-own

facility

Hospitals and technical

graduates

Partnership incl. equipment

manufacturers and financial

and educational institutions


Product summary

• Medical equipment leased to a facility on a lease-to-own basis

• Facility works with qualified technician to ensure upkeep

Addressed financial gap

• Hospitals lack cash flow to invest in modern medical equipment

• Hospitals’ equipment often remains unused because of basic maintenance

issues as revenue obtained from equipment usage cross-finances general

facility operations

• Equipment-dependent services become a bottleneck in care delivery

• Equipment malfunction causes unnecessary and costly referrals to higher-

level facilities


• Equipment provided to specified facility that partners with a technical graduate to

service the machine

• The graduate operates the equipment in a public-private partnership in which he

charges for the patients’ use of the machine and receives part of the user fees

• The provider places the other funds collected from the user fees in a separate digital

account devoted to paying back the lease

• The equipment is used as collateral

• Upon full payment, the facility owns the machine and can continue to operate it


• Payment via mobile money for the equipment-enabled services could ensure an

automatic contribution toward the lease


• Enables smaller, more frequent

payments to lease-provider without

requiring geographical proximity to

make payments


• This product increases the presence of

care equipment in facilities while

properly locating and incentivizing

trained technicians to operate and

repair the machines


116



B

Feasibility assessment: Enabling environment Feasibility assessment: Operating model Impact assessment

Low High

1 Diagnostic X-ray facilities as per quality control performances in Tanzania, Yesaya Y. Sungita,1 Simon S.L. Mdoe,1 and Peter Msaki

2 Tanzania Atomic Energy Commission

Technical capabilities

• While technical institutions train

graduates to operate older machines,

newer machine operation often

requires company-specific training

Technical capabilities

• 59% of X-ray machines are operated in

private sector hospitals even though only

15% of hospital are private

• Improvement of public sector equipment

would increase affordability of services

and access, particularly for those in rural

areas lacking private-sector alternatives

• A 2006 study found that only 13% of X-

ray units in facilities were in use (53%

not in use, 34% out of order)

• Equipment is often not suited for the

facility (wrong voltage) which lacks the

ability to repair it

• This problem is also driven by the

inability to access spare parts1


• Mobile phone and mobile money

available for most clinics


• Subsidiary government institutions

would become creditors, meaning

default and liability rules would have to

be clarified


• No financing institutions are currently

offering these products

• Given the lack of willingness to extend

financing to medical facilities, the model

would likely need an equipment

manufacturer or donor to offer product

and guarantee loan

• Limited effective collection procedure in

case of default (re-owning machine is

costly and ethically hard to execute)

Absence of parts

• Increased risk for leaser and

entrepreneur as maintenance times

may be severely limited by

shortcomings in the equipment supply

chain

Receptiveness to rural jobs

• Many technicians are unlikely to

agree to live in most rural areas,

constraining the scope of the effort

Government buy-in

• Although the government may allow

PPPs, its active encouragement will

likely be necessary for scaling

Impact

• Model addresses clear system need

though impact would be maximized

through a combined effort to increase the

supply of spare parts

Feasibility

• This model could spread to older

equipment pieces in urban areas but

it would need to be promoted by the

government and offer unique

incentives for rural technicians to

truly reach scale


117



B


• Partner with technical

institutions to ensure

graduates trained to

operate and maintain high-

demand machines

• Work with health care

facilities, financial service

providers and technical

training institution to build

cooperation agreement and

determine lease terms

• Identify potential equipment

needs and help kick-start

pilots

Bugando Medical Centre is a leading referral

hospital in Mwanza often at the cutting-edge

of service provision

• Facility is seeking partners to provide

equipment on a lease-and-own basis though it

would operate it with existing staff

• Cooperation with local technical colleges are

being evaluated


118

DF+ can enable a purpose-tied maternity savings

product to improve maternal care (1/3)

C

Financial

instrument

Target

audience

Product

provider

Purpose-tied, short-term savings

product

Pregnant women in low-income

households

Partnership incl. MNOs, financial

service provider, and health sector

organization



• Third party (government) matching contributions tied to the attainment of minimum

saving targets

• Additional provider discounts tied to the savings target

• Maternal advice or diagnostic service via phone for participating households

• Integrated low-cost insurance products to protect against common complications

Product summary

• Time-bound, purpose-tied, DF+- enabled savings products based

on incremental cash transfers into dedicated saving account


• Lack of low-cost savings product and financial infrastructure to

provide the financial product in rural areas

• Inability to adequately motivate/inform target group about savings

purpose and progress toward savings target


• Time-bound savings account with a fixed pay-in period of 6-9 months; no option of

early disbursement apart from pre-natal visits

• Regular text-based update on saving targets and receipt of potential government

contributions

• Platform for comprehensive maternity health information at relevant stages of

pregnancy

• Purpose-tied disbursement ensured through a direct transfer to a medical service

provider (unique identifying ID)

• Interest-bearing account to encourage early pay-ins


• Enables long-term financial planning

and financial commitment for household

in volatile cash flow environment

• Encourages low-income households to

seek adequate maternal care treatment


• Enables incentives via 3rd party

matching contributions

• Enables convenient and frequent low-

volume pay-ins at a manageable cost

Enables coverage in under-banked

areas

• Enables monitoring the savings targets

• Reduces risk of fraud through purpose-

tied disbursement/elimination of cash


119



C


Low

High

1 Winani et al, 2007: Study was not randomized control trial and unclear if hygiene education or kit presence drove impact

Reach

• 1.75 million births/year in Tanzania

• 51% of births in Tanzania are not

attended by skilled personnel,

• 8,050 deaths/ year, worldwide 15% of

those are due to infection

• In Tanzanian study, newborns whose

mothers used kit had 13.1 times less

cord infections and women kit-users had

3.2 times less puerperal sepsis1

Impact on Problem

• Addresses two leading determinants of

the decision on where to deliver

• Distance to facilities largest driver

Savings product changes decision

calculus as no additional cost required

for transport

• Risk factor knowledge is 2nd leading

determinant of birth location

• Educational component of sales may be

most impactful helping establish skilled

delivery as a community norm


• Product availability depends on mobile

money adoption, especially for women

in households

• Telco most likely actor to offer product

in bid to retain customers as

operational costs would be lowest


• Maternity care is by law provided for

free


• No DF+ savings products currently

offered, M-Power just launched in the

month

Financing

• Pilot funding is likely to be readily

available from various donors

• Scaling would require sustained

state budget allocation

Operational implementation

• Requires coordinating many

actors and establishing call center

and verification systems

Quality

• The low quality of health facilities

remain the single biggest deterrent

to save for maternity care

Education

• Education on the benefits of

delivery with skilled personnel is

challenging in rural areas

• Health workers and community

leader are the best positioned

educational agents

Potential impact

• Product can help change community

norms and alter cost calculus, but a large

increase in BoP use of skilled delivery

likely depends on education and perceived

facility quality improvements

Feasibility

• This product will likely find willing

funders, meaning it can be created;

the chief challenge will be scaling by

creating demand and ensuring

savings used as intended


120



C


• Sign-up of households through

health centers during initial visit

• Secure 3rd-party co-pay

contribution to incentives

uptake

• Design simple text-based

system mirroring M-Pesa/Tigo-

Pesa / M-Shwari to increase

ease of use and uptake

• Integrated payment system

across health providers to

enable secure and proposed

tied usage of funds

Mamakiba, launched in Kenya in 2008, offers

maternity savings products as part of a pilot

program

• Includes a savings calculator that created easy

targets for consumers

• Initial trust issue

Changamka, established in 2008 in Kenya,

operates a similar model through a smart card

• A 2012 USAID study at one Kenyan provider found

that

– 75% of users said the card helped them save

money by not letting them spend it on other

things

– 15% of users said the card helped by

preventing their families from spending the

money on other things


121

Microinsurance for private primary care could help end

avoidance of important care (1/3)

D

Financial

instrument

Target

audience

Product

provider

Insurance product for

primary care at private facility

Low-income households

Partnership incl. providers

and MFI/donor providing

insurance



• Seamless collection of premiums

decrease operating costs by up to 10%

through lowered administrative costs

• Enables monthly payments, which

represent a switch from the current use of

annual payments

• Enables an automatic premium deduction

to ensure payment


• Enables better BoP financial planning in a

volatile cash flow environment

• Enables better provider financial planning

as inflows move from unpredictable, out-

of-pocket expenses to monthly capitation

payments

• Encourages BoP households to seek

adequate care treatment in typically

better quality facilities


• Insurance product for the use of a local private health facility funded through automatic

monthly payments

• Enrollees are entitled to unlimited care provision at designated facilities

• Insurer pays the facility a capitated payment for each enrollee but does not reimburse the

provider for services rendered

• Premium payments made monthly with an annual commitment and SMS reminders


• The insurer could consider adding additional secondary care benefits that would increase

premium costs by ~50%

• The insurer could help the private provider improve financial management and care quality

in an effort to increase consumer desire to seek care at a private facility

• The product could be introduced with a simultaneous quality improvement effort at the

facility

• Private insurance programs could be combined with the Community Health Fund effort in a

public-private partnership

Product summary

• Microinsurance product enabled through monthly digital premiums entitling the

beneficiary to a full suite of primary care and maternity services at a local

private health facility


• Inability of BoP consumers to smooth expenditures, resulting in harmful care

avoidance when they need care

• Difficult for providers to predict and manage cash flow given inconsistent, out-

of-pocket payments


122



D


Low

High

Financial capabilities

• They provider would need the ability

to model the product to determine

appropriate pricing

Product understanding

• Cultural barrier to a product in which

payments are made but services may

not be received

Quality

• Perceived low quality of health facility

will make the product less attractive

Operations

• Automatic deduction feature is

essential to ensure consistent

payment but it must be built into M-

Pesa account

• Cost of 25,000 TSh per household per

annum is prohibitive for very low-

income households


• No traditional financing institutions currently

offer insurance to low-income households

• PharmAcess pilot and CHF indicate that the

product will require subsidy


• Those without mobile money and reception

would be excluded from the product

• Telcos could offer the product as an

extension of existing fixed sum insurance

products


• Joined public-private insurance schemes

require coordination and government buy-in

and financial commitment

• 85% of Tanzanians do not have health

insurance, leading to health shocks for them

and a lack of consistent and predictable

income for facilities

• Consistent and predictable premium

payments would allow better financial

planning for health facilities

• Improved and stable facility funding would

reduce staffing shortages (lack of jobs for

medical graduates is a leading cause of

Tanzania’s 0.1 doctors per 100,000 people)

• Improved and stable facility funding would

enable the purchase of Rx/equipment (only

48% of private facilities have basic generic

drugs)

• To achieve scale, integration with the

government-sponsored Community Health

Fund will be necessary

Feasibility

• This product could be implemented and

priced appropriately, but it faces severe

scaling difficulties because of potential

customers’ perceptions that health

facilities lack quality and their

unfamiliarity with insurance products

Potential impact

• This product could help hospitals address

some of their largest issues (lack of

Rx/equipment, staff shortages, etc.) contingent

on implementation of better management

practices


123



D


• Identify private facilities that

community members recognize

as providing high-quality care

• Calculate appropriate capitation

rate and necessary premium

rate to support the product

• Convene key community

members to present value

proposition for private

insurance product and have

them promote product and sign

up members

• Ensure diverse risk pool

through targeted marketing

• Could include simultaneous

quality of care improvements

through technical assistance

PharmAccess offers a private

health insurance product in Moshi

• Offered to a group of coffee farmers, resulting in a

relatively diverse risk pool

• Participating providers also undergo quality

transformation from partnering with PharmAccess

advisers

• This product has achieved widespread adoption at

a price point subsidized by 60%

• Anecdotal experience in Kenya suggests

customers would pay ~50% more for the inclusion

of secondary care


124

Digital finance can enable the effective administration of

targeted subsidy programs (1/3)

E

Financial

instrument

Target

audience

Product

provider

Digital payment initiated by

valid input code

Mothers of young children

in low-income households

Partnership incl. health

facilities, financiers, and

private product providers


1 The necessity of a new code assumes continued lack of national identification system; in the event that such a system is

introduced, it would supplant this system

Product summary

• Subsidy payment by donor/government to service providers for the provision of

subsidies health products /services to low income household (or sub-

segment), verified by identification codes


• Government and donors lack an effective process and monitoring abilities to

deliver funds for end consumers to purchase essential health products /

Services, particularly at more convenient, reliable, and informal pharmacies


• Members of low-income target segment are given a unique identification code1; distribution

through community agents or local and regional health centers

• The service provider (especially ADDos) sends the donor the unique code when the

patient purchases the subsidized product /service

• The donor pays the service provider the subsidy via mobile money

• Potential services and products offered could include, maternity kits, malaria rapid

diagnostic test, malaria nets, effective malaria drugs, and transport to skilled care delivery

facilities


• Enables donors to increase the demand for

health-improving products through lower

prices at convenient locations

• Increases the financial attractiveness for

ADDOs of increasing stock and improving

supply chains for essential health products


• Enables ADDOs to immediately receive

payment as opposed to undertaking the

cash flow risk of waiting for government

reimbursement

• Increases convenience, and thus the

likelihood of purchasing goods for patients,

by seamless verification

• Allows donors to monitor the product

uptake


• Digital payment to the patient upon code receipt as a reward for seeking service

• SMS for patients when subsidy payment is made stating expected additional cost, thus

enabling price transparency

• Centralized database storing initial provider input of codes with associated segment(s) of

patient (e.g., pregnant mother, HIV-positive) for effective disease tracking


125


targeted subsidy programs(2/3)

E


Low

High

Facility adoption

• Registering target segments after the

initial treatment requires an additional

effort that may only be triggered by

incentives or a government

requirement

Auditing

• Occasional monitoring to ensure an

actual sale when the subsidy is used

should deter scamming if the

consequence is ADDO exclusion from

program

Education

• Regional managers could inform

ADDOs about the program and

ensure facilities provide information

on participating ADDOs to patients

Supply coordination

• Requires significant supply chain

coordination to ensure that ADDOs

have sufficient supply of subsidies

product


• Existing mobile money system need to be

integrated with service verification system


• Without high penetration of mobile money

and reception, certain consumers will be

excluded from the product

• Vodafone has already indicated willingness

to partner on these efforts and install

service where necessary


• n/a

• Mobile subsidy provision could be used for a

variety of health products

• To ensure widespread availability of these

products/services, a certain level of scale

would be necessary to generate sufficient

demand

• Potential products to subsidize include

maternity kits, malaria rapid diagnostic test,

malaria nets, effective malaria drugs, and

transport to skilled care delivery facilities

• Currently ~10% of those taking malaria drugs

actually have malaria, increasing internal and

community resistance to drugs

Impact

• Entirely contingent upon the product chosen,

though the approach has shown the ability to

scale if part of a comprehensive effort

Feasibility

• Product implementation will require

initial help supplying ADDOs and

continued incentives to facilities to

participate, but this product could

eventually reach substantial scale


126


targeted subsidy programs (3/3)

E


• Educate facilities and

ADDOs about the effort and

the subsidized products

• Introduce the identification

code system at health

facilities

• Increase the adoption of

mobile payments among

ADDOs

• Develop outreach materials

for different patient

segments encouraging the

use of appropriate

subsidies

• Develop an auditing system

to ensure the proper use of

funds by ADDOs

National Net Program is a multilateral effort

including many donor organizations

• Bed net vouchers enabled 6,400 retail

outlets to sell 3 million nets annually (3X

2001 sales)

• Part of a more comprehensive effort to

create demand and improve supply chains; it

is unclear if the voucher on its own would

have the same effect


127

Demand and access generation could increase

essential service care (1/3)

F

Product summary

▪ An incentive payment for community ambassadors to identify and refer

undertreated conditions, combined with payment, to cover transport for

patient


▪ Many patients with emergency conditions do not understand their condition

and face significant transport cost barriers to seeking treatment

Financial

instrument

Target

audience

Product

provider

Digital payment to community

ambassador for travel

Community members with

undertreated conditions

Partnership incl. donors/

government, health facilities,

community members



• Immediate transfer of transportation costs for designated patients and incentive

payments for community ambassadors generating demand

– The community ambassador phones the call center to report case

– The donor/government transfers funds to pay the for patient’s transportation to

community agent

– The ambassador assists the patient with transport utilization (typically bus)

– A taxi picks up the patient at the bus station and transports to hospital

– The doctor confirms the community ambassador’s diagnosis with the call center

and treats the patient

– The call center triggers the incentive payment to the community ambassador via

mobile money


• Adoption of tele medicine call centers that ambassadors can leverage to increase the

accuracy of diagnoses

• Complex training for ambassadors to enable more accurate diagnoses


• Low-cost digital payments enable

remote transport subsidy

• Incentive payments to rural community

agents require digital payment solution


• Free or subsidized services often go

unused through a lack of knowledge

about the service, condition, or logistics

• An ambassador with strong community

presence and potential to diagnose

conditions and coordinate travel

arrangements


128



F

Feasibility assessment: enabling environment Feasibility assessment Impact assessment

Low

High

1 Number determined through averaging minimum and maximum ranges of cataract births throughout the world as no Tanzania-specific

numbers are available; delay in presentation to hospital for surgery for congenital and developmental cataract in Tanzania – J Mwende, A

Bronsard, M Mosha, R Bowman, R Geneau,and P Courtright

Provider buy-in

• Hospital receptiveness to

increased demand will depend on

capacity, capability, and

management

Village education

• Local government meetings can

be leveraged for initial program

information

Ambassador education

• Inability of non-medically trained

personnel to correctly identify

more complex conditions will limit

model applicability

Operations

• Scale will need to be quickly

achieved to justify call center

staffing, but coordination is

executable


• Mobile infrastructure exists


• No explicit government buy-in required


• Automated integration of verification

system (call center) with payment

system desirable after pilot phase,

initially call center makes payments

manually through M-Pesa

• Potential applications of the model include

cataract, cleft lip, and cervical cancer as

community ambassadors should be able to

diagnose symptoms

• Tanzanian study found median delay for

services was 18 months, causing major

complications and driven in part by distance

from facility and socio-educational status

• ~1,000 births with cataracts annually1

• Prevalence of cleft lip is ~300 annually

• Cervical cancer is the most prevalent cancer

among women, with a high mortality rate

(4,355 in 2010) because of late diagnosis

Impact

• Ambassador diagnosis abilities limit the

program’s reach but it can have a major

impact on the conditions that affect a small

number of Tanzanians

Feasibility

• Although the program operations

are not complex, finding conditions

with an ambassador diagnosis and

system capacity capabilities will be

difficult


129



F


Provider runs demand generation program

for fistula patients with Vodacom

Foundation

• Writes letters to regional medical officers and

attend district meetings

• Sends 6-7 staff to the field to create

awareness (15 weekends annually)

• Solicits recommendations for ambassadors

(could be health worker, community leaders,

taxi driver)

• 80% of fistula patients treated last year

came through a program for three partnering

hospitals (514 women at CCBRT)

