About two dozen leaders of inclusive finance organizations, impact investors, and analysts from around the world convened recently at a workshop hosted by Lehigh University’s <a href="https://business.lehigh.edu/centers/martindale-center/about" target="_blank" rel="noopener noreferrer">Martindale Center</a> to share views on how financial inclusion interacted with the socio-economic crises of the COVID-19 pandemic. The event built on the success of a previous similar workshop that resulted in the publication of <a href="https://www.brookings.edu/book/the-future-of-microfinance/" target="_blank" rel="noopener noreferrer">The Future of Microfinance</a> by Brookings Institution Press in 2020.

Participants included practitioners working, building, promoting, advocating, and leading commercial financial inclusion providers in Africa from a private sector perspective. As such, they are close to the reality of the people they are serving or invest in and their insights are anchored in the on-the-ground dynamics of the African market in the wake of COVID. Here is what they are telling us.
<h1><strong>Impact of COVID on African MFIs, Banks, and Clients</strong></h1>
<blockquote class="pullquote--right">Ongoing crises in Africa are not uniquely due to COVID-19, but rather are a conjunction of many crises during the last several years.</blockquote>
The CEOs of leading African inclusive financial services organizations participating at the Lehigh workshop uniformly agreed that ongoing crises in Africa are not uniquely due to COVID-19, but rather are a conjunction of many crises during the last several years. COVID, in fact, did not affect the continent much health-wise; instead, the impact came more from restrictions on domestic and cross-border mobility, which caused substantial economic downturns, especially in countries and regions dependent on imports and exports. At the same time, climate change effects such as droughts, floods, and ruined crops have created substantial <a href="https://www.fao.org/3/cb0258en/CB0258EN.pdf" target="_blank" rel="noopener noreferrer">threats to food security</a> and increased social unrest in many parts of Africa. Compounding the turmoil, security crises fueled by terrorism, refugees, and displaced populations (<a href="https://www.unrefugees.org/emergencies/sahel/" target="_blank" rel="noopener noreferrer">millions in the Sahelian countries</a>) have also significantly destabilized Sub-Saharan Africa.

Aiming to alleviate rapid <a href="https://www.ada-microfinance.org/sites/default/files/inline-files/Synthesis_Microfinance%20Clients%20Facing%20the%20COVID-19%20Crisis_EN_1.pdf" target="_blank" rel="noopener noreferrer">deterioration in household financial positions</a> during the pandemic, governments and central banks across Africa issued loan repayment moratoriums, which squeezed lenders’ liquidity, including mainstream commercial banks but especially microfinance institutions (MFIs). Nevertheless, even though the rate of late or restructured loan repayments from clients—the credit risk ratio—<a href="https://www.mf-rating.com/wp-content/uploads/2021/10/COVID-19-Impact-on-FSPs.pdf" target="_blank" rel="noopener noreferrer">increased everywhere</a>, debt write-offs among African MFIs have not been as bad as feared. Overall, the sector has shown <a href="https://www.suerf.org/suer-policy-brief/38105/africa-and-covid-19-can-the-financial-sector-stay-on-course-for-a-green-and-digital-future" target="_blank" rel="noopener noreferrer">substantial resilience in Africa</a>, although the situation remains tenuous; “seriously fragilized” is how one CEO at the workshop described it.

As for impacts on MFI clients, a stark distinction is apparent between urban and rural settings. Urban clients have suffered most due to lockdowns affecting micro and small enterprises. Many rural clients, by contrast, fell back into an agricultural self-subsistence economy during a season or two, as there were no markets to sell to. Low-income households in both settings saved as much as they could during the pandemic and reduced spending. Workshop participants at Lehigh uniformly agreed that African MFIs’ clients, especially the most vulnerable ones, were—perhaps more than ever—remarkably resilient and able to cope.
<h1><strong>Crisis Begets Opportunities</strong></h1>
As is often true in times of crises, opportunities appear. Workshop participants pointed out that in Africa, new opportunities for MFIs and lower-income clients came directly from constraints dictated by lockdowns. Logistical barriers <a href="https://cdn.odi.org/media/documents/Africa_trade_and_Covid19_the_supply_chain_dimension.pdf" target="_blank" rel="noopener noreferrer">hindered possibilities for exporting goods</a>, including agricultural products, and for importing things like fertilizer and animal feed. Trade in services plummeted as people stopped moving and spending, and tourism collapsed in countries like Kenya where incomes are especially dependent on spending by tourists.

However, from these difficulties, layered on top of effects from climate change, new behaviors are emerging in various parts of Africa. Some farmers have decided to shift to organic production practices like agroecology and raising chicken and pigs using only farm-produced feed and farm waste, saving on expensive imported inputs. Similarly, farmers unable to export have increased selling locally in neighboring towns, expanded direct selling along major roads, or began selling <a href="https://blogs.lse.ac.uk/africaatlse/2020/06/19/what-strategies-do-traders-use-food-survive-covid19-lockdown-kampala/" target="_blank" rel="noopener noreferrer">door-to-door</a> where possible. Others are leveraging <a href="http://www.xinhuanet.com/english/2020-05/27/c_139092514.htm" target="_blank" rel="noopener noreferrer">digital approaches</a>, including e-commerce platforms, social media, and mobile payments. In short, because of COVID restrictions, many farmers in Africa adopted organic, sustainable, and digital agriculture practices.
<blockquote>Because of COVID restrictions, many farmers in Africa adopted organic, sustainable, and digital agriculture practices.</blockquote>
Many people in Africa also changed their consumption habits, switching to local producers for vegetables, meats, and other staples. Circular economy trends <a href="https://www3.weforum.org/docs/WEF_Five_Big_Bets_for_the_Circular_Economy_in_Africa_2021.pdf" target="_blank" rel="noopener noreferrer">appeared in a wide range of sectors</a> – including agri-food, textiles, fashion, electronics – and also in packaging. Consumers are also <a href="https://www.africa.com/covid-19-increases-brand-sustainability-awareness-shifts-consumer-behaviour-in-sub-saharan-africa/" target="_blank" rel="noopener noreferrer">moving towards sustainable brands</a>, thanks both to heightened awareness of climate effects and to experiences in lockdowns. Surprisingly, the African response to COVID has been to adopt more sustainable norms and practices in agriculture and consumption – a fascinating resilience outcome.

Another substantial trend evident in these times of security crises and risks is <a href="http://cdn-odi-production.s3-website-eu-west-1.amazonaws.com/media/documents/ODI-YFLP-Youth-led_digital_innovation_and_resilience_during_Covid-19-13AugFinal.pdf" target="_blank" rel="noopener noreferrer">high rates of youth entrepreneurship</a>. This is occurring across the social spectrum –among youth from both rural and urban communities, as well as those with diplomas and those who did not finish school. Youth are choosing not to migrate and instead are staying put and creating non-traditional businesses and entering new types of apprenticeships, such as small enterprises in agriculture transforming crops or raw materials, and in <a href="https://www.forbes.com/sites/davidrvetter/2021/12/14/meet-the-african-green-entrepreneurs-showing-the-west-how-its-done/?sh=7b03d50551cb" target="_blank" rel="noopener noreferrer">green economy enterprises</a> such as renewable energy, recycling, utilizing waste, or addressing pollution. This trend is strongly supported by national and local governments, as well as by civil society and corporate social responsibility initiatives, which are promoting and funding incubators and seed capital investments, as well as—in collaboration with MFIs and banks—credit guarantee mechanisms, all aimed at fostering the startup and scaling phases of the young enterprises of Africa’s increasingly entrepreneurial youth.

Africa has the world’s largest population share of youth and the potential is enormous. Often discussed, enhancing youth entrepreneurship has unfortunately seemed a somewhat quixotic policy quest for decades in Africa. But remarkably, the consensus at the Lehigh workshop was that this time the initiatives seem to be working and helping fulfill the aspirations of many young people to be autonomous and contribute to their communities and local economies. Additionally, many African <a href="https://www.afdb.org/en/news-and-events/press-releases/lionesses-business-confidence-report-speaks-high-levels-resilience-africas-leading-women-entrepreneurs-despite-covid-19-49847" target="_blank" rel="noopener noreferrer">women entrepreneurs</a> have proven to be very resilient and are growing their businesses due to COVID.
<h1><strong>Acceleration of Digital Inclusive Finance in Response to COVID</strong></h1>
The <a href="https://www.centerforfinancialinclusion.org/digitally-reshaping-inclusive-financial-services-in-the-wake-of-covid-19">digital revolution in inclusive financial services</a> is unquestionably progressing quickly throughout Africa in the wake of COVID, including West and Francophone Africa and rural areas that have been neglected until recently.

While financial access in Africa remains low, mobile penetration is high, <a href="https://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=ZG" target="_blank" rel="noopener noreferrer">exceeding 90 percent</a>. Due to COVID restrictions on mobility, mobile phones have been indispensable not only for communication but also for domestic and international remittances. Facing limited access to markets coupled with security risks in using cash for transactions, farmers, cooperatives, and food processing companies accelerated their embrace of <a href="https://www.brookings.edu/blog/africa-in-focus/2021/08/16/digital-technology-and-african-smallholder-agriculture-implications-for-public-policy/" target="_blank" rel="noopener noreferrer">digital marketplace platforms</a>. Survey evidence suggests that most African micro and small enterprises did too which <a href="https://fbj.springeropen.com/articles/10.1186/s43093-022-00154-4" target="_blank" rel="noopener noreferrer">improved their financial resilience</a>. Banks and MFIs throughout Africa also are going digital and embracing “<a href="https://thecalabashnewspaper.com/afrimoney-gtbank-launch-bank-to-wallet-wallet-to-bank-promotion/" target="_blank" rel="noopener noreferrer">bank to wallet, and wallet to bank</a>” transactions and agency banking. Many banks and MFIs are teaming up to deliver financial services jointly or as agents to <a href="https://www.brookings.edu/blog/africa-in-focus/2021/12/14/mobile-financial-services-can-increase-impacts-of-microfinance-organizations-but-the-story-is-more-complicated-than-we-think/" target="_blank" rel="noopener noreferrer">deepen outreach to clients and improve cost efficiency</a> – for example by reducing the need to operate separate branches everywhere. Governments have also gone more digital by ramping up <a href="https://www.worldbank.org/en/results/2021/04/13/prioritizing-the-poorest-and-most-vulnerable-in-west-africa-togo-s-novissi-platform-for-social-protection-uses-machine-l" target="_blank" rel="noopener noreferrer">mobile money transfers from social protection programs</a> during COVID.

Moving beyond financial services, agricultural value chains are rapidly leveraging the high mobile penetration by also digitizing delivery services, distribution channels, electronic learning, and messaging at scale to reach out to remote populations (e.g., for health, financial education, agricultural practices, prices, weather warnings), enhancing inclusion and informed decision making.
<h1><strong>Financial Inclusion’s Green Future in Africa</strong></h1>
The African MFI leaders at the workshop reflected on how their clients fared through the pandemic and other recent crises. Uniformly, they agreed clients responded with <a href="https://www.centerforfinancialinclusion.org/does-financial-inclusion-boost-borrowers-resilience-three-lessons-from-the-pandemic">resilience</a>, innovative abilities to adapt, and incredible capacities to seize opportunities to not just recover but even advance. As such, African MFIs must follow the dynamics of their clients and deliver products and services that fit customers’ new needs. Client centricity is essential to meet client needs but is also a key element of client protection in light of <a href="https://www.cgap.org/sites/default/files/publications/slidedeck/2022_02_Slide_Deck_DFS_Consumer_Risks.pdf" target="_blank" rel="noopener noreferrer">heightened risks for digital finance consumers</a>.

Financial institutions also need to better understand the market intricacies and client opportunities in the green (micro)economy and develop financial products accordingly, partnering with those who can deliver services and technical advice to assist the transformation. Working towards an ecosystem approach to deliver <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks">green inclusive financial services</a> in an efficient, secured, synergetic, and sustainable manner will be the way forward.
<blockquote class="pullquote--left">Working towards an ecosystem approach to deliver green inclusive financial services in an efficient, secured, synergetic, and sustainable manner will be the way forward.</blockquote>
Green inclusive finance ecosystem platforms will surely develop in Africa. However for that to happen, the impact investing sector and climate finance will need to collaborate, which would be a giant step forward as the two sectors have largely ignored the other for the last decade. Impact investors will need to learn how to invest in the green microeconomy as a mainstream target. In parallel, climate finance—so far largely directed elsewhere—will have to understand that unless communities, especially the most vulnerable among them, benefit significantly from environmental rehabilitation, preservation, and protection of biodiversity, sustainable development is not possible.

In Africa, impact investment remains an emerging sector, focused—rightly so—on financial inclusion and agriculture. Climate finance and green inclusive finance are at infant stages. Supporting, from the funding side, post-COVID initiatives from youth and local communities in climate adaptation, will be the next challenge and opportunity for Africa. And inclusive finance stakeholders should play significant roles in close partnership with others in that ecosystem.

The African inclusive finance leaders at the Lehigh workshop collectively sent a very positive and energetic message to their peers. During these crisis times, clients in Africa have shown high levels of resilience and of capacity to overcome. They have developed innovative strategies in the green economy. Financial institutions should accompany them by being client centric in product and service development, in using digital delivery channels, and in working as a collaborative ecosystem to manage new digital risks and protect customers. Africa is a vulnerable continent in the face of climate change, but it can be the most resilient one if we act together.

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<em>The authors were panelists at the Lehigh University workshop and this note is the result of workshop discussions and subsequent analysis. Participating leaders from African MFIs included Anne Marie Chidzero, Chief Investment Officer at FSD Africa Investements, Kimanthi Mutua, founder of KREP, the first microfinance institution in Africa to be transformed into a full-fledged commercial bank, now named SIDIAN Bank where Kimanthi has been CEO and remains a board member, and Pierrette Kouakou, Managing Director of FIN’ELLE in Cote D’Ivoire. Views expressed are the authors’ and not necessarily those of other participants.</em>

Post-COVID Crisis & Opportunity in African Inclusive Finance

SMEs in agriculture play a critical role in developing the sector by creating employment, facilitating market access for farmers, and providing inputs, credit, and training for smallholder farmers. However, the <a href="https://isfadvisors.org/wp-content/uploads/2022/04/ISF_AgriSME-Finance-state-of-the-sector-report.pdf" target="_blank" rel="noopener noreferrer">gap in financing to agricultural SMEs</a> is estimated to be billions of dollars and no single actor can bridge this massive gap alone. To help address this, ten years ago a group of seven impact lenders -- Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investment AG, Root Capital, Shared Interest Society, and Triodos Investment Management – formed the <a href="https://csaf.org/" target="_blank" rel="noopener noreferrer">Council on Smallholder Agricultural Finance (CSAF)</a> with the goal to expand finance to agriculture businesses that operate in developing countries by creating a platform for like-minded lenders to convene on a regular basis to share data, learning, and experiences on agriculture finance.
<blockquote class="pullquote--right">CSAF aims to improve the livelihood of smallholder farmers and promote environmentally sustainable practices by financing agricultural SMEs.</blockquote>
Today, the CSAF alliance includes 17 lending institution members and affiliates. Since 2013, they have collectively lent over <a href="https://csaf.org/wp-content/uploads/2022/07/CSAF_State_of_Sector_2022.pdf" target="_blank" rel="noopener noreferrer">$5.5B to 1,546 enterprises</a>, reaching 6 million farmers across 81 countries. Aiming to improve the livelihoods of smallholder farmers and promote environmentally sustainable practices by financing agricultural SMEs, CSAF members are impact-driven lenders that prioritize social and environmental impact over financial return by investing in higher-risk, high-impact enterprises.  As CSAF members’ lending meets only a small share of the overall financing demand of agri-SMEs, CSAF’s role in promoting industry standards and best practices aims to engage a wider set of stakeholders to build a more inclusive and impactful finance market that can help bridge the finance gap for agri-SMEs.

In 2014, CSAF members and affiliates began reporting portfolio and client data. CFI has partnered with CSAF since 2020 to collect and analyze data, in an effort to present insights on the landscape of agricultural SME finance. The results from the annual survey are shared in a published <a href="https://csaf.org/csaf-publications/" target="_blank" rel="noopener noreferrer">report</a> and data is made publicly available in the <a href="https://data.csaf.org/" target="_blank" rel="noopener noreferrer">CSAF Data Portal</a>.

