28February/1March2017

LastmilepartnershipsforsmallholderfinanceEarlyfindingsfromastudyoffourvaluechain/technologyFRPwinnerslookingtopartnerwithfinancialinstitutions

Webinar

Agenda

Contextandobjectives

Preliminaryguideforlastmilefirms,andfurtherreading

Supportingfactors

1

3

2

5

4

Partnershippotentialandmotivations

Challengestopartnershipformation

Contextandobjectives

NGO/Publicagency

Farmeraggregation

Technicalassistance

Loanoriginationandcollection

R&Dandotherbackoffice

Marketaccess

Costofcapital

Valuechainactor Financialinstitution

Farm

ersu

pport

Fina

ncing

Financingmovesoffvaluechainactorbalancesheet

Leveragesexistingvaluechainactor-farmerinteractions

NGO/publicagencysupportsfinancialinstitutionsandagri-productdevelopmentandsystembuilding

Guaranteedthroughbuyerparticipation

Buyerhasincentivetotrainfarmerstoincreaseproductionqualityandvolume

NGO/publicagencysupportsvaluechainactorwithfarmeraggregation

Closerelationshipalsolowersriskforthefin.

institution

Changeincostbearingresponsibility

ILLUSTRATIVE

InInflectionPoint,wecalledfor“progressivepartnerships”thatsharecostandrisktoachievefinancialsustainability

WearenowstudyingthepotentialandprocessofbuildinglastmilebusinesspartnershipsbetweenvaluechainplayersandFIs

• “Lastmilefirms”referstoagribusinesses (a.k.a.“valuechainactors”),orag-focusedtechnologyplatforms

• Businesspartnershipsreferstomutuallybeneficialcollaborationbetweenindependentprivatesectororganizationstoincreasebreadthordepthofservicestosmallholders

• Inparticular,wearestudyingfourlastmilefirmswhoalreadytouchsmallholdersandareseekingfinancialinstitutionpartnerstoofferfinancialsolutionstothefarmers

• Thisisan18-monthongoingstudy(into2018),andwehavecompletedbaselinedatacollection,primarilythroughinterviews/fieldvisitsanddocumentreviewwithlastmilefirms,potentialpartners,andfarmerswherepossible

• Mostpartnershipsareinearly/potentialstages,sowe’refocusedonthemotivation andprocess offormingthesepartnerships; inthefuturewewillanalyzebusinessdynamicsandresults

FourFRPwinnerswerethefocusofthestudy– theyoperatedifferentbusinessmodelsinfourdifferentcountriesinAfrica

Who Where What

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

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

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

Kifiya hasdevelopedatransactionplatformandispartneringwithfarmercooperatives,insurancecompaniesandMFIstoprovidemobilepaymentsolutionstofarmers. Kifiya hasalsodevelopedamicro-insuranceproductforfarmers thatitisworkingwithinsurancecompaniestodeliver.

ECA

*

*Kifiyaisbestdescribedasatechnologyproviderratherthananagribusiness.Forthepurposeofthisstudy,wehavefocusedKifiya’sagri-focusedactivities

Partnershippotentialandmotivation

Whywouldagribusinessesandag-focusedtechnologyplayersseektopartnerswithFIs?

Topline(revenue)motivations• Improvedfarmerproductivity(especiallyforoff-takers)• Increasedsalesvolumesoverexistinginfrastructure(forinputproviders/techplatforms)• Opportunitiesforrolloutofnewfinancialproducts• Increasedfarmerloyaltybecauseofexpandedoffering

Reducingcostsandrisks• Reducedbalancesheetpressure(forVCAsalreadylending)• Reducedadministrationcosts(forlenders)• Lowertransactioncosts• Piggy-backontechnologyinvestment

Biopartenaire providesbundledproductivitysolutionmotivatedbycocoasupply;wantstooutsourcelending