• Have found that village meeting awareness

can’t just be an ambassador

• Pays ambassadors $6/case

• Attend local

government/(district or

village-level) meeting to

raise awareness of service

and seek recommendations

for community

ambassadors

• Train community

ambassadors to diagnose

symptoms and spread

information

• Establish call center to

liaise with ambassadors,

confirm diagnoses, and

transfer funds


130

DF+ solutions have different impacts … Key takeaways

Imp

act

High

Medium

Low

Low Medium High

Feasibility

A

B

D

C

F Demand

generation

E Subsidy

delivery

Pay for

performance

Lease-and-own

equipment

Insurance

product admin-

istrative tool

Maternity

savings

product

Requirements for scale

• Government buy-in is necessary given its role as a

funder of the majority of doctors and facilities

• Facility buy-in is necessary given that most mobile

solutions require doctor and administrator data input

• Improved health system quality to increase patient

system use; increased use will improve business model

feasibility and subsidy redemption rates

• Thus a government-led reform effort focused on quality

improvement is necessary to maximize DF+ impact

Steps to facilitate DF+ in health

• Focus initially on engaging the private sector to

implement DF+ solutions with sustainable business

models (lease-and-own equipment, maternity savings,

insurance administrative tool)

• Engage donor organizations to encourage the

implementation of more demand generation and subsidy

delivery efforts

• Encourage collaboration among stakeholders to

implement the solutions that will have the most impact at

scale

Potential DF+ applications in health can be categorized based on

their feasibility and potential impact

6.2 HEALTH – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

131

DF+ implementation in the health sector faces varying levels of

constraints

• 85% of the country is covered by 2G networks, though selected rural areas remain a problem


Sector-rele-

vant mobile

infrastructure

reach and

adoption

Readiness of

financial and

digital

financial

infrastructure

65

4 32

1

65

4 32

1

Role of

government

and

regulation

6

54 3

2

1

Severity of

sector

challenges

65

4 32

1

Financial gap

in sector

65

4 32

1

DF+ business

models and

scaling

65

4 32

1

• High penetration at ~60% of households, with some concern over female access to mobile phone within HH as they seek most child care

• Low level of private lending, savings, or insurance products for low-income HHs, with low-utilized government-subsidized insurance as the exception

• Donor organizations adopting technology for limited pilots, but there is a lack of pilots with business models or providing financial products

• Free care creates low willingness to pay for necessary services and low supervision leads to sub-optimal care practice

• The government has played a neutral role in DF+ implementation; donors are driving development

• Complex stakeholder landscape with a mix of public, private (incl. faith-based) providers and active donors

• Severe non-financial challenges related to the quality of care, availability of medical staff, and awareness of illnesses among population

• The majority of low-income households do not use any form of finance products in health; access to financing for providers is limited

• DF+ solutions can address selected issues within the health sector though major change will require comprehensive reform

• Most pilots and solutions are subsidy-based, though a few potential unexplored business models exist

• No clear sign of scaling – given large government role, scaling will require its explicit support

Reach

Reach of mobile

infrastructure

Adoption of mobile

technology

Financial product

offering to sector

Availability of

DF+ solutions

Sector-specific

regulation

Role of

government

Stakeholder

complexity

Non-financial chal-

lenges in sector

Execution and

scalling ability

Depth of financial

gap

Availability of DF+

business models

Sub-dimensions

Applicability of

DF+ solutions

1


2 3 54 Explanation

6.2 HEALTH – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

132

In the Health sector, DF+ solutions are nascent but growing

Discovery

Piloting

Scale

Application

Expansion and

differentiation

Global scaling

DF+ solution

maturity

• DF+ solutions in

ideation or early

development stage

• Individual DF+

solutions are being

piloted in controll-

ed environments

by selected actors,

especially donors

• Smaller players

have implemented

DF+ into

operations across

conditions

• Some DF+

solutions begin to

be used by large

health system

players (e.g.,

MSD, MOH public

facilities, large

private providers)

• DF+ becomes an

essential

component of the

provision of care

and proposed

health system

reform

• Growth

financing/

subsidy

• Growth

financing/

subsidy and

innovation

support

• Implementation

support

• Convene

stakeholders to

discuss

expansion

• Financial and

technical advice

during piloting

phase

• Best practice

sharing

• Operating model

development

activities

• The health sector lags other sectors in the adoption of mobile payments

• Donor organizations are piloting subsidy-based demand and access generation for a limited set of products

• The use of DF+ is unlikely to be a tipping point in financial product availability to facilities or BoP consumers

• However, unexplored business models do exist for maternity savings, insurance, and lease-and-own equipment

• The scaling of DF+ solutions will depend on government incorporation into comprehensive reform

6.3 HEALTH – SCALING AND EXECUTION CAPABILITIES

Inte

rve

nti

on

133

CGAP‘s impact model for health could focus on shaping the

public discourse and potentially advising on a pilot

Questions

• Perspective on challenges and opportunities

for DF+ in the health sector with specific

reference to the Tanzanian case

• Given the complexity of the

stakeholder environment,

the subsidy-based model,

and fundamental obstacles

in the health sector, how

much can CGAP affect the

progress of DF+ solutions?

• Does CGAP want to

participate in the early stage

product development and

piloting, given the

substantial risk in the

process?

Public

discourse

Advisory

Publication

Conference

contribution

Country-specific

policy dialogue

Organizer of pilot and

guarantor/lender

Sector-specific

policy dialogue

Convener and

matchmaker

Individual

technical advisory

Health-specific impact model

• Identification of a health sector partner

(donor) and a detailed product development

and implementation plan for Tanzania

Spectrum of impact options

6.3 HEALTH – SCALING AND EXECUTION CAPABILITIES

134

Agenda




Digital finance plus solution feasibility assessment

Readiness framework







Adoption and reach of digital payment infrastructure

135

Key takeaways: Energy sector analysis and challenge

identification

ENERGY – SECTOR ANALYSIS AND CHALLENGE IDENTIFICATION

4.3 Sector-specific regulation

• TANESCO, the national utility, exercises a near monopoly on the distribution, transmission, and retailing of electricity in Tanzania

• With only ~1,500 MW of installed capacity nationally, a large portion of the Tanzanian population does not have access to electricity – only

18% of households are connected to the grid; rural households, which comprise ~70% of the population, are particularly underserved, with

only 7% enjoying access to the national grid

• Although TANESCO, the state utility monopoly, is moving forward with ambitious plans to drastically add capacity and grow national

electrification to 30% by 2017, this still leaves a large portion of the country’s households without access

▪ In the absence of adequate on-grid connectivity, a number of innovative actors are moving into off-grid solutions, mostly based on solar

power, to meet the energy needs of an estimated 5 million rural households with demand for off-grid solutions


• Rural areas, where the majority of low-income households live, are particularly affected, with only 7% of households connected to the gird

• Even where connections exist, the per capita consumption is a low 92 KWh, (compared to ~160 KW in neighboring Kenya, for example) with

service being characterized by frequent power outages and inconsistent voltage transmission

• Consequently, low-income households use environmentally non-sustainable and relatively more expensive energy options like kerosene

lamps, with an average spend of up to USD 12/month

• The regulatory framework and policy environment are relatively conducive to private investment, as the government has emphasized the

sector as a policy priority, written a comprehensive legislation, and undertaken significant deregulation

• Off-grid energy enterprises can take special advantage of this, as developers with less than 100 Kw of project capacity experience a

minimum of government interference

• Moreover, the government created two agencies, Energy and Water Utilities Regulatory Authority (EWURA) and Rural Energy Agency

(REA), to regulate, promote, and facilitate investment in the off-grid sector

• Both the on- and off-grid value chains face significant bottlenecks to providing accessible and affordable energy, including

– On-grid: input shortages, low installed capacity, suboptimal network operation, poor revenue collections and non-cost-reflective consumer

pricing

– Off-grid: absence of energy enterprises, inadequate enterprise working capital and consumer financing, weak “last mile” reach, high capital

cost of device, and poor on-site technical support



136

Poor electricity access is a challenge

• Tanzania ranks poorly

among peer countries in

energy provision, with a low

electrification rate of 18%

• Rural areas in particular

suffer from almost non-

existent access to the

national grid, with only 7%

receiving access to often

poor quality service

• The short- and long-term

implications of constrained

energy access are dire,

hampering the economic

growth of the country and

diminishing the quality of

life of urban and rural

populations

Access to electricity, Percentage of population, 2011

Key takeaways

Have

access

Do not

have

access

Much of the Tanzanian population does not have access

to electricity

72

20

7

15

18

19

22

23

Uganda

Mozambique

Tanzania

Kenya

Malawi

Zambia

Ethiopia

Ghana

SOURCE: World Bank

71

93

29

7

Urban

100

Rural

100

4.1 ENERGY – SECTOR DESCRIPTION

137

Electrification rate varies by region, and 7 regions remain

disconnected from the national grid

SOURCE: Power System Master Plan

Significant portions of the country have very little access to the grid

• The rate of electrification is

relatively high in a few regions

of the country, including

Arusha, Pwani and

Kilimanjaro

• In rural states, both the

electrification rates and total

consumption are extremely

low, with Kigoma and Rukwa

having the lowest access

• There is not an adequate

national strategy or

wherewithal to scale on-grid

access to address the

significant electrification and

consumption gaps

Key takeaways

Electricity reach and consumption

2012Lake Victoria

Lake

Tanganyika

Lake

Nyasa

PembaManyara (24, 36%)

Mara

(58, 22%)

Kilimanjaro

(138, 31%)

Arusha

(282, 12%)

Tanga (197, 20%)

Zanzibar

Lindi (15, 44%)

Mtwara (29, 36%)Ruvuma (21), 35%

Iringa

(95, 30%)

Morogoro

(182, 17%) Pwani

(112, 13%)

Dar Es Salaam

(2,090, 5%)

Dodoma

(92, 33%)

Singida

(22, 40%)

Rukwa & Katavi

(17, 54%)

Mbeya (144, 26%)

Kigoma

(12, 35%)

Tabora (85, 14%)

Shinyanga (287, 6%)

Kagera

(46, 35%)

Mwanza

(217, 13%)

0-5% electrification



Not connected to national grid

GWh consumed(x)

(%) Domestic consumption as %

of total consumption

>15% electrification


138

Tanzanian households do not enjoy adequate access

to electricity

40

80

Ethiopia

Tanzania

Kenya 148

Ghana 257

Mozambique 449

Zambia 686

Energy consumption per capita is low and growing at a slow pace

• Although Tanzania has grown

its per capita access to power,

it still significantly

underperforms its peers

• Even those who have access

to electricity often receive low-

quality supply

– Outages are frequent and

can be prolonged, with

some days witnessing as

much as 12 hours of

outage

– Fluctuations in voltage are

frequent because of to

generation constraints and

network operation issues

• Poor quality supply is

particularly harmful to

industrial users, causing

disruptions in production

schedules and increasing the

costs of conducting business

2007 2011 CAGR

-3%

0%

8%

1%

4%

7%

Key takeaways

52

92

599

155

344

447

SOURCE: World Bank; team analysis

Electric power consumption

KWh/capita


139

Hydropower is the primary source of electricity generation

but requires supplemental support from other energy sources

Hydro generates the

largest share of power

SOURCE: World Bank; Power System Master Plan

Although installed capacity has been growing

slightly, much of it was in emergency generation ▪ TBDKey takeaways

• The country’s installed

capacity has been growing,

but it has not kept pace with

annual GDP growth of ~7%

• Hydropower comprises the

majority of installed

capacity, but shortages in

rainfall and increased water

usage in dam catchments

have contributed to

declining output

• TANESCO has thus been

unable to meet ~30% of

existing demand,

necessitating capacity

addition of 325 MW at peak

load by way of expensive

diesel emergency power

generation

30.7

100%

Fossil fuel

Gas

Hydro

2012

1,438 MW

30.3

39.1

292 292 295 295 292

226 208 252 252 259

562 562562 562 562

325212

2009

1,061

2012

1,438

2011

1,320

2010

1,108

2008

1,079

Independent power producerTANESCO

TANESCO thermalEmergency Power Producer

Generation sources

%

Evolution of installed capacity

MW


140

EPP generation cost is 2.5 times above average tariff,

undermining the sector’s financial viability

SOURCE: TANESCO; UPEDA African Tariff Comparison

100

200

0

700

300

5,0004,5004,0003,5003,0002,5002,0001,5001,0005000

400

600

500

800

X2.5

TANESCO thermal IPP

TANESCO isolated EPP

TANESCO hydroGeneration cost, excluding transmission and distribution cost, TZS/kWh

GenerationGWh

Average tariff

• Emergency power

generators powered by

isolated diesel stations

have stepped in to fill the

shortfall in installed

capacity

• However, the high price

of fossil fuels and lack of

scale in the fragmented

generation entails 2.5X

the cost of hydropower

generation

• Moreover, tariffs for end-

users are not reflective of

the heightened EPP

costs, which hurt long-

term investment in

regular grid expansion

and rehabilitation

• Thus, this highlights the

potential for more cost-

effective, and cleaner,

off-grid solutions

Key takeawaysThe cost of generation is extremely high for emergency diesel power generation


141

Key takeaways

High demand for off-grid lighting

energy solutions

Total off-grid households

Millions

Many innovative players are serving

BoP households across the country

▪ “We are using mobile money to sell

solar power as a daily service at an

affordable price – with more than

14,000 homes taking up the service

so far. As fast as systems are

manufactured, they are off to

customers”

Off-Grid Electric

▪ “The Cluster Projects have resulted

in approximately 40,000 new rural

solar home systems annually,

providing quality and affordable

electricity to rural households”

Camco

▪ “We are connecting 10,000 private

households with electric energy

through Solar Home Systems

(SHS) in Arusha, Manyara,

Kilimanjaro, and Mwanza regions ”

Mobisol Tanzania Limited

Based on

households

currently

making

capital and

operating

expen-

ditures on

paraffin

lamps with

glass covers

• 90% of the Tanzania population

resides in rural areas, making on-

grid energy provision costly and in

many cases un-economical

• Even with the government’s

aggressive targets to increase

installed capacity on the grid, a

significant portion of the

population will not obtain access

to energy in the short term

• Decentralized energy is likely to

be the only viable near-term

solution for many rural residents

• Declining technology costs,

innovative energy enterprises, and

improved financing schemes are

enabling the adoption of off-grid

energy solutions in rural settings

• Still, non-grid proliferation is often

considered as a pre-electrified

option, with many communities

still aspiring to long-term grid

connectivity

Off-grid electricity is increasingly becoming an attractive option to

provide energy, particularly to rural households

2.82

2011

7.06

4.24

SOURCE: World Bank; IFC

Unlikely off-

grid solution

adopters

Likely off-

grid solution

adopters1


142

Assumptions

…making about ~4 million additional households eligible for

solar off-grid solutions

There will be ~3 million total electrified households by 2017

according to current plans…

The estimated total addressable market for off-grid power

solutions is ~4 million households

SOURCE: Rural Energy Agency; Power System Master Plan; IFAD Rural Poverty Portal

1,250

3,093

1,728

115

Planned

TANESCO grid

connections

(by 2017)

Electrified

households

(2012)

Total electrified

households

(2017)

Planned non-

solar OG

connections

(by 2017)

3,093

3,566

4,146

10,805

Potential off-grid

market (2017)

Households

below poverty

line (2017)

Electrified

households

(2017)

Total

households

(2017)

• 9.6 million

households

• 18%

electrif-

ication

• TANESCO

plans

250,000

new

connections/

year

• Planned

100 MW

capacity

• ~860 W

capacity/

household

• Planned

100 MW

capacity

• ~860 W

capacity/

household

• 3% annual

population

growth

• On + (non-

solar) off-

grid

additions

• 33% of

population

below

poverty line


143

SAO Hill Energy

Several off-grid enterprises have come online in the past few years, adding

~80 MW of capacity

1 Some of the companies provide solutions across multiple levels of scale

Biomass

Energy source

Estimated total

capacityExample projects Location

Iringa

TPC Moshi Sugar

CogenMoshi

20 MW

Hydro

MufinidiMwenga Hydro

Mapembasi Hydro Ruhidji

50 MW

Solar Off-grid Electric

EGG-energy

Mobisol

Dar, Iringa, etc.

Arusha, Moshi, etc.

Arusha, Moshi, etc.

5 MW


144

There are three types off-grid energy delivery models

to the household in Tanzania today

DescriptionExample company1Model Description

Household-

level systems

Power generated at the

household level

provides electricity for

most or all domestic

energy needs

Community-

level systems

Power generated in

isolated, low-voltage

distribution grid and

provides electricity to a

collection of house-

holds in a community

EGG-energy

1 Some of the companies provide solutions across multiple levels of scale

• Products typically consist of home solar systems, with small

panels that are installed on rooftops and generate electricity to

light multiple rooms, charge mobile phones, and power electrical

appliances

• Most models typically extend financing support to customers,

whereby they pay an initial down payment or installation fee,

and pay off the cost of systems and/or service over an extended

period

• Biomass, hydro, and solar powered distributed generation to

provide electricity to communities

• Products typically consist of a connection to the mini- or micro-

grid, with flexible optionality of devices and appliances

• Usage is for households, enterprises, and public good providers

(e.g., schools), as well as kiosks for mobile charging

Device-based

Power generated at the

household level or

offsite to provide

electricity for select

domestic energy needs

(lamp & charger)

• Products typically consist of a modular solar lamp and a mobile

phone charger, powered by a rechargeable battery

• Shop-owners become micro-franchise, initially owning the solar

panel and charging the consumer for daily battery recharge

• In the leasing model, the consumer takes ownership of the

panel after a specified period and becomes solar independent


145

The distribution, transmission, and retailing market is dominated

by the national utility, TANESCO

SOURCE: Global Data report on Tanzania; African Energy; EWURA; Frost; team analysis

Regulatory framework

• Generation is the only non-monopolistic part of the

energy value chain with private sector presence

– Mixed generation model (with independent

power producers, IPPs, and emergency power

producers, EPPs) since 2002/2011

– Public generators, IPPs, and EPPs receive

generation licenses from sector regulator

EWURA and conclude PPAs with the incumbent,

vertically integrated state power utility TANESCO

– The national gas supply company TPDC

supplies gas to TANESCO, which supplies fuel

to both its own and most IPP plants

• Transmission and distribution lines belong wholly

to incumbent TANESCO, not unbundled

– Transmission charges and end-user tariffs are

regulated by EWURA

– On-going discussion exists about splitting

TANESCO into multiple Gx and/or Dx entities

• Privatization of any TANESCO assets is unlikely in

the next 3-5 years

Sector structure

Genera-

tion

Trans-

mission

Distribu-

tion

Sector configurationSegment

TANESCO

Transmission

PPAs

EPPsIPPsTANESCO

Generation

Consumer end-

users

Industrial end-

users

TANESCO

Distribution

4.3 ENERGY – SECTOR-SPECIFIC ACTORS AND REGULATION

146

The regulatory and policy framework in Tanzania is conducive to

private investment in off-grid generation

The master policy

framework is

comprehensive

• The national energy sector legislation was revised in 2001, allowing for the

privatization of electricity generation, transmission, and distribution, with the

option of sale to TANESCO for retailing

• Standardized Power Purchase Agreements (SPPAs) were also formulated to

minimize negotiations between energy developers and the utility, as well as

expediting financing and contracting hydro, biomass, and solar projects

• Enterprises are further categorized into three segments, with progressively

lower regulatory burdens with smaller size

– Consequently, enterprises with a total capacity of less than 100 KW are

almost entirely unregulated, unless more than 10% of customers lodge an

official complaint with authorities

A number of

government

agencies are

mandated with

supporting the

sector

• Two government agencies were created in 2006 and 2008, respectively, with

mandates to regulate and facilitate the off-grid energy space

– Energy and Water Utilities Regulatory Authority (EWURA): tasked with

the technical and economic regulation of the energy sector

– Rural Energy Agency (REA): tasked with promoting, coordinating, and

facilitating private sector initiatives and entrepreneurship in rural

energy supply

Off-grid energy

developers are

fast emerging

• The supportive regulatory and policy environment has thus seen a number of

biomass and hydro mini- and micro-grid projects, as well as a host of solar

enterprises mostly providing household-based generation

4.3 ENERGY – SECTOR-SPECIFIC ACTORS AND REGULATION

147

Significant challenges exist for both the on- and off-grid value

chains constraining access to and affordability of energy (1/2)

4.4 ENERGY – SECTOR CHALLENGES

▪ Water shortages:

Drought and rain pattern

conditions limit supply

▪ Gas supply

inconsistency:

Infrastructure has

reached maximum

capacity

▪ Thermal expense:

Imported fuel has high

price points

▪ Low installed capacity:

Less than 20% of the

country is electrified, with

a number of districts

totally off the grid

▪ Poor supply quality:

Frequent outages (up to

12hrs/day) and voltage

fluctuations

▪ High auxiliary

generation cost: IPPs’

and EPPs’ contracts

involve high capacity and

energy charges

▪ Insufficient

infrastructure: Power

line density and reach

does not encompass

many new plants and

customers

▪ Sub-optimal

operations: Aged and

unstable networks and

substations, overheating

lines, and conductor

sizing lead to high

transmission loss (~8%)

and technical and

commercial distribution

loss (~17%)

▪ Poor revenue

collection: High

customer default and

low collection

efficiency

▪ Non-transparency

into peak usage:

Consumers unaware

of periods of highest

demand to modulate

consumption

▪ Non-cost-reflective

consumer pricing:

EPP tariffs cost 2.5X

regular generation,

but are not passed

onto consumer

1 2 3 4

On-grid

Limited application for DF+Focus of DF+

applications

1

.