Of the takeaways from the <a href="https://csaf.org/publications/2022-state-of-the-sector/" target="_blank" rel="noopener noreferrer">2022 State of the Sector report,</a> CFI found the following four to be particularly relevant as we look to the future of agriculture finance. While focusing on overall trends, the insights zoom in on developments in Sub-Saharan Africa.
<h3><strong>1. Sub-Saharan Africa represented a growing share of lending, as CSAF annual disbursements to agricultural SMEs reached peak levels in 2021. </strong></h3>
Lending to agricultural SMEs in 2021 grew by 35 percent from 2020 – perhaps unsurprising given that CSAF lenders contracted their disbursements in 2020 due to COVID-19 restrictions, marking a growth in disbursements by 18 percent from 2019 pre-pandemic levels. Since 2013 (the year when CSAF members began to report data), annual disbursements have more than doubled, but the increase has not been gradual.

Sub-Saharan Africa saw the greatest increase in disbursements between 2013 and 2021 (+$199M), followed by Central America (+$105M), South America (+$69M), and South &amp; East Asia (+$45M). In 2021, following a five-year trend, Sub-Saharan Africa received the majority of annual disbursements (36 percent), with Cote d'Ivoire accounting for 40 percent of regional disbursements, followed by Kenya, Uganda and Rwanda.

<img class="wp-image-44977 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-01-e1660328284507.png" alt="" width="776" height="550" />
<h3><strong>2. Lenders focused on serving existing borrowers and faced challenges finding new investment-ready borrowers. </strong></h3>
In 2021, the number of total borrowers declined from 654 agricultural SMEs in 2020 to 641 in 2021, marking an increase of only 13 percent from 2013 to 2021. New client origination remained low in past years, indicating that lenders have focused their attention on existing borrowers, which accounted for 90 percent of total borrowers. CSAF members face challenges in serving first-time borrowers, who are often riskier and require smaller, less-profitable loans that do not allow lenders to operate within their risk-return models.

<img class="wp-image-44978 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-02-e1660328485632.png" alt="" width="826" height="525" />While experiencing a slight decline in 2021 from 2020, Sub-Saharan Africa reported the most borrowers (47 percent of all CSAF member borrowers), spread across 21 countries. In the past 4 years, Sub-Saharan Africa also experienced the highest borrower turnover – with almost the same number of exiting borrowers as entering, but also the highest number of new borrowers.
<h3><strong>3. Financing to cash-crop value chains (coffee and cocoa) accounted for over 70 percent of disbursements, despite prior attempts to diversify into other crops. </strong></h3>
In 2021, CSAF lenders increased coffee disbursements by 40 percent, in response to increased demand for financing associated with rising coffee prices. Since 2013, coffee has been the most financed commodity by CSAF members, with a high concentration in South and Central America. Attempts to diversify away from coffee and cocoa between 2013 and 2017 were met with increased portfolio-at-risk and lenders returned to expanding financing growth in less-risky coffee and cocoa sectors.

Disbursements to cocoa, the second most financed crop, increased by 36 percent in 2021, driven primarily by growth in Cote d’Ivoire and Ghana. Sub-Saharan Africa is the most diverse region in terms of crops financed, as only 62 percent of 2021 regional disbursements went to coffee and cocoa, compared to 83 percent and 94 percent in South America and Central America, respectively. However, there is still concentration in the region; the increase in cocoa disbursements in Cote d'Ivoire accounted for 45 percent of the regional increase and came primarily because of a few borrowers receiving larger loans.

<img class="wp-image-44979 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-03-e1660328543415.png" alt="" width="824" height="522" />
<h3><strong>4. Normalized portfolio quality improved as write-offs and restructured loans remained high.</strong></h3>
In 2021, portfolio-at-risk greater than 30 days (PAR30) dropped to 7.4 percent, from 8.1 percent in 2020 value. However, trends differ by loan size and region. PAR30 doubled for loans less than $250K and fell for loans larger than $2M+, with PAR30 for loans less than $250k increasing mostly in Sub-Saharan Africa.

While PAR30 declined, the overall share of outstanding write-offs was 6 percent, with the largest share of write-offs coming from Sub-Saharan Africa. This is an indication of old loans being written off from the data set and a possibility that risk associated with COVID-19 challenges or other events is not yet reflected in the data.

When we asked CSAF members to indicate the reasons for loan delinquency, they tend to highlight factors specific to the enterprises, such as management capacity. However, they also emphasize that these challenges are amplified by uncertainty and volatility in the operating environment, particularly related to climate, market, and political factors.

<img class="wp-image-44980 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-04-e1660328587658.png" alt="" width="816" height="463" />
<h1>Joining Forces to Contribute to the Sector</h1>
After a few years of data collection, CSAF members realized that while market demand was high, it was difficult to meet. The data confirmed that despite the intentions of the group to meet the finance demand of many agricultural SMEs in developing markets, CSAF lenders increasingly served existing borrowers active in cash-crop value chains through short-term trade finance products at larger loan sizes ($500K+), to ensure impact while maintaining lenders’ financial sustainability.

After several discussions on challenges to serve earlier-stage agricultural businesses with lower loan-size requirements and working in less-developed value chains, CSAF members recognized that they were facing similar constraints. After conducting a <a href="https://www.agrilinks.org/sites/default/files/usaid_-_csaf_financial_benchmarking_final_learning_report.pdf" target="_blank" rel="noopener noreferrer">CSAF financial benchmarking study</a> that demonstrated the elevated risks and lower returns of serving this “missing middle” agricultural SME segment, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> was created as an innovative approach aiming to bridge the finance gap for agri-SMEs in East Africa by incentivizing lenders to serve higher-risk market segments while amplifying impact. This is a clear testimony of CSAF's aim to facilitate dialogue and shift lending behavior among lending practitioners, mobilize stakeholders to develop new solutions that serve excluded agri-SMEs, and engage the broader industry in bringing these solutions to scale.
<blockquote>This is a clear testimony of CSAF’s aim to facilitate dialogue among lending practitioners, mobilize stakeholders to develop new solutions that serve excluded agri-SMEs, and engage the broader industry in bringing these solutions to scale.</blockquote>
In addition to finding new approaches to serve agri-SMEs, CSAF lenders have made progress in tracking impact through aligning on standardized social and environmental impact metrics focused on farm- and enterprise-level practices. However, given the impact of climate change on the livelihoods of smallholder farmers and the importance of climate finance, lenders recognize the urgency for the development of new climate-focused solutions to advance green finance initiatives.

A Decade of Shared Learnings on Agriculture Finance: What Does the Data Tell Us?

As you drive into Quetzaltenango, the largest city in Guatemala’s western highlands, you pass a large statue. The migrant depicted in "Homage to the Migrant of Salcaja"<em> </em>(the name of the local municipality) stands 30 meters high, wears a backpack, and faces north. The statue pays tribute to the thousands of Guatemalan migrants who, despite the risks and the costs, have left this corner of the country to seek opportunities elsewhere.

The number of international migrants from Guatemala tripled from nearly <a href="https://www.un.org/development/desa/pd/content/international-migrant-stock" target="_blank" rel="noopener noreferrer">462,000 to almost 1.4 million people</a> between 1995 and 2020. A recent survey shows that in 2021, <a href="http://migration.mit.edu/" target="_blank" rel="noopener noreferrer">43 percent of Guatemalan households expressed the desire to migrate</a>, five times the percentage in 2019. Among the reasons for this – food insecurity, unemployment, and desire to send remittances home – one that underlines and exacerbates these issues is climate change.
<blockquote class="pullquote--right">People who are already marginalized tend to experience a greater impact from climate-related events.</blockquote>
The effects of climate change are not felt equally, and people who are already marginalized – such as women, low-income populations living in rural areas, indigenous groups, and smallholder farmers – tend to experience a greater impact from climate-related events.  The impact of climate change is growing and Guatemala is particularly affected because of its dependence on agriculture. In 2018, a <a href="https://www.wfpusa.org/news-release/erratic-weather-patterns-in-the-central-american-dry-corridor-leave-1-4-million-people-in-urgent-need-of-food-assistance/" target="_blank" rel="noopener noreferrer">delay in the rainy season in the Central American Dry Corridor</a> – spanning El Salvador, Guatemala, Honduras, and Nicaragua – damaged 70 percent of subsistence farmers’ first harvest and ruined 50 percent of their second harvest. <a href="https://publications.iadb.org/publications/spanish/document/BIDeconomics_Guatemala_Crecer_m%C3%A1s_y_para_todos_es_es.pdf" target="_blank" rel="noopener noreferrer">Agriculture employs more than 70 percent of the rural population in Guatemala</a>, and because of increased temperatures and shifts in the rainy season, thousands have been forced to leave their homes as they are unable to feed their families.

Guatemalan migrants are predominantly from rural areas – the same areas that have been highly impacted by climate-related disasters. The share of international migrants from <a href="https://blogs.worldbank.org/jobs/migrating-better-life-why-better-jobs-are-key-helping-youth-prosper-home-guatemala" target="_blank" rel="noopener noreferrer">rural areas in Guatemala is twice that of urban areas</a>, and most migrants from Guatemala to the U.S. are from the western highlands, motivated to leave because of natural disasters such as the droughts of 2014, 2015, and 2018. This is true across the region: evidence from Mexico suggests that rising temperatures and weather shocks associated with <a href="https://academic.oup.com/ej/article/128/608/230/5068979" target="_blank" rel="noopener noreferrer">climate change increased the likelihood of internal migration</a> from rural areas to urban areas as well as international migration.

The populations most impacted by climate change also tend to be financially vulnerable: 60 percent of rural Guatemalans say they would be unable to come up with emergency funds. Only <a href="https://publications.iadb.org/publications/spanish/document/BIDeconomics_Guatemala_Crecer_m%C3%A1s_y_para_todos_es_es.pdf" target="_blank" rel="noopener noreferrer">10 percent of the loans</a> offered by Guatemalan financial institutions are dedicated to agriculture and just a fraction of that is invested in adaptive practices to respond to climate change. So how can financial services work better for these climate-vulnerable populations?
<h1><strong>Remittances Help Families Make Ends Meet But Are Not the Full Answer</strong></h1>
Between 2000 and 2020, <a href="https://databank.worldbank.org/reports.aspx?source=2&amp;series=BX.TRF.PWKR.DT.GD.ZS&amp;country=GTM" target="_blank" rel="noopener noreferrer">remittances exploded from 3 to 14.7 percent of GDP</a> in Guatemala and represented seven times the average in Latin America and the Caribbean in 2020. Three in 10 Guatemalan households <a href="http://migration.mit.edu/assets/mpi-wfp-mit_migration-motivations-costs_final.pdf" target="_blank" rel="noopener noreferrer">receive remittances with an average monthly amount of $350</a>, according to the most recent data published in 2020. Recipients are <a href="https://publications.iadb.org/publications/spanish/document/La-poblaci%C3%B3n-receptora-de-remesas-en-Guatemala-Un-an%C3%A1lisis-de-sus-caracter%C3%ADsticas-socioecon%C3%B3micas.pdf" target="_blank" rel="noopener noreferrer">disproportionately rural</a> and most are located in the north and western highlands of Guatemala.

[caption id="attachment_44509" align="aligncenter" width="8000"]<img class="wp-image-44509 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/05/Personal-remittances-graph-1_Mesa-de-trabajo-1.jpg" alt="" width="8000" height="4500" /> Data: World Bank. DataBank, World Development Indicators (2021)[/caption]

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Remittances from migrants are a critical source of income for many families in Guatemala and are relied on to cover food expenses (57 percent), education (10 percent), or household construction (8 percent). Among the <a href="https://publications.iadb.org/publications/spanish/document/La-poblaci%C3%B3n-receptora-de-remesas-en-Guatemala-Un-an%C3%A1lisis-de-sus-caracter%C3%ADsticas-socioecon%C3%B3micas.pdf" target="_blank" rel="noopener noreferrer">remittance recipients in Guatemala</a>, a large share are women (69 percent), live in or are at risk of poverty (88 percent), and have attained primary education or less (77 percent). However, only <a href="https://www.cepal.org/sites/default/files/a2020-07-22-ude-strategies-inversion-remfam-cv-guat-eng.pdf" target="_blank" rel="noopener noreferrer">3 percent of recipients use remittances to invest</a>.

In a country where the <a href="https://publications.iadb.org/publications/english/document/LAC-Post-COVID-19-Challenges-and-Opportunities-for-Central-America-Haiti-Mexico-Panama-and-the-Dominican-Republic.pdf" target="_blank" rel="noopener noreferrer">losses in agriculture due to natural disasters were around $2.4 billion</a> between 1992 and 2011, and where migrants <a href="http://migration.mit.edu/" target="_blank" rel="noopener noreferrer">spent $1.2 billion dollars to travel</a> to the U.S. in 2021, there are opportunities to encourage Guatemalans to use their remittances to invest in forward-looking practices that build resilience to climate change. Financial services are needed that channel remitted funds into investments in sustainable agriculture and support forest-based livelihoods, while putting women at the center given they are the primary recipients of remittances. While remittances can be a key tool for resilience and risk management, <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks">there is also a role for them to support adaptation,</a> by linking diaspora funds to investments in climate-smart agriculture and sustainable rural enterprises.
<blockquote>Remittances can support adaptation as well as resilience and risk management.</blockquote>
In Guatemala, <a href="https://www.dgrv.coop/es/project/guatemala-2/" target="_blank" rel="noopener noreferrer">325 out of more than 1000 cooperatives provide savings and credit services</a> and focus on MSMEs, particularly small-holders. We believe financial services have a key role to play in supporting resilience, through products like insurance and informal social support systems that build on Guatemala’s strong cooperative movement. Financial services also play a critical role in underpinning a just transition for rural populations. One example of this is the Guatemalan government’s social protection initiatives <a href="https://www.inab.gob.gt/index.php/component/content/article/112-servicios/183-pinpep?Itemid=437" target="_blank" rel="noopener noreferrer">Pinpep</a> and <a href="https://www.inab.gob.gt/images/servicios/probosque/foliares/foliar-sitios-sagrados.pdf" target="_blank" rel="noopener noreferrer">Probosque</a> schemes that provide financial incentives for tree-planting and reforestation. CFI is working with The Nature Conservancy and other partners to explore these issues.<strong> </strong>
<h1><strong>Imagining a Constructive Role for Financial Services</strong></h1>
As far as we know, the <em>Migrant of Salcajá </em>isn’t a real person but rather a representation of the thousands who have made the treacherous journey. To make the trip north, the migrant is likely to have informally borrowed up to $17,500 to pay smugglers, known in Guatemala as “coyotes”. If the migrant reaches the U.S. border and finds work, it can take time to find the funds to repay the debt. And if the migrant doesn’t reach the U.S., they remain indebted. The combination of lack of economic opportunity and predatory moneylending can lead to dangerous debt traps.
<blockquote class="pullquote--left">Imagine if the money flowing back from the current generation of migrants could change the incentives for the next generation, encouraging them to stay and build climate-resilient livelihoods.</blockquote>
But imagine if Guatemala’s financial system offered the services needed to invest in resilient rural livelihoods, to adapt to changing climatic conditions, and to diversify into new opportunities in agro-processing. Imagine if the money flowing back from the current generation of migrants could change the incentives for the next generation, encouraging them to stay and build climate-resilient livelihoods. There is a long way to go, but it is increasingly clear that improving the way that financial services work for Guatemala’s smallholders has a role to play in the dual challenges of climate change and migration.

