Most entrepreneurs will tell you that apart from luck and financing, the right timing for launching a product is the final spice that makes the meal rewarding. While catching up on my tech reading I stumbled on a book authored by Porter Erisman on the rise of Alibaba, ‘Alibaba’s World’, and in reflection, I found many intersections with the key themes discussed and the current context we find ourselves in Kenya.
The Kenyan e-commerce landscape is in full swing. I often walk into the office in the morning to find one or two staff members of the MercyCorps AgriFin accelerate program www.mercycorpsagrifin.org browsing product categories from leading e-commerce sites OLX, Jumia, and KiliMall. I recently purchased a new Huawei tablet from one of these sites, and the experience was extremely rewarding. Averse to window-shopping, a fact that my wife can attest to, I enjoyed the experience of browsing through the available products and their specifications. The product was delivered within 48 hours of closing the online purchase and I paid by MPESA, a ubiquitous mobile money payment solution offered by Safaricom, Kenya’s leading mobile network operator. As I completed the payment from my Safaricom sim toolkit I noted that the payment aggregator integrated to MPESA was IPAY Africa www.ipayafrica.com, also integrated to Airtel Money, `MasterCard and Visa to accept payments on behalf of their online merchants and forward the transactions to the merchants’ selected bank accounts. The partnership between e-commerce sites and payment gateways is a testament to the advanced state of the Kenyan e-commerce scene, although early reports claim that none of the e-commerce sites have reached positive earnings before tax. However, the future looks rosy. So far these services have been focused on urban markets where consumers are concentrated and convenience and time utility are resources worth paying premiums for, coupled with a logistics backbone that can deliver goods to your doorstep or office. Whether the time is right for the same services to be offered to rural agricultural markets is a question to be answered.
Linking markets: The rumbling of rural agricultural e-commerce has begun to take shape, similar to the Alibaba customized market approach. The rural market requires a well thought out strategy to ensure the benefits of e-commerce bear fruits. In a recent announcement by OLX, a predominant peer to peer e-commerce site similar to eBay, it has begun its foray into the rural agriculture based-market by redefining its business model to resemble the Alibaba ‘Taobao’ model where farmers can find institutional buyers for their produce and purchase discounted inputs.
Similar to Alibaba, OLX understands that majority of its rural customers do not have a cache of used products to post for sale on an online market. However, they do have farm produce, which currently fetches meager earnings, often sold to opportunistic brokers or mismanaged cooperatives looking out for their own needs. M-farm www.mfarm.co.ke, although not a classical e-commerce solution, offers a similar service to farmers by linking them to potential buyers and utilizing an online platform that also provides farmers with the prevailing market prices for their produce. The difference between these two approaches is OLX largely relies on the farmer to post and market their farm produce online, whereas m-Farm goes a step further to directly link the farmers to off-takers similar to contract farming. This means that m-Farm invests more resources to acquire farmers, buyers, and manage those often unforgiving relationships. This hand-holding approach is typical of a number of emerging AgriTech companies making attempts to digitize the rural economies.
I am reminded of a statement often repeated by one of our partners whenever I suggest a less personal digital solution, “Sieka, do you think that that farmer who has barely learned to use their basic phone and MPESA can now go online and post or search for products?” A valid question indeed and perhaps the statistical data points are not yet adequate to suggest a clear answer. However, a tell-tale sign is the increasing presence of agricultural-based pages and groups on popular social media sites such as Facebook and WhatsApp. Our recent search found over 50 active agricultural pages and groups on Facebook, with some having over 50,000 members. Undoubtedly, there is a journey to be traveled in educating rural markets on digital literacy, much of which may ongoing organically by word of mouth and trial and error, as what happened with MPESA. The adage “build it and they will come” is sounding more plausible as every day passes.
The rural payment settlement dilemma. Farmers don’t trust many buyers and often would rather be paid at hand at the farm gate. On the other hand, buyers don’t trust farmers and prefer to pay after receiving the goods. Despite the prevalence of payment gateway providers and digital payment instruments, none of the e-commerce sites I reviewed had cracked this challenge adequately. When Alibaba faced a similar challenge, they built an escrow functionality in its Alipay solution that locked the buyers’ payment in an account and released the funds once the buyer confirmed satisfaction. As I write this, Mercy Corps AgriFin Accelerate program is working with partners to unwrap this issue and perhaps develop a working solution for the e-commerce companies to adopt. Although it sounds simple enough and there being numerous solutions that offer advanced settlement features, unique factors need to be considered and customized for agricultural produce, e.g. spoilage during transit or storage, how to treat rejected produce, goods in transit insurance, batching and aggregation of produce, just to name a few. We hope that Mercy Corps AgriFin Accelerate will answer some of these questions through our human-centered design initiatives and provide insights and prototype for a working solution.
Last-mile logistics is another consideration when thinking about rural e-commerce. With an increasing rise in transportation hailing solutions in urban centers, the conversation is moving to underutilized transport resources engaged or traveling through in the rural economies, from returning transit goods truck capacity to tractor and “boda boda” optimization. E-commerce presents an opportunity for transporters to maximize their returns by carrying goods on return trips. At the “end of the tarmac” tractors and boda boda riders are another resource that can handle farm gate deliveries if organized through digital instruments. OLX recently signed a 15% discount deal on delivering fertilizer to potato farmers that will be delivered by the trucks that will then collect the farm produce from the same farmers. E-commerce has the potential to reduce the costs of inputs to farmers if bundling and aggregating is solved and offer farmers a wider choice of inputs to increase their individual productivity. Logistics may be one of the major factors slowing the progress of rural e-commerce, but only for so long.
The farmers’ cash flow challenge. Last but not least is the liquidity challenge farmers face. More than often farmers do not have a smooth and predictable income, and rarely do they have enough money at the right time to purchase required inputs online. Offline, cooperatives have created credit solutions such as check-off for input purchases and SACCO advance loans for other farmer expenses. One way to potentially accelerate rural e-commerce is to provide digital credit products for online purchases, the “digital credit card” for the farmer. One of the most touted use cases for MSHWARI, a digital lending and saving solution offered by Commercial Bank of Africa in partnership with Safaricom, is to purchase farm produce and sell the same to repay the loan. A similar solution for the e-commerce market would likely accelerate the uptake and adoption of the service. The Kenyan market is abuzz with digital credit products. The credit fever is so high that organizations that did not have a credit offering in their initial business model have gone 180 degrees and become fully-fledged financial institutions. Kopo Kopo www.kopokopo.com, a mobile payments merchant acquirer, and mKopa www.m-kopa.com, are two examples of this trend, lending directly from their balance sheets. Additionally, the emergence of independent alternative data and credit scoring companies such as FarmDrive, Apollo, Pula, and FirstAccess also signal the potential market supply for rural credit.
The verdict is still out on whether the market is ripe for rural e-commerce, but the dice have decidedly been cast and we at Mercy Corps AgriFin Accelerate look forward to advancing the agenda with you.
Sieka Gatabaki, the Digital Financial Services Manager, Mercy Corps AgriFin Accelerate Program.