14.1

1

.

14.2

1

.

14.3

Ch

all

en

ges

in

th

e e

ne

rgy s

ec

tor

1

.

11.1

1

.

11.2

1

.

11.3

1

.

12.1

1

.

12.2

1

.

12.3

1

.

13.1

1

.

13.2

148

1 High initial capital outlay is prohibitive across all scales of off-grid generation given that end-users are always low-income households

Promotion and retailing of

energy products

Purchase, installation, and operation of

energy product(s) and/or service by BoP

households

Routine care for and

refurbishing of energy

product(s)

Research, development , and

refinement of technology

Manufacture/importing of

generator and/or device by

energy enterprise

Off-grid

D EA B C

Challenges

4.4 ENERGY – SECTOR CHALLENGES

Significant challenges exist for both the on- and off-grid value

chains constraining access to and affordability of energy (2/2)

B1 C1 Insufficient working

capital finance

Lack of working capital

finance for energy enter-

prises to finance setup of

distribution network, initial

marketing campaign and

purchase of SHS (that

amortize over 2-3 year

period through usage fee)

Insufficient distribution

reach

Energy enterprises need to

establish costly distribution

network to reach beyond

large population centers

C3

C4 Insufficient consumer

risk management

experience / tools Energy

enterprises lack

experience and tools to

assess and manage credit

risk of potential customers

Device-based

Household-level

Community-level

D1 Insufficient consumer lending to

low-income households Low income

households have little or no access to

short-term bank lending to finance

energy device

Insufficient consumer lending to

low-income households Low income

households have little or no access to

medium-term bank lending to finance

SHS

D2

Usage modulation: Insufficient ability

to match supply with demand,

especially in peak usage periods

D6

Complex payment administration

Unavailability of cashless and cost-

effective payment instruments to

operate installment-based finance

see above

E2 Insufficient upgrade

financing

Battery replacement

changes (every ~3 years)

for solar systems too costly

for one-time payments

Lack of effective

maintenance Inadequate

technical capacity and

poor infrastructure limit

maintenance provision

E1

Unavailability of

protection against theft

or destruction of

equipment

No insurance tool to

protect against theft,

damage, destruction of

generation devices

E3

A1 Insufficient business

development financing

Lack of early stage / seed

financing especially for

local companies

Insufficient product

financing

Lack of working capital to

finance initial production,

assembly

Insufficient consumer

awareness

Rural population

insufficiently informed

about benefits of off-grid

solutions

C2

A2 Insufficient local

research and

development capacity:

Limited domestic

technical infrastructure

and talent to develop

products that are tailored

to the domestic market

(all products foreign

developed)

D3

D4 Unavailability of liquidity facility

Low income households do not have

access to liquidity facilities to

smoothen consumption

see above

see above

D4

D3

D1/2

149

Agenda





Readiness framework








150

Key takeaways: Energy sector – assessment of financial service

needs and gap analysis

• On-grid finanial service needs exist around mobile payment and billing integration as well as dynamic usage pricing

• A number of financial service needs exists along the off-grid energy value chain including energy enterprises access to

long-term credit for product development, manufacturing, and/or bulk import of solar home systems as well as substantial

working capital to stock inventory and provide some form of financing to their end-consumers

• Off-grid energy consumers also have a variety of financing needs, including access to short to medium-term credit to

make capital-intensive energy system purchases, savings products to financing periodic equipment upgrades, and a

payments platform for convenient payment of utility service bills and loan servicing

ENERGY – ASSESSMENT OF FINANCIAL SERVICE NEEDS AND GAP ANALYSIS

• Formal financial institutions currently provide limited lending to any off-grid energy actors, given a low base of

experience in the sector. MFIs have a somewhat mixed record, but they are hampered by of low levels of managerial

capacity, a high cost-to-serve, and a reluctance to invest time and resources required to serve the sector

• Energy enterprises currently meet their significant working capital needs through a combination of equity fund-raising

rounds, mostly impact investors, but also increasingly for-profit investment funds, (e.g., Solar City, Vulcan Capital, etc.) and

government/donor-sponsored grants, credit guarantees, and refinancing facilities (e.g., TEDAP fund capitalized by the

World Bank and administered through REA and TIB, AECF fund capitalized by DIFID, BMGF, and IFAD)

• For consumers, affordability by itself is not an insurmountable challenge. Consumers are willing to pay if they are

convinced of the energy product’s efficacy, and if an installment based payment option exists.

• The inability and/or reluctance of financial institutions to extend commercial loans to energy enterprises or provide

consumer financing to households is driven by several factors, including, their lack of knowledge about the sector and its

unique needs, an unwillingness to extend uncollateralized loans to low-income households and a high-cost to serve to

serve rural, low-income households


5.3 Barriers to provision of financial product


151

Significant financing needs exist across the off-grid

value chain (1/2)

5.1 ENERGY - FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN

1 2 3 4

On-grid

Fin

an

cin

g/i

nfo

rma

tio

n n

ee

ds

• Payment instrument

Pre- or post-service

payment portal for

account settlement

linked to consumer

meter reader

• Informational

instrument

Communication of

system energy demand

and differential tariffs to

household/enterprise

consumers, or

electronically linked to

end-devices for

adjustment

1

.

14.1

1

.

14.2

152

Significant financing exist needs across the off-grid

value chain (2/2)F

ina

nc

ing

/ i

nfo

rma

tio

n n

ee

ds

Off-grid

5.1 ENERGY - FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN

Promotion and retailing

of energy products

Purchase, installation, and

operation of energy product(s)

and/or service by BoP households

Routine care for and

refurbishing of energy

product(s)

Research, development ,

and refinement of

technology

Manufacture/importing of

generator and/or device by

energy enterprise

D EA B C

B1 C1 Working capital finance

Energy enterprises require

medium-term working

capital facilities to

purchase products and

finance distribution and

marketing organization

C4 Consumer risk

management tools

Energy enterprises require

financial risk assessment

tools or 3rd party risk

management tools

Device-based

Household-level

D1 Short- to medium -term consumer

lending to low-income households:

Short- to medium term consumer

loans matching household income and

expenditure

Digital, cost –effective payment

system Digital (remote) payment

instrument integrated with SHS on a

consumption or lease basis

D3

Liquidity facilities for low-income

households: Short-term liquidity

product to smoothen energy

consumption and help households

manage unequal income flows

D4

E2 Upgrade financing: Short

to medium-term consumer

loans tied to the purchase

of SHS- upgrades /

replacements / repairs

Technical support:

Remote diagnostic and

device information system

that identifies maintenance

issues and triggers

necessary instructions for

self-service or

maintenance agents

E1

Device insurance P&C

insurance product tailored

to SHSs and needs of low-

income households

E3

A1 Seed financing

Early stage start-up

financing to enable

product and business

model development

Product financing

Product financing loans for

energy enterprise to fund

the production of 1st

generation products

D2 Medium -term consumer lending to

low-income households : 2-3 year

household loan designed to finance

SHS, collateralized and secured

through shut-off ability and SHS

Community-level

D3

D4

D2 See above

See above

See above

153SOURCE: Organization websites, press search; expert interviews; team analysis

The finance-related needs of the off-grid energy

sector are being met to a limited but improving extent Minimal Moderate

LimitedN/A

Number/reach of existing initiatives

Financial

instrument

Payments

Credit

Grants/subsidies

Information

Short term

Long-term

Lease and own

Lease

Loan servicing

Pay-as-yougo/pre-paid

Equity

Leasing

Persistent Energy Partners,

SolarCity SunFunder, Vulcan Capital

TEDAP (by World Bank, Rural Energy Agency), USAID, SIDA

AECF (by DIFID, IFAD,

BMGF), USAID, SIDA

TIB and CRDB (with WB

refinancing)

Bank of Africa, TIB, and CRDB (with WB refinancing)

REA REA

Karibu

Solar

Mobisol, EGG -energy

Off-Grid

Electric Devergy

Karibu

Solar

Mobisol, EGG-energy, OGE

Devergy

Devergy Mobisol, Off-Grid Energy

Mobisol, Devergy

Persistent Energy Partners

Off-grid

D EA B C

Device-

based

HH-level

system

Com.-

level syst.

i ii iii

Mobisol, EGG-energy, OGE

5.2 ENERGY - FINANCIAL GAP ANALYSIS ALONG THE VALUE CHAIN

154

Certain off-grid energy sector challenges are driven by


Market-

ing and

distribu-

tion

C

1.1

Value chain

gapDF+

solutionDrivers

Finance


►Commercial lending is scarce for the off-grid energy sector

• Banks only lend to energy enterprises with significant 3rd party guarantees/donor backing (e.g., World Bank -sponsored TEDAP loan refinancing facility at Tanzania Investment Bank)

• Energy enterprises meet significant working capital needs through equity funds raised from investors

• Banks have little understanding of the OG energy sector

• Banks perceive insufficient collateral to justify risk

• The duration of energy enterprises’ capital needs extends beyond banks’ depository obligations

C1

Insufficient

working

capital

finance

1.1Insufficient

consumer

awareness

C2

1.1Insufficient

distribution

reach

C3

►Rural populations are not educated about/convinced of the benefits of off-grid energy solutions

►Time and resource-intensity of establishing points of sale and training agents

1.1C4

Insufficient

risk mana-

gement

experience

/ tools

►Absence of data points on income, cash flow, behavior, etc. on low-income consumers

►Unavailibity of effective risk management tools

• No credit bureaus in the market – financial institutions and energy enterprises have few data points to assess consumer risk profiles

• Energy enterprises with advanced data capture capabilities are beginning to analyze usage and payment behavior for risk profiling

• Lack of low-income household participation in the formal financial system

• TBD

)( )(

DF+ solution

Add-on to core

DF+ solution)(

5.3 ENERGY – BARRIERS TO PROVISION OF FINANCIAL PRODUCT

155



Usage

and

gen-

eration

D

1.1

Value chain

gap

Finance

need Existing services

►Financial institutions do not provide uncollateralized loans to low income households

►Financial institutions are unfamiliar with the off-grid energy sector

• Energy enterprises offer implicit financing to consumers through lease-to-own/lease/pay-per-use options for solar home systems

• Such financing is not available at scale because of the enterprises’ limitations in securing commercial lending for working capital

• Banks have little understanding of the OG energy sector

• Lack of credit information on the consumer

• Perceived difficulty of securing collateral

• High cost to serve

D1/2

Insufficient

consumer

lending to

low-income

households

1.1D3

Complex

payment

adnmin-

istration

►Traditionally paper-based payment for services required physical presence

• Legacy energy enterprises (e.g., ENSOL) required physical payment by customers at retail locations

• Newer solar players (e.g., Off-Grid Energy, Mobisol) use mobile money solutions to wholly digitize payments

• Mobile phone access and mobile money adoption –penetration of both is high in Tanzania, but not ubiquitous

1.1D5

Weak cons-

umption

mo-dulation

on micro

grids

►Where several households are connected, the communal grid may become unstable because of excess usage by some to the detriment of others

• Traditional biomass/hydro micro-grids have minimal ability to modulate individual consumption

• New solar micro-grid players (e.g., Devergy) have ability to regulate individual usage remotely

• Smart grids are technologically complex to implement

)( )(

DF+ solution

Add-on to core

DF+ solution)(

DriversDF+

solutionBarriers


1.1D4 ►Financial institutions do offer short-term liquidity facilities to households

• Vodacom and CBA have recently launched a M-Pawa as a first liquidity solutions


• Perceived difficulty of securing collateral , lack of enforcement mechanisms ( e.g. credit bureau)

Insufficient

liquidity

facilities

156



Mainten-

anceE

1.1

Value chain

gap

Finance

need Existing services

►Small number of maintenance experts

• Most innovative energy enterprises use a combination of self-help enablement through SMStechnology, remote diagnostic support through call centers, and deployment of a mobile force of technicians where high-touch intervention is required

• Economic infeasibility of staffing, training, and maintaining a large group of technicians

• Distance/dispersion of rural households from central points of service

E1Lack of

effective

mainten-

ance

1.1E2

Insufficient

of upgrade

financing

1.1E3

Unavaila-

bility of

protection

against

theft or

damage of

equipment

)( )(

►Difficulty of two-way communication between customers and enterprise

• Batteries powering solar home systems – which require costly replacement every 2-3 years – are financed by the consumer or in part by the energy enterprise

• Banks have little understanding of the OGenergy sector


• Perceived difficulty of securing collateral

►Financial institutions do not lend to low-income house-holds on an uncollateralized basis

• Owners of solar panels do not currently have any option to purchase insurance coverage for their expensive hardware – energy enterprises do selective insurance of their inventory

• Low-income household market insufficient understood by mainstream insurance companies

• Low-income households already expend substantial income on SHS system –paying additional premiums for insurance is prohibitive

• High cost to serve

►Financial institutions do not serve the low-income household P&C market

)( )(

DF+ solution

Add-on to core

DF+ solution)(

DriversDF+

solutionBarriers


157

Agenda





Readiness framework








158


Key takeaways: Energy sector – Digital finance plus solution

feasibility

ENERGY – DIGITAL FINANCE PLUS SOLUTION FEASIBILITY


• The off-grid energy space in Tanzania includes several players (6-8 notables companies, including Mobisol, Off.Grid :Electric, Devergy and EGG-energy), many of whom have integrated DF+ as an essential enabler of their business models. The se energy enterprises have modest scale, with each player serving ~1,000 to ~20,000 households today

• For the majority of these players, DF+ facilitates mobile payments (pre-paid, pay-as-you-go, and post-paid schemes for energy services and/or energy hardware leasing and/or ownership), allows remote regulation (enabling/disabling energy provision through a control box, providing network maintenance), and enables two-way communication with customers (SMS alerts for payments, maintenance, consumption modulation).