Rural, Poor, and Pressured by Climate Change: Migration and Financial Inclusion in Guatemala’s Western Highlands

<span class="TextRun SCXW88391900 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW88391900 BCX0">Hanh Nguyen is thrilled! Recently, an international organization introduced a new </span><span class="NormalTextRun SCXW88391900 BCX0">climate-smart </span><span class="NormalTextRun SCXW88391900 BCX0">seeder technology for rice production in his village. The seeder </span><span class="NormalTextRun SCXW88391900 BCX0">i</span><span class="NormalTextRun SCXW88391900 BCX0">s less resource-intensive</span><span class="NormalTextRun SCXW88391900 BCX0"> and will </span><span class="NormalTextRun SCXW88391900 BCX0">improve yields while </span><span class="NormalTextRun SCXW88391900 BCX0">allow</span><span class="NormalTextRun SCXW88391900 BCX0">ing </span><span class="NormalTextRun SCXW88391900 BCX0">farmers to plant </span><span class="NormalTextRun SCXW88391900 BCX0">rice more quickly</span><span class="NormalTextRun SCXW88391900 BCX0">. While Hanh and </span><span class="NormalTextRun SCXW88391900 BCX0">the other men farmers in the village</span><span class="NormalTextRun SCXW88391900 BCX0"> are celebrating their good fortune, his neighbor, Linh Bui</span> <span class="NormalTextRun SCXW88391900 BCX0">— a</span><span class="NormalTextRun SCXW88391900 BCX0">n agricultural laborer and</span><span class="NormalTextRun SCXW88391900 BCX0"> single mother of four, is extremely worried. Cultural restrictions and childcare responsibilities restrict her from venturing out of the </span><span class="NormalTextRun SCXW88391900 BCX0">village</span> <span class="NormalTextRun SCXW88391900 BCX0">seeking work</span><span class="NormalTextRun SCXW88391900 BCX0">,</span><span class="NormalTextRun SCXW88391900 BCX0"> and she relies on the income she makes working in the rice fields</span><span class="NormalTextRun SCXW88391900 BCX0">.</span> <span class="NormalTextRun SCXW88391900 BCX0">Th</span><span class="NormalTextRun SCXW88391900 BCX0">e</span><span class="NormalTextRun SCXW88391900 BCX0"> new technology </span><span class="NormalTextRun SCXW88391900 BCX0">will </span><span class="NormalTextRun SCXW88391900 BCX0">reduce the need for wage laborers in rice transplanting, and Linh </span><span class="NormalTextRun SCXW88391900 BCX0">will no longer</span><span class="NormalTextRun SCXW88391900 BCX0"> have</span> <span class="NormalTextRun SCXW88391900 BCX0">an income. </span><span class="NormalTextRun SCXW88391900 BCX0">How </span><span class="NormalTextRun SCXW88391900 BCX0">will</span> <span class="NormalTextRun SCXW88391900 BCX0">she </span><span class="NormalTextRun SCXW88391900 BCX0">now </span><span class="NormalTextRun SCXW88391900 BCX0">provide for her family?</span></span>

<span data-contrast="auto">As the story above illustrates, </span><a href="https://agrilinks.org/post/lessons-farming-households-agricultural-decision-making-and-shifting-social-norms-womens" target="_blank" rel="noopener noreferrer"><span data-contrast="none">development programs and processes often impact men and women differently.</span></a> <span data-contrast="auto">Social and cultural norms negatively impact women smallholder farmers, but there are numerous ways that organizations can design programs to work for both low-income men and women. Integrating</span> <a href="https://www.cgap.org/research/publication/social-norms-change-womens-financial-inclusion" target="_blank" rel="noopener noreferrer"><span data-contrast="none">norms-aware and norms-transformative approaches</span></a><span data-contrast="auto"> in climate and agriculture programs can shift existing power dynamics and ensure equitable developmental outcomes for low-income men and women.</span>

<span data-contrast="auto">We highlight innovative approaches that organizations are taking to address norms barriers, reach smallholder women, and provide them with information and capital</span><span data-contrast="auto"> – </span><span data-contrast="auto">two critical impediments that prevent them from adopting climate-smart productive agricultural investments. Funders, policymakers, and providers can consider these insights as they invest in and design policies and solutions that integrate women smallholders in climate-smart agriculture.</span>

<img class="alignnone size-full wp-image-44432" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/05/Screen-Shot-2022-05-04-at-2.38.29-PM.png" alt="" width="2520" height="1476" />
<h1><span class="TextRun MacChromeBold SCXW84918696 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun CommentStart SCXW84918696 BCX0">Despite </span><span class="NormalTextRun SCXW84918696 BCX0">the Feminization of Agriculture, </span><span class="NormalTextRun SCXW84918696 BCX0">Norms </span><span class="NormalTextRun SCXW84918696 BCX0">Interfere w</span></span><span class="TextRun MacChromeBold SCXW84918696 BCX0" lang="EN-US" xml:lang="EN-US" data-contrast="auto"><span class="NormalTextRun SCXW84918696 BCX0">ith Women’s Adoption of Climate-Smart Agriculture</span></span></h1>
Evidence from the <a href="https://www.gfdrr.org/sites/default/files/publication/gender-equality-disaster-recovery.PDF" target="_blank" rel="noopener noreferrer">World Bank</a>, <a href="https://www.fao.org/climate-smart-agriculture-sourcebook/enabling-frameworks/module-c6-gender/chapter-c6-1/en/" target="_blank" rel="noopener noreferrer">Intergovernmental Panel on Climate Change</a>, and others suggest that men and women experience the ramifications of climate change hazards differently due to their socially constructed roles and responsibilities. As Joanna Ledgerwood and Mayada El-Zoghbi pointed out in a <a href="https://www.centerforfinancialinclusion.org/the-pandemic-wake-up-call-gender-norms-matter-in-financial-inclusion/" rel="noopener noreferrer">recent blog post</a>, gendered roles — and the underlying social norms that influence them — are the <a href="https://www.centerforfinancialinclusion.org/normative-constraints-to-womens-financial-inclusion-what-we-know-and-what-we-need-to-know">invisible guardrails</a> dictating acceptable behavior, the division of labor, allocation of resources, and decisions about adopting new technologies, including climate-smart agricultural practices that can help low-income households build resilience against climate extremes.

Because of cultural and social norms, men and women smallholders have different roles and responsibilities, which in turn impact decisions related to agricultural investments and crop selection. For example, men typically prioritize cash crops for commercial gains, while women, who are likely to be <a href="https://link.springer.com/chapter/10.1007/978-3-319-25718-1_11" target="_blank" rel="noopener noreferrer">subsistence farmers</a>, tend to pay more attention to crop’s cooking time and potential for consumption, food security, and cattle feed. Furthermore, due to normative roles, women farmers tend to be the ones who consider potential water contamination risks from herbicides, as it is their responsibility to fetch freshwater (often needing to travel long distances to find safe water) and care for sick family members.
<blockquote class="pullquote--right">Women’s role in agriculture is significantly undervalued and women smallholders have limited access to land, assets, inputs, advisory services, and post-harvest technologies.</blockquote>
While these norms have been in place for years, increasingly, men <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/9104/WDR2008_0020.pdf?sequence=1&amp;isAllowed=y" target="_blank" rel="noopener noreferrer">are migrating for extended periods to seek off-farm opportunities</a> and women are playing a larger role in both on-and off-farm activities. However, despite accounting for <a href="https://documents1.worldbank.org/curated/en/855471513670397514/pdf/Mobile-technologies-and-digitized-data-to-promote-access-to-finance-for-women-in-agriculture.pdf" target="_blank" rel="noopener noreferrer">approximately 43 percent of agricultural labor in the developing world</a>, women’s role in agriculture is significantly undervalued. Women smallholders have limited access to land, assets, inputs, advisory services, and post-harvest technologies. They are also less likely to be <a href="https://www.researchgate.net/publication/237415255_Investing_in_Women_as_Drivers_of_Agricultural_Growth" target="_blank" rel="noopener noreferrer">connected to commercial agribusiness supply chains</a>. Gendered differences in <a href="https://cgspace.cgiar.org/bitstream/handle/10568/65680/Gender%20and%20Institutions%20Working%20Paper%2079.pdf?sequence=1&amp;isAllowed=y" target="_blank" rel="noopener noreferrer">awareness of the effects of climate change and adoption of climate-smart agriculture practices</a> to mitigate such risks further leave women behind. According to <a href="https://news.un.org/en/story/2011/03/368252-women-could-feed-millions-more-people-if-given-access-means-production-un" target="_blank" rel="noopener noreferrer">FAO’s estimates</a>, if men and women had equal access to productive resources, total agricultural productivity would rise by 20 to 30 percent and reduce global hunger by at least 12 to 17 percent.

Norms change is a complex and dynamic process that requires unlearning and relearning at the household, community, and national levels. To begin changing norms, programs must be designed with a gender lens. Solutions that focus only on access, delivery, or technological innovations – without explicitly accounting for the socio-economic and institutional contexts and gender disparities – can fail to achieve desired outcomes. For example, providing women with land tenure – often considered one of the biggest barriers for women smallholders – is insufficient by itself. Even if women smallholders are given <a href="https://link.springer.com/article/10.1007/s10460-021-10277-z" target="_blank" rel="noopener noreferrer">property rights</a>, they will need access to information, finance, markets, and decision-making powers to be able to leverage these rights into economic benefits. Even when women have property rights, traditional and cultural practices often require them to forfeit their rights to male relatives. Given these risks, women smallholders often lack the incentive to invest in improved climate-smart farming practices or commercially lucrative crops.

Gender-neutral or gender-blind solutions, such as the rice seeder example, often have unintended negative ramifications on the livelihoods of women like Linh because they fail to consider women’s role as caregivers and the unique contexts in which they live. So how do we address these norms barriers and support women smallholder farmers?
<h1>Delivering Training and Information to Reach Women Farmers</h1>
To begin with, we must focus on ensuring that women have equal access to information so they can make agricultural investments, access markets, and improve their wellbeing. Access to information is one of the biggest constraints women smallholders face. Traditional extension and advisory services often follow established practices that reinforce existing gender biases related to knowledge sharing and distribution of labor. Women smallholders with low literacy levels are therefore excluded from technical training covering seed variants, fertilizer use, feedstock, or new machinery and mechanized systems. On the rare occasion when women participate, they often need more time to learn and adapt because they are beginning from a lower baseline capability. This added cost of learning and adaptation can be a major deterrent that is often overlooked by development programs.
<blockquote class="pullquote--left">Access to information is one of the biggest constraints women smallholders face.</blockquote>
Furthermore, women face mobility restrictions and gender norms often dictate that women can’t attend male-led trainings in public spaces. Equipped with this understanding of gendered differences in mobility, information, and capabilities, under MEDA’s INNOVATE program, <a href="https://www.meda.org/document/lessons-from-farming-households-agricultural-decision-making-and-shifting-social-norms-for-womens-economic-empowerment/" target="_blank" rel="noopener noreferrer">Krishi Utsho</a> – a social enterprise operated by CARE Bangladesh – offered home-based training to rural women who were unable to participate in the programs conducted in the Krishi Utsho shops.

Additionally, while many organizations are leveraging smartphones to offer training, extension services, and real-time weather and price information at scale, women risk being left behind. Women are <a href="https://www.centerforfinancialinclusion.org/workarounds-dont-work-gender-aware-financial-services-must-help-address-discriminatory-norms">8 percent</a> less likely than men to own a phone (the gap is even larger for smartphone ownership) and <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2020/05/GSMA-The-Mobile-Gender-Gap-Report-2020.pdf" target="_blank" rel="noopener noreferrer">20 percent less</a> likely to use mobile internet than men. Development organization programs such as Mercy Corps AgriFin (through its <a href="https://www.mercycorpsagrifin.org/2021/05/27/sprout-open-content-agriculture-platform-learning-launching-soon/" target="_blank" rel="noopener noreferrer">Sprout</a> platform) and <a href="https://m-shamba.net/" target="_blank" rel="noopener noreferrer">M-Shamba</a> are trying to address this barrier through one-stop content platforms on feature phones that produce audio content that mimics the format of radio shows popular among rural women.

Recognizing that trust is key for adoption, Amplio involved rural women from North Ghana in the design of its <a href="https://digitalprinciples.org/wp-content/uploads/PDD_CaseStudy-Amplio-v2-1.pdf" target="_blank" rel="noopener noreferrer">Talking Book</a> — a rugged, battery-powered device with pre-programmed infotainment content in local dialects that health and agricultural extension agents use to deliver information in hard-to-reach communities with limited electricity. Since the content is available offline, it is well-suited for women without a phone, allowing them to listen and learn together at their convenience and record their feedback. Amplio also collects usage statistics to understand user engagement and concerns and continually improve the content.
<h1>Embedding Norms Change Programming in the Delivery of Financial Services Can Improve Outcomes for Women</h1>
Group lending models promoted by the microfinance sector sought to address demand-side barriers women face, including mobility and collateral constraints. However, they failed to uproot the discriminatory gender norms at the source. As a result, low-income women became a vehicle for receiving and repaying loans with little or no control over their use. To get to the root causes of women’s exclusion, we must address the underlying power dynamics at the household and community level, and increase women’s control of resources.
<blockquote class="pullquote--right">Low-income women became a vehicle for receiving and repaying loans with little or no control over their use.</blockquote>
There are some promising approaches to embedding norms change programming to get to the root cause of women’s exclusion from the financial system. In Nepal, many men are migrating, leaving women in rural communities to fend for themselves. Under the prevailing social norms, women lack the knowledge, capabilities, or networks to partake in climate-smart agricultural investments, and their social networks are limited to include only other women with similar backgrounds. To address these barriers, <a href="https://www.meda.org/document/lessons-from-farming-households-agricultural-decision-making-and-shifting-social-norms-for-womens-economic-empowerment/?wpdmdl=4237&amp;refresh=6256d21127f2f1649857041" target="_blank" rel="noopener noreferrer">International Development Enterprises (iDE)</a> trained and engaged women community agents to help women-headed households access information and financial services that would enable them to invest in climate-smart technologies. These networks and agents were trusted intermediaries, allowing women and men in the community to support the initiative. The program offered bundled agricultural credit, insurance, and inputs to help women invest in climate-smart technologies.

In another case, <a href="https://www.meda.org/document/lessons-from-farming-households-agricultural-decision-making-and-shifting-social-norms-for-womens-economic-empowerment/" target="_blank" rel="noopener noreferrer">Bidhaa Sasa</a>, a last-mile finance and distribution company in Kenya, researched the household decision-making process, needs, and constraints of women smallholders. They learned that rural women in Kenya prioritized items that met their household needs and agricultural tools. Using these learnings, Bidhaa Sasa chose to leverage the group lending model to disseminate information and sell essential goods and agricultural innovations. Because top-performing women customers gave the product demonstrations, Bidhaa Sasa circumvented norms barriers and earned the trust of women smallholders.

These examples suggest that models that consider community and household dynamics and the needs and constraints of women smallholders during product design can increase relevancy and improve livelihood outcomes. However, more rigorous evaluations are needed to generate evidence on the long-term outcomes of these innovations.
<h1>Where We Go From Here</h1>
Unless we address the norms that limit women’s ability to benefit from the same tools and climate-smart agriculture practices that are available to men, women farmers will fall further behind. Norms-aware and norms-transformative approaches must be incorporated into climate-smart agriculture programs to ensure equitable developmental outcomes for low-income men and women. Stakeholder and gender analyses and customer research can shed light on local contexts and power structures, help us evaluate potential scenarios and tradeoffs, and support corrective measures to ensure that women and other marginalized segments are not harmed.
<blockquote>Unless we address the norms that limit women’s ability to benefit from the same tools and climate-smart agriculture practices that are available to men, women farmers will fall further behind.</blockquote>
Program designers, providers, and policymakers should critically examine who will be the direct user of the technology, who makes labor and resource allocation decisions, and who benefits from using the technology during the project conceptualization stage. And funders and researchers must support the testing of gender-transformative approaches in inclusive finance and incentivize providers to consider women and their contexts in the design and delivery of financial services. Only then will the inclusive finance sector live up to its promise of equitable outcomes for all.

<em>For more background on existing literature, see CFI's report <a href="https://www.centerforfinancialinclusion.org/normative-constraints-to-womens-financial-inclusion-what-we-know-and-what-we-need-to-know">Normative Constraints to Women’s Financial Inclusion: What We Know and What We Need to Know</a> (2021).</em>

Gender Norms On and Off the Farm: Engaging Smallholder Women in Finance and Climate-Smart Agriculture

A savings product helps pastoralists in northern Kenya smooth consumption during periods of drought. A microloan allows a woman in northern India to buy heat-reflecting white paint for her roof. An insurance policy from a fintech in Mali offers smallholder farmers insurance against increasingly unpredictable rainfall. A mobile money-linked clean cookstove allows a family in Zambia to reduce their exposure to harmful smoke. A combination of remittances and savings helps a family in Bangladesh that was forced to migrate due to rising sea levels.

While each of these is an example of a link between financial services and an aspect of climate change, there's little else tying them together. Customers are urban and rural. Financial service providers are old and new. Channels are analog and digital. Products relate directly and indirectly to climate change. The impacts of climate change are immediate and long-term.

But as the COP26 summit swings into action, one message is clear – climate change is going to affect everyone and in numerous ways.