Biopartenaire currentpartnershipmodelforsavingproduct

Savings

Advansprovidesfarmerswithasavingsproductandamobilechannelfordeposits

Farmergroups- eachfarmergrouphasavillagecoordinatorwhoactsasadistributionpointforinputs

BiopartenaireprovidesAdvanswithacustomerbasefortheirsavingsproduct

Biopartenairesustainabilitydepartment

Biopartenaireprovidescredit,usingthesavingsascollateral

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

Modelandmotivation:• Provideextensionandinputs(facilitatedbycredit)cost-neutrallyto

increasefarmerproductivitytosecurequalitycocoasupply• Movedirectfarmerlending(andrelatedrisks)frombalancesheet,

leverageAdvans’branchlessbankingsystemtoreachfarmers

Potentialsuccessfactors:• WorkwithMFIgivenmotivationandreach,high-levelstrategicbuy-in• FlexibleMOUforexperimentation,startwithsavingsproduct• SupportofIFCrisk-sharingagreementforcurrentlending

Unknowns:• CanBioPartenaire KYCdataandinsightonthe“right”farmersbe

enoughtoenableanurbanMFItostartlendingdirectlytofarmers?• Howtoquantifytherisks(e.g.side-selling)andbenefitofoutsourcing

lending

Whatisthevaluepropositionforfinancialinstitutions?AframeworkforhowlastmilepartnersreduceFIcost/risk

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

Lastmile firmsoffer… Customeracquisition Productdistribution/collection Productdevelopment* Credit riskmanagement

FarmeraggregationGroupfarmerstogethertoeasepromotion/deliveryofservices

Providesaccesstolargenumbersoffarmers,reducingsalesandmarketingcosts

Agribusinessesactaschannelsthroughwhichtosellproductsandcollectrepayments

Riskisdiversifiedandreducedbyprovidingtogroups,ratherthanindividuals

Accesstomarket/off-takingProvideaguaranteedmarket,ensuringfarmershaveincome

Off-takingprovidesknowledgeofwhat financialproducts toofferwhichcustomers

Off-takers canmakerepaymentsonbehalfoffarmersoncollectionofproduce

Knowledgeoffarmerincomeandcrop cyclescaninfluencehow productsaretailored

Off-taking guaranteesfarmersamarketandcashflow,therebyreducingriskofdefault

TechnicalassistanceProvidetraininge.g.agronomicpractices,financialliteracyetc.

Trainingonfinancialliteracy/agribusinesspromotesuptakeoffinancialproducts

TAcanhelpincreasefarmeryieldsandcashmanagement,reducingdefaultrisk

InterfacewithfarmersActas“feetontheground” andhandle farmerinteractions

Interactionsoffieldagentswithfarmerscanbeusedtomarketfinancialproducts

Assistwithdisbursing andcollectingfunds,reducingFIadminandfollowupcosts

Knowledge gainedfromfarmersisusedtoinfluenceproductspecifications/terms

Canusefarmerinteractionstoeducate onrepaymentterms$providereminders

Know-Your-Customer (Data)Collect farmerdata,e.g.income,farmsize,expenditure

DataprovidedtoFIshelpstarget highpotential/prioritycustomersfor givenproduct

KYCdatahelpsFIsdeterminecashflowcyclesand timing forcashdisbursement

DataprovidedtoFIsisusedtostructure appropriate creditandinsuranceproducts

Data onfarmershelpsselectandgainapprovalsforthemostcreditworthyfarmers

AreasofFIcostreduction AreasofFIriskreduction

Key: Doesnotcontribute Somewhatcontributes Stronglycontributes

Kifiyahasbuiltanagentandpaymentsinfrastructureandwantstoincreasetransactionvolumesandproductsales

*Asnotedearlier,Kifiyaisforemostatechnologyplatformprovider.Theyarecurrentlydevelopingagriculturefocusedproductsandpartnershipsinordertoincreasethevolumeoftransactionsthroughtheirplatform

Kifiya partnershipmodel

Farmers

Kifiyaplatform

Multi-purposecooperatives(containsKifiyaagent)

Provideextensionsupport,inputs,financeproductsetc.