• Thus, DF+ encourages energy enterprises to offer products and financing by enabling contract enforcement, cutting the cost of customer service, driving scale, and providing scope for additional services

• The successful solar enterprises have identified winning technologies, built low-cost and effective distribution networks with “last mile” reach, and deployed capital productively by acquiring creditworthy customers and providing them with financing, thereby fortifying a loyal and growing customer base, as well as establishing credibility with investors

• With payback periods of up to 2 years by customer, many of the nascent players, mostly having entered the market around 2010, are beginning to turn profits on their first wave of customers

• Given the solar enterprises are proving commercial viability, investors are expressing enthusiasm to fundraising new equity, with many rounds being oversubscribed; however, securing commercial loans without donor support continues to be a challenge

• Today, there are estimated to be 50,000-100,000 total off-grid connections in Tanzania. Depending on the business model, “true scale” (profitable including over-head) for a single energy enterprise can range from 20,000 customers (household solar systems) to 80,000 connections (solar micro-grids); for nation-wide operations “true scale” number of off-grid customers to be closer 1 million households

• For the off-grid sector and individual businesses to attain scale, there are a few key areas of focus, including financing through commercial lending, awareness-creation in rural populaces about the benefits of OG solutions, and the establishment of wide, efficient, and cost-effective networks for sales and user support


159

DF+ can help in addressing some of the gaps

in the off-grid energy value chain

Value chain segment ChallengesProduct

evaluation

Finance

as barrier

DF+

potential

No other

barriers


)(

)(

A2

B1

C1

C2

C3

C4

D1/2

D3

D4

E1

E2

E3

A1 Insufficient business development financing

Insufficient local research and development capacity

Insufficient product financing

Insufficient working capital finance

Insufficient consumer awareness

Insufficient distribution reach

Insufficient consumer risk management experience and tools

Insufficient consumer lending to low-income households

Complex payment administration

Unavailability of liquidity facility

Lack of effective maintenance

Insufficient upgrade financing

Unavailability of protection against theft or destruction of equipment

)(

)(

DF+ solution

Add-on to core

DF+ solution)(

6.1 ENERGY – POTENTIAL APPLICATIONS OF DF+ to ADDRESS BARRIERS

Product

development

Manufacture and

Assembly

Marketing and

Distribution

Usage and

Generation

Maintenance

High Low

160

Top challengesDescriptionDF+ product

Lack of consumer financingD1/2 1. Product financing

2. Customer awareness

3. Distribution reach

4. Maintenance and repairs

• Payment tool that enables

lease-to-own/lease/pay-per-

use financing models for

solar home systems by

facilitating remote access

and incremental payments

• Digital payment-

enabled enterprise

consumer

financing for solar

home system

Addressed energy sector

challenge

A


2. Credit risk assessment

3. Effectiveness of collateral

4. Usability of collected customer data

• Digitally-enabled loan

provided by a traditional

financial institution and sold

through solar enterprise

• Dedicated,

unsecured digital

household loan to

purchase solar

home system

B


2. Smart grid technology

3. Distribution reach

• Remote grid maintenance

and network regulation

platform for micro-grids

driven by SIM-enabled

machine-to-machine

communication

• Digital micro-grid

maintenance and

administration

system

C

Lack of consumer financing 1. Product financing

2. Credit risk assessment

3. Effectiveness of collateral

4. Usability of collected customer data

• Pre-paid solar energy and

appliance leasing service for

households facilitated by

mobile payment platform

• Energy appliance

leasing bundled

with utility service

D

Insufficient consumer risk ma-

nagement experience / tools

C4

Insufficient upgrade

financing

E2

Complex payment

administration

D3

1. Consumer cash flow volatility

2. Government regulation

3. Moral hazard


• Automated overdraft facility

to provide short-term loan

and usage payment relief for

SHS-owning households with

volatile cash flows

• Short-term Solar

Home System

(SHS) enterprise-

administered

overdraft facility

E

Based on our analysis of the current state and barriers to scale,



D1/2

Lack of consumer financingD1/2

Insufficient upgrade

financing

E2

Complex payment

administrationD3

Inability to modulate

consumption on micro-grids

D5

D5 Lack of effective maintenance

Complex payment

administration

D3

D3 Unavailability of liquidity

facility

161

Financial

instrument

Lease-to-own/lease/pay-per-use digital

payment tool for SHS

Target

audience

Low-income households with

insufficient capital to purchase SHS

Product

provider

Solar enterprise

Product summary

• Payment tool that enables lease-to-own/lease/pay-per-use

deployment of solar home systems by facilitating

remote/incremental payments


• Inability of households to afford upfront capital expenditure

and/or access to financing to purchase a solar home system


Core features

• Solar home system with 50 W – 200 W capacity typically consists of a roof-installed solar

panel, battery, control unit, and a number of integrated direct current household

appliances – e.g., CELL phone charger, LED lights, TV

• Three basic financing models 1) lease-to-own; 2) lease and, 3) pay-per-use are used to

break capital expenditure into daily, weekly or monthly payments by household

• Payment is enabled through digital payment

• Energy access is controlled either by an embedded machine-to-machine communication

capability or prepaid code entry

• The lease-to-own payment schedule is structured to transfer the ownership of the system

to the household after a fixed period


• Enables incremental electrification of

low-income households in remote off-

grid areas

• Makes the acquisition of a capital-

intensive solar energy system

affordable for low-income households

• Introduces low-income households to

loan-like financial products


• Enables lease-to-own / lease / pay-

per-use financing models by

dramatically lowering payment

transaction costs

• Enables effective enforcement through

the remote control of the system


▪ Liquidity tool, allowing the customer to delay payment while continuing to consume

energy

▪ Comprehensive maintenance and service guarantees

▪ Discount features: consumer unit price per KwH progressively decreases to incent

maximum usage

Lease-to-own/lease/pay-per-use financing for solar home

systems are enabled through digital payment application (1/3)A


162

Lease-to-own/lease/pay-per-use financing for solar home

systems are enabled through digital payment application (2/3)A

Low

High

Feasibility

• Highly feasible: Established business

models have successfully reached scale

of 10,000 + households; financing,

distribution, demand, and service and

maintenance networks are capable of

delivering continued scaling

Potential impact

• High impact: Effective electrification of up to 5

million households (30 million people) is

possible

Feasibility assessment: Business model

Distribution reach

• Existing players have established effective distribution networks based on

existing retail structures (motorcycle garages) and dedicated salaried staff

Maintenance and repairs

• A number of players have established clear service levels and potent service

organized according to their distribution network

Customer awareness

• Word of mouth, dedicated marketing campaigns, and a commission-based

sales network have been able to generate significant demand for the product

Scale

• Significant overhead and distribution/service network cost requires scale of

50,000 – 80,000 households; a number of incumbents aim to reach this level

in the short to medium term

Detailed impact

• In the medium term,

5 million households

in Tanzania will

remain off the

national grid

• SHS and mini-grid

present a cost-

effective approach

to electrification of

off-grid areas

• Relatively low

system investment

costs and the

availability of

differentiated sizes

of systems (10 W –

200 W) enable

solutions tailored to

the financial

capabilities of

different levels of

low-income

households

Feasibility assessment: Enabling environment


• Several mobile money players, many

of whom charge minimal rates per

transaction (e.g., Vodacom charges

0.165% of transaction value)


• Energy sector: Highly amenable, as

enterprise is under 100 KW total

capacity and thus essentially

unregulated

• Financial sector: Government places

no restrictions on unsecured loans

Product financing

• Energy enterprises provide a range

of digitally enabled payment options,

with a small down payment at the

initial system purchase, and follow-

on options of pre-paid or pay-as-

you-go models based on KwH usage

and/or defined time limits

Enterprise financing

• Equity: Enterprisers with proven business models have raised up to $7 million

in their 2nd and 3rd fundraising rounds (e.g., Solar City)

• Grants: Donor funds of ~$50,000-$500,000 are available for seed capital (e.g.,

Africa Enterprise Challenge Fund) and/or with proof of household connection

• Debt: Tanzanian banks are reluctant to lend; however, some are willing to

extend a credit line if backed by donor guarantee funds (e.g., African

Development Bank , 80% guarantee for CRDB loans)


163

Lease-to-own / lease / pay-per-use financing for solar home

system enabled through digital payment application (3/3)A


• Distribution typically done

through a mix of

commission-based sales

agents (district- and village-

level consumer goods

retailers) and dedicated

salesforce administrators

• Expansion follows regional

patterns, based on

regional/district patterns

with the objective of

maximizing penetration

levels in districts

• Solar enterprise typically

offers a comprehensive

package, including

installation, financing, and

maintenance/service

Mobisol offers a 3-year lease-to-own SHS

• 50 – 200 W SHS with embedded SIM card

(two-way communication)

• Fixed monthly lease payment through digital

finance

• Full service provision during a 3-year period

• Transfer of the ownership of device after 3

years

EGG-energy offers a 1-year lease-to-own

model

• Two sets of “d.light” solar home systems,

with a combination of lights, chargers, and a

solar panel

• Initial upfront payment, with daily mobile

payments over a 1-year period, after which

the customer owns the SHS


164

Dedicated, unsecured digital household loan to purchase

solar home system (1/3)B

Product details

Core features

▪ A medium-term loan with a similar structure as the existing lease-and-own system

▪ The loan is sold by the solar enterprise acting as a banking agent

▪ The bank is responsible for the credit risk assessment leveraging the solar enterprise

sales infrastructure

▪ Risk management

– Willingness to pay: Controlled through remote energy access; requires integration

between the digital loan system (bank side) and the remote energy access system

(solar enterprise); default results in the removal of the solar panel

– Ability to pay: Credit check in partnership between the bank and the solar

enterprise

– Loans disbursement directly from the bank to the solar enterprise

▪ Once the loan is approved and disbursed, the customer makes the initial down

payment using mobile payment, as well as monthly loan servicing

Value proposition


▪ Enables the scaling of the current solar

enterprise business models by effectively

injecting working capital into the sector

through HH-level loans

▪ Households are able to own solar panels

with affordable financing

▪ The solar enterprise is relieved of balance-

sheet risk

▪ The bank expands its customer base by

providing branchless service to a

potentially attractive group

▪ Financial inclusion of low-income

households in the formal financial sector


▪ Remote access control effectively serves

as collateral

▪ Digitally administered and serviced loans

reduce the cost of service delivery


▪ Cross-selling through customer data: user-generated energy consumption and

payment data can be used to build detailed consumer profiles, with the ability to offer

additional financial products (e.g., savings, consumer loans)

Financial

instrument

Digitally administered, unsecured bank

loan for solar household system

Target

audience

Low-income households

Product

provider

Partnership between a financial

institution and a solar enterprise

Product summary

▪ Digitally-enabled loan provided by a traditional financial

institution and sold through solar enterprise


▪ Insufficient working capital finance for a solar enterprise to

scale operations

▪ Unavailability of unsecured lending to low-income

households


165

Dedicated, unsecured digital household loan to purchase

solar home system (2/3)B Low

High

Feasibility

▪ Moderately feasible: Energy enterprises

can point to their own success in

recouping financing expense to end-

customers to help convince banks of

acceptable riskiness

Potential impact

▪ High impact: Effective electrification of up to 5

million households (30 million people) is

possible

Feasibility assessment: Business model Detailed impact

▪ In the medium term,

5 million households

in Tanzania will

remain off the

national grid

▪ SHS and mini-grid

present a cost-

effective approach

to the electrification

of off-grid areas

▪ Relatively low

system investment

costs and the

availability of

differentiated sizes

of systems (10 W-

200 W) enable

solutions tailored to

the financial

capabilities of

different levels of

low-income

households


Loan provision

▪ The banking sector has little experience

extending unsecured loans to individual

households; however, given the ability to

remotely shut off power provision, and the

ultimate option of asset seizure, in which

up to 70% of the loan’s value can be

redeemed (10% customer upfront

payment, 60% value of solar panel), the

bank is likely to become more willing to

accept the risk


▪ Several mobile money players are active in

Tanzania, many of whom charge minimal

rates per transaction (e.g., Vodacom

charges 0.165% of the transaction value)


▪ Energy sector: All enterprises under 100

KwH of capacity are essentially

unregulated

▪ Financial sector: The government places

no restrictions on unsecured loans

Credit risk assessment

▪ Local sales agents with community knowledge pre-screen potential

customers; the bank’s proprietary credit assessment creates an

additional layer of verification

Effectiveness of collateral

▪ Once accustomed to energy consumption, customers highly value the

product/service, making disconnection an easily enforceable and

effective threat

Usability of collected customer data

▪ A rich set of data has been collected on customer usage and payment

behaviors, but concrete, monetized opportunities are still in the early

stages


166

Dedicated, unsecured digital household loan for purchase of

solar home system (3/3)B


No known examples • The solar enterprise forms a

partnership with a low-income

household-focused financial

service provider

• Customer acquisition continues to

be driven by the solar enterprise;

the banking network can serve as

an extension of the sales network

• The financial service provider

designs and operates the mobile

loan infrastructure and conducts

the credit risk assessment

• The existing solar enterprise sales

network can be leveraged for the

credit risk assessment (especially

the ability-to-pay assessment,

home visit)

• The financial service provider can

use gathered financial data to

cross-sell other financial products


167

Micro-grid maintenance and system administration driven by

machine-to-machine digital communication (1/1)C


Core features

▪ Solar, hydro, or biomass powered household micro-grid connection; control box at every

connection site has an embedded SIM card, transmitting data to a remote server

▪ The energy enterprise has a real-time data feed of network health and operation, with

granular insights on demand, consumption, breakage, etc. on a household level

▪ Technicians can remotely isolate singular households without disrupting the entire network

(e.g., shut off transmission to single hut experiencing faults until the issue is addressed or

physical technicians are dispatched)

▪ Dynamic load management – ability for the network to incent customers’ consumption

modulation through SMS alerts or remotely limit service notifications during times of peak

usage

▪ Customers are able to track their rate of energy usage; with a daily summary of Kwh

consumption and daily balance accrued


▪ The developer can maintain the health of

the distribution network and minimize

maintenance cost

▪ The supply of power in the system is

closely matched with demand, allowing

the modulation of household

consumption and enabling surge pricing

▪ The convenient payment of usage fees

enables the enterprise to recoup

operators expenses easily of OpEx, and

thus incents lending by the financial

institution


▪ Enables the energy enterprise to have an

effective, low-cost lever of control

▪ Enables customers to have real-time

transparency into their energy

consumption


▪ Monetization of user data: Energy consumption patterns and payment habits of users can be

analyzed to tailor credit and other financial products to customers, as well as forecast demand

for upgrading to higher levels of energy service

Financial

instrument

Digital platform for network

maintenance and regulation

Target

audience

Households in villages that

are connected to micro-grids

Product

provider

Energy enterprise + telcos +

bank

Product summary

▪ Digital grid maintenance and network regulation platform for micro-grids

powered by distributed generation sources (solar, hydro, biomass)

▪ Control box at each customer equipped with SIM card for 24/7 data feed


▪ High cost of staffing and deploying technicians for network maintenance

▪ Quality and consistency of energy consumption by households

▪ Absence of credit-building information on low-income households customers


168

Energy appliance leasing bundled with utility service enabled

by mobile pre-payments (1/3)D


Financial

instrument

Consumer electronic leasing service

bundled with digitally enabled utility service

Target

audience

BoP households in villages with enterprise

sales agent coverage

Product

provider

Venture-backed solar enterprise as primary

provider, with telco as payment enabler

Product summary

▪ Pre-paid solar energy and appliance leasing service for households,

facilitated by a mobile payment platform that enables incremental

payments


▪ Large block payments to own consumer electronics (e.g., radios,

TVs)

▪ Lengthy time and resource commitment to pay down and own solar

systems


• Customer access to consumer electronics

without high capital outlay

• Gives customers flexibility to upgrade

levels of service and expand the offering of

electronic appliances as they become

ready for them

• Incentives for high utilization of energy – no

scarcity mentality, encouraging customers

to consume the amount of energy required

for a good quality of life


• Enables users to make convenient

incremental payments for electronics

ownership

• Facilitates communication, including for

maintenance help, between service

provider and customers


• Overdraft feature: FI-sponsored small credit line for customers to gain access to additional services

without immediate charge

• Higher-end equipment: Partnerships to bundle other electronic equipment and services (e.g., Roku

streaming)

Core features

• A utility business model with packages including LED lights, electronic appliances, and mobile

phone charger; powered by long-lasting lithium batteries and efficient devices

• Leasing model: Customers never buy or finance the energy system – they pay for the services

provided

• Three levels of service: The highest level is 12V battery with television, Roku streaming, and DVD

player

• Potential to upgrade to higher levels of service at any time

• Pre-payment model: Customers pay a small installation fee upfront; weekly top-up of energy credit

based on usage levels allows purchasing of energy in small amounts

• Digital payment platform: Customers have unique reference tags and use cell phones to pay on a

weekly basis

• Call centers for customers to receive maintenance support and for sales agents to resolve

acquisition queries


169

Energy appliance leasing bundled with utility service

enabled by mobile pre-payments (2/3)D Low

High

Feasibility

▪ Moderately feasible: Energy utility

leasing service has experienced

success, but bundling electronics

requires additional capital and

potentially complex partnerships with

electronic retailers

Potential impact

▪ Moderate impact: Only the highest end

segments of low-income households have a

demand for consumer appliance at this time;

impact on the quality of life is significant but

lower than initial impact of access to energy


▪ Product bundling can

potentially introduce

modern appliances to

currently 50.000 –

100.000 owner of SHSs

▪ In the long-term over 4

million off-grid

households in Tanzania

could potentially benefit

from appliance leasing


Product financing

▪ Different financing models are possible

including

– a working capital financed lease

offering (requires significant working

capital depth of energy enterprise or

partner)

– or a consumer loan based purchase

model (requires financial institutions

willing to lend to low-income

households)

Telco regulation

▪ No known barriers


▪ Energy sector: All enterprises under

100,000 wH of capacity are essentially

unregulated

Enterprise financing

▪ A leasing service requires significant working capital depth to

finance the investment payback period of 1-3 years

▪ Equity financing of up to several million dollars is available

from venture funds and impact investors (e.g., SolarCity,

Vulcan Capital) for the most successful enterprises

▪ Commercial debt remains hard to raise in local debt markets,

with proven commercial viability of the business model access

to working capital loans should become easier

Distribution network

▪ Sourcing attractive customers through a well-structured and

effectively trained sales agent network is critical to “last mile”

reach and driving of scale ; existing energy enterprise

distribution networks can be leveraged

Maintenance support

▪ This lease model requires a high degree of customer support

with rapid troubleshooting of technical issues; electronic

equipment is likely to sustain damage from usage, exposure to

elements, etc. ; existing energy enterprise maintenance

networks can be leveraged

Electronic retailer partnerships

▪ Partnerships with importers/manufacturers of TV sets,

streaming media services, etc. are necessary and potentially

complex to negotiate


170

Energy appliance leasing bundled with utility service enabled

by mobile pre-payments (3/3)D


• The energy enterprise

establishes a partnership

with a consumer electronic

retailer for direct current

appliances (e.g. low energy

TV, fridge etc.)