When the financial sector development community talks about climate change and green finance, it tends to focus on the macro role of the financial sector in channeling investment to cleaner technologies and large-scale mitigation efforts. This is obviously critical, but what is the role of inclusive finance? How can we support the financial sector to work better for low-income people to improve their outcomes in the context of large-scale climatic risk as well as deteriorating localized environmental conditions?
<blockquote class="pullquote--right">We have mapped out a new way of thinking about green inclusive finance.</blockquote>
Putting a green lens on inclusive finance – or green inclusive finance – is one of CFI’s strategic priorities. Having studied various taxonomies at the overlap of the green economy and inclusive finance, we have mapped out a new way of thinking about green inclusive finance. These four distinct but interrelated pathways provide the framework for understanding how inclusive finance can help low-income populations prepare for and respond to climate change while improving green outcomes.
<h2>Mitigation</h2>
The poorest half of the world’s population only accounts for 10 percent of global CO2 emissions, and their carbon footprints are, in a global context, tiny. However, low-income communities are hit the hardest by climate-related disasters and environmental impacts resulting from climate change. Mitigation supports investments in cleaner technologies that can improve local environmental conditions for households and communities. For example, pay-as-you-go models for clean cookstoves can help reduce localized air pollution, and loans to build toilet facilities can reduce groundwater pollution.
<h2>Resilience</h2>
In this context, we think of resilience as the role financial services can play in low-income people’s ability to reduce their vulnerability to, and their ability to respond to, climate-related events. Index insurance, protecting people against extreme weather events, is an obvious example, but just as important is the ability to save money securely and access networks through which funds for emergency response and rebuilding can arrive. This includes everything from a social protection payment from the state to an emergency loan from a fintech to the operations of a local savings group.
<h2>Adaptation</h2>
Climate change will significantly impact the livelihoods of low-income people across the globe, and financial services are needed to help people and communities manage these changes. We often think of these changes in a rural context -- with smallholders adapting their farming practices and investing in different crops as climatic patterns shift, but urban populations will also need to adapt, for example by investing in low-cost cooling techniques for homes.
<h2>Transition</h2>
At times, climate change and deteriorating environmental conditions will fundamentally change people’s ability to sustain their current livelihoods, and financial services will help transition to new ones. This may mean investing in education and training, making long-term commitments to climate-smart agriculture, or the range of financial services need to liquidate assets in one location to start again in another.

While some of these pathways may be relatively simple to implement, others are quite complex. For example, when climate change leads to resource scarcity, which in turn causes localized conflict and hence forced migration, there may be a critical need for digitized savings and remittance services. This is also an inclusive finance solution to a climate challenge, albeit through a longer-impact pathway. These issues might seem abstract, but the World Bank estimates that the impact of climate change in reducing arable land could see over <a href="https://www.worldbank.org/en/news/press-release/2018/03/19/climate-change-could-force-over-140-million-to-migrate-within-countries-by-2050-world-bank-report" target="_blank" rel="noopener noreferrer">140 million people forced to migrate</a> within their own countries by 2050. These are some of the complex pathways that green inclusive finance will need to support.

This complexity also means that green inclusive finance will intersect with other areas of the inclusive finance landscape. The connections with smallholder agriculture and rural livelihoods are clear. The fact that <a href="https://www.un.org/en/chronicle/article/womenin-shadow-climate-change">poor women are particularly vulnerable to the impacts of climate change</a> means that green inclusive finance approaches must be gender intelligent. The fact that so many potential solutions leverage digital financial services presents both new opportunities, but also challenges (what happens if the storm that leaves people highly vulnerable also knocks out mobile money networks?).
<blockquote class="pullquote--left">For financial systems to support all four of these impact pathways, it’s going to take large-scale, systemic changes, and there is a role for all types of financial institutions.</blockquote>
For financial systems to support all four of these impact pathways, it’s going to take large-scale, systemic changes, and there is a role for all types of financial institutions. We will need to leverage the existing networks of microfinance institutions and build on community-based models, particularly to support rural transitions. Banking sectors need to become better at intermediating funds towards sustainable agriculture and cleaner technologies. New players, including fintechs, need to continue to push out the innovation frontier. Insurance companies need to incorporate more data relating to climate risks. Policymakers, investors, and donors need to support incentives and a positive enabling environment for investment, innovation, and learning in green inclusive finance.

Green inclusive finance isn’t on the agenda at COP because inclusive finance doesn’t have a huge role to play in reducing global emissions. However, it is critically important that we support low-income populations to weather the changing environments around them. What green inclusive finance can do is provide a diverse range of financial tools that can help low-income people and communities reduce their vulnerabilities and make the investments needed to improve their outcomes in the context of climate change.
<h3>Learn more about green inclusive finance at the <a href="https://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> plenary session "<a href="https://app.swapcard.com/event/financial-inclusion-week/planning/UGxhbm5pbmdfNzEyMTM5" target="_blank" rel="noopener noreferrer">Greening Inclusive Finance</a>" on Nov. 3, 2021 and by watching the video below:</h3>

Green Inclusive Finance: A Framework for Understanding How Financial Services Can Help Low-Income People Weather Climate-Related Risks

Saida, a founder of an agricultural enterprise, started as a farmer in central Uganda growing sorghum, millet, and rice. A few years ago, she decided to buy equipment to process her crops. Demand increased, and she began buying raw materials from others and processing them as well, slowly growing her business year after year. Saida is now ready to grow even more: her plans include hiring more laborers, renting more storage units, and possibly buying a small plot of land from a neighbor.

Things are looking up for Saida and her family, but there is one challenge she has not yet overcome: financing for business growth. She is struggling to find a financial service provider that lends to small agricultural businesses and understands the opportunities that agriculture brings.

Agriculture plays a significant role in the GDP of Uganda, and ABC Finance, a lender operating in the country, sees broad investment potential. However, ABC Finance finds it challenging to lend to small, agricultural businesses because they cannot confidently measure the risks involved. They request a lot of information upfront to better understand these businesses, but oftentimes these small business owners are not able to provide sufficient documentation to move forward. As a result, ABC Finance continues to finance its existing pool of agricultural businesses, primarily those working with cash crops and in formal markets that request large loan amounts. Moreover, as a result of COVID-19, ABC Finance is focused on renewing loans for existing partners and only financing a limited number of new agri-SMEs because ABC are not able to conduct thorough, on-site due diligence.
<blockquote class="blockquote">A $65 billion financing gap for agri-SMEs means three out of four agri-SMEs don't have the necessary finance to grow.</blockquote>
Businesses like Saida’s are not alone in their struggles to secure loans. There is an estimated USD $65 billion financing gap for agri-SMEs, which means three out of four agri-SMEs don't have the necessary finance to grow. For those agri-SMEs that make it to a lender's radar, CFI and <a href="https://scopeinsight.com/">SCOPEinsight</a> research found that lenders spend an inordinate amount of time and resources sourcing businesses and assessing their bankability, making the process of pre-screening and assessment expensive and leaving out the opportunity for many agri-SMEs to receive lending.

Given some of these limitations, how can ABC Finance easily determine if Saida runs a “bankable” agri-SME?
<h2>The Challenges of Determining an Agri-SME’s Bankability</h2>
In 2020, CFI and SCOPEinsight, as part of our partnership with <a href="https://agra.org/" target="_blank" rel="noopener noreferrer">AGRA</a>, researched over 90 lenders and industry actors and mapped SCOPEinsight and <a href="https://csaf.org/">CSAF</a> data to understand the driving factors behind the significant financing gap. Our research pointed to information – the information requested by lenders and the ability of agri-SMEs to provide information to lenders – as one of the most important obstacles to assessing the creditworthiness of agri-SMEs.
<blockquote class="pullquote--right">Lenders tend to gravitate toward larger businesses and stick with lending to businesses they already know.</blockquote>
Lenders typically collect a long list of information during the pre-due diligence (i.e. screening) phase of a deal. That information often includes generic business metrics and other metrics related to the agriculture sector or social and environmental impact. Many agri-SME’s, particularly smaller enterprises and those that operate in informal markets, struggle to provide formal documentation of their business activities. This is further complicated by the fact that the type of information requested varies significantly from lender to lender, making it difficult for agri-SMEs to prioritize what they should be documenting. As a result, lenders tend to gravitate toward larger businesses operating in formal markets and stick with lending to the businesses they already know.
<h2>Bankability Metrics Address the Information Obstacle</h2>
To address this information challenge, we developed a set of standardized bankability metrics that can serve as a common language between lenders and agri-SMEs. The metrics are intended to be used during pre-due diligence, providing lenders with an overview of the agri-SME's activity that is enough for them to decide whether to continue with due diligence or not. At the same time, standardized metrics will provide agri-SMEs with clear expectations about lenders’ requirements and help them prepare for an assessment more quickly and efficiently. The metrics will reduce the time needed to conduct pre-due diligence and open opportunities to expand lending to the many high-potential agri-SMEs that currently struggle to secure financing.

The bankability metrics focus on business activity, financial performance, management capacity, and governance. The team analyzed the wide variety of metrics used by lenders to identify metrics with the greatest common ground and those that are most effective in screening for creditworthiness. Each lender has a unique risk appetite, so the metrics do not identify benchmarks for bankability, but rather provide a common set of metrics whereby each lender can apply their own assessment to determine creditworthiness.

The Challenge of Bringing Agri-SMEs and Lenders Closer Together

<em>This blog post reflects CFI’s early thinking on the intersection between climate change and inclusive finance. Learn more about CFI’s latest thinking and research on our </em><a title="https://www.centerforfinancialinclusion.org/research/financial-services-to-mitigate-and-adapt-to-climate-risks" contenteditable="false" href="https://www.centerforfinancialinclusion.org/research/financial-services-to-mitigate-and-adapt-to-climate-risks">Climate research page</a><em>.</em>

Climate change is having severe economic impacts globally, and low-income, vulnerable populations are being disproportionately affected. Many low-income countries are experiencing longer, hotter heat waves and more extreme storms, which is leading to food insecurity, income losses, lost livelihood opportunities, adverse health impacts, and displacement.

Additionally, climate change is a <a href="https://www.ipcc.ch/sr15/chapter/spm/" target="_blank" rel="noopener noreferrer">threat multiplier</a>, exacerbating inequity for low-income households discriminated against based on gender, race, socioeconomic class, age, and disability.
<h2>Mitigating Climate Risk</h2>
The international consensus is that systems change is necessary to mitigate these climate risks. In this context, systems change refers to altering systems of production and consumption to stabilize the amount of greenhouse gases emitted into the atmosphere. For example, the ongoing shift from non-renewable to renewable energy is an outcome of systems changes and required policy initiatives by government, public and private investment in renewable technology, and changes in fuel utilization by households.
<blockquote>Financial services will play an important role in helping low-income households adapt their livelihoods</blockquote>
Systems change will impact low-income communities through the creation and elimination of livelihood opportunities. The types of systems changes required to mitigate climate impacts at a global level will impact livelihoods in communities across the globe as carbon emitting industries are replaced or innovated with climate resilient technologies. Some estimates project 1.5 billion jobs will be created by this process. Arguably more importantly, many jobs will be <a href="https://unfccc.int/resource/docs/2016/tp/07.pdf" target="_blank" rel="noopener noreferrer">altered, eliminated, or replaced</a>. Financial services will play an important role in helping low-income households adapt their livelihoods to cope with these changes as they will require significant investment to update production processes.
<h2>Resilience, Adaptation, and the Role of Financial Services in the Meantime</h2>
Systems change is a process which will occur in the medium to long-term. In the short term, financial services can support low-income households to improve their resilience to climate shocks. Before a shock, low-income households can prepare in a variety of ways, such as improving housing, diversifying their livelihoods, adopting climate-resilient business practices, and accumulating financial resources to respond to shocks when they happen. After a shock, low-income households need to respond to food insecurity, livelihood disruption, loss of assets, and increased health and safety risks. In addition to their pre-shock preparation, low-income households may seek to draw in other household and community resources to boost their resilience. Households may also choose to migrate to areas less exposed or better prepared to respond to climate events.

There is broad evidence of the critical role financial tools – cash transfers, savings, insurance, and credit – play in helping households respond to shocks. There is strong evidence for the role of person-to-person (P2P) and government-to-person (G2P) cash transfers in helping households survive in crisis environments. Studies have shown that P2P and/or G2P transfers have <a href="http://documents.worldbank.org/curated/en/537771507750178892/Philippines-Lessons-learned-from-Yolanda-an-assessment-of-the-post-Yolanda-shortand-medium-term-recovery-and-rehabilitation-interventions-of-the-Government" target="_blank" rel="noopener noreferrer">helped households respond</a> to various weather events in Kenya, earthquakes in Rwanda, and rainfall shocks in the Philippines.

A large body of impact evidence makes clear that savings is also a powerful financial tool in these environments. Innovations for Poverty Action (IPA) has summarized the evidence supporting the role of savings in preparing for shocks. For formal financial services, they found evidence that low and no-fee savings accounts helped households self-insure against shocks, and there was strong evidence for the role of <a href="https://www.poverty-action.org/sites/default/files/publications/Building-Resilience-Through-Financial-Inclusion-January-2019.pdf" target="_blank" rel="noopener noreferrer">behavioral approaches</a> (such as commitment savings devices) in promoting savings for shock mitigation.

There is some positive evidence on insurance and credit as well. Weather-indexed crop and livestock insurance can promote investment by smallholder farmers in communities likely to experience extreme weather events, and a review of the evidence by IPA articulates examples of credit products encouraging investment in farm inputs and technology by smallholder farmers in sub-Saharan Africa. In addition, a <a href="https://www.adb.org/publications/microfinance-disaster-recovery-lessons-nepal-earthquake" target="_blank" rel="noopener noreferrer">limited</a> <a href="https://www.mercycorps.org/blog/nepal-impact-report-earthquake" target="_blank" rel="noopener noreferrer">number</a> of studies have shown households with access to formal credit had better short and long-term outcomes following a crisis compared to similar households without access to credit.
<h2>Critical Gaps in the Current Knowledge Base</h2>
The evidence makes clear the promise of financial services in supporting low-income households’ response to climate change, but there are numerous demand side and supply side challenges that need to be studied in order to maximize the utility of financial services. Additionally, the role of government in creating an enabling environment and enacting social safety nets to promote mitigation and adaptation needs to be explored.

On the demand side, low-income households have less access to and are <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">less likely to use formal financial products</a> compared to middle and high-income households. This is also true of climate-related financial tools. For instance, the evidence shows that voluntary take up of weather-indexed insurance products is <a href="https://www.poverty-action.org/sites/default/files/publications/Make-it-Rain-Policy-Bulletin.pdf" target="_blank" rel="noopener noreferrer">too low to sustain a market</a> for them without subsidy despite their effectiveness. There are numerous product design challenges that may be contributing to this. Gender bias in program and product design persists, making <a href="http://documents.worldbank.org/curated/en/484541544643269894/pdf/130659-REVISED-PUBLIC-Managing-Coal-Mine-Closure-Achieving-a-Just-Transition-for-All-November-2018-final.pdf" target="_blank" rel="noopener noreferrer">interventions less effective</a> for women and multiple studies have articulated the need for improved financial capability to promote uptake and regular, effective use of financial tools.

On the supply side, there is little visibility into the range of products and financial service providers (FSPs) offering climate-focused financial products to low-income households. This hinders industry learning about what products or services are working and why. This opacity contributes to financial institutions in emerging and developed markets being admittedly unsure about how to best design their products to support households’ resilience to climate change. There is good reason to think providers will need to learn what innovative models work as analysts expect climate risks to create new challenges for pricing credit and insurance products, among others. For instance, in 2019, Munich Re, the world’s largest reinsurance firm, warned that climate-risk could <a href="https://www.theguardian.com/environment/2019/mar/21/climate-change-could-make-insurance-too-expensive-for-ordinary-people-report" target="_blank" rel="noopener noreferrer">make insurance premiums unaffordable</a> for most people.

Governments play a critical role, too. However, there are a limited set of evidence-based best practices for responding to this situation. For instance, unemployment insurance and other social safety nets have proven to be important tools in supporting livelihoods during systems change, but such benefits are less common in emerging markets than in advanced economies. They are also less effective at reaching low-wage and informal workers. How can governments establish policy and programs to better protect the livelihoods of these workers? Are there innovative safety net systems that they could use, or are other policy tools effective?
<h2>CFI’s Climate Agenda</h2>
CFI is embarking on an ambitious agenda to address these gaps. Our immediate focus is on building the evidence for what works on the demand and supply side and for government policies.