One-stop-shopforMPCtofacilitatetransactions

Insurance Lending(7MFIs)

Transitcompanies

Utilitycompanies

Modelandmotivation:• Wantspartnerstodeliverfinancialservicesatscaleby

leveragingitsDFSinfrastructure(feesandcommissions)

• Lookingforinsurancecompaniestounderwriteriskandscaleupthemicro-insuranceproducttheydevelopedforfarmers

Potentialsuccessfactors:• FIpartnersmotivatedbycustomeracquisitionandgovernment

incentives• Best-in-classmicro-insuranceproductdesign(100xmore

precisesatellitedata,60%costsavingsindelivery)

Unknowns:• Actualresultsoftheinsuranceproductrollout• Progressonexpandingagentnetwork(catalystforpartnership?)

Challengestopartnershipformation

Despitethepotentialbenefitsforimprovingviabilityoffinancialserviceprovision,commonchallengesareexperiencedforpartnershipdevelopment

SOURCE:Discussionswithgranteesandtheirpartners,Dalberganalysis

FIchallenges• Trustingdataintegrity:significanttestingandanalysisrequiredbeforeusingthedata,andstillFIdatamynotbeoftherightformat/quality

• Institutionalandsystemsrigidity:Riskaversionandlayersofhierarchyacrossdepartmentsmakeithardtogreenlightanynewproductsorpartnerships

Lastmilefirmchallenges

• FindingtherightcounterpartswiththeFI,movingbeyondCSRteamandgettingbuy-inacrosssiloes• Provingcommercialviability,orachievingascalethatiscompellingforthefinancialinstitution(especiallychallengingforstartupsorbusinessmodelswhereFIpartnershipessential)

Generalchallenges

• Agreeingtotheoperationalmodel– Partnersmaystruggletoalignonrolesandresponsibilities,whichcanbetime-consumingand/orleadtodissatisfaction.

• Agreeingtocostandrevenuesharingespeciallyintheabsenceofbestpractices;e.g.,costsofeducatingandtrainingfarmers,whichmaybebreakthemodelforanyonepartner,orrevenuesfromajointinsuranceproduct

Prep-eez hasgeneratedalotofinterestbutitspioneeringmodelanddataaspirationsrequireFIstothinkoutsidethebox

Opportunityandmotivation:• Wealthoffarmerdata(KYC,etc.)offeredtomultipleFIsfor

developingnewproducts,andplatformfordeliveringthem

• Positionasinputsellerandoff-takeralignsPrep-eez withgoalofincreasingfarmerpurchasingpowerandproductivity

Challenges:• FIsmotivatedbypotentialformarketshare,buthaveto

secureinternalapprovalsacrossdepartments,somemorerisk-aversethanothers

• FIshaveneverworkedwiththiskindofalternativedatabeforesolackcertaintyonproductdesign andbusinessmodel

• Highinterestrateenvironmentdampensfarmerdemandforcredit

Pre-peez envisionedpartnershipmodel

OtherPrepeezBUs

Prepeezplatform

Insurance

(undernegotiation)

Creditandsaving

(undernegotiation)

Farmers

Farmandfarmerdata

Extensionsupport

Purchaseproduce

Accessfarmerprofiles

Accessfarmerprofiles

Provideinputs

Source:Dalberganalysisandinterviews

ECAMozambiquefacesanuphillclimbthankstosocialandpoliticalunrest,andanunderdevelopedmobileecosystem

*CDMisasubsidiaryofSABMillerSource:ECAdocumentation,interviewswithcurrentECApartners,Dalberganalysis

ECA

Initiallyenvisionedpartnershipmodel

Loanfacility Mobilepayments

Farmers

ECAdeductsinputloanpaymentsafterharvest,andpaysfarmers(currentlypaycashbutworkingtowardsmobilepayments)

