DigiFarm, a Safaricom subsidiary, offers Kenyan smallholder farmers end to end value through their integrated mobile phone platform where they can access information on credit, input and markets. AgriFin has worked with Dalberg and CGAP to document the evolution of the DigiFarm input loan and gather key learnings.
The agriculture sector in Africa has been facing productivity challenges over the past decades due to issues around markets, infrastructure and exclusion. These challenges disproportionately impact smallholder farmers (SHFs) who are also the most underserved group by financial services, with women at a particular disadvantage. Digital credit products have emerged as a potential scale pathway to reach SHFs, especially women smallholders, with affordable, accessible, tailored financial products and services at low costs.
This case study on digital input credit and credit scorecards capture lessons from the evaluation of Digifarm’s loan products with answers to the following questions:
- How can digital loan products be designed to increase applications, redemptions and repayments among women smallholders?
- How can digital credit scorecards de-bias financial service provision among female smallholders?
- How can product engagement and implementation be improved to better serve women smallholders?
- What role can data play in designing better credit products for women?
Overview of the Digital Input Loans
DigiFarm launched a digital input loan product for smallholders in December 2017. From the pilot to December 2019 the offering expanded to include 4 loan products (30-day, 60-day, 90-day and 120-day) and to service a variety of farmers across crop and dairy value chains. The digital loan products aimed to support smallholders to purchase agriculture inputs initially and then evolved to also provide market linkage support through buyers linked to Digifarm. FarmDrive and iProcure were key partners involved in the implementation of the input loans. FarmDrive supported with a digital credit scorecard creation which was used for risk-adjusted credit limit-setting and iProcure supported with input provision. During this period FarmDrive was also responsible for the on-ground implementation of the loan.
The DigiFarm input loan product went through 4 different phases of evolution over the two years:
- Phase I – provision of 30-day digital input loans for dairy farmers
- Phase II – provision of 30-day, 60-day, 90-day digital input loans to dairy, crop and mixed farmers
- Phase III – provision of 30-day, 60-day, 90-day digital input loans and 120-day digital market-linked input loans to dairy, crop and mixed farmers with a stronger focus on crop farmers
- Phase IV – provision of 30-day, 60-day, 90-day digital input loans and 120-day digital market-linked input loans to dairy, crop and mixed farmers with a stronger focus on crop farmers, along with mandatory crop insurance bundled into the offering
OVERVIEW OF THE CREDIT SCORECARD
The credit scorecard was an expert model adaptation of consumer nano-loan models, commonly used by formal financial institutions to lend very low amounts to clients. The credit scorecard was developed using simulated data, without access to historical Safaricom data. Due to high costs, the scorecard did not utilize credit bureau data to screen against recent or current bad borrowers. The credit score was not used to make credit decisions (approve or reject loan applications). A combination of M-Pesa mobile money turnover and airtime metrics was used to assign risk-based credit limits.
Source: Case study with Dalberg and CGAP
KEY INSIGHTS AND RECOMMENDATIONS
- Application: Loan applications by women smallholders were much lower than those by men smallholders due to structural barriers and loan acquisition features:
- Barriers such as lack of or limited digital literacy and savviness hindered some segments of women from engaging with digital loan products effectively.
- Lack of agency and decision-making power led to a significant proportion of women not making autonomous decisions on financial services and relying on spousal consent to apply for credit products.
- Product acquisition features such as conducting drives on ‘market days’ have the potential to bias applications against women smallholders. Women’s time and mobility constraints are a barrier to women’s attendance of exhibitions and market days, and their caretaker roles often require them to remain close to their households. In farmer groups, men sometimes self-select to attend these exhibitions, fairs, and market days.
Loan applications by women farmers can be encouraged through increased spousal engagement and awareness-raising support. Digital input products can be designed to be more gender transformative by understanding female farmers pain points and creating interventions across their customer journey, establishing helpful points.
- Approval: Loan approval rates increased steadily across phases, with no significant difference for male and female applicants.
While for DigiFarm loan credit scorecard use was limited to credit limit assignment, they have the potential to further gender financial inclusion. DigiFarm’s digital input loan product used the FarmDrive credit score (along with Mpesa Wallet usage) to set risk-adjusted credit limits, not approval decisions. As such there was no significant variation between approval rates for men and women farmers.
Credit scorecards and their underlying algorithms should be assessed periodically to understand if there are any adverse effects on gender gaps. In addition credit scoring models can facilitate consistent and transparent treatment of female smallholder borrowers and align with financial and gender inclusion goals
- Redemption: Women have lower redemption rates than men due to product design features exacerbated by gender-specific structural barriers.
Barriers such as time poverty and mobility constraints faced by women smallholders hinder the ability to redeem input vouchers the same way the male counterparts can. Structural barriers such as low agency to redeem loans without spousal consent also reduces redemption rates for women
- Repayment: Repayment rates were about the same between men and women, while women were more likely to delay repayment.
Default or late payment were often related to crop failure or market volatility, or short tenure. While crop failure driven defaults are gender agnostic; loan products with flexible repayment terms can support women farmers who tend to delay repayment. For better results, ensure loan tenors are appropriately aligned with crop cycles and provide support to create the knowledge base through DVAs or field extension officers. Introduce bundled crop insurance products to protect farmers and loan providers in the event defaults are driven by crop failures.
Agriculture has one of the more significant gender gaps and disparities across the globe compared to other parts of the economy, yet it is also one of the less documented ones. Collecting and documenting gender-disaggregated data for an input loan product along various indicators such as access to productive resources, agriculture household sizes, other income-generating activities, time and labor distribution, etc. can contribute towards a better understanding of the pain points, needs and behaviors of women and design products for them.