On the demand side, CFI will focus on two major activities. First, CFI will map the impact evidence, identifying what financial products and services help low-income households effectively respond to climate change. This is a critical early step as it will inform the industry of what is known and unknown about this topic. It will also serve as a foundation from which CFI will operate, helping us identify what evidence gaps need filling. Second, CFI will conduct qualitative and quantitative research with consumers to establish a baseline understanding of consumers’ experience with and financial needs for mitigating and adapting to climate change.
<blockquote>CFI will map impact evidence and conduct research to understand consumers' experiences with and financial needs for mitigating and adapting to climate change.</blockquote>
On the supply side, CFI will leverage the expertise acquired through its strategic <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX to shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions for low-income households. CFI will do this through two main activities. First, CFI will inventory financial products to understand their target market, design, reach, and effectiveness. This will enable us to promote the development of appropriate climate products with FSPs. Second, CFI will track investment in climate-related finance by monitoring funding flows from public and private sources. Given the attention to climate-related finance, it will become increasingly important for funders to have visibility on funding flows related to climate change and finance that impact low-income households.
<blockquote>CFI will shed light on emerging patterns in climate-related finance and help catalyze investment in evidence-based solutions.</blockquote>
Emerging market governments are enacting policies to help their countries mitigate and adapt to the effects of climate change. This gives us a sense of <a href="https://www.afi-global.org/publications/3036/Inclusive-Green-Finance-A-Survey-of-the-Policy-Landscape" target="_blank" rel="noopener noreferrer">what governments are doing</a> in response but it is unclear which policies are most effective for low-income households and why. In order to identify effective policy solutions, CFI will conduct mixed-method case studies of climate policies and their impact on the supply and demand side of the ecosystem.

Our goal for developing the evidence base is to provide information that decision makers need to deliver climate-informed financial products to vulnerable populations across the globe with the hope that it ultimately helps facilitate the transition to a more sustainable economy for all. Financial Inclusion Week is the first step in our journey, and we look forward to sharing our impact in the months to come.

&nbsp;

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&nbsp;

Financial Services are Needed to Help Low-Income People Mitigate and Adapt to Climate Change

Many have compared the steps required to overcome COVID-19 with those taken in previous economic crises or <a href="https://centerforfinancialinclusion.org/pandemics-and-natural-disasters-what-can-we-learn-from-past-disasters-to-help-with-todays-pandemic/" target="_blank" rel="noopener noreferrer">natural disasters</a>, whereby the situation follows a similar pattern consisting of three stages: triage, stabilize, recover. While there is some applicability to the current COVID-19 pandemic, it implies a sequence and limited duration that may not truly characterize the nature of the challenges we now face. The reality is that COVID-19 is a more persistent phenomenon that may continue to ebb and flow for some time before it is fully under control.

Given the more entrenched and global nature of this crisis, it is likely that the consequences will be more varied and run deeper than what we have seen in past crises. To help get a sense of what these consequences may be for those who are most vulnerable, we asked a few members of CFI’s <a href="https://www.centerforfinancialinclusion.org/people/advisory-council" target="_blank" rel="noopener noreferrer">Advisory Council</a> to share some brief thoughts on what they see as the biggest implications of COVID-19 and the ways in which the inclusive finance sector can address them.
<h2>Camilla Nestor, Adjunct Professor at Columbia University</h2>
From my perspective, one of the biggest implications of COVID-19 is on food security for countries and populations that were already vulnerable. Before COVID-19, the world’s estimated 500 million smallholder farmers were one of the most financially underserved segments, with an estimated <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">$100 billion lending gap</a> in Africa alone.

As a result of COVID-19, smallholder farmers are dealing with significant volatility in demand for both cash crops and food crops, challenges securing the necessary inputs, and limits on accessing markets. On top of this, they are also facing reductions in access to already-scarce capital. If unaddressed, this lack of capital will directly impact their ability to produce food. We see that commercial lenders are pulling back on lending to agriculture; <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">cross-border social lending</a> is flat; and supply chain financing is at risk – for example, in a recent <a href="https://www.afap-partnership.org/covid-19-impact-assessment-on-the-agrismes-and-farming-communities-of-ghana-malawi-mozambique-tanzania-and-uganda/" target="_blank" rel="noopener noreferrer">survey</a> of 5 markets in Africa, farmers noted reduced access to both supplier credit and trade credit since the onset of the pandemic.
<blockquote>With smallholder farming contributing up to 80% of the food supplies in some regions, there is significant risk to food security at both a household level and a national level.</blockquote>
With smallholder farming contributing <a href="https://www.ifad.org/documents/38714170/40706188/Smallholders+can+feed+the+world_e.pdf/460ca6c2-7621-40d8-9f79-a56f6f8fa75e" target="_blank" rel="noopener noreferrer">up to 80%</a> of the food supplies in some regions, there is significant risk to food security at both a household level and a national level. This is an opportunity for the financial inclusion community and agricultural finance experts to come together to develop short-term and longer-term mechanisms to ensure that financing flows to this critical segment.
<h2>Mark Pickens, Senior Director of Social Impact at Visa</h2>
We need to step up for small and micro businesses as they are the backbone of the global economy. Unless they remain resilient and grow, most economies are going to suffer because small businesses typically account for half of all jobs and GDP. The challenge is even greater with women-owned small businesses, which face many challenges, including lack of access to capital.
<blockquote>Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy.</blockquote>
Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy. Earlier this year the Visa Foundation announced $210 million to help small businesses. Visa also launched online toolkits via Small Business Hubs in 20 countries, expanded our Practical Business Skills portal for a greater geographic reach, and committed to digitally enable 50 million small businesses as we collectively recover from the COVID-19 pandemic.
<h2>Joanna Ledgerwood, Independent Consultant</h2>
It has been well-documented that the COVID-19 crisis has disproportionately affected women and girls. In most countries, social norms dictate that women bear primary responsibility for feeding and caring for their families and managing the household. With children not able to attend school and sick family members needing care, women have increased responsibilities, exacerbating an already heavy workload. The result is women have less time for paid work, and because of the pandemic, less access to informal financial services such as savings groups or local shop credit to help them through.
<blockquote>This pandemic provides an opportunity to proactively promote women’s empowerment.</blockquote>
However, this pandemic provides an opportunity to proactively promote women’s empowerment and advance household food security. Understanding how women and men are impacted differently by the pandemic, as well as the risks, constraints and hardships women face and their specific needs, requires the collection and analysis of sex-disaggregated data. This data can help to design appropriate programs and policies and inform financial products and delivery channels to effectively reach women.

For example, providing digital cash transfers directly to women increases their chances of receiving and controlling money to meet household needs, which in turn is likely to lead to greater bargaining power at home. The use of sex-disaggregated data can help to design programs that mitigate unintended consequences of cash transfers such as increased domestic violence. In addition, G2P programs that take gender biases into account can enhance women’s resilience to future economic shocks and can influence change to social norms over the long-term. Now is the time to ensure that women’s increased responsibilities and reduced ability to earn income will not further widen the gender gap in financial inclusion that existed long before this pandemic.
<h2>David Ferrand, Independent Consultant</h2>
Much depends, I think, on factors beyond financial inclusion. The indications remain rather positive that the health impact on Africa will be relatively bearable, notwithstanding the tragic loss of life. But we still don’t know yet the eventual economic cost to Africa, either in absolute terms or in how it will be distributed. There is a very real concern that the recovery from the crisis could see the micro and smaller scale business sectors re-emerging significantly disadvantaged relative to larger scale. And many people who have lost their livelihoods in the crisis may end up in long-term poverty traps.
<blockquote>Only governments have the balance sheets necessary to bear the risks involved.</blockquote>
There are financial sector providers positioned to play a pivotal role in restoring liquidity to communities and investing in rebuilding. But it would be unrealistic to expect that financial sector players can do this alone. There needs to be a new partnership between the financial sector, communities, and governments. Only governments have the balance sheets necessary to bear the risks involved – but they need help from across the financial system in providing the support where it is needed.

Over the longer term, there is also a need for genuine innovation in developing solutions to deal with the human and economic losses. Digital transformation has extraordinary potential, both now and in the future, to change our societies and ultimately lead to ever greater economic, social and cultural integration of countries and the world. The best-case scenario is that the COVID-19 crisis could lead to our harnessing digital finance to empower the rebuilding and development of local communities. But this is going to require bold, swift and pragmatic action.

Implications of COVID-19 for the Most Vulnerable: A Snapshot of Views from CFI’s Advisory Council

Prior to the onset of COVID-19, very few of us would have foreseen a pandemic spreading so rapidly across the world, forcing governments to take actions like lockdowns and border closures. We have observed how these events found many essential services unprepared and resulted in businesses focusing on “response” and “recovery.” In many countries, the pandemic started as a health crisis, while in Sub-Saharan Africa it started as an <a href="https://www.worldbank.org/en/news/video/2020/04/21/africas-pulse-covid-19-coronavirus-causes-first-recession-in-25-years" target="_blank" rel="noopener noreferrer">economic one</a>, as closures happened quicker than the virus spread.

Despite the fact that many agricultural value chains are considered an essential service, agri-SMEs in Sub-Saharan Africa are still facing a <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">decline in demand</a> (particularly those providing farm inputs), <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">liquidity shortfalls</a>, harvesting and production problems due to labor shortages, <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_FINAL.pdf" target="_blank" rel="noopener noreferrer">export and transportation delays due to lockdowns</a>, and cancelled international contracts. All these challenges are exacerbated by ongoing climate change-related shocks, like droughts, floods and <a href="https://www.nationalgeographic.com/science/2020/02/locust-plague-climate-science-east-africa/" target="_blank" rel="noopener noreferrer">locust plagues</a>. The resilience of agri-SMEs (small and medium-sized businesses that are formal and registered entities engaged in agricultural production) is being tested with these events.

While it is too early to estimate the full economic impact of COVID-19 on agri-SMEs, most lenders are taking steps to address the most pressing challenges faced by these agri-SMEs. Though it is prudent to move quickly to overcome these challenges, agri-SMEs would be better supported in the long run if lenders approach these problems through a systemic lens to understand the root of the challenges instead of focusing only on the symptoms of the overall shock.

Aside from the lack of infrastructure, agri-SMEs’ biggest challenge to growth is their limited access to finance and the regulatory burdens constraining this access. As will be discussed below, these challenges are deeper and more structurally embedded, and therefore require a long-term coordinated commitment to provide agri-SMEs access to capital.

This post highlights steps lenders are currently taking to help agri-SMEs weather the storm and suggests areas where they can expand their focus to support these businesses in being better prepared for future economic shocks.
<h2>Explore new options to mitigate risk and increase capital flow to agri-SMEs</h2>
Since the outbreak of the pandemic, most lenders have focused on serving existing clients by increasing their financing, restructuring loans, or deferring payments to meet their clients’ liquidity challenges. By doing so, lenders are also making sure their current portfolio is not at immediate risk.
<blockquote>It’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.</blockquote>
While lenders may be tempted to take a more conservative stance, those with sufficient capacity should be initiating even more new deals in order for agri-SMEs to keep goods and services flowing through the highly interdependent agricultural value chain. For instance, <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">72% of MSEs in Zambia</a> need working capital to continue and grow their business, and <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">61% are running on their savings</a>. COVID-19 is exacerbating the financing gap, and it’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.

Luckily, lenders have successful examples which they can use to build new and more innovative risk mitigation options. Credit guarantees, such as non-bank financial instruments that mitigate default risk for lenders in Sub-Saharan Africa, are a known practice. Between 2008 and 2015, AGRA worked with several partners to offer several guarantees to extend credit to many agriculture value chain actors in Africa, demonstrating the bankability and feasibility of investing in perceived risky agricultural businesses. Additionally, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> has developed a new market platform that aims to incentivize financial service providers to lend to agri-SMEs while also providing technical assistance to them.
<h2>Create new strategies to find and support agri-SMEs</h2>
Many agricultural lenders are reporting that servicing new clients has either stopped or dropped to low levels, not just because of risk concerns, but also because it is almost impossible to conduct thorough due diligence without on-site visits. Given that on-site visits may not be feasible in the near-future, lenders will want to design creative strategies and leverage data to support remote discovery of new agri-SMEs.
<blockquote>Promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics.</blockquote>
To this end, in early 2020, MIX and SCOPEinsight formed a partnership with the support of AGRA to help address the financing gap agri-SMEs face. Through this partnership, they are <a href="https://www.themix.org/news-blog/mix-and-scopeinsight-launch-partnership-with-agra" target="_blank" rel="noopener noreferrer">building bankability metrics</a> so that agricultural lenders can identify and pre-screen agri-SMEs. These metrics play an even more important role now due to COVID-19 disruptions, and they will feed into a portal which will bridge the information gap between agri-SMEs and lenders. As a result, promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics that lenders can use to reduce their costs to serve SMEs. By employing bankability metrics, lenders will be able to assess the potential for growth of agri-SMEs, which currently handle <a href="https://agrf.org/dealroom/wp-content/uploads/2020/07/AGRA-AGRF-Deal-Room-talk-by-Tom-Reardon-july20-2020-final-sent.pptx" target="_blank" rel="noopener noreferrer">680 million tons of food in Africa</a>.
<h2>Offer appropriate technical assistance to agri-SMEs</h2>
<blockquote>The key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges.</blockquote>
Several of the lenders we spoke with are increasingly providing technical assistance to agri-SMEs, recognizing that in these extraordinary times, agri-SMEs are looking for direction. Lenders are offering guidance and training on financial management, crisis management, and operating a business with limited resources. After conducting a <a href="https://rootcapital.org/wp-content/uploads/2020/06/COVID-19-client-survey-report_JUNE-2020.pdf" target="_blank" rel="noopener noreferrer">survey on COVID-19's impact on 134 of its clients</a>, Root Capital decided to offer virtual technical support through its advisory team in four areas: crisis management, emergency operations, financial management and analysis, and digital data collection and analysis.

While technical assistance is not new and is already being offered to SMEs by many organizations, the key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges, with the main goal to support agri-SMEs to grow and become bankable organizations. Helping agri-SMEs become more bankable, and thus more professionalized and visible to other lenders, can assist them to overcome barriers to financing and become more resilient and better equipped to face future risks and shocks.

Going forward, the uncertainty of this pandemic makes it unclear how the next season or harvest will affect agri-SMEs, who are <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">highly interdependent actors in an agricultural value chain</a> where one simple disruption in the flow of goods and services creates challenges for other actors. Along with prioritizing their existing clients, as they are currently doing, lenders could consider the crisis an opportunity to employ long-term strategies that can help agri-SMEs grow into resilient institutions. Coordinated responses and actions by lenders and other actors will play a critical role in ensuring that these businesses are strong enough to continue to feed the world in the face of new pandemics and other global challenges to come.

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From Crisis to Opportunity: How Can Lenders Help Build Resilient Agri-SMEs

Scrolling through Instagram these days, I’ve noticed a pattern that has emerged since COVID-19 prompted lockdowns across the globe. With movement restricted, many social media users in the US have engaged in culinary adventures. New experiments in the kitchen abound despite the noted shortage of ingredients like flour on supermarket shelves.

But what I haven’t been seeing on my social media feed on the food front is much more dire: COVID-19 will push up to an estimated <a href="https://www.oxfam.org/en/research/dignity-not-destitution" target="_blank" rel="noopener noreferrer">half billion people into poverty</a> across the globe, threatening food security. Prior to the pandemic, approximately <a href="https://www.who.int/news-room/detail/11-09-2018-global-hunger-continues-to-rise---new-un-report-says" target="_blank" rel="noopener noreferrer">820 million people were chronically hungry</a>. Now, the World Food Program estimates that by the end of 2020, <a href="https://insight.wfp.org/covid-19-will-almost-double-people-in-acute-hunger-by-end-of-2020-59df0c4a8072" target="_blank" rel="noopener noreferrer">265 million people</a> in low and middle-income countries will be under the threat of starvation.
<h2>A Challenge for a Continent</h2>
These issues are particularly acute in several countries in Africa, where job losses and income losses are affecting food security, defined as access to sufficient, safe, and nutritious food. In a recent <a href="https://amref.zoom.us/rec/play/uZZ_Ju2p-zo3E9ed4wSDBKR6W9S9J_2s0iFP-qZemkixVXRQOlWkYuAbMLeKlvVOBygaPgBJmSDPJCzg?continueMode=true&amp;_x_zm_rtaid=FQWENb2fTM2AEbhvJuEg9g.1590501183404.6cee48bfc63a9f06cac60da22d85013d&amp;_x_zm_rhtaid=599" target="_blank" rel="noopener noreferrer">Africa Dialogues webinar</a>, hosted by Dalberg Advisors and Amref Health Africa and moderated by Lolem Ngong and Edwin Macharia, Professor Hamadi Iddi Boga of the Ministry of Agriculture, Livestock, and Fisheries in Kenya; Sara Menker, Founder and CEO of Gro Intelligence; and Monica Musonda, Founder and CEO of Java Foods, explored how the pandemic is disrupting agricultural supply chains and impacting smallholder farmers and vulnerable populations across the continent.