• The enterprise offers a

bundled product, combining

its high-end solar home

system with a electronics

lease

• The customer pays for

energy and makes a

substantial down payment on

electronics at the time of

installation

• The customer pays for utility

service and electronics lease

concurrently

Off-grid Electric (M-Power)

• Solar leasing company with 10,000 customers

• Financed through a combination of private

investor equity and development institution

grant

• Has built a strong network of distributors and

plans to drive scale through proven customer

acquisition model

• Planning a new, high-end offering by bundling

consumer electronics like the Roku streaming

service and a TV set with their high-end solar

home system


171

Short-term enterprise-sponsored overdraft facility for SHS

customers (1/3) E


Financial

instrument

Short-term overdraft facility

Target

audience

SHS customers with seasonal income

variations (e.g., farmers)

Product

provider

Solar energy enterprise

Product summary

▪ Automated overdraft facility to provide short-term loan and

usage payment relief for SHS-owning households with volatile

cash flows


▪ Cash flow volatility of low-income households

▪ Smoothing of household consumption curve


• Allows households to continue

enjoying energy service even in times

of cash flow variability

• Enables the energy enterprise to build

customer loyalty

• Reduces the enterprise/bank’s

transaction cost of pursuing/attempting

to settle arrears


• Enables automated approval of

overdraft eligibility and disbursal

• Enables remote disconnection of

service if the negative balance exceeds

a pre-defined temporal limit


• Link to savings: A portion of the overdrawn balance can be withdrawn from the user’s

mobile savings account

Core features

• An energy enterprise-sponsored overdraft facility for customers with bank-financed solar

household systems

• Eligible customers are allowed to miss scheduled principal and usage payments over a

short-term period (e.g., 1-2 months) based on their income flow

• Eligibility is established once the user has built a track record of successful payments

over a medium term (~6-8 months)

• The energy enterprise finances the facility from working capital – once the customer

misses a payment, the enterprise will make the portion of payment owed to financial

institution for capital financing good, and it will temporarily absorb the usage fee portion of

payment

• At the end of the specified period, the customer pays back the value of arrear with an

additional interest charge


172


customers (2/3)E Low

High

Feasibility

▪ Moderately feasible: The

relatively small amounts involved

don’t impose high balance-sheet

risk on enterprises; but cash flow

forecasting and government

regulation could be challenging

Potential impact

▪ Moderate impact: May allow wider

base of consumers to be more willing

to adopt SHS, but for customers who

are already connected to DF+ enabled

systems, payment default is not a

significant issue


▪ 5% of current users

are reported to make

late payments;

however, more users

may become first-

time customers of

the enterprise with

the knowledge of

flexibility afforded by

the overdraft feature

Feasibility assessment: Enabling

environment


▪ Traditional financial institution do not

currently offer liquidity facilities to

low –income households

▪ With the introduction of M-Pawa the

first universally available liquidity

product exist, other players might

follow


▪ No known barriers


▪ Energy enterprises may not be able

to charge interest on overdraft as

they are not officially licensed as

lending institutions

Overdraft financing

▪ Different financing models are possible:

– A working capital-financed overdraft facility

(requires significant working capital depth of

energy enterprise)

– A bank partnership providing the overdraft facility

administered by the energy enterprise (requires

financial institutions willing to lend to low-income

households)

Risk management

▪ Significant difficulties exist in predicting the cash flows

and credit worthiness of income groups like farmers;

established payment history and ability to remotely

turn-off the device can serves as effective risk

management tools


173


customers (3/3)E


• The solar enterprise the

segment of customers with

variable income streams

• The enterprise defines a

probationary period to

determine the long-term

viability of defined customers

• The enterprise introduces a

mobile feature for a pre-

cleared overdraft limit with

easy activation in times of

need

• The energy enterprise forms

a partnership with a financial

institution to provide over

draft facility

• Regular SMS reminders at

time of full repayment

No known models


174

Potential DF+ applications in energy can be categorized based on

their feasibility and potential impact

DF+ solutions have different impacts Key takeaways

Imp

act

High

Medium

Low

Low Medium High

Feasibility

• The off-grid energy space in Tanzania is beginning to witness

several innovative players

• Companies provide solutions that focus on mobile energy

generators for individual devices, household-based generation

systems for multi-purpose usage as well as mini- and micro-

grid services with solar, biomass, and hydro distributed

generation

• Further opportunities exist in providing services, such as

distribution, salesforce management and maintenance, for the

solar energy enterprises

• Many of the innovations integrate mobile technology and end-

consumer financing as fundamental enablers of their business

models (e.g., Off-Grid Energy, Mobisol)

• Although the innovative players have enjoyed success on

relatively localized levels, scaling to regional and national levels

has been a challenge given limited capital, weak distribution,

and lack of customer awareness

• To spur further innovation and scaling, the focus of enabling

stakeholders should be on providing debt and equity financing

to promising enterprises, creating awareness of off-grid

solutions in rural areas, educating the financial sector, and

providing financing to households

• Digital payment

enabled

consumer

financing for SHS

• Remote micro-

grid admin. and

regulation

• Short-term

overdraft facility

for SHS

customers

• Energy appliance

leasing bundled

with utility service

• Unsecured

digital

consumer bank

loan for SHS

6.2 ENERGY – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

AB

C

D

E

175

▪ 85% of the country is covered by a 2G network, with some concern

about the quality of service in the most rural areas

▪ High penetration, at ~60% of households, with some concern about

the ownership of handsets and proficient usage by poorest

households

▪ Lending to consumers and enterprises by banks and MFIs is minimal.

Robust equity financing for enterprises by VC actors and other

investors

▪ Several innovative energy enterprises are using DF+ to deploy

different financing solutions to consumers

▪ Highly conducive – existing solar enterprises are almost entirely

unregulated given their capacity is less than 100kw capacity

▪ The government is involved through two agencies n/a EWURA

regulates and REA facilitates – both are conducive to off-grid energy

development

▪ Little complexity – primary actors are energy enterprises and

households with demand for electricity access

▪ Moderate – a poor rural infrastructure inhibiting “last mile” reach and

lack of consumer knowledge of off-grid benefits are most notable

▪ Somewhat deep – almost all energy enterprises provide financing

support to consumers, but their own access to working capital is

limiting

▪ Highly applicable – allows enterprises to cut transaction costs,

enhance contract enforcement, and provide additional services

▪ Successful enterprises have identified winning technologies, built low-

cost, effective distribution networks, and established a loyal base of

customers

▪ Currently, SHS reach is 50,000-100,000 households. “True scale” of

1million + will be reached with the introduction of commercial lending,

consumer education and the expansion of distribution networks

DF+ implementation in the energy sector faces varying levels of

constraints

6.2 ENERGY – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS


Sector-rele-

vant mobile

infrastructure

reach and

adoption

Readiness of

financial and

digital

financial

infrastructure

65

4 32

1

65

4 32

1

Role of

government

and

regulation

6

54 3

2

1

Severity of

sector

challenges

65

4 32

1

Financial gap

in sector

65

4 32

1

DF+ business

models and

scaling

65

4 32

1

Reach

Reach of mobile

infrastructure

Adoption of mobile

technology

Financial product

offering to sector

Availability of

DF+ solutions

Sector-specific

regulation

Role of

government

Stakeholder

complexity

Non-financial chal-

lenges in sector

Execution and

scalling ability

Depth of financial

gap

Availability of DF+

business models

Sub-dimensions

Applicability of

DF+ solutions

1


2 3 54 Explanation

176

In the Energy sector DF+ is enabling the application of successful busi-

ness models; full commercial viability and scaling are challenging

Discovery

Piloting

Scale

Application

Expansion and

differentiation

Global scaling

DF+ business

model maturity

DF+ business

model in ideation

or early develop-

ment stage

Individual DF+

business models

are being piloted

in controlled

environments

DF+ business

models are rolled

out under market

conditions

Existing DF+

business models

are being

innovated and

differentiated

Successful DF+

business models

are scaling

nationally

Energy

Best practice

sharing

Business plan

development

activities

Financial and

technical advice

during piloting

phase

Business and

implementation

support

Growth financing

and innovation

support

Growth financing

• Several innovative players have demonstrated successful application of innovative financing and off-grid energy solutions

• Most solutions are solar-based household generation systems or communal mini-grids that power a range of devices

• Mobile-enabled consumer financing options include pay-as-you-go, lease-to-own, and direct lending, among others

• Scaling and full commercial viability of innovative financing-enabled enterprises is challenging given the high risk-bearing

burden by non-financial actors, insufficient reach of distribution networks, and lack of consumer awareness

6.3 ENERGY – SCALING AND EXECUTION CAPABILITIES PRELIMINARY

Inte

rve

nti

on

177

Agenda








Readiness framework





http://www.globalhighered.com/uploaded_images/kampala-343-742587.jpg


178

Key takeaways – Education sector analysis and challenge

identification

• Low-income households must spend a higher proportion of their income on education expenses

• Parents are not always able to afford the school fees; where education is free, they are unable to afford the cost of books, uniform,

and food for their children

• As a result, educational outcomes are generally better for students from higher income sections of the population

• The majority of schools (~95%) in Tanzania are public schools

• The Ministry of Education and Vocational Training sets education policies and monitors adherence to rules and regulations

• Funding in the education system is provided by the government, donor organizations and households

• Household spending on education is on hidden costs such as uniforms and equipment as well as other expenses like extra classes

to supplement poor instruction in schools

• Across the delivery chain, major challenges are seen in the quality of instruction provided in schools that is driven by low morale

among teachers

• Teacher absenteeism reduces the effective learning time for students and disproportionately affects low-income students

• Teachers lack adequate training and resources to provide effective instruction; additionally, their per diems often go unpaid

• The major push on enrollment has also led to high pupil-teacher ratios, especially in primary schools

• Low-income parents struggle to make lump sum fee payments at the beginning of the term, leading to more missed days among

poorer students

4.2 Sector impact on low income households

4.3 Sector-specific players and regulation



• Education has been a top priority for the government of Tanzania, with a focus on enrollment in primary schools

• Both enrollment and quality remain challenges in secondary schools

• Although enrollment has steadily increased in primary schools, the quality of instruction still needs to be improved as evidenced by

decreasing pass rates in national exams

• Tanzania lags many other Sub-Saharan African countries on key metrics such as Gross Enrollment Rate and Pupil-Teacher Ratio

EDUCATION – SECTOR ANALYSIS AND CHALLENGE IDENTIFICATION



179

Second-

ary

1

10

8

8

0

2

20

Primary

8

8

0

Second-

ary

Primary

Education has been a top priority for Tanzania over the past

10 years resulting in significant improvements in enrollment

PublicPrivate

41

16

16

1

5

31

Primary

16

15

0

Second-

ary

4

Primary Second-

ary

37

92

24

97

Primary Second-

ary

Second-

ary

Primary

11

55

7

53

Second-

ary

Primary Primary Second-

ary

PublicPrivate

SOURCE: Tanzania Ministry of Education and Vocational Training, 2012; team analysis

No. of students

Millions

No. of schools

Thousands

Key takeawaysKey metricsPrimary education

Secondary education

Net enrollment rate1

%

Net completion rate2

%

1 Total number of pupils of official grade age who are enrolled at that level, as a percentage of corresponding school-age population

2 Number of pupils/students enrolled in a final grade of a given level of education expressed as a percentage of school-age population of that grade

• Enrollment has been

particularly strong in

primary education as

the government

endeavored to reach

the MDG of universal

primary education

• Going forward, the

focus should be on

improving enrollment

rates in secondary

schools by addressing

challenges faced in

financing

• Despite the positive

enrollment trajectory, a

similar improvement is

yet to be seen in the

quality of teaching and

the level of skills

acquired by students at

both the primary and

the secondary levels

• 7 years of education covering ages

7-14 years

• Primary education is compulsory

and tuition free with additional

costs shared between the

government and parents

• Swahili is the main language of

instruction

• On completion of primary school,

students take the Primary School

Leaving Examination (PSLE)

• Composed of 2 levels: Ordinary

secondary for 4 years and

advanced secondary for 2 years

• Enrollments are significantly lower

in the advanced level

• An option also exists for 2-year

vocational education post-primary

• Secondary education is not

compulsory and is tuition-based

• English is the language of

instruction

• On completion, students take the

Certification of Secondary

Education Examination (CSEE) 2008 2012

2008 2012 2010 2012

2010 2012

4.1 EDUCATION – SECTOR DESCRIPTION

180

Key takeawaysGross enrollment rate1 Pupil-teacher ratio Enrollment and pass rate

Primary, %

Secondary, %

Primary, %

Secondary, %

However, Tanzania still lags many other Sub-Saharan African

countries on key metrics

7.6

7.8

8.0

8.2

8.4

8.6

0

20

40

60

80

100

PrimaryenrollmentMillions

PSLE2 pass ratePercent

2011100908072006

PSLE/CSEE pass rateEnrollment

0

0.5

1.0

1.5

2.0

0

20

40

60

80

100

SecondaryenrollmentMillions

CSEE3 pass ratePercent

2011100908072006

SOURCE: BEST 2012; BEST 2010; World Bank databank; team analysis

84

85

93

Senegal

Nigeria

Tanzania

SSA avg. 100

Uganda 110

Ghana 110

Rwanda 134

32

35

41

44

45

58

Rwanda

Tanzania

Senegal

Nigeria

SSA avg.

Ghana

32

32

38

46

47

48

54

59

Senegal

Ghana

Nigeria

Tanzania

Kenya

Uganda

Ethiopia

Rwanda

18

23

26

27

30

33

40

Ghana

Rwanda

Tanzania

Senegal

Kenya

Nigeria

Ethiopia

1 Total enrollment regardless of age as a percentage of the total population of students in the eligible age range; can exceed 100% because of the

inclusion of over- and under-age students in each grade

2 Primary School Leaving Examination; 3 Certification of Secondary Education Examination

• The drive to increase

enrollment has driven the pupil-

teacher ratio upwards,

especially in primary schools

• There has also been an

accompanying decrease in

pass rates for students in

national examinations

• The increased number of

students has grown ahead of

the capacity of a system in

which there has been limited

additional investment on the

supply side

• Future interventions should aim

to improve learning outcomes

by tackling the challenges

related to both student and

teacher absenteeism


181

Total enrollment in teachers colleges by education levelPass rates in Teachers colleges

examinations (ATCE and DSEE)

Diploma Grade A

Key takeaways

25.6

12.4

4.2

1.1 0.10

11

7.1

0.30.8

0

13.7

0

21.9

2008 2012

43.3

0

37.7

24.0

11.6

1.60.5 0

10

36.6

18.4

14.7

3.1

0.5

0

09

35.4

23.9

9.3

2.2

Certificate (Pre-Service)

Diploma Pre-Service

Grade A

Diploma In-Service

Certificate Special Education

In-Service Grade B/C - A76

67

70

90

98

2011

10

09

08

2007

98

95

98

98

98

SOURCE: BEST 2012; team analysis

Enrollment in Teachers Colleges has increased in the Past 5 years;

however examinations’ pass rates have decreased

• Similar challenges in

enrollment and

outcomes are seen in

teacher training

• Although enrollment

has risen, pass rates

in teachers colleges

have decreased,

contributing to the

high pupil-teacher

ratios

• Additionally, the

teaching profession

is not given much

respect in Tanzanian

society, leading to

low morale


182

Additionally, high teacher absenteeism rates reduce effective

learning time for children

ObservedScheduled

05:12

-58%

02:11

100

Norm

+89%

189

Effective

SOURCE: World Bank Service Delivery Indicator Survey; team analysis

Learning time for

children per day

Hours:minutes

Teacher absence rate

Percent

53

23

From

classroom

From

school

Implied cost effect on teacher

s’ salaries

Index

Key takeaways

• One of the key

challenges to the

quality of education is

teacher absenteeism

• Even when teachers

are present, they may

provide sub-par

instruction during

official school hours

to drive demand for

the extra classes that

they privately offer

• As a result, poor

students are

disproportionately

affected as they are

unable to afford these

extra classesBased on survey results,

derived from

unannounced visits to the

schools, 23% of teachers

are not in school and 53%

are not in the classroom

The teacher absenteeism

data and classroom

observations suggest that

the effective learning time

for children is less than

half of the scheduled time

The effective learning time

suggests that Tanzania’s

effective cost of teachers is

89% higher than the salary

paid because of teacher

absenteeism


183

The Tanzanian government has invested heavily in education

in recent years

Education

spend

USD billion2

Education

spend

as a percent-

age of GDP

%

Education

spend

per capita

USD

+15% p.a.

1.51.31.21.10.8

21.72.1

1.1

Tanzania Benchmarks, 2011

5.86.36.25.85.3

+3% p.a.

6.06.74.4

3531302822

10092008 11

+12% p.a.

2012

5359

435

SSA

avg

Kenya South

Africa

1 Government spend includes some ODA, which is provided as budget support; this overlap is not reflected

2 Conversion rates used for USD/TZS: 1.304 before 2009; 1.420 for 2010; 1.563 for 2011; and 1.562 for 2012

SOURCE: BEST 2012; World Bank, DFID; team analysis

71

24

Official

development

assistance (ODA)

5

Government1

Household

Estimated distribution of

education spend, 2012

%

Key takeaways

• Government spend

accounts for the

largest share of

spend in education

• Education spend per

capita still lags other

comparator countries

in Africa

• Despite the fact that

primary education is

free, private

expenditure on

education is

equivalent to ~32%

of public spending

• Additionally, the

distribution of public

resources is

unequal, with the

10% most educated

students benefiting

from 47% of public

education resources


184

Food at school

0.07

0.23School fees

School uniform, equipment, books

0.01

Other in kind expenses 0.03

Other expenses (extra classes/tuition) 0.02

Hhold

Govt.2

ODA

71

24

5

A high proportion of education spend is still borne by private

households

Distribution of education

spend, 2012

%

Key takeawaysHousehold expenditure

Household education expenses per capita per 28 days

USD1

SOURCE: International Growth Centre working paper, November 2010

1 Government spend includes some ODA, which is provided as budget support; this overlap is not reflected

2 Exchange rate used is $1 to 1,650TShs

• Even where tuition is

free, parents are

responsible for

additional expenses

such as books,

uniforms,

transportation to

school, and food

• Few primary schools

provide feeding

programs, so poor

students are often

undernourished and

unable to focus


185

StudentCurriculum

developmentTeacher training

Learning facility

Labor InfrastructureBuild desire to accessAbility to access

Overview of the education delivery chain in Tanzania

Key

players

Supply Demand

• Ministry of Education

and Vocation Training

leads policy formation,

quality control and

assessment, standard

setting, etc.

• Curriculum

development is done

by the Department of

Curriculum and

Examination

• Local government

authorities are

responsible for the

management and

delivery of education

services in their areas

• School Inspectorate

ensures adherence

of schools to policies

and regulations

• Ministry of Education

and Vocation Training

• NGOs that monitor

teacher performance

• The management of

each school is done

by the head teacher

or Principal

• Government/NGOs

• Private actors and

households

• Transport companies

• Food providers

• School supply

companies

• Textbook companies

• Uniform makers

• Government/NGOs

• Parents

• Employers

• Schools recruiting

students

• Teacher colleges

• Teaching higher

education institutions

1 2 3 4 5

• Primary curriculum is

composed of 12

subjects; secondary of

7 subjects

• Teachers are

evaluated by head

teachers on a daily

basis, with an annual

evaluation for

promotion

• Inspectors are

expected to visit

schools regularly

• A teacher’s workload

averages 24 periods

of 40 minutes each

per week

• In 2012, there were

181,000 primary

teachers and 65,000

secondary teachers

• Teachers are paid

according to fixed

scales, with an allow-

ance for housing

• ~95% of schools are

public, where the

government is

responsible for

maintaining and

improving

infrastructure

• Private schools are

often better

equipped, but they

are more expensive

• Especially in

government schools,

parents often make

in-kind contributions

to supplement

government

spending

• A major barrier to

attendance is the

lack of a school

nearby

• 22% of children in

rural areas live over

5 km away from the

nearest school

• Retaining poor

students in primary

schools and

transitioning them to

secondary schools is

difficult given the

increased expense

and lower number of

secondary schools

• Students’ desire to

attend school is driven

by their perception of

the benefits – i.e.,

ability to get a job after

school

• Teacher training

ranges from

2-7 years post-

secondary school

Descrip-

tion

4.3 EDUCATION – SECTOR-SPECIFIC PLAYERS AND REGULATION

186

Potential problems across the education value chain

▪ Difficult to recruit

and retain

teachers as

teaching is not a

well-respected

career choice

2.1

▪ Difficult to

provide follow-on

instruction for

teachers to

ensure

continued high-

quality instruction

2.2

▪ Teachers may

find hour-by-hour

curriculums most

helpful but often

are not trained in

how to use them

1.1

▪ Poor

communication

between parents

and teachers on

student

performance

3.2

▪ Standardized

tests are poorly

administered

and may not test

the most critical

skills

3.3

▪ Teachers’ per

diems claims

often go unpaid

for long periods

3.4

▪ Lack of sufficient

head teacher

training given

financial

constraints

3.5

▪ Low morale

among public

school teachers

leading to high

levels of

absenteeism

3.1 ▪ Difficult for

schools to

project

enrollment and

plan accordingly

3.6

▪ Some schools

lack the basic

infrastructure

and resources,

such as

chalkboards and

lavatories, that

help create a

conducive

learning

environment

3.7

▪ A shortage of

teacher housing

at both the

primary and the

secondary levels

also contributes

to teacher

absenteeism

and low morale

3.8

▪ Lump-sum

payments

required at the

beginning of the

term for private

and secondary

schools

4.1 ▪ Students lack

effective

motivation and

commitment to

education

5.1

▪ Prohibitive text

book costs;

logistical

challenges

inherent in

delivering books

to remote areas

also limits

availability

4.2

▪ Inadequate

employment

opportunities for

first-time job

seekers

5.2

▪ Difficult for

government and

donors to track

attendance

4.4

▪ Low-income

students face

additional hurdles

such as distance

traveled to school

and lack of food

4.5

▪ Parents lack

insights into

students’

performance

making it difficult

to oversee their

education

5.3

▪ A lack of an

effective delivery

mechanism of

donor subsidies

to students

4.3

StudentCurriculum


Learning facility

Labor Infrastructure

Build desire

to accessAbility to access

Challen-

ges in

Edu-

cation

Supply Demand

1 2 3 4 5

4.4 EDUCATION – SECTOR CHALLENGES

187

Agenda





Readiness framework










188

Key takeaways – Education sector assessment of financial

service needs and gap analysis

5.2 Financial and information gap analysis along the value chain

• There is a lack of formal lending products that help parents manage the stress on their finances from making lump-

sum payments and meeting the many hidden costs of education

• Parents must therefore turn to friends and family to manage this lack of liquidity, which can often be unreliable