AnnualloantoECA

ECA

ECAbuysanddistributesinputs

tofarmers

Off-takerpurchases

(undernegotiation)

PaymentssolutionforECAfarmers

PurchasemaizefromECA

Opportunityandmotivation:• Outgrower schemewithcloserelationshipswithsmallholders

cultivatedovertime,andlinkstolargebuyerdemand

• Mobilepaymentscanincreaseefficiencyofoperationsandreducecashrisks

Challenges:• Underdevelopedmobilemoneyecosystem(liquidity

challengesforagents)andconnectivityissues• Bankingsectorgenerallynotinterestedinsmallholdermarket• Socialandpoliticalunrestthreateningoff-takeragreements

andgeneraloperations

Factorsthatsupportpartnershipformation

Supportingfactorsinlastmilebusinesspartnershipformation(1/2)

SOURCE:DiscussionswithFRPwinnersandtheirpartners,Dalberganalysis

Category Supportfactor Waysinwhichenablingfactorpromotespartnershipsforfinancialprovision

FIswhohaveastrategyfocusedonagricultureorworkingwiththebottomofthepyramid aremorelikelytobeinterestedinpartnershipasdoingsohelpstofulfiltheirmandate.

FIswhohaveateamspecificallydedicatedtoforming/managingpartnershipsaremoreopentoinnovativeapproaches,haveexperienceinpartnershipbrokeringandarebetterabletodealwithissuesthatposechallengesinpartnershipformation.

ExistingrelationshipsbetweenAgribusinessmanagementandFImanagementcanplayanimportantroleingainingrequiredapprovals.Thesecouldtaketheformofhavingpreviouslyworkedtogether,socialnetworksetc.

Policiesthatpushinclusivefinancialserviceprovisionarelikelytoboostpartnerships.Likewise,policiesthatempowerruralcommunitiesorotherwisecreateanenablingenvironment.

Astableoperatingenvironmentispredictableandlowrisk,whichencouragesFIstotakeonnewpartnershipsandnon-traditionalavenuesofprovidingfinance.

Marketswithmorecompetitivedynamicspromotepartnerships;FIsaremorewillingtotakeinnovativeapproaches toincreasetheirmarketsharethanwhenafewkeyplayersdominate,withnoincentivetoserveruralpopulations.

Externalenvironment

Governmentpolicies

Socio-economicstability

Privatesectorcompetition

Partnercharacteristics

FIstrategy

Partnershipteams

Existingrelationships

Supportingfactorsinlastmilebusinesspartnershipformation(2/2)

SOURCE:DiscussionswithFRPwinnersandtheirpartners,Dalberganalysis

FIsarereluctanttotrustalternativedataorworkinproductstheydon’tunderstand.Well-designed,shorttermguarantees eitherfromtheagribusinessorathirdpartycansupporttrustbuilding.

FIsoftenhavelimitedinternalcapacitytodevelop/testproductsforsmallholderfarmers.Externalsupportfromtechnicalexpertscanhelpbuildtrustintheofferingofthelastmilepartner.Donor-fundingforTAmaybecatalyticiftheFIiscommittedstrategicallytoag,andsomeskininthegame.

Digital/mobileplatformsfacilitatedatacollectiononcustomers,disbursementsandrepaymentsoffundsinruralareas.Indoingsotheyserveasago-betweenbetweenthefarmers,agribusinessandFI,easingtheoperationswithinpartnerships

Presenceoffacilitators

Guarantees

Technicalsupport

Digital/mobileplatforms

Eventhoughsomesupportingfactorsarenotwithincontrol,partnerscancapitalizeonthefactorsthatare:seekingorganizationsthathavepartnershipteamsinplace,reachingouttopotentialprovidersofguarantees,obtaining

technicalsupportandleveragingdigitalplatforms

Supportingtestingsuchaspilots

Pilotsareausefulwaytotestwhetherpartnershipswillworkandwhethervaluereallyexistsforallstakeholdersinvolved.Facilitatorscanplayanimportantroleinmanaging,brokeringagreementandcapturinglessonsfrompilot