As Menker highlighted, there isn’t a lack of food around the world. Food insecurity, rather, is rooted in a massive distribution problem and a widespread inability to afford food, now exacerbated by COVID-19. Foreign exchange reserves across the African continent are at an all-time low due to the pandemic. In a weakened macroeconomic environment, the cost of imports has increased, and although some African markets are experiencing food insecurity to a greater extent than others, net importers of calories are finding themselves in an increasingly precarious situation. In Zambia, for example, the <a href="http://www.fao.org/giews/countrybrief/country.jsp?code=ZMB" target="_blank" rel="noopener noreferrer">price of fortified cereal</a> for children has increased to $6. Groups including informal workers, microentrepreneurs, and women tend to be the most adversely impacted by such price fluctuations.
<blockquote>Informal workers, microentrepreneurs and women tend to be the most adversely impacted by price fluctuations.</blockquote>
Musonda noted during the webinar that up to 60 percent of wages from informal work in Africa are used to buy food. Finding themselves without work, or with fewer working hours due to COVID-related restrictions on physical movement, informal workers and microentrepreneurs face increasing food insecurity, and women, who allocate more of their own resources to <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">other members of the household during hardship</a>, are disproportionately affected.
<h2>How Does Financial Inclusion Come into Play?</h2>
As a well-documented <a href="https://www.uncdf.org/financial-inclusion-and-the-sdgs" target="_blank" rel="noopener noreferrer">enabler of food security</a>, financial inclusion has an important role to play in the mitigation of COVID-19’s harms to vulnerable groups. Here, I highlight a few of <a href="https://centerforfinancialinclusion.org/covid-19-reveals-the-limits-of-individual-action-and-market-based-solutions/" target="_blank" rel="noopener noreferrer">many considerations</a> for financial inclusion initiatives when taking action to reduce food insecurity.
<h3>Supporting SMEs and Smallholder Farmers</h3>
Propping up small and medium-sized business is an important consideration for financial inclusion and, by extension, food security in Africa. SMEs form an <a href="https://www.researchgate.net/publication/315516536_AFRICAN_SMALL_AND_MEDIUM_ENTERPRISES_SMES_CONTRIBUTIONS_CHALLENGES_AND_SOLUTIONS" target="_blank" rel="noopener noreferrer">integral part</a> of the food supply chain in Africa. According to Musonda, <a href="http://www.ipsnews.net/2019/09/smes-main-drivers-africas-food-economy/" target="_blank" rel="noopener noreferrer">SMEs handle 64 percent of food</a>, much of which is fresh and perishable, on the continent. These are the foods that are crucial, but we must do more to ensure that SMEs stay alive during this time of crisis.

This is where financial service providers (FSPs) play an important role. FSPs need to address both short-term and longer-term financing options for SMEs. In the short-term, as <a href="https://www.covid-finclusion.org/forum/discussion/surviving-the-liquidity-crunch-what-are-your-expectations-and-plans-for-managing-mfi-liquidity-what-worries-you-most" target="_blank" rel="noopener noreferrer">FSPs themselves are struggling with liquidity constraints</a>, the role of other actors, such as impact investors, development finance institutions, and policymakers, will be important to filling the void in available liquidity. But beyond liquidity through FSPs, there is a broader role for governments to play when it comes to food security.

In Kenya, the government has created an ecosystem of SMEs to support smallholder farmers in a mutually beneficial initiative that connects nodes of the supply chain. According to Prof. Boga, 90 percent of farmers in Kenya are smallholder farmers. To support this population, the government has created an ecosystem of SMEs to support them, and has implemented an e-voucher program in which farmers receive vouchers on their mobile phones to exchange for partially subsidized farm supplies based on their individual and household needs.
<h3>Promoting and Strengthening Cash Transfer Systems</h3>
Government-to-person (G2P) and person-to-person (P2P) <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits" target="_blank" rel="noopener noreferrer">cash transfers are an effective strategy</a> to increase both financial inclusion and food security. NGOs, governments, and the private sector are working together to promote and strengthen this most important vehicle for quickly delivering crucial cash to low-income households and individuals. <a href="https://www.unicef-irc.org/publications/pdf/IRB 2016_04.pdf" target="_blank" rel="noopener noreferrer">Evidence</a> from several large-scale <a href="https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7596.pdf" target="_blank" rel="noopener noreferrer">evaluations</a> shows that as households receive more in cash transfers, they spend more on food, with positive impacts on meals consumed and dietary quality.

The regulatory environment and payment infrastructure in many countries can present a challenge for massive payouts, but the financial inclusion community views the current crisis as an <a href="https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits">opportunity to fast-track improvements to payments systems</a>, particularly through digital payments ecosystems. While digitalization is promising, however, CFI’s Alex Rizzi <a href="https://centerforfinancialinclusion.org/a-covid-digitization-stampede-mustnt-trample-consumer-protection/" target="_blank" rel="noopener noreferrer">cautions</a> that rushed pushes to go digital may harm the poor, and it will continue to be important to put base-of-the-pyramid consumers at the center of considerations for digital cash payments.
<blockquote>Countries with strong DFS infrastructures are taking the lead in implementing systems to help people afford food.</blockquote>
In Africa, countries with strong DFS infrastructures are taking the lead in implementing systems to help the base of the pyramid afford food and other living expenses. The Western Africa Central Bank (BCEAO) is promoting the use of electronic payment tools by making it easier for people to open a mobile money account and by making P2P transfers free. Kenya’s National Treasury <a href="https://www.ugogentilini.net/wp-content/uploads/2020/04/Country-social-protection-COVID-responses_April3-1.pdf" target="_blank" rel="noopener noreferrer">appropriated</a> an additional 10 billion Kenyan schillings, or $100 million, to support for the elderly, orphans and other vulnerable groups through cash transfers. In addition, fee waivers on P2P mobile money transactions on M-PESA were <a href="https://techcrunch.com/2020/03/16/kenya-turns-to-its-mobile-money-dominance-to-stem-the-spread-of-covid-19/" target="_blank" rel="noopener noreferrer">approved</a>. The Moroccan Economic Watch Committee activated a mobile payment device for cash transfers directly to an estimated 3 million informal workers, while in Tunisia, the government is offering one-off cash transfers to households with members working in the informal sector and housing the elderly.

To support governments and markets where the digital payment infrastructure is still developing, initiatives like the <a href="https://www.worldbank.org/en/topic/paymentsystemsremittances" target="_blank" rel="noopener noreferrer">World Bank’s G2Px</a> focus on bringing together expertise across sectors to scale G2P payments responsibly. NGOs such as the World Food Program <a href="https://www.wfp.org/cash-transfers" target="_blank" rel="noopener noreferrer">continue to employ cash transfers</a> in coordination with partners.
<h3>Supporting Women’s Financial Inclusion as a Means to Greater Food Security</h3>
Research indicates that within households, women are at a <a href="https://www.adb.org/sites/default/files/publication/30315/gender-equality-and-food-security.pdf" target="_blank" rel="noopener noreferrer">greater risk of being food insecure</a>. In times of hardship, such as the current pandemic, they are more likely to reduce their own food consumption to leave enough for men and boys. However, access to secure financial services <a href="https://www.cgap.org/blog/3-ways-financial-inclusion-improves-womens-food-security" target="_blank" rel="noopener noreferrer">has the potential</a> to <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">promote women’s empowerment</a> and advance food security. Women with bank accounts are likely to have greater bargaining power to allocate more household resources to purchasing nutritious food. Increasingly, many donors and policymakers are recognizing the need to shift cash transfers to women as one approach to tackling food insecurity. This provides an <a href="https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkx003" target="_blank" rel="noopener noreferrer">on-ramp for digital financial services while improving convenience and confidentiality</a> of these payments.

Will our documentation of this moment in time capture the resilience, cooperation, and hard work of the individuals and institutions responding to this unprecedented crisis? Food security is a critical basic need, and financial inclusion is an important means of achieving it. With financial services digitizing at a breakneck pace, we mustn’t forget our most basic needs and how inclusive finance can serve them.

Food Security and COVID-19: How Financial Inclusion Can Support Livelihoods

Renee Chao-Beroff

Todd A. Watkins

Eda Dokle

Andrea Zinn

Lucciana Alvarez Ruiz

Howard Miller

Anindita Chakraborty

Mayada El-Zoghbi

Eric Noggle

Camilla Nestor

Mark Pickens

Joanna Ledgerwood

David Ferrand

Laura Schroeder

Amee Parbhoo

Rob Stevens

Andrew Fixler

Somen Saha

Anna Koblanck

Sub-Saharan Africa

Guatemala

Latin America and The Caribbean

Uganda

Zambia

Kenya

Challenges and Crises

Enabling Environment

Financial Health

Financial Service Providers

Impact Investing

Microfinance Institutions

Resilience

Smallholder Farmers

Underserved Groups

Youth

Agricultural and Rural Finance

Credit

Refugees and Migrants

Rural Populations

Appropriate Product Design and Delivery

Consumer Protection

Women

Index Insurance

Insurance

Credit Provision

Entrepreneurs of MSMEs

Crop Insurance

Financial Inclusion Strategy

Payments

Digital Credit

Digital Financial Services

MSME/SME Finance

Policy, Regulation and Government Initiatives

Supply Chain Finance

Responsible Investing

Agent Banking

Blockchain and Cryptocurrency

Delivery Channels

Financial Technology

Mobile Banking

Fintechs

Alternative Data

Insurtech

Neobanks

PayGo

Remittances

Risk Management

Underwriting

Financial Capability

Microfinance

Blog Post

<em><span style="text-align: left;color: #333333;text-indent: 0px;letter-spacing: normal;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-variant: normal;font-weight: 400;text-decoration: none;cursor: text;float: none;background-color: transparent">This post originally appeared on </span><a href="https://www.ictworks.org/do-farmers-really-want-to-be-paid-in-mobile-money/#.Wyqvx6kpDBL">ICTworks</a></em><span style="float: none;background-color: transparent;color: #333333;cursor: text;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-style: normal;font-variant: normal;font-weight: 400;letter-spacing: normal;text-align: left;text-decoration: none;text-indent: 0px"><em> and is re-posted here with permission</em>.</span>

&gt; <em>Posted by By Chrissy Martin, U.S. Global Development Lab, USAID
</em>

Do farmers really want to be paid in mobile money? To answer this question, I’ll ask you to first entertain a brief thought experiment.

Imagine that your employer told you that next pay period, your company will start paying you in <a href="https://bitcoin.org/en/">Bitcoin</a>.  How would you react?  Sure you’ve heard about Bitcoin, but you have lots of questions as to what it will mean to receive your salary this way, such as:
<ul>
 	<li>Am I getting swindled?!</li>
 	<li>Where can I use bitcoin?</li>
 	<li>Can I spend it like dollars, or will I have to convert into dollars first?</li>
 	<li>Where can I convert?</li>
 	<li>How much is the conversion fee?</li>
 	<li>Will I be paid into my same bank account?</li>
</ul>


Your employer has some responses to your questions:
<ul>
 	<li>There are <a href="http://coinmap.org/">only a few places to use Bitcoin</a> in Washington, DC.</li>
 	<li>In order to spend your money anywhere else, you’ll have to convert first, and pay a fee to do so.</li>
 	<li>You’ll have to set up a new account, and learn a new app.</li>
 	<li>If you want to help to learn this new system, you can take unpaid leave to sit in a classroom and attend a financial literacy training…</li>
</ul>
<h3>Your Response to Bitcoin Is Their Response to Mobile Money</h3>
Perhaps this sounds like a less than ideal situation, but it really is not that different from how a farmer must feel when the company they usually sell their produce to decides, or offers, to start paying them in mobile money.

Maybe the farmer has heard of mobile money; she’s heard some good things, but she’s also heard some stories about fraud.  Besides, she’s used to cash, and she doesn’t have the luxury of time to learn an entirely new system since she needs to tend to her farm, her children, and the other side jobs she takes on to help pay the bills.

Why is this thought experiment relevant? Efforts are currently underway in many countries to digitize payments along the agricultural value chain. This is due to both the growing evidence that access to a digital account increases household resilience and the potential for mobile money to increase farmers’ access to financing (think loans for inputs) and markets (think connections to more buyers and the ability to lock in better prices).
<h3>Three Ways to Improve Mobile Money Adoption</h3>
Often, the assumption is that we should start by digitizing payments from buyers to farmers. These are large, bulk payments that can be transitioned from cash to electronic fairly easily, from a technology standpoint. This would get money into the farmer’s mobile wallet so that they start to become familiar with the concept.

However, in select value chains in Uganda, USAID and our partners are finding that this is not necessarily the best way to encourage adoption. While some agribusinesses and farmers are signing on enthusiastically, we’re not yet seeing the type of scale that is necessary to really start building out a rural digital financial ecosystem.

Based on this experience, I see three keys shifts underway that can help:

<strong>1. We need to ask <em>what the farmer actually wants. </em> </strong>

The payments first approach to digitizing the value chain fails to start with an understanding of the farmer’s interest in transitioning to mobile money, as we start to understand when we consider the idea of transitioning our own salary to Bitcoin.  The farmer, who may not have a mobile phone, who may rarely leave her farm and may never have been to bank, is often perfectly happy with cash.

So, we have to ask, what does the farmer need?  Access to credit for inputs, on-demand production and marketing services, access to household solar through a digital pay-as-you-go plan, and an easy way to pay for school fees are all products that are based on real constraints that many farmers in Uganda face.

To better understand what makes mobile money attractive to a farmer, United Nations Capital Development Fund (UNCDF) and <a href="http://www.cgap.org/about"> </a><a href="http://www.cgap.org/about">CGAP</a> are undertaking a <a href="http://mm4p.uncdf.org/tags/value-proposition-mapping">Value Proposition Mapping</a>, which will help the private sector tailor products accordingly.

<strong>2. We need to <em>expand our idea of the user.</em></strong>

When we talk about being user-centered, we often think immediately of the individual.  However, within a value chain, we need to think of the incentives and capacities for a wide variety of users, including the farmer, other members of the farmer’s household, the agribusiness, the cooperative, the community savings group, and the mobile money provider.

For example, we’re finding that agribusinesses may need significant system upgrades and process changes to transition away from paper based processes.

<strong>3. We need to <em>reassess the starting point. </em></strong>

As we’re finding through Digital Development for Feed the Future, a three-year collaboration between the Global Development Lab and the Bureau for Food Security within USAID, improving data collection and data usability underpins all of our efforts to improve agricultural results through digital tools.

For example, our partner in Uganda, <a href="http://akorion.com/">Akorion</a>, is facilitating input loans to farmers with digital farmer profiles that provide banks with detailed information on which they can base creditworthiness. Through its market system digitization platform and Ezy-Agric, Akorion bridges the information and service delivery gap for farmers and agribusinesses.

These three suggestions are based on our experience to-date in Uganda, as well as the experience of USAID’s partners, including <a href="http://www.siaedge.com/">Strategic Impact Advisors</a> and <a href="http://mm4p.uncdf.org/">UNCDF</a>’s program in Uganda.  However, these suggestions all need to be tested and may change or need to be modified quickly.

The key takeaway?  Remember to challenge your assumptions by always taking a minute to imagine yourself in a similar situation.  How would you feel?

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Do Farmers Really Want to Be Paid in Mobile Money?