• Low morale and performance among teachers can also be addressed by providing financial products that

encourage the desired behaviors


• Financial institutions are not providing helpful financial products for education because these are low margin

products that are unattractive given the high collection costs

• Additionally, customers who would most benefit from these products are often in remote areas that are difficult to

service

• Donors usually give to the government rather than directly to the beneficiaries because there is a lack of systems to

target specific segments and ensure that funds are used for the intended purpose


• Various financial service needs exist across the education value chain affecting the students’ ability to obtain the full

benefit of their education

• Chief among these are an inability to make the lump-sum payments required at the beginning of each term

• Additionally, even when tuition is free, parents face many hidden costs in the form of textbooks, uniforms, extra

classes, and in-kind contributions to their children’s education

EDUCATION – ASSESSMENT OF FINANCIAL SERVICE NEEDS AND GAP ANALYSIS



189

Potential solutions to finance and information

challenges in the delivery chain

▪ Continued training

for teachers

through interactive

e-learning

modules, daily

teaching tips, and

forums to share

experiences

2.1

▪ Monetary teacher

of the month

awards published

digitally and

shared with entire

community

3.1

▪ SMS-based

communication

system between

teachers and

parents to track

student

attendance and

performance

3.2

▪ Digital claims and

payment system

for per diems

3.4

▪ A pay-for-

performance

digital bonus

scheme based on

test scores and

teacher

attendance

3.1 ▪ Pay-as-you-go

daily/weekly

payments for

school as opposed

to lump-sum fees

paid via mobile

4.1 ▪ Reward students

to do well on

tests – (e.g.,

mobile games, job

opportunity

postings unlocked

by performance

on exams)

5.1

▪ Mobile textbook/

learning material

rental or purchase

4.2

▪ E-learning

modules to lower

number of days

required to be

physically present

4.5

▪ Digital cash

transfer accounts

that can only be

redeemed for

specific services -

e.g., school

feeding program,

transportation –

with text message

code

4.3

StudentCurriculum


Learning facility

Labor InfrastructureBuild desire to accessAbility to access

Financial

service

needs

/gaps

Supply Demand

1 2 3 4 5

▪ Purpose-tied

education savings

product

4.1

5.1 EDUCATION – FINANCIAL SERVICE NEEDS

190

Agenda








Readiness framework







191

Key Takeaways


• With the majority of identified products and business models in the pilot phase, their viability is yet to be seen

• However, some of the major challenges to implementation include educating consumers on how the products work and ensuring

that schools, parents, and teachers have the requisite equipment to access the product

• Additionally, several of these products have the potential for fraud; as such, it will be critical to implement appropriate checks and

balances and refine the business models over time


• Major scaling barriers in Tanzania are due to the large role the government has in the education systems and the lack of

understanding of financial products among low-income consumers

• To scale many of these products, entrepreneurs and donors will have to work with the Ministry of Education and Vocational

Training, which is already spread thin with its current responsibilities

• Given the lack of financial products for low-income consumers, a high-touch approach will be required to educate parents and

schools on the products’ usage


• Applications of DF+ to addressing challenges in education are mostly in the discovery and piloting phase in Tanzania

• These pilots are using DF+ to incentivize desired behaviors in teachers and to help parents manage the burden of educational

expenses

• We have identified 5 DF+ products that have the potential to address the major financial and informational gaps in the value chain

– DF+ can enable a pay-for-performance product that ties a portion of the teachers’ salaries to their performance as evidenced

by attendance and student exam results

– A pay-as-you-learn product enables parents to make smaller weekly/monthly payments on school fees using mobile money

– A purpose-tied savings product will provide a forcing mechanism to help parents make longer-term plans for educational

expenses

– Digital text book rental, enabled by 3G, allows students to rent or purchase portions of textbooks and other learning materials

when they need them

– DF+ can facilitate the administration of conditional cash transfers for use on educational expenses

EDUCATION - DIGITAL FINANCE+ SOLUTION FEASIBILITY



192

DF+ can be used to varying extents to address the challenges

in the education delivery chain (1/2)

Supply

2.2

3.1

3.3

3.5

3.6

3.8

Curriculum development

Teacher training

Labor

Infrastructure

3.7

3.4

2.1

3.2

1.1 Teachers may find hour-by-hour curriculums most helpful but often

are not trained in how to use them

Difficult to provide follow-on instruction for teachers to ensure

continued high-quality instruction

Low morale among public school teachers leading to high levels of

absenteeism

Standardized tests are poorly administered and may not test the

most critical skills

Lack of sufficient head teacher training given financial constraints

Difficult for schools to project enrollment and plan accordingly

A shortage of teacher housing at both the primary and the

secondary levels also contributes to teacher absenteeism and low

morale

Some schools lack the basic infrastructure and resources, such as

chalkboards and lavatories, that help to create a conducive

learning environment

Teacher per diem claims often go unpaid for long periods

Difficult to recruit and retain teachers since teaching is not a well-

respected career choice

Poor communication between parents and teachers on student

performance

6.1 POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS

DF+ solution

Add-on to core

DF+ solution)(High Low

Product

evaluation

Finance

as barrier

DF+

potential

No other

barriers


193

DF+ can be used to varying extents to address the challenges

in the education delivery chain (2/2)

Demand

4.1

4.3

4.4

5.1

5.3

Ability to access

Build desire to access 5.2

4.2

4.5

Lump-sum payments required at the beginning of the term for

private and secondary schools

A lack of an effective delivery mechanism of donor subsidies to

students

Difficult for government and donors to track attendance

Students lack effective motivation and commitment to education

Parents lack insights into their students’ performance making it

difficult to oversee their education

Inadequate employment opportunities for first-time job seekers

Prohibitive text book costs; logistical challenges inherent in

delivering books to remote areas also limits availability

Low-income students face additional hurdles such as distance

traveled to school and lack of food


DF+ solution

Add-on to core

DF+ solution)(High Low

Product

evaluation

Finance

as barrier

DF+

potential

No other

barriers


194


• A pay-for-

performance

digital bonus

scheme based

on test scores

and teacher

attendance

1. Education


3. Financing

• Salary payments tied to

individual teacher and school-

level performance

• Pay-as-you-go

daily/weekly

payments for

school as

opposed to

lump-sum fees

paid via mobile

1. Education


3. Financing

• Time-bound, purpose-tied, DF+

enabled savings product

• Purpose-tied

education

savings product

1. Logistics

2. Pricing

3. Financing

4. Operations

• Short-term rental of physical or

digital textbooks

• Mobile textbook

/learning

material rental

or purchase

Addressed education sector

challenge

A

B

C

D

• Digital cash

transfer

accounts that

can only be

redeemed for

specific services

E

• Pay-as-you-go school fee

payment plan

• Purpose-tied cash transfer to

parents that can only be used on

certain educational expenses

▪ Public school teachers feel

unappreciated and are often

unmotivated and may miss

classes

3.1

▪ Lump-sum payments required

at the beginning of the term for


4.1

▪ Textbooks are often expensive

and the logistics of getting

books to schools are

complicated

4.2

▪ Donors want to transfer funds

for families to pay expenses

but they lack certainty that the

funds will be used as intended

4.3

▪ Lump-sum payments required

at the beginning of the term for


4.11. Infrastructure requirements


3. Desirability

4. Financing

1. Education

2. Provider network

3. Financing

PRELIMINARY




195

DF+ can enable a pay-for-performance scheme to

improve the quality of teaching (1/3)

Performance-tied salary

payments

Teachers

Financial

instrument

Product

provider

Target

audience

Ministry of Education and

Vocational Training

Product details Value proposition


• MoEVT will be better able to track teacher

performance

• Improved teacher attendance will improve learning

outcomes for students

• Improved cost effectiveness of government spend

on teachers’ salaries


• Mobile money enables easy pay-out of bonuses via

mobile wallet

• DF+ also reduces the incidence of corruption

involved in getting payments to teachers

• Digital platform allows for easy communication

between schools, Ministry, and community


• MoEVT offers continued learning modules to teachers digitally, potential to use

participation and performance in these modules as an additional performance lever

• Allow students to provide ratings for teachers at the end of each term; tie rankings to

performance pay

• Use performance ratings to select a teacher of the month and broadcast this teacher’s

achievements to the whole community

• Use ratings to rank teachers and schools; make data publicly available – e.g., in

newspapers – to create accountability

Core features

• Teacher salaries structured so that 15-30% is a bonus based on performance

• Performance determined as a combination of

– Attendance as tracked by the head teacher and reported to the Ministry via SMS

– Student performance on standardized exams

• Bonus is paid via mobile wallets which, teachers can then use for purchases or can

transfer into cash

Product summary

• Salary payments tied to individual teacher and school-level performance


• Teachers are often absent from class and do not provide high-quality instruction

since salaries are not linked to performance

A


196



Feasibility assessment: operating model Impact assessment

Reach

• The product will be rolled out to all schools

• ~200,000 teachers across the country

• Likely to be more effective in public schools, which

make up 95% of schools

Impact on the problem

• Targeted reduction in teacher absenteeism from

20% to 15%

• May not directly translate to improvements in the

quality of teaching

Education

• All teachers and school administrators will have to

be trained on how the system works and on the

usage of mobile money accounts. May be difficult

to do remotely


• May be difficult to reach areas with poor or no

mobile phone coverage

Financing

• Major investment costs will be developing the

platform and providing mobile devices to schools

that lack them. Donor funding can be used to

cover some of these costs

• Government spend on salary will remain the same

or be lower depending on teacher performance

Feasibility

• Financially feasible product

• Majority of challenges will be

involved in educating teachers

about the new payment structure

and ensuring that the process

remains simple

Potential impact

• Intervention is scalable if all

teachers and administrators have

mobile hardware. Following pilot

programs, the program can be

rolled out to all schools

Low High

A


197




CU@School project was piloted in Uganda by SNV

Netherlands Development Organization

• The project uses mobile phones to monitor teacher

and student attendance in 100 primary schools

• At the end of each week, head teachers upload

attendance data onto a pre-loaded form on their

phones and send it to district officials

• The data are also made publicly available via radio

and newsprint

• The software is developed by Makerere University

using open source software, which enables the

forms to be sent via GPRS instead of SMS at cost

of $1 per 2,000 messages

• Impact: TBD

• Development of simple

attendance reporting platform

for head teachers

• Simple transparent formula for

calculating pay

• Head teachers and inspectors

will have to be provided with a

compatible phone if they do not

already own one

• Communication of new

compensation structure to

schools and teachers

• All teachers will need to have

mobile wallets to receive

payments

• Third-party audits of head

teacher reports to avoid fraud

A


198

Pay-as-you-go fees will enable parents to better manage

their finances and maximize student attendance (1/3)

Parents with students in


Installment payment of school

feesFinancial

instrument

Product

provider

Target

audience

Partnership: Schools and

financial institutions

Product summary

• Pay-as-you-go school fee payment plan


• For secondary and private primary schools, fees must be paid in

a lump sum at the beginning of each term; students cannot attend

classes until payment is received in full


Core features

• Parents make weekly payments from mobile wallets directly to schools

• Students are then allowed to attend for that week or until the next payment is

made

• Banks provide loans to schools to cover any upfront costs

• Schools repay loan as parents make payments


• Low-income parents are able to send their

children to school since the payment schedule

more closely matches their income

• When parents are unable to make a payment,

students will only miss a few days of school

until the payment is made


• Mobile money makes it more convenient for

smaller frequent payments to be processed

• Digital statements can help parents keep track

of their progress to their goal


• Similar products can be extended to parents to pay for other educational inputs

such as textbooks, uniforms, etc.

B


199


their finances and maximize student attendance (2/3) Low High

Feasibility assessment: operating model Impact assessment

Reach

• The target market would be parents of students in all

secondary schools and in private primary schools

• Assuming 2-parent homes with an average family size

of 4.8:3 students per household

• ~2 million students in target schools

• ~670,000 families

• 34% (~230,000) of these families are below the national

basic needs poverty line

Impact on problem

• Addresses student absenteeism as it relates to parents

ability to pay

• The solution is most effective for parents who have a

regular income but minimal savings

• It is less effective for parents who do not have a regular

income as students may end up missing as much or

more school as without the product

• The product could cause on-again, off-again attendance

for students, which could negatively affect their school

work

Infrastructure requirements

• Schools will have to invest in mobile money accounts


• Schools may not have the operational bandwidth to

design and operate these programs

• The government could take on the role of negotiating

favorable loan terms that public schools can access

through local bank branches

Desirability

• Parents likely meet this need currently by borrowing

from friends and family at a lower interest rate

Financing

• To provide this service to parents, schools will need to

structure financing agreements with banks to cover

their upfront costs

• Upfront financing for schools could potentially be

provided via government funding

• This could raise the overall cost of school fees that

parents pay

Feasibility

• Relatively straightforward to imple-

ment. The main challenge will be

in how schools cover upfront cost

at the beginning of terms without

revenue from parent fee payments

Potential impact

• Parents likely have access to

informal products to make a bulk

payment. However, a formal product

will be less variable and will enable

better financial planning

B


200


their finances and maximize student attendance (3/3)


Omega Schools in Ghana uses a pay-as-you-

learn model with daily school fees

• Daily fee of ~$0.65 includes tuition, hot lunch,

uniforms, and mid and end of term assessments

• Students use a cashless daily payment voucher,

which is sold within their community

• The schools have custom lesson plans, work

books, assessments, and a proprietary student

and staff management system

• Schools are open 7 hours a day with lessons

taught by secondary school graduates

• Currently, it is operating 38 schools with 20,000

students across Ghana

• Schools work with banks to

access loans at the beginning

of the term

• Structure parent payments to

match loan terms, offering a

range of loan periods to

match parents’ ability to pay

• Longer payment periods will

necessitate higher interest

rates

B


201

DF+ can enable a purpose-tied savings product to incen-

tivize long-term planning for educational expenses (1/2)

Purpose-tied short-

term savings products

Parents

Financial

instrument

Product

provider

Target

audience

Financial institutions

Product summary

• Time-bound, purpose-tied, DF+ enabled savings product


• Lack of a low-cost savings product that enables parents to make

long-term plans for their children’s education



• A time-bound savings account with a fixed pay-in period of 3-6 months; no

option of early disbursement

• Regular text-based updates on saving targets and receipt of potential

government contributions

• The purpose-tied disbursement is ensured through a direct transfer to the

school or education resource provider – e.g., school uniform makers,

textbook publishers


• Enables long-term financial planning and

financial commitment for households in

volatile cash flow environments

• Encourages low-income households to

prioritize educational investments


• Enables incentives via 3rd-party matching

contributions

• Enables convenient and frequent low-

volume pay-ins at a manageable cost

• Enables coverage in under-banked areas

• Enables monitoring of savings targets

• Reduces risk of fraud through purpose-tied

disbursement/elimination of cash


• 3rd-party matching contributions tied to the attainment of minimum savings

targets

• Contributions paid directly to educational service providers

• Additional provider discounts tied to savings targets

C


202

DF+ can enable a purpose-tied savings product to incen-

tivize long-term planning for educational expenses (2/2)Low

High

Feasibility

• Savings products currently exist on

amobile platform. Parents may prefer to

use these existing products if they are

deterred by the purpose-tied feature

Potential impact

• Enables long-term financial planning

and reduces the variability in school

attendance

Feasibility assessment: Operating

model Impact assessment Go-to-market model

Reach

• The target market would be parents of

students in all primary and secondary

schools

• Assume 2-parent homes with an average

family size of 4.8:3 students per

household

• ~10 million students in target schools

• ~3.3 million families

• 34% (1 million) of these families are below

the national basic needs poverty line

Impact on problem

• Will help parents avoid the rush to find

funds at the beginning of each term

reducing the number of missed school

days

• Students will also be able to access more

of the critical learning materials they need

to be successful

Education

• Parents will have to be educated on

how the product works and the

associated restrictions


• Savings products will be offered on

mobile phones making then easy

for parents to use

Financing

• Donors may be willing to pay for

3rd-party co-pay.