Category Supportfactor Waysinwhichenablingfactorpromotespartnershipsforfinancialprovision

PreliminaryguideforlastmilefirmsseekingtobuildpartnershipswithFIs

1.Seekpartnersw/alignedinterestsandrelevantexperience• Lookforfinancialinstitutions(FIs)withastatedstrategyinagricultureorservingtheBoP• LookforFIswithastrongdistributionfootprint• LookforFIsthathaveateamspecificallyfocusedonpartnerships• LookforFIswhereexistingrelationshipsexist• ConsiderFIswithahistoryandcultureofinnovationthatisreinforcedbyseniormanagement• LookforFIsthathaveworkedwithdonoragenciesinthepast

2.Highlightvalueproposition• Createapitchdeck• Adjustpitchdocumentationbasedonfeedback• EmphasizefactorsthatFIsaremostinterestedine.g.,marketsize,customeracquisition,costsavings,etc.• Highlighthowpartnershipcanreducebankrisk• Provide“real-life”demonstrations• TalktomultipleFis• BepreparedtopresenttomultiplepeoplewithintheFI

3.Developastructuredprocessfornegotiation,buildlinkages,andcommunicateopenly• Agreeoncommunicationnormsandprocesses• Beclearonnon-negotiables• Understandthebusinessmodelandhighlightincentivesforeachparty• Buildinoptionsforre-negotiatingterms,linkedtophasedrollout• LookforFIsthathaveworkedwithdonoragenciesinthepast• LookforFIsthathaveworkedwithdonoragenciesinthepast• Considerindependentarbiters(e.g.,donors)forcoordination,honestbrokersupport,andevenrisksharing

Guideforlastmilefirms:Seekingandnegotiatingpartnerships

Guideforlastmilefirms:Workingtogetherinpartnerships

1.Alignonvisionandclarifyrolesandresponsibilities

• Alignonavisionofwhateveryoneistryingtoachieve• Alignonrolesandresponsibilities• Seektosolvechallengestogether

2.Createsystemsforopencommunicationanddynamicfeedback

• Agreeoncommunicationnormsandprocesses• Createoutletstoensurecommunicationisopenandtransparent• Buildlinkageswithandengageseniormanagement

• Startwithapilotor“testphase”forthepartnership• Visitothersimilarpartnerships,andvisiteachother’soperations• Alignonallocationandcontributionofresources

3.Alignonavailablecapabilitiesandresources

4.Createaccountabilitymeasures

• Proactivelymonitorresultsandoutcomesandfostera“learningculture”• Wherefeasible,makethepartnershiprecognizableandautonomous• Developanescalationmechanism

Seeourlearningbriefandreportdeckhere formoreinformation

LearningBrief02:Bettertogether

Baselinereport

Furtherorupcomingreading• LearningLabandISF(2016)InflectionPoint• LearningBrief01:Thebusinesscasefordigitally-enabledsmallholderfinance• InitiativeforSmallholderFinanceBriefingNotes

• LendingaHand:Howdirect-to-farmerfinanceprovidersreachsmallholders• ValueChainFinancing:Howagro-enterprisesserveasalternateaggregationpointsfordelivering

financialservicestosmallholderfarmers• TheRiseoftheDataScientist:Howbigdataanddatasciencearechangingsmallholderfinance

• IDHSustainableTrade:ServiceDeliveryModelresearch• OpportunityInternationalValueChainPartnershipsinPractice• AGRAFISFAPstudyofhybriddata:Farmmanagementinformationsystem(MIS)data

forusebyfinancialinstitutions• MercyCorpsAgrifinAccelerateongoingworkwithpartnership-basedplatforms

includingPatientProcurementPlatforminTanzaniaandDigiFarm inKenya

THANKYOU