<em>The following post was <a href="http://blogs.accion.org/features/changing-climate-technology-provides-agricultural-insurance-farmers/">originally published</a> on the Accion blog.</em>
<p id="d33a" class="graf graf--p graf-after--figure">Smallholder farmers are the bedrock of sub-Saharan Africa’s and Asia’s agricultural markets, providing <a class="markup--anchor markup--p-anchor" href="http://www.fao.org/3/a-i4036e.pdf" target="_blank" rel="nofollow noopener noreferrer">over 80 percent of the food supply</a>, but they are growing increasingly vulnerable. Climate scientists estimate that over the next few decades, droughts will <a class="markup--anchor markup--p-anchor" href="https://www2.ucar.edu/atmosnews/news/2904/climate-change-drought-may-threaten-much-globe-within-decades" target="_blank" rel="nofollow noopener noreferrer">frequently affect Africa and Asia</a> as a result of climate change. As weather conditions cause decreased stability for family farms, there is an increased need for risk mitigation solutions that can add security to the lives of those most affected.</p>
<p id="9f1f" class="graf graf--p graf-after--p">Pula, <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/content/pula-secures-funding-global-investors-support-smallholder-farmers-africa-and-south-asia" target="_blank" rel="nofollow noopener noreferrer">one of Accion Venture Lab’s latest investments</a>, provides insurance to smallholder farmers across Africa and India, enabling income security for a population whose livelihoods depend on climate patterns. <strong class="markup--strong markup--p-strong">Pula uses cutting-edge technology coupled with expansive distribution partners to make large-scale agricultural insurance feasible for rural farmers</strong>.</p>
<p id="8d1f" class="graf graf--p graf-after--p">Across their product portfolio, Pula uses various technologies, including automated voice calls to register customers, satellite imagery to monitor cloud cover, and SMS messages to provide agronomic advice. In the event of a drought or poor season, Pula uses weather data and yield samples to offer compensation to farmers for their losses. By coupling technology with large-scale distribution, Pula can make insurance practical for smallholder farmers at scale.</p>
<p id="cf02" class="graf graf--p graf-after--p">At Venture Lab, we’re most excited about a few core areas of the typical microinsurance value chain that Pula disrupts:</p>
<p id="2264" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Eliminating the purchase barrier</strong>: Pula’s distribution model circumvents the challenges of customer adoption and education that we’ve seen insurers struggle with in the past. Customers read about Pula’s coverage on a sticker on the bag of seed or fertilizer they’re purchasing, and then they register their unique policy via their mobile phone. Pula’s partners put stickers on every bag sold in a region, and there’s no visible added cost to the products, simplifying the farmer’s decision-making process. To that farmer, Pula’s coverage is easy to activate and presents pure upside.</p>
<p id="2945" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Increasing yields for customers with massive need</strong>: Pula focuses on some of the most vulnerable populations on Earth, and the insurance coverage is only the beginning of the benefit they receive from the product. By de-risking the purchase of farm inputs, such as seed, fertilizer, or credit, Pula is also able to incentivize farmers to purchase higher-quality products than they otherwise might — without the risk of failure. As a result, they can attain higher yields and incomes. Further, Pula provides the farmer with direct agronomic advice via SMS, leveraging the farmer’s GPS coordinates and their climate science team, and boosting the farmer’s yields.</p>
<p id="9622" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">Lowering the cost to serve</strong>: With its innovative distribution, Pula has the potential to reach a customer that has previously been prohibitively expensive to serve. Formerly, insuring smallholder farmers required multiple field visits to determine if conditions were right for crops to grow and to educate the farmer about the benefits of insurance, ultimately convincing them to pay for coverage. Pula can automate and significantly cut costs by assessing the farm’s weather remotely using satellite and regional yield data. Working through distributors also enables Pula to offer free and straightforward insurance coverage that is fully integrated with the input.</p>
<p id="3f7f" class="graf graf--p graf-after--p">Venture Lab is thrilled to be working with the Pula team on their mission to provide insurance to smallholder farmers across Africa and Asia. Co-founder Rose Goslinga is a pioneer in the space, with a decade of experience and a <a class="markup--anchor markup--p-anchor" href="https://www.ted.com/talks/rose_goslinga_crop_insurance_an_idea_worth_seeding" target="_blank" rel="nofollow noopener noreferrer">TED talk</a> on her resume. She is working alongside Thomas Njeru, who provides actuarial experience and financial expertise as the company’s CFO.</p>
<p id="38d2" class="graf graf--p graf-after--p">As <a class="markup--anchor markup--p-anchor" href="https://www.microinsurancenetwork.org/sites/default/files/Microinsurance%20Network_Africa%20landscape%20full%20report-WEB_0.pdf" target="_blank" rel="nofollow noopener noreferrer">microinsurance in most African markets hovers at or below 5 percent,</a><strong class="markup--strong markup--p-strong"> there is a massive market opportunity to support the world’s most vulnerable as they grow food to provide for their communities</strong>. Pula tackles the arduous task of customer awareness by partnering with known brands and uses cutting-edge technology to make the product scalable. <a class="markup--anchor markup--p-anchor" href="http://www.thp.org/knowledge-center/know-your-world-facts-about-hunger-poverty/" target="_blank" rel="nofollow noopener noreferrer">Half of the world’s hungry</a> are farming families, and Pula strives to reach those most in need with security and stability.</p>
<p id="d671" class="graf graf--p graf-after--p">Venture Lab is excited to be supporting Pula as they take on one of the world’s most significant challenges.</p>
<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2018/01/22/7-fintech-trends-to-watch-in-2018/">7 Fintech Trends to Watch</a>

<a href="https://cfi-blog.org/2018/02/27/the-radical-reinvention-of-inclusive-insurance/">The Radical Reinvention of Inclusive Insurance</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

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In a Changing Climate, Technology Provides a Lifeline for Farmers

<em>The following post was <a href="http://blogs.accion.org/features/7-fintech-trends-to-watch-in-2018/">originally published</a> on the Accion blog.</em>
<p id="46a8" class="graf graf--p graf-after--h4">We’re in the middle of a fintech boom that <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/trends-that-may-change-the-world-c00f4e500a8c" target="_blank" rel="noopener noreferrer">could change the world</a>. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.</p>
<p id="c50b" class="graf graf--p graf-after--p">As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.</p>

<h4>Digital neobanks</h4>
[caption id="attachment_24930" align="aligncenter" width="616"]<img class="wp-image-24930" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/appsm_mockup2.jpg" alt="" width="616" height="411" /> SmartMEI is a digital neobank serving small businesses in Brazil[/caption]
<p class="graf graf--p">In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="http://nowmoney.me/" target="_blank" rel="nofollow noopener noreferrer">NOW Money</a>, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and <a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="nofollow noopener noreferrer">SmartMEI</a>, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.</p>

<h4>Next gen small business finance solutions</h4>
<p class="graf graf--p">Around the world, micro, small, and medium enterprises (MSMEs) struggle to access capital. Estimates suggest that <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES" target="_blank" rel="nofollow noopener noreferrer">200 to 245 million formal and informal small businesses</a> either don’t have a loan or have one but are still constrained by their access to financing. Startups have been developing creative ways to acquire, underwrite, and fund these businesses. Some of the most innovative models today are embedding themselves into supply chains and working with a partner in that supply chain to identify MSMEs in need of financing and to obtain existing data that can support credit decision-making. These companies include <a class="markup--anchor markup--p-anchor" href="http://www.tiendapago.com/en/" target="_blank" rel="nofollow noopener noreferrer">Tienda Pago</a>, which partners with major consumer good distributors in Peru and Mexico to extend short-term working capital to small stores for inventory purchases, and <a class="markup--anchor markup--p-anchor" href="https://lidya.co/" target="_blank" rel="nofollow noopener noreferrer">Lidya</a>, which works through partners in Nigeria to provide invoice discounting and supply chain financing to small businesses.</p>

<h4>Insurtech for the underserved</h4>
<p class="graf graf--p">Low-income consumers in emerging markets need insurance products to manage and mitigate financial risks, but serving those customers poses significant challenges — from cost-effectively reaching and educating consumers, to accurately assessing and pricing risks, to efficiently managing claims. Startups can play a critical role in solving those challenges with products intended to address specific risks for underserved communities, new distribution channels to reach these populations, and new streams of data to more effectively assess and price risk. Insurtech innovators include <a class="markup--anchor markup--p-anchor" href="https://lumkani.com/" target="_blank" rel="nofollow noopener noreferrer">Lumkani</a>, which sells a low-cost heat detector bundled with insurance to households in South African informal settlements that protect against loss of life, shelter, and assets, and <a class="markup--anchor markup--p-anchor" href="https://togarantido.com.br/" target="_blank" rel="nofollow noopener noreferrer">Togarantido</a>, which serves as an online-based insurance broker focused on the underserved in Brazil.</p>

<h4>Financial services for smallholder farmers</h4>
<p class="graf graf--p">Smallholder farmers remain notoriously difficult to reach and are often considered high-risk clients since their incomes are tied to unpredictable harvests. An estimated <a class="markup--anchor markup--p-anchor" href="https://www.raflearning.org/post/inflection-point-unlocking-growth-era-farmer-finance" target="_blank" rel="nofollow noopener noreferrer">270 million smallholder farmers around the world face a financing gap of $170 billion</a>. Innovators addressing this need can provide real value — by helping farmers finance irrigation pumps, combat pests, or address climate risks. Startups in this space include <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/" target="_blank" rel="nofollow noopener noreferrer">Apollo Agriculture</a>, which leverages satellite imagery, data science, and mobile money to finance fertilizer and seeds needed to increase crop yields, and <a class="markup--anchor markup--p-anchor" href="https://www.pula-advisors.com/" target="_blank" rel="nofollow noopener noreferrer">Pula</a>, which works with large seed and fertilizer suppliers across Africa to bundle crop insurance in with product purchases.</p>

<h4>Asset finance</h4>
[caption id="attachment_24931" align="aligncenter" width="615"]<img class="wp-image-24931" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/kn_pg_2016_25.jpg" alt="" width="615" height="410" /> The Paygo team at work on their smart meter for cooking gas[/caption]
<p class="graf graf--p">Individuals and small businesses require financing for assets like medical equipment, smartphones, and solar home systems to increase efficiency and improve lives. One promising innovation in this space is pay-as-you-go financing, which allows consumers and business owners to make small upfront payments and regular “top-ups,” usually sent via mobile money. The model has already led to a rapid expansion in solar home systems across emerging markets. Other scalable models for asset financing leverage new distribution and payment approaches like layaway solutions, leasing models, and peer-to-peer transfers. <a class="markup--anchor markup--p-anchor" href="http://paygoenergy.org/" target="_blank" rel="nofollow noopener noreferrer">PayGo Energy</a> is a promising company in this space; its pay-as-you-go financing model enables low-income customers in Kenya to pre-pay for cleaner and more affordable cooking gas.</p>

<h4>All-digital consumer lending</h4>
<p class="graf graf--p">Recent years have seen digital consumer lenders emerge and scale by using simple apps to collect and analyze customer data to provide access to credit for underserved populations. The speed and accessibility of digital platforms enable credit access for consumers who are underserved by traditional lenders and who might otherwise be too costly to serve. Innovators could add value to the sector with new approaches to credit underwriting and consumer engagement that lower defaults and improve retention — two of the critical challenges to the app-based lending model. <a class="markup--anchor markup--p-anchor" href="http://smartcoin.co.in/" target="_blank" rel="nofollow noopener noreferrer">SmartCoin</a> offers new engagement tools alongside its mobile lending platform to better understand and serve its customers in India, and <a class="markup--anchor markup--p-anchor" href="https://www.tezfinancialservices.pk/" target="_blank" rel="nofollow noopener noreferrer">Tez</a> provides an all-digital banking platform with a full suite of products to low-income consumers in Pakistan.</p>

<h4>Consumer financial health</h4>
<p id="ce83" class="graf graf--p graf-after--p">In 2016, the Federal Reserve revealed a concerning statistic about financial health in the U.S.: 46 percent of Americans said they could not pull together <a class="markup--anchor markup--p-anchor" href="https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.893f79e72c4c" target="_blank" rel="nofollow noopener noreferrer">$400 to cover an emergency</a>. Startups are providing solutions that help consumers manage their day-to-day financial lives and rebound from shocks. There is significant potential for innovators to leverage behavioral science to design new solutions such as clever nudges, useful automation, gamification, or bundling across different financial products. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="https://www.lendstreet.com/" target="_blank" rel="nofollow noopener noreferrer">Lendstreet</a>, which focuses on financial health by providing U.S. consumers a platform to restructure and refinance their distressed debt and rebuild their credit, and <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destacame</a>, which empowers users in Mexico and Chile with control of their data to build their financial capabilities and access better financial products.</p>
<p id="2358" class="graf graf--p graf-after--p">Each of these areas of startup-led innovation offers significant potential for both social impact for underserved consumers and financial profit in 2018. We’re excited to see what’s next.</p>
<em>Image credits: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<a href="https://cfi-blog.org/2017/07/31/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines/">How Financial Institutions and Fintechs Are Partnering for Financial Inclusion: Lessons from the Frontlines</a>

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7 Fintech Trends to Watch in 2018

<em>&gt; Posted by Andrew Fixler, Freelance Journalist</em>

<a href="https://www.flickr.com/photos/38476503@N08/21760883046/"><img class="alignright wp-image-20783" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/21760883046_408ce22872_z.jpg?w=490" alt="" width="330" height="220" /></a>Consolidation and investment in coffee brands is reaching a fever pitch, according to Andrew Daday, Director of Coffee for <a href="https://www.stumptowncoffee.com/">Stumptown Roasters</a>. Coffee is the second-most traded commodity in the world, and the modal coffee farmer is a smallholder living near or below the poverty line, resulting in unique value chains in Latin America, East Africa, and Southeast Asia. These value chains are characterized by factors like the <a href="http://www.investopedia.com/university/commodities/commodities2.asp">commodity coffee markets</a>, agronomics, organization/associations of growers, government coffee marketing institutions, and the state of rural financial services. <a href="https://en.wikipedia.org/wiki/Specialty_coffee"><em>Specialty coffee</em></a> is characterized by meeting particular quality standards. Specialty coffee production allows some farmers to escape the vicissitudes of the commodity coffee market and to capture value commensurate with their product’s quality and input costs. In the United States, <a href="http://www.scaa.org/?page=resources&amp;d=facts-and-figures">55 percent</a> of the 48 billion dollars of coffee retail value consumed falls into the specialty category – representing immense growth in recent decades. If bullishness ratifies the growth prospects for high-end coffee in the U.S. and abroad, it is worth looking into how scaling will manifest at the agricultural end of the value chain, because the relationships coffee farmers have with downstream firms impact their well-being in a number of ways, including via their access to financing.

Agriculture finance for smallholders can be an operationally-intensive, high-risk enterprise. However, financial institutions like the Netherlands’ Rabobank and Mexico’s Banorte <a href="http://www.fao.org/docrep/017/i0846e/i0846e.pdf">express</a> that agricultural credit is especially viable and profitable if “producers are well-integrated into a viable value chain.” Linking into a larger firm’s supply chain is a boon to small business growth in many contexts. Besides serving as a “<a href="https://nycfuture.org/pdf/Giving_Small_Firms_the_Business.pdf">springboard for growth</a>” for small businesses from increased market access, buyer-supplier linkages yield exposure to key industry information and data points along the value chain that contribute to better capital allocation and financial accessibility for qualified entrepreneurs. Linking with a value chain may also <a href="https://www.microlinks.org/good-practice-center/value-chain-wiki/value-chain-finance">enable</a> a transition from informal lending, which can rely overwhelmingly on local knowledge for underwriting, to the formal financial services sector.

Viability of financing increases when value chain linkages are stronger and are used as intangible collateral. While building relationships with farmers, buyers consider smallholder attributes similar to those examined by credit underwriters. This translates into easier screening of potential borrowers, disbursement and repayment of loans, and management of collateral and risk. A detailed understanding of the quality of value chain linkages can further assure lenders of farmers’ future revenue streams. Lead firms in the value chain depend on supplier quality and resilience, so they may actively play a role in facilitating outside financing, or in rarer cases directly finance their partners through product and receivables financing.

In specialty coffee, value chain integration is diligently forged. The <a href="http://www.scaa.org/chronicle/2012/02/14/direct-trade-the-questions-answers/">direct trade</a> model is defined by a transparent relationship between farmer and roaster starting with contract negotiation, and continuing through a long-term alignment of interest in the farm’s growth, stability, and sustainability. Scalability is built on a knowledge network supported by government coffee institutes and international coffee raters, like the Cup of Excellence or Coffee Analysts, as well as roasting companies. In different manifestations of specialty coffee trade, this network is tapped in order to scale the number of producers as demand grows. So as coffee consumption grows, and the market share of specialty coffee increases, more farmers will enter close relationships with international firms.