• With an already overtaxed budget,

it is unlikely that the government

can make the co-pays or effectively

manage the system

• Allow parents to sign up as

they register their students

at school or at other

education service providers

in the community

• Significant 3rd party co-pay

contribution to incentives

uptake

• Simple text-based system

mirroring M-pesa/TIGO-

Pesa/M-shwari to increase

the ease of use and uptake

• Integrated payment system

across education providers

to enable secure and

proposed tied usage of

funds

C


203

Digital textbook rental will improve the accessibility

and affordability of books (1/3)


Financial

instrument

Product

provider

Target

audience

Installment payment to

rent or purchase textbooks

Parents

Textbook providers,

students

Core features

• Rental or purchase of digital version of books enabled by 3G; students can

purchase specific pages or chapters as needed

• Provide students with simple tablets or e-book readers so they can access

digital text books and other learning materials


• Smooth out textbook expenses since students

do not have to pay for the entire book at once

• Reduced overall spending on books if students

only have to pay for the times when they use

the books

• Digital versions of textbooks addresses the

challenge of delivering books to schools


• Automatic deduction of rental fees when book is

in use

• Digital platform allows immediate access to books


• E-learning modules that can be purchased when students miss the lesson in

class or would like to review

• Test prep materials can also be offered on these tablets

Product summary

• Short-term rental or purchase of digital textbooks


• Textbooks are often too expensive for parents

• Additionally, the logistics of getting books to school are often

complicated and rife with corruption

D


204



Feasibility assessment: Operating model Impact assessment

Reach

• Students in primary and secondary schools across

Tanzania where the cost of text books is not included

in tuition

• ~10 million students

Impact on problem

• Students will be able to access text books only for

those periods when they are in use, reducing the cost

to parents

Feasibility

• Daily physical textbook rental with

mobile money is relatively simple to

implement. Providing digital books

requires that students have the requisite

hardware to access these books

Impact

• Successful implementation of the

program will address one of the key

barriers to effective learning, greatly

improving student outcomes

Logistics

• Logistics required to get hardware to communities can be

designed to avoid the process inefficiencies and budget

restrictions inherent in textbook delivery

Pricing

• The pricing of daily rentals will have to be such that it does

not eventually cost more than simply purchasing the book

at the beginning of the term

Financing

• The initial investment in books and hardware can be made

by the government and schools, with the investment

recouped over time as students rent these books

Operations

• The program can be offered through schools or via 3rd-

party vendors

Low High

D


205




Kytabu textbook subscription is in development in

Kenya

• Textbook subscription application which is provided

on a low-cost tablet

• Digitized versions of all the textbooks used in the

Kenyan curriculum currently exist with publishers

and these will be pre-loaded onto the tablet

• The product is targeted toward parents, schools,

and the government

• Students will be able to use mobile money to rent

the books on an hourly, daily, or monthly basis or

can purchase portions of the book

• The application is still in development but is

expected to lower the original cost of textbooks by

~72%

• Work with textbook publishers

to digitize all required text-

books in a format that is

compatible with simple tablets

and e-readers

• Design and distribute basic e-

reader dedicated to textbook

and learning materials

• Ensure that parents and

students know how to use

mobile wallets to access these

products

C


206

Purpose-tied cash transfers to parents for use on

educational expenses (1/3)


Conditional cash transfers

Parents and service

providers

Financial

instrument

Product

provider

Target

audience

Donors and NGOs


• Parents face many hidden costs even when tuition

is free

• Parents will receive assistance in paying for these

costs

• Effectiveness of donor interventions improved


• Facilitates the transfer of funds and ensures that

they are only used for the specified purpose

• Helps reduce the high administration costs that are

related with operating a conditional cash transfer

scheme


• Fund school feeding programs using these cash transfers

• Train community members to build and run programs, creating additional

employment opportunities in the community

Core features

• Donors provide mobile coupon codes to parents that can be redeemed for

specific services – e.g., uniforms, food at school, transportation

• Service providers will also need to register to be part of the program and be

allowed to access funds

Product summary

• Purpose-tied cash transfer to parents that can only be used on certain

educational expenses


• Donors want to transfer funds for families to pay expenses, but they lack

the certainty that funds will be used as intended

E


207



Feasibility assessment: Operating model Impact assessment

Feasibility

• Might be difficult to achieve scale

among providers to make this

product financially feasible

Impact

• Directly addresses the challenge

of being able to restrict the use of

funds

Reach

• Low-income households in Tanzania that cannot

afford the hidden education costs

• Given the high-touch approach necessary to recruit

providers, students in most remote areas will be

difficult to reach

Impact on problem

• Directly addresses the challenge of being able to

restrict the use of funds

• Research suggests that cash transfers are one of

the most effective interventions to address the

needs of the poor

• Both conditional and unconditional transfers are

effective to varying degrees

Education

• Parents and service providers will have be

educated on how the system works. This may be

difficult to do remotely, adding to the time and

resource cost to launch the program

• Recipients may balk at having the use of funds

restricted too tightly

Provider network

• A network of providers will have to be established

in each community

Financing

• There is appetite among donors to be able to give

directly to the people who need assistance to

make ends meet

Low High

E


208




Give Directly allows donors to transfer money

directly to the poor

• Donations are made through the organization’s

webpage and are then sent electronically to poor

households in Kenya and Uganda that have pre-

enrolled

• All recipients are thoroughly audited by field staff

and educated on how the program works

• Households that do not own a phone are provided

with one, along with a SIM card

• Donations are transferred via mobile money, which

recipients can then redeem for cash

• Households receive $1,000 over 1-2 years or an

average of $200 per household member

• Independent evaluation finds that uses of these

donations range from buying food to investing in

assets and children’s education

• Donors work with technology

companies to develop an

appropriate platform

• Coupon codes provided to

parents via SMS for redemption

at approved providers

• community providers registered

to be able to receive payments

from parents via coupon codes

• Funds transferred directly into

the providers’ accounts

• Parents educated on how to

use the system

E


209

DF+ education products can be categorized based

on impact, feasibility, and barriers


Imp

act

High

Medium

Low

Low Medium High

Feasibility


• Given the large role the government plays in education,

scaling will require collaboration with the Ministry of

Education and Vocational Training

Steps to facilitate DF+ in education

• Initial focus on engaging the private sector to implement

DF+ solutions with sustainable business models

• Engage donors and MFIs to encourage more impactful

solutions

• Pay-for-

performance

digital bonus

scheme

• Pay-as-you-go

payments for

school

• Purpose-tied

education

savings product

• Mobile textbook/

learning

material rental

or purchase

A

B

C

D

• Digital cash

transfer

accounts

E

6.2 EDUCATION – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

210

DF+ implementation in the education sector faces varying levels

of constraints

▪ 85% of the country is covered by a 2G network; selected rural areas remain a problem

▪ High penetration at ~60% of households, with some concern about female access to mobile phone within the household

▪ Low level of private lending and savings for education as BoP consumers are considered unattractive

▪ The government drives reform in the sector and is currently not focused on DF+

▪ Regulation neither helps nor hinders growth of DF+

▪ The government is a major player in the sector and has not adopted technologies

▪ Government adoption would affect 95% of the students in public schools

▪ Severe non-financial challenges are related to absenteeism, quality of instruction, pupil:teacherratio

▪ The majority of low-income households do not use any form of finance products for education

▪ DF+ solutions can play a part in improving attendance, increasing the ability to pay for school and access textbooks

▪ While models are impactful, they largely have unclear business models

▪ Execution and scaling would need to be undertaken largely by government actors

6.2 EDUCATION – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS


Sector-rele-

vant mobile

infrastructure

reach and

adoption

Readiness of

financial and

digital

financial

infrastructure

65

4 32

1

65

4 32

1

Role of

government

and

regulation

6

54 3

2

1

Severity of

sector

challenges

65

4 32

1

Financial gap

in sector

65

4 32

1

DF+ business

models and

scaling

65

4 32

1

Reach

Reach of mobile

infrastructure

Adoption of mobile

technology

Financial product

offering to sector

Availability of

DF+ solutions

Sector-specific

regulation

Role of

government

Stakeholder

complexity

Non-financial chal-

lenges in sector

Execution and

scalling ability

Depth of financial

gap

Availability of DF+

business models

Sub-dimensions

Applicability of

DF+ solutions

1


2 3 54 Explanation

211

In the education sector, DF+ solutions are limited, typically

donor driven, and in a piloting stageIn

terv

en

tio

n

Discovery

Piloting

Scale

Application

Expansion and

differentiation

Global scaling

DF+ solution

maturity


ideation or early

development stage

• Individual DF+

solutions are being


ed environments

by selected actors,

especially donors

• Large player(s)

show openness to

DF+ by beginning

to adopt a solution

into their

operations

• Large player(s)

begin adopting a

variety of DF+

solutions and

differentiating

them

• DF+ becomes an

essential

component of the

delivery of

education

• Growth

financing/

subsidy

• Growth

financing/

subsidy and

innovation

support

• Implementation

support

• Convene

stakeholders to

discuss

expansion

• Financial and

technical advice

during piloting

phase

• Best practice

sharing

• Operating model

development

activities

• A large number of potential DF+ applications exist across the education sector, ranging from pay for perfor-

mance, to digitally educational content purchase and delivery, to incentive payments to student and households

• However the applications of DF+ to the Tanzania education sector are limited, potential initiatives are donor-

driven and require substantial subsidies

• The availability of self-sustaining business models remains to be proven

6.3 EDUCATION – SCALING AND EXECUTION CAPABILITIES

212

Agenda






Readiness framework







213

Tanzania has low overall access to improved water, specifically

in rural areas

9

4

20

4

43

5

18

69

9

Access to piped water

Percentage of total

Improved water access1

%

SOURCE: WHO/UNICEF Joint Monitoring Programme

Ethiopia 49

Tanzania 53

Nigeria 61

Kenya 61

Rwanda 66

Senegal 73

Uganda 75

Ghana 86

South

Africa91

Key takeaways

▪ At 53% Tanzania

has one of the

lowest rates of

improved water

access among its

peers

▪ Tanzania’s low-

income population

that lives in rural

areas is

disproportionately

affected by the lack

of access to

improved water

▪ Access to piped

water is even

lower at less than

10%

4.1 WATER – SECTOR DESCRIPTION

2011

Water access in Tanzania

1 Improved access refers to piped water, protected wells, and protected springs as opposed to unprotected wells, rivers,

streams, ponds, lakes, and dams

39

47

54

66

59

72

80

79

44

Rural improved water access

%

214

Tanzania’s budgeted water sector financing is

among the highest in Sub-Saharan Africa

Planned public investment, USD millions/year

Budgeted per capita investments are

considerably higher than many other Sub-

Saharan African nations

Per capita investment, USD

7

22

33

41

48

79

151

Ghana

Kenya

Mozambique

Tanzania

Uganda

Ethiopia

Congo

SOURCE: MoW; EUWI; UNDP

A significant amount of water financing is available in Tanzania

7

23

33

42

46

63

73

Uganda

Kenya

Tanzania

Ethiopia

Congo

Mozambique

Ghana

4.1 WATER – SECTOR DESCRIPTION

215SOURCE: MoW

However progress is held up by a backlog in projects

Although sizeable investments totaling

USD 153 million have been committed to

developing rural water supply…… only 50% of the planned projects were realized

by 2013 Budget allocation, USD millions

8 9 9 9 8

17

6

25

38

23

2012

3234

09

15

2008

25

10 11

47

Government

Donor partners

701

1,361

-48%

Proposed

projects

Actual completion

(by Dec 2013)

7.8 million

targeted

beneficiaries

3.8 million

actual

beneficiaries

4.1 WATER – SECTOR DESCRIPTION PRELIMINARY

216

Poor access to water and sanitation negatively

affects Tanzanians on many levels

Key takeawaysNegative effects of unimproved water

Opportunity cost of

gathering water

Negative health outcomes

from unimproved water

Both could get even worse over the

next decade

53 47

Rural Tanzanians with an

improved source of water

within 30 mins

%

Have access

Do not have access

Children

26,500

18,500

Annual deaths due

to diarrhea1

1,000

1,200

1,400

1,600

1,800

2,000

Available water per capitaCubic meters

20252012

-30%Water stress

1 Nearly 90% of these deaths are attributable to poor water sanitation and hygiene

SOURCE: World Bank Water and Sanitation Program, 2012

• The lack of access

to clean water is a

major factor driving

poor health

outcomes, most

notably causing

~25,000 annual

diarrhea death

• Given current

population growth

the shortage of

clean water is

forecasted to

substantially

worsen

• The need for near-

ly half Tanzania’s

rural population to

walk over 30

minutes for water

contributes to low

school attendance,

especially for girls

1,700

4.1 WATER – SECTOR DESCRIPTION PRELIMINARY

217

Despite government efforts to improve rural water access,

access to improved water remains low

4.2 WATER – IMPACT ON THE LOW-INCOME HOUSEHOLDS

Rural access to waterRole of government in increasing rural access

5

3Other tap

2

30

11

Surface water

14

Rainwater covered

cistern / tank

21

11

Boreholes

Protected wells3

House connections

other

Public tap

Unprotected wells

Improved

water

Percent • Large donor funding for Water Sector

Development Program co-financed by the

government, ADB, World Bank, KfW, GIZ, the

Dutch Government, AFD, and others valued at

about USD 950 million (World Bank financing

earmarked for rural water supply and

sanitation)

• Implemented at the ministry and local

government level

• Traditional government and donor models

provided free water to communities with brief

training and faced problems with community

management and maintenance

• As a result many water points in rural areas

are actually managed by local entrepreneurs;

these water points are often open wells with

sub-optimal health qualities given nearby pit

latrines

218

There are many different actors in the Tanzanian water system

across the value chain

Private

players

A

Extraction/sourcing PurificationDispensing and

storage

Bottom of the pyramid

consumption and

billing

• Community

pumps/wells are

funded by donor

organizations

• Households purchase

rainwater collection

devices

• Various systems of

filtration from utility

to at-home

• Donor

organizations (e.g.,

PSI) sell fast-

moving, consumer-

good filters in

stores

• Utility companies

and local NGOs are

involved in on-grid

distribution through

pipes

• Community pumps

require travel to

point of access

• Private providers

bringing in tanks of

water

Govern-

ment role

• Utility companies and local NGOs from

central water source (DAWASCO is the

major distributor in Dares Salaam and is

owned by the government

• Governments may prevent private

companies from distributing in poor areas as

they do not want them to profit from the poor

• Policy set by, Ministry of Water and Irrigation

• No national water and

sanitation company

but 20 Urban Water

and Sanitation

Authorities

• 8,394 rural water

committees

• Regulations to define

ownership and use by

Energy and Water

Utilities Regulatory

Authority (EWURA)

• Other countries

regulate if mobile

network operator

fees for payments

can be charged to

the consumer but

EWURA does notB

Detail

follows

4.3 WATER – SECTOR-SPECIFIC PLAYERS AND REGULATION

219

Fairly badly

0%4%

29%

34%

32%

Don’t know;

have not

heard enough

Very well

Very badly

Fairly well

Roles

Central

government

Regional

govern-

ment

District

councils

Local

engineers

Water

associations

& villages

heads

▪ Co-develops

solutions with

the federal

government

▪ Monitors

water supply

systems

▪ Implement

projects and

programs

▪ Own water

infrastructure

▪ Contribute

capacity

▪ Provide

technical

support

▪ Fix leakages

▪ Monitor and

assess dis-

functional

infrastruc-

tures

▪ Co-develops

solutions

▪ Builds, but

does not own

water

infrastructure

▪ Upon

completion,

hands over

infra to local

authorities

(districts and

villages)

▪ Submit project

requests

▪ Maintain

facilities

▪ Collect tariffs

▪ Replace

degraded

infrastructure

Citizens’ view

of government

performance

How is the current

government handling

providing water and

sanitation services?

Key takeaways

• Citizens believe the

government is doing

a poor job in water

and sanitation

• Implementation occurs

on a regional level,

indicating that poor

services are a problem

across different bodies

• Water provision

improvement will

require the

coordination between

different layers of

government

Many different elements of the Tanzanian government are

involved in water policy and provision

SOURCE: MoW

4.3 WATER – SECTOR-SPECIFIC PLAYERS AND REGULATION

220

Extraction/sourcing Purification Dispensing and storage Bottom of the pyramid consumption

and billing

High opportunity cost of household

travel to obtain water1.5

Household

produced water

Rain collection tasks used have

sub-optimal health qualities1.4 Consumers have low demand

and willingness to pay for filters2.2

Consumers that do purchase

filters often do not replace them

when necessary

2.3

Water treatment is sub-optimal2.1

Billing process is inefficient for

providers and consumers4.1On network

utility piped

water

Limited availability of a reliable

water source, particularly in

specific geographic areas

1.1

Competition between sectors for

water resources1.2

Lack of a business model to

increase distribution to rural

areas

3.1

Poor management and

planning capabilities3.2

Private traveling

water vendors

Private provider water is sold at

infrequent times with varying

pricing and quality

4.3

Community

wells and

purification

Lack of financing for community

well and sanitation plant

construction

1.3 Slow and unreliable

maintenance process for

broken infrastructure

4.2

Across Tanzania’s water value chain, a variety of factors drive

poor outcomes

4.4 WATER – SECTOR CHALLENGES

221

Manyara

63%

Mara

51%

Kilimanjaro

73%

Arusha

58%

Tanga

60%

Lindi

41%

MtwaraRuvuma

60%

Iringa

66%

Morogoro

62%Pwani

65%

Dodoma

50%

Singida

50%

Rukwa

55%Mbeya

60%

Kigoma\

60% Tabora

43%

Shinyanga

50%

Kagera

56%Mwanza

58%

49%

Dar es Salaam

66%

The degree of water access varies significantly between

regions

Legend

<51% Water coverage

>61% Water coverage

Water body

51-60% Water coverage

Population without clean or treated

water, thousands

1.1

641

1,800

901

583

1,200

511

Tabora

Dodoma

Shinyanga

Lindi

Mtwara

Singida

SOURCE: MoW


222

Tanzania’s per capita water resources

will fall below the scarcity benchmark

Per capita accessible water, m3/yr

1,000

1,500

2,2912,467

Benchmark

for Scarcity

25072006

+50%

Future population growth is expected to aggravate the

scarcity in some areas …

69

61

52

42

36

2621

1613

10

20504030201020009080701960

Population surge is increasing the scarcity

of water resources

Rural population,

Millions

There is a pressing need to ensure a sufficient water

supply to meet the expected population growth

SOURCE: Ministry of Planning, Economy and Empowerment’s NSGRP; FAO


1.1

223

In rural Tanzania, domestic water users have to compete

with agriculture and livestock which are large water users …

Types of water

usage

Water demand

Thousands m3/day

919

1,820,000

1,029

# Units

36.5 million rural

population

Over 90 million

livestock, swine,

and poultry for

grazing

280,000 hectares

of irrigated farm

lands

SOURCE: MoW, Worldbank, Mississippi State University (Pub. 2480), tanzania.go.tz/livestock


1.2

224

… and their demand is expected to increase significantly,

which will further reduce the supply of drinking waterWater demand by sector, Millions m3/year

117

324

79

120

586

69 37

316 316

1,548 1,548

329

2015’s demandSupply2 Demand

1

1 Average livestock weights at 600 Ib

2 Considering current supply meets irrigation and livestock needs

SOURCE: MoW; Mississippi State University (Pub. 2480); tanzania.go.tz/livestock

Other

non-domestic

Irrigation

Domestic

Livestock


1.2

225

Inefficient delivery hinders the completion of programs

Addressing weaknesses in district levels requires human capacity building

“Appropriate training should be provided to build up human capital capacities at District Levels; these include training for

filling up procurement documentations, monitoring of projects using computerized tools, systematic record keeping using

Excel sheet and Coordinated Funds management aligned with Ministry’s Financial Accounts”

– MoW, February 2013

Non-compliance with procurement proceduresa

Non-compliance with grant terms, MoU, laws and regulation, and

other statutory obligations

b

Ineffectiveness of council’s internal audit functionc

Not performing regular monitoring and evaluation activitiesd

Delay or non-submission of procurement plane

Poor record keepingf

Lack of adequate staff in terms of number and relevant education

to staff discharge activities in the water sector development program

g

Common weaknesses are noticed in the regional and district levels Underperforming districts

