AFA assessed data spanning two years of the DigiFarm and FtMA pilots, surveying 152 DigiFarm farmers in Bomet and Meru, as well as 185 FtMA farmers in Tharaka Nithi. We then leverage the lessons from both input loan pilots and an internal review of DigiFarm loan data by Dalberg Advisors to better understand digital input credit initiatives in Kenya.
THE PROBLEM
Agriculture employs 65% of Africa’s population and makes up 32% of its GDP. However, smallholder farmers, who produce up to 80% of food consumed in Africa and Asia, are among the poorest and most marginalized in the world.
Lack of finance is a fundamental barrier to smallholder productivity and income. For example, without access to credit, they remain unable to purchase quality inputs, make productive investments and produce sufficient yields. The main reason smallholders have been excluded from formal financing is due to the absence of accurate and cost-effective methods for assessing lending risk in that sector. Less than 1% of bank lending in Africa goes to agriculture and globally, there is a smallholder financing gap of $450 billion.
The AgriFin program – which operates in Ethiopia, Kenya, Nigeria, Tanzania and Zambia – utilizes digital technology to put agricultural support, including finance, directly in farmers’ hands through their mobile devices. In Kenya, this initiative takes the shape of DigiFarm, a free mobile platform that provides a suite of comprehensive services that allow smallholder farmers to receive loans to improve their farms’ productivity and increase their incomes.
DigiFarm brings together a number of local partners, including Safaricom, a local mobile operator, and several organizations with expertise in different areas of the agricultural industry. One DigiFarm partner, FarmDrive, uses an alternative credit risk assessment model to provide financial institutions with agriculturally-relevant data to develop targeted loan products for farmers and assess their credit-worthiness. In December 2017, DigiFarm launched 3 loan product pilots starting in 9 counties focused on dairy farmers with different repayment terms and sizes.
THE SOLUTION
It has been an eye-opener to me. Initially I could not think of even going for the loans, because I was scared of them. Digifarm has been able to give us farm inputs and whenever the rains fail the insurance comes in and covers the crops, unlike what used to happen. We were afraid of taking the loans, [because we thought] for security we had to attach our household items, which could be repossessed any time as payment for the loans. With Digifarm I have been able to sell my sunflower produce and received my payment through my phone. The entire exercise has been digitized and that is to our advantage.
Eleanor Muli, Farmer, 53
AgriFin has also supported other partnerships to develop and roll out digital platforms for smallholders. An example is the Food to Market Alliance (FtMA), a consortium of eight global members operating in Rwanda, Tanzania, Kenya and Zambia – with plans to scale up across Sub-Saharan Africa, that was formed with the objective to make markets work better for farmers. Through the FtMA application, farmers can access affordable credit, quality inputs, effective post-harvest management and other agricultural technologies while gaining access to markets.
RESULTS
Digifarm launched an input loan product in December 2017. This allows farmers to purchase farm inputs at DigiFarm’s approved agro vets, namely farm depots run by another DigiFarm partner, agricultural supply chain platform iProcure. As the platform’s network provider, Safaricom sources the clients and captures their data, which is processed by DigiFarm’s credit partner, FarmDrive, to score the farmers’ credit worth and manage loan administration from approval to recovery. Flexible loans are available whenever a farmer needs them and offer different loan terms (requiring repayment within 30-, 60- or 90-days). However, there are some products that are linked to the market and to the season, requiring the farmers to take a specific product within a given season, because of the known risks of using various inputs off-season. This helps minimize risk for both the farmers and the lender.
Farm-Drive has evolved from just being a data analytics company that does credit scoring to providing our full suite of financial services as a nonbank financer. We’re not licensed, but we provide digital financial services within the regulatory framework by the Central Bank. So as a lender, we’re the ones who provide the loans going out to farmers.
Peris Bosire, co-founder and CEO, Farm-Drive
In 2018, FtMA piloted provision of input loans in the short rains in 2018 through digital credit offering in partnerships with multiple financial service providers including Kenya Commercial Bank, a traditional provider, and fintechs like FarmDrive. AFA assisted FtMA with developing digital credit partnerships in Kenya, supporting product innovation and process mapping for input loan products. Input providers also used the platform to access information about input demand, agro-dealer sales, and to digitize invoice and receipt processes with banks who paid them on behalf of farmers for group input loans. The case study comparatively assesses from both products:
- Uptake – How to increase uptake of digital input credit, including applying for and redeeming loans?
- Repay – How to increase repayment of loans before and after loans are distributed?
- UX – How to increase the effective use of digital input credit through product and user experience design?
- Inclusion – How to design digital credit products specifically for women and youth?
LESSONS LEARNED
The Key Learning Questions were:
- What drives the uptake of digital input loans?
- What are the barriers facing digital input loan uptake?
Our analysis found that digital input loans are popular among farmers, and provide access to farmers with limited alternative sources of funding but at the same time, many farmers continue to rely on savings and informal loans for inputs and are reluctant to take digital loans. Several factors and recommendations were identified in the case study to drive uptake. As with all digital products and services, considerations on User Experience (UX) design are important. Furthermore, customization is key to encourage uptake, by targeting different farmer segments (i.e., age group, gender, psychometrics) appropriately, providing agricultural extension support (via in-person extension work or digital platforms) and promoting repayment by aligning the loans and loan tenures with agricultural seasons and cash flows.
Author(s):
Muthoni Mugo – MErL and Communications Officer, AgriFin Accelerate.