SOURCE: MoW, Technical Final Technical Audit Report, 2011

4

5

6

9

15

22

22


3.2

226

Degradation of existing water infrastructure worsens the

current water coverage in rural Tanzania

Dysfunctional water supply systems are common

in rural Tanzania

Number of degraded rural water supply systems

Across 13 regions, 35% of water supply systems are no

longer functional

There is a pressing need to rehabilitate the

existing infrastructure to ensure sustainable

clean water supply reaches the rural populace

360

Boreholes

(Gensets)9,206

Hand pumps 9,983

Gravity 17,120

TOTAL 36,929

Others 42

Windmill 54

Play pumps 164

Rope pumps

Dysfunctional

Functional

Need repair

Types of technologies

4,345 cases of dysfunctional

submersible borehole

pumps

3,661 hand-pumps are no longer in

working condition

4,818 cases of dysfunctional

Gravity Systems

SOURCE: MoW


4.2

227

Agenda



Sector analysis and challenge identifcation



Readiness framework







228

There are low amounts of access to finance

across all types of water provision Minimal ModerateLimitedn/a

Number/reach of existing financial products

Minimal but efforts underway High

Financial

instrument.Extraction/sourcing Purification Dispensing and storage


consumption and billing

Financing available for the

production of improved water

Financing available for water

purification


distribution and storage of water


purchase of water

Pay-as-you-

go

Liquidity

Long term

Savings

Donor

financing

Lease-and-

own

These loans are provided by certain MFIs

Subsidized model operated by GrundfosLIFELINK in Kenya

Lending to connect to the water grid is more prevalent in other countries

Payment

Lending

Other financial products No business model for well implementation without subsidy

Increased use of mobile payment usage with DAWASCO adoption

5.2 WATER – FINANCIAL GAP ANALYSIS ALONG THE VALUE CHAIN

229

Certain water sector challenges are driven by


Value chain gap Drivers

Finance

need Existing services and gap Barriers DF+ solution

3.1 Lack of a

business model

to increase

distribution to

rural areas

3.2 Poor

management

and planning

capabilities

• No

• Long-

term

lending to

expand

grid

• Without government

subsidy, demand unlikely

• No► Low management training for staff

• See 3.2

and 4.1

► Administrative difficulties (e.g., monitoring for theft, usage tracking, billing) are exacerbated in areas with less personnel

• No► Low population density results in unfavorable on-grid economics

► Inability to track and monitor water flow and usage

• No► Low staff motivation

► Grid expansion is costly

• Ad hoc in-person reporting on

water flow and usage does not

provide sufficient data for flow

optimization, leakage and theft

detection

• Lack of a cost-effective way

to monitor the system

• Hiring staff to monitor is

frequently prohibitively

expensive

4.1 Billing

process is

inefficient for

providers and

consumers

• Mobile

payment

• Mobile

payment

► Providers incur significant costs for billing centers

► Consumer travel to and waiting times at billing branches have a high opportunity cost

• Pay-as-

you-go

liquidity

product

► Consumers have no payment flexibility beyond a monthly lump sum

• Many consumers are only able

to pay water bills at designated

billing centers

• On-grid providers feel that

they lack other payment

collection options

• Many consumers can only pay

water bills on a monthly basis

• Monthly payments

maximizes efficiency for

providers under branch-

based model

• Billing centers are a relatively

inefficient method of revenue

collection

• Adequate digital payment

solution (rollout started)

On network

piped water

5.3 WATER – BARRIERS TO PROVISION OF FINANCIAL PRODUCTS

4.1

3.1

3.2

230

Certain water sector challenges are driven by


Drivers

Finance

need Existing services & gap Barriers DF+ solution

1.3 Lack of

financing for

community well

and sanitation

plant

construction

4.2 Slow and

unreliable

maintenance of

broken

infrastructure

• No

• Lending

for

construc-

tion

• Only ad hoc donor financing

available

• Without subsidy, the

business model is

untenable Lack of

accountability when

completely donor-financed

• Difficulty tracking usage

and collecting payments

• No► Repair process is bureaucratic and slow

• No► Unclear enforcement mechanism for non-payment

► Low level of private sector lending to low-income households

► Lack of skilled technicians

• No► Lack of incentive to fix malfunctioning equipment

► Community/households lack excess cash to fund the effort themselves

2.2 Consumers

have low

demand and

willingness to

pay for filters

• No► Lack of education about benefits of filters

• Loans for

filter

purchase

► Lack of financing to purchase filters

• A few MFIs provide these

products in limited geographic

areas

• Lack of a clear enforcement

mechanism

Community

wells and

purification

plants

Household

produced

water

• See 4.2► Maintenance/upkeep difficulties discourage donor financing

• No on-the-ground actor

incentivized financially to

repair many donor-funded

wells

• Lack of financial incentives

for a local actor to

coordinate maintenance

• Often the community does

not collect enough revenue

from the well to afford

maintenance charges

Value chain gap

5.3 WATER – BARRIERS TO PROVISION OF FINANCIAL PRODUCTS

1.3

4.2

2.2

231

Agenda






Readiness framework







232

Extraction/Sourcing

Dispensing and storage

3.1 Lack of a business model to increase distribution to

rural areas

3.2 Poor management and planning capabilities

Water treatment is sub-optimal2.1Purification



Billing process is inefficient for providers and

consumers

4.1

Lack of financing for community well construction1.3Extraction/sourcing



4.2 Slow and unreliable maintenance process for broken

infrastructure



Private provider water is sold at infrequent times with

varying pricing and quality

4.3

1.4 Rain collection tanks used have sub-optimal health

qualities

High opportunity cost of household travel to obtain

water

1.5

Not all identified challenges are caused by a financial barrier or

can be addressed through a DF+ application

6.1 WATER – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS

Finance

as barrier

DF+

potential

No other

barriers

On

netw

ork

pip

ed

wate

rC

om

mu

nit

y w

ells

an

d p

uri

ficati

on

Detail

follows

Value chain segment Challenges


1.1 Limited availability of a reliable water source,

particularly in specific geographic areas

Competition between sectors for water resources1.2

Product

evalua-

tion

2.3 Consumers that do purchase filters often do not

replace them when necessary

Consumers have low demand and willingness to pay

for filters

2.2

)(

Ho

useh

old

pro

du

ced

wate

r

Extraction/sourcing

Purification

High Low

233


1. Obtaining donor financing

2. Technical capability nearby

3. Education on benefits, proper use, and

maintenance

• Consumer pre-pays for desired

amount of water at the local

water pump

• Code input system at the pump

also tracks consumption and

automatically dispatches

maintenance after a period of

prolonged inactivity

• Funded by collected digital

payments

• Lease-to-own

community wells

with pay-as-you-

go consumption

tracking

1. Education on benefits of filters

2. Enforcement of loans

3. Distribution of filters so that they are

available for purchase

• Loan of funds that requires

digital payment proof that the

funds were used for filters with

flexible payment options

• Unsecured loans

for filter

purchase

Addressed water sector challenge

A

B

Lack of financing for

community well construction1.3

Consumers have low

demand and willingness to

pay for filters

2.2

1. System installation

2. Government enthusiasm for large

player adoption

3. Maintenance of tracking devices

4. Effective system to analyse and act on

data generated

• Mobile device embedded in the

pipe/dispensing unit that tracks

levels of flow

• Reports flows on a daily basis to

key of stakeholders

• Data helps indentify consumption

patterns /maintenance issues

• Water usage

and flow

monitoring

system

D Poor management and

planning capabilities3.2

1. Technological capabilities

2. Maintenance capabilities

3. Installation costs

• Flexible payment plans so that

consumers can align the billing

schedule with income

• Consumer receives bill on

phone with various payment

options

• Mobile billing for

piped water

C Billing process is

inefficient for providers

and consumers

4.1




234

A pay-as-you-go well payment system could help create

feasible business models for rural provision of improved water

Pay-as-you-go payment system

Donor organizations

Rural BoP communities

Potential go-to-market modelOpportunitiesProduct description

Overall

feasibility

USER

A

• A though this product requires initial donor financing, its role in solving maintenance and corruption issues

should help attract meaningful donor financing

Key attributes

• Consumer pre-pays for an amount of water via

mobile phone and receives text message code

enabling the redemption of the purchased amount

at the local water pump

• Payments stored digitally in an account in which

funds can only be withdrawn for maintenance

• A code input system at the pump also tracks

consumption and automatically dispatches

maintenance after a period of prolonged inactivity

DF+ value proposition

• Digital payments help avoid rent-seeking middle

men and enable individuals to consume water in

whatever quantities are desirable and affordable for

them

• Increase consistent access to

improved water in rural areas

(where 56% of Tanzanians

currently lack it) by presenting

a feasible business model for

provision that enables

increased revenues through

enhanced flexibility around

consumption size and

decreased rent-seeking

• Requires catalyzing of demand

for water in rural areas

• Mobile payment fees must be

affordable for the bottom of the

pyramid consumers (current

digital water payment fees in

Tanzania are not)

• <__> provider must develop a

feasible maintenance model

• Auditing is required to ensure no

rent-seeking at the point of

delivery


• Communities often lack funds (either because of poor

management or low revenue collection) to build or maintain wells

• Consumers lack a transparent payment mechanism, creating

opportunities for rent-seeking and only allowing larger payments

for pre-defined amounts of waterPROVIDER

PRODUCT


235

This pay-as-you-go model has been used successfully

by two different enterprises

Grundfos LIFELINK

Grundfos Lifelink operates through

initial donor provision of a clean water

borehole coupled with a digital payment

model that ensures fund collection from

community use for maintenance

• Started in 2008 in Kenya

• The grundfos LIFELINK system is a

submersible pump into a borehole with

clean drinking water operated by solar

panels

• Smart card with water credit used for

payment

• Surveillance unit used for remote

monitoring

• Community takes responsibility for the

service contract with a local service team

• Price determined by a water committee

Sarvajal

Sarvajal is a social enterprise that

processes water at large filtration plants

and distributes it to local water ATM

franchises

• Founded in mid-2008; focuses on India

• Company claims digital finance is

essential for monitoring ATM functionality

and better adjusting supply distribution to

demand projections

• Company as a whole is not profitable,

though franchises are making money

• Management claims the company will

begin to be profitable after reaching 800

franchises

• This model is currently most applicable in

areas with dense populations

• The use of a pre-paid water card has

created social status around

withdrawing water from ATMs, making it

a predominantly male activity

A


236

DF+ could enable the provision of unsecured household water

filter loans

Unsecured installment loan

MFI, NGO/Government

BoP household


Overall

feasibility

USER

PRODUCT

PROVIDER

Key attributes

• The loan is contingent upon proof that funds were

used for filter acquisition

• The loan has flexible payment options designed to

be consistent with the income receipt pattern of the

consumer


• DF+ makes small, frequent payments economically

viable for both consumers and financial institutions

• DF+ enables donors to ensure that designated

funds are used for filter purchase

• Increased availability of filters

could decrease the 56% of

rural Tanzanians who lack

access to improved water

• The loan product would also

help filter company sales

• MSABI has sold ~1,200

locally produced pot filters at

~25,000 TZs

• Consumers can obtain

microfinancing for these

purchases via YOSEF

• Determine loan interest rate that

creates sustainable product

economics

• Develop different payment plans

consistent with the income

cycles of various local industries

• Generate demand for filters and

improved water access

(leveraging mobile for

advertising)

• Create awareness on the need

to replace filters

• Product could be effective in increasing access but may require subsidies to generate substantial demand


• Consumers cannot make large upfront payments for filtration

systems ($20-70)

• Under the traditional branch-based banking model, the cost of

loan evaluation, provision, and payment collection greatly

outweighed revenue from small loan

B


237

A mobile billing system could help increase on-grid access, as well as and

worker and company productivity

Mobile payment product

Telco and Utility

On-grid water consumers


Overall

feasibility

• Mobile payments have a high potential for impact, as all players in the system benefit from them and they have

been proven implementable; a coordinated campaign to increase use will be necessary to ensure optimal

impact

Key attributes

• Bill issued on mobile phone with flexible payment

options aligned with local consumers’ income

receipt patterns

• Proof of payment issued via SMS after payment


• Digital payment enables consumers to avoid long

commutes and waits in their payments, and utilities

to avoid operating of billing center

• Creates a viable business model for utilities to

collect smaller payments

• Increases the feasibility of

grid expansion further from

existing payment centers and

enables more people to pay

bills with a flexible payment

structure

• Marketing campaign to increase

sign-up (currently, only 1% of

the piped water consumers in

Dar es Salaam who have the

option to pay via mobile do so)

• Expand the mobile payment

system to on-grid areas outside

Dar es Salaam

• Develop a SMS receipt system

that company officials view as

reliable and consumers view as

an adequate substitute to a

paper receipt


• Method for bill collection that does not require the upkeep of an

expensive billing center

• A method of payment that does not require long travel and wait

times to pay bills and allows consumers to pay water bills in

smaller amounts rather than large monthly sumsPROVIDER

USER

PRODUCT

C


238

A digitally enabled tracking system could ensure better donor and

on-grid management

Reporting system of water flow

and consumption

Telcos and technology

companies

Water providers


Overall

feasibility

USER

PRODUCT

PROVIDER

Key attributes

• Mobile device embedded in pipe/dispensing unit

that tracks levels of water flow

• The device reports flows on a daily basis to a

variety of stakeholders


• The tracking mechanism is enabled through mobile

and is a necessary part of a pay-as-you-go payment

system

• The immediacy of reporting mechanism is only

possible through mobile

• This product ensures that multiple stakeholders,

including donors, will see original reports

• … • Educational outreach to on-grid

providers and donors

• Construction of mobile monitors

• Establishment of reporting

system for monitors

• Already available product could improve the efficiency of on-grid water provision while increasing donor efficacy

through superior maintenance coordination


• Donors often are unable to monitor real-time whether the wells

from their projects are being used and where repairs are

necessary

• On-grid providers lack centralized information to identify

leakages, theft, and optimal allocation of water

D


239

This type of monitoring product has already been

implemented successfully in a variety of contexts D

MSABI

MSABI’s work in rural

Tanzania includes

providing maintenance

insurance implemented

through mobile monitoring

• Monthly premiums of

~USD4 for service

• A maintenance worker

visits every 2 weeks and

as problems arise

(notified by mobile phone)

• Able to immediately order

necessary parts via

smartphone

• Smartphone use could

help payment adherence

as MSABI has found it

makes maintenance

workers appear more

legitimate to communities

M4Water

M4Water works in rural Uganda,

using mobile technology to provide

information to multiple stakeholders

Currently in 7 districts monitoring

150,000 water points and uploading

data to a customized District Water

Management Information System

(DWMIS) accessible to all

stakeholders

• Data collected includes baseline,

fault reporting, and sanitation

information

• Reporting faults: Any member of the

community can report a fault to the

system by sending a coded SMS

with the ID of the water source and

problem

• Sanitation information: Health

assistants carry out inspections and

input results

USAID - Kenya

In Kenya, USAID helped

fund the implementation of

95 public meters in

compounds

• Landlords had previously

rationed water as they

could not control or track

amount consumed

otherwise

• The ATM model allows pre-

payment for fixed amount

of water, making rationing

unnecessary

• Consumers pre-pay for

water at a rate 70% lower

than they had paid outside

vendors to obtain water

• After observing pilot results,

NAWASSCO, the local

Kenyan utility, was inspired

to obtain financing to

expand the use of these

meters


240

DF+ water products can be categorized based on impact,

feasibility, and barriers


Imp

act

High

Medium

Low

Low Medium High

Feasibility


• A large donor base is necessary for lease-and-own

community wells

• The implementation of digital unsecured filter loans will

likely need to begin with MFI pilots

• Education for water providers and facilitated

collaboration with technological providers are needed to

encourage them to further adopt mobile billing and water

usage tracking

Steps to facilitate DF+ in water

• Focus initially on engaging the private sector to

implement DF+ solutions with sustainable business

models (mobile billing, water usage tracking)

• Engage donors and MFIs to encourage solutions that will

have a greater impact

▪ Mobile billing for

piped water

C

▪ Water usage and

flow monitoring

system

D

▪ Lease-to-own

community wells

with pay-as-you-

go consumption

tracking

A

▪ Unsecured loans

for filter purchase

B

6.2 WATER – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

241

DF+ readiness assessment – DF+ implementation in the

water sector faces varying levels of constraints

Sector-rele-

vant mobile

infrastructure

reach and

adoption

Readiness of

financial and

digital

financial

infrastructure

6

5

4 3

2

1

6

5

4 3

2

1

Role of the

government

and

regulation

6

5

4 3

2

1

Severity of the

sector’s

challenges

6

5

4 3

2

1

Financial gap

in the sector

6

5

4 3

2

1

DF+ business

models and

scaling

6

5

4 3

2

1

Reach

Reach of mobile

infrastructure

Adoption of mobile

technology

Financial product

offering to sector

Availability of DF+

solutions

Sector-specific

regulation

Role of the

government

Stakeholder

complexity

Non-financial chal-

lenges in sector

Execution and

scaling ability

Depth of financial

gap

Availability of DF+

business models

Applicability of

DF+ solutions

▪ 85% of the country is covered by a 2G network; selected rural areas remain a problem

▪ High penetration at ~60% of households, with some concern about female access to mobile phone within the household

▪ Low level of financial sector lending for well construction or filter purchase

▪ Mobile payments have been adopted by DAWASCObut other products have yet to be adopted

▪ The government has supported DAWASCO adoption of mobile billing

▪ Complex decentralized stakeholder landscape as many different levels of government are involved

▪ Severe non-financial challenges related to corruption, lack of management capabilities, countrywide water shortage

▪ Majority of low-income households do not use any form of finance products in water consumption

▪ DF+ solutions can play a part in lowering the cost of delivery, increasing efficiency and expanding access to water

▪ Clear business case for mobile billing and monitoring though lease-and-own wells, and filter loans require subsidy

▪ If parts of large donor financing were redirected toward these impactful solutions, scaling should be possible

▪ Water is a highly politicized topic and the government has indicated it might prevent companies from distributing it to low-income households if it thinks they are profiting from the poor

6.2 WATER – VIABILITY OF OBSERVED AND POTENTIAL BUSINESS MODELS

Sector readiness dimension Sub-dimensions 1 2 3 54 Explanation

242

In the water sector, DF+ solutions are beginning to be

applied at scaleIn

terv

en

tio

n

Discovery

Piloting

Scale

Application

Expansion and

differentiation

Global scaling

DF+ solution

maturity


ideation or early

development stage

• Individual DF+

solutions are being


ed environments

by selected actors

especially donors

• Large player(s)

show openness to

DF+ by beginning

to adopt a solution

into their

operations

• Large player(s)

begin adopting a

variety of DF+

solutions and

differentiating

them

• DF+ becomes an

essential

component of

water provision

and improvement

efforts

• Growth

financing/

subsidy

• Growth

financing/

subsidy and

innovation

support

• Implementation

support

• Convene

stakeholders to

discuss

expansion

• Financial and

technical advice

during piloting

phase

• Best practice

sharing

• Operating model

development

activities

• DAWASCO’s adoption of mobile payments should set a precedent for smaller players

• Other DF+ solutions are still being discovered and have the potential to increase on-grid and donor efficiency and

extend off-grid water access

• Although mobile billing and monitoring have clear business cases for implementation, lease-and-own wells and filter

loans may require donor subsidy

6.3 SCALING AND EXECUTION CAPABILITIES

243

Advancing financial inclusion to improve the lives of the poor

www.cgap.org

http://www.themastercardfoundation.com/

http://www.themastercardfoundation.com/

digital finance plus readiness in tanzania: full version

Economy & Finance