For example, Starbucks runs <a href="http://www.starbucks.com/responsibility/community/farmer-support/farmer-support-centers">Farmer Support Centers</a> to <a href="https://books.google.com/books?id=xRL32pfxl8gC&amp;pg=PA123&amp;lpg=PA123&amp;dq=starbucks+farmer+support+center+costa+rica+value+chain+finance&amp;source=bl&amp;ots=3SSBDQ0BaU&amp;sig=WCgKAGGOsmXCnfI795B-XKssiQg&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwiygoKjmezKAhULMz4KHUGfDF4Q6AEIMzAD#v=onepage&amp;q=starbucks%20farmer%20support%20center%20costa%20rica%20value%20chain%20finance&amp;f=false">ensure</a> the company can meet growing demand. They administer an array of resources and support to growers, and bring new farmers into the company’s fold.

Specialty coffee allows farmers to recoup investments in increased quality by assuring that their produce will be processed and sold by a series of actors that will recognize the beans’ quality and distinctive identity. Additionally, the degree to which coffee farmers capture returns on their products’ distinct value attributes <a href="https://books.google.com/books?hl=en&amp;lr=&amp;id=mwpAO0J9ojgC&amp;oi=fnd&amp;pg=PR8&amp;dq=history+of+coffee+commodity&amp;ots=iESGIxaVI-&amp;sig=VwMnMFr3BYKA9h8D2KKy3G8Z55M#v=onepage&amp;q=history%20of%20coffee%20commodity&amp;f=false">determines a significant component of their market power</a>. Daday explained that <a href="https://en.wikipedia.org/wiki/Third_wave_of_coffee">third wave coffee roasters</a> (specialty coffee roasters which consider coffee more an artisanal foodstuff than commodity) buy beans from a single origin in shipping container-sized quantities, and at a premium price. This further entrenches a mutual dependence, and cements the negotiational potence of specialty coffee producers relative to their counterparts who sell coffee destined for the commodity market.

Beyond the rarified world of third wave coffee roasters, retailers are investing in their value chains, often with regard for the financial externalities this avails to their businesses and those of their partners. Starbucks’ Director of Coffee Sustainability and general manager of the Starbucks Agronomy Company notes in a <a href="http://www.fao.org/3/a-i0016e.pdf">2006 seminar</a> that sustainability and risk control are paramount in the company’s value chain. This might manifest in partnerships with impact investors who can finance growers with whom the coffee company hopes to build a long term relationship. Recently, Keurig Green Mountain, Coffee Cooperatives, Starbucks, and USAID partnered with Root Capital to target the Roya blight, a leaf rust endemic to Latin America which causes a <a href="http://www.fomin.org/en-us/Home/FOMINblog/Blogs/DetailsBlog/ArtMID/13858/ArticleID/2179/NoTitleLink.aspx">half billion dollars in losses</a> annually when left unmitigated. Their <a href="http://www.rootcapital.org/about-us/press-releases/usaid-keurig-green-mountain-cooperative-coffees-starbucks-and-root-capital">efforts</a> will allocate $23 million, including $15 million in investment capital, to technical assistance and farm-rehabilitation efforts. Part of the technical assistance includes advice on negotiating ongoing Roya prevention costs into contracts.

From coffee to cocoa to other crops, there are roughly 500 million smallholder farmers around the world. As lessons learned in supply chain sophistication and agriculture financing amass in the growing artisanal produce and mass market grocery industries alike, the prospects for entrepreneurial smallholders may significantly brighten.

<em>Image credit: <a href="https://www.flickr.com/photos/38476503@N08/21760883046/">CIAT</a></em>

<em>This post was modified from its original version on March 4, 2016.</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/03/27/agriculture-microinsurance-in-africa-to-subsidize-or-not-to-subsidize/" target="_blank">Agriculture Microinsurance in Africa: To Subsidize or Not to Subsidize?</a>

<a href="http://cfi-blog.org/2014/04/24/new-council-to-expand-responsible-financing-for-agriculture/">New Council to Expand Responsible Financing for Agriculture</a>

<a href="http://cfi-blog.org/2015/01/28/banking-services-extended-to-300000-colombian-coffee-growers/">Banking Services Extended to 300,000 Colombian Coffee Growers</a>

Coffee Connections: Improving Smallholder Inclusion through Value Chain Finance

<em>Editor's Note: Eric Noggle worked at Microfinance Opportunities when this research was conducted and published.</em>

In 2014, <a href="http://fsdzambia.org/">Financial Sector Deepening Zambia</a> and <a href="https://www.microfinanceopportunities.org/">Microfinance Opportunities</a> (MFO) began the Zambia Financial Diaries—a 52-week study of the financial lives of 352 low-income Zambians. The study included 92 smallholder farmers—individuals who own small plots of land on which they grew crops or tended livestock for sale and/or subsistence.

The Zambian smallholder farmers represent only a tiny fraction of the estimated 500 million smallholder households worldwide. Smallholder farmers are a large livelihood group and addressing their diverse needs—from crop diversification to market integration—is a strategic priority for the World Bank Group, country-level governments, and non-government organizations.

Understanding smallholder farmers’ income patterns is critical for designing financial services that meet their financial needs. The common perception of farmers’ income patterns is that they are lumpy and linked to agricultural cycles, but the income patterns identified in MFO’s Zambia Financial Diaries challenge this perception.
<h2>Income Patterns</h2>
<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png"><img class="alignright wp-image-20735" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png" alt="" width="350" height="88" /></a>The farmers in MFO’s study had lower and more variable incomes than respondents who earned the majority of their income from informal, off-farm sources (“informal workers”). The farmers had 4.3 income sources on average, often relying on casual labor or running informal shops to supplement their agricultural activities, while informal workers had 3.3 sources. Farmers’ average weekly earnings were low—only about $19 per week on average compared to $50 for informal workers (based on June 2015 exchange rates). The farmers also experienced more week-to-week income variation, as measured by the coefficient of variation (COV), than other respondents who work in the informal economy.

However, these data mask the diversity of smallholder farmers’ income patterns. The study found farmers who earned large sums frequently, while others had large and inconsistent windfalls. Lower-income farmers also had diverse patterns, with some earning small sums on a frequent basis while others went weeks between earning income.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png"><img class="aligncenter wp-image-20737" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png" alt="" width="615" height="232" /></a>

MFO developed a simple market segmentation framework to understand the role of income patterns in financial service design better. The framework comprises two dimensions: average weekly income and week-to-week income variation as measured by the COV. We divided respondents into high- or low-income groups at the median of average weekly income and high- or low-variation groups at the median of the COV.

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<h2><a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png"><img class="aligncenter wp-image-20738" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png" alt="" width="615" height="299" /></a></h2>
<h2>Implications of Segmenting by Income Behavior</h2>
The segmentation framework demonstrates the diversity of smallholder farmers’ income patterns and their similarity to the income patterns of informal workers. This finding should encourage stakeholders to prioritize collecting information about consumers’ income patterns when designing financial services for the low-income market segment. The financial needs of a smallholder farmer with high, steady income are more similar to those of a micro-entrepreneur with the same income pattern than a smallholder farmer who irregularly earns small sums. Recognizing these inter-livelihood similarities can help stakeholders mitigate inefficiencies in the design, marketing, and delivery of financial services.

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<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png"><img class="aligncenter wp-image-20739" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png" alt="" width="615" height="232" /></a>

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Stakeholders focused specifically on smallholder farmers should consider the needs and opportunities that these income patterns suggest. For instance, a farmer with high income and high variation may benefit from interventions that allow the farmer to diversify on- and off-farm income sources. This diversification could lead to more consistent annual income. A farmer with high income and low variation may be best suited for interventions that support the expansion of farming activities through asset financing or linkages with local markets. Farmers with low-income and high variation may struggle to piece together the income necessary to purchase inputs during the planting season; thus, a layaway product might be beneficial for them. Cash transfers from government agencies or non-governmental organizations would help farmers with low-income and low variation pay basic on- and off-farm expenses that their meager earnings cannot cover.

Income patterns alone should not inform the design of financial services for smallholder farmers, but they are a critical component in the process. MFO’s hope is that this study and other research can help improve the efficacy of interventions meant to help this diverse group.

For more information on the research methodology and additional findings, please read the<em> <a href="https://www.microfinanceopportunities.org/?p=2824">Zambia Financial Diaries Interim Report</a></em><em>.</em>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/09/10/pay-for-performance-operationalizing-the-embedded-education-model/">Pay-For-Performance: Operationalizing the Embedded Education Model</a>

<a href="http://cfi-blog.org/2014/06/11/climate-change-adaptation-for-smallholder-farmers/">Climate Change Adaptation for Smallholder Farmers</a>

<a href="http://cfi-blog.org/2013/11/01/what-is-financial-capability/">What Is "Financial Capability?"</a>

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Using Income Patterns to Segment Livelihood Groups: The Case of Smallholder Farmers

<em><img class="alignright" style="border:0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2011/08/disc-meter.jpg?w=300&amp;h=174" alt="" width="300" height="174" />&gt; Posted by Center Staff</em>

This edition of top picks features posts highlighting initiatives to optimize smallholder finance data collection and usage, efforts to improve youth financial capability, and insights on how mobile money services can effectively reach women.

To better provide financing for the 450 million smallholder farmers around the world, there’s a big opportunity in developing shared knowledge bases and coordinated learning agendas for this topic area. A <a href="http://www.cgap.org/blog/filling-smallholder-household-data-gap-new-learning-agenda">new post</a> on the CGAP blog shares the work of Dalberg Global Development Advisors and the Initiative for Smallholder Finance to ascertain the state of the smallholder financing knowledge base and put in place a number of complementary tools so that those addressing this financing gap can work together, repurpose what others have already learned, and build off of the field's scarce resources to drive it forward. The post highlights a smallholder impact literature wiki, an interactive map of smallholder finance tools, a framework for data collection that includes a shared learning agenda, and new briefings offering supply and demand side insights as well as indications of where data is lacking.

How can children and youth become financially capable adults? A <a href="http://www.poverty-action.org/blog/how-can-children-and-youth-become-financially-capable-adults" target="_blank">new post</a> on the Innovations for Poverty Action (IPA) blog examines interventions that have been conducted to improve the financial capability and well-being of the younger client segment. In Uganda, a country with one of the highest primary school drop-out rates in the world, 81 percent of parents with children who have dropped out cite financial constraints as the reason. Youth finance to keep kids in school and support their overall betterment is not a new item on the financial inclusion and development agendas, and so efforts to date to improve capability have been varied and even tested in combination. The IPA post discusses promising results that have arisen from financial education and savings initiatives, and important next steps.

In Papua New Guinea, where roughly 15 percent of the population has access to formal financial services, the MiCash mobile money service boasts an impressively high gender balance among its clients: 38 percent are women. The service was launched by Nationwide Microbank in 2012 and has been met with relatively high uptake among the population. GSMA’s Mobile Money for the Unbanked blog is producing a series of posts that build on their recently released report <em>Reaching Half of the Market: Women and Mobile Money</em>, outlining takeaways from mobile money services that have been effective in reaching women. <a href="http://www.gsma.com/mobilefordevelopment/reaching-half-of-the-market-women-and-mobile-money-the-example-of-nationwide-microbank-in-png">This week’s post</a> on MiCash in Papua New Guinea includes insights on financial literacy, outreach, and partnerships.

<em>Image credit: <a href="http://commons.wikimedia.org/wiki/User:Iainf" target="_blank">Ianf</a></em>

Smallholder Data, Youth Capability, Women and Mobile – Top Picks of the Microfinance Blogosphere

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

<em>&gt; Posted by Bobbi Gray, Research and Evaluation Specialist, Freedom from Hunger </em>

<a href="http://www.thelasthungerseason.com/"><img class="alignright wp-image-15287" style="border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/06/9088752.jpg" alt="" width="250" height="388" /></a>In <a href="http://cfi-blog.org/2014/06/23/the-last-hunger-season-book-review-part-one/" target="_blank">part one of this review</a>, we considered several themes that Roger Thurow raised in the book <a href="http://www.thelasthungerseason.com/" target="_blank"><em>The Last Hunger Season: A Year in an African Farm Community on the Brink of Change</em></a> that might influence how we conduct research and design evaluations to measure changes in poverty. The book follows four Kenyan smallholder families for a year, chronicling how their lives were changing as a result of participating in One Acre Fund’s agriculture training and loan program.

Understanding the decisions these families made about how and where to allocate their very limited resources helps us as financial service practitioners and researchers to understand and appreciate certain realities.

Financial service providers can feel both disappointed and encouraged by this book. We find ourselves uncomfortable reading about Leonida, the Kenyan mother and smallholder farmer who makes a credit payment instead of feeding her family. But we also see opportunity. It’s a difficult trade-off for Leonida, but she sees her credit payment as her ticket to new investment in crops, which have already shown promise after a year of participating in One Acre Fund’s program.

In our earlier discussion, we looked at how we might think differently about evaluating programs. Let’s switch gears to what Thurow encourages us to think about in terms of program design. He highlights two key opportunities that stem from a more client-centered approach to program design.

<strong>Being client-centered requires a deep understanding of not just client needs, but their financial priorities.</strong>

One Acre Fund learned that, in order to pay school fees, farmers in its program were often selling their grain at times when they would receive the lowest price for their harvest.

In response, One Acre Fund developed a school fee loan, using their grain as collateral. Repayment of the loan is deferred until the market price of grain is at a peak, months later.

One Acre wanted to ensure that the farmers could time their sales to generate the greatest profit and avoid having to sell at suppressed prices to pay school fees when those expenditures could be anticipated. They also developed small loan products that would allow farmers to buy small amounts of seed and fertilizer consistent with their small plots of land. This allows farmers to plant supplementary crops to help sustain their family through the hungry season.

As we come to a deeper understanding of the financial circumstances and constraints faced by smallholder farmers, we gain a clear picture of how One Acre Fund has innovated around these constraints to develop products that meet the specific financial needs and priorities of their clients.

<strong>Financial services alone are not enough to move people out of poverty—an integrated approach is necessary.</strong>

As we follow the stories of these four families, we become keenly aware of why microcredit alone will not be enough for them.

One Acre Fund uses microcredit as one tool but pairs it with agricultural education to help address inadequate agricultural practices. These integrated services are one part of the equation. However, health is also a roadblock for poor households as they try to pull meager funds together to seek treatment and save family member lives.

After one year in the program, Rasoa, a 30-year-old mother of three boys, was feeling comfortable about the future. She said, “For now, I won’t cry again that my children are lacking food.” However, misfortune struck and her brother was admitted to the hospital. She knew the hospital wouldn’t treat him without advance payment, so she sold two bags of her grain to pay for it. This grain was originally set aside to feed her family through the hunger season.

Being client-centered could also mean ensuring that different sectors such as health, agricultural, and financial sectors work more collaboratively to meet the multifaceted needs of the poor. Opportunities to create more and better linkages between the financial, health, and agricultural sectors exist, but they require a new way of thinking and a commitment to listening and working collaboratively to meet client needs.

We have seen such linkages work. One Acre Fund provides one example of client-centered programming. Freedom from Hunger has also helped its partners establish linkages to health providers to offer reduced-cost medical care, organize health fairs, and organize their own cadres of community health workers. Some of our partners are even addressing the first 1,000-day period from pregnancy to a child’s second birthday by providing pre-natal care education and linkages to health services, breastfeeding and diarrhea education, and access to related health products.

Thurow’s description of the lives of the smallholder farmers in <em>The Last Hunger Season</em> helps us fully realize that the movement out of poverty is often not linear. Sometimes there are periods of progress and other times, there are setbacks.

One Acre Fund encourages simple, yet effective changes to agricultural practices, including increased investment in inputs and instruction on how and when to most effectively plant new seeds and nurture them, the use of fertilizers, crop diversification, and crop rotation. If followed, this advice helps smallholder farmers by ensuring there is always a crop in the ground to produce food for the household while the cash crops are waiting to be harvested. Program participants in the story reaped harvests that were double, triple, and even quadruple the size of previous gains, providing opportunities for better nutrition, additional agricultural investments, and improvements to other life areas. Readers are left with a feeling of hope… a hope that greater returns will continue in the years to come, because a new foundation has been set for the future.

<em>Image credit:</em> <a href="http://www.thelasthungerseason.com/" target="_blank">The Last Hunger Season</a>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2014/06/23/the-last-hunger-season-book-review-part-one/" target="_blank">'The Last Hunger Season' - Book Review (Part One)</a>

<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

<a href="http://cfi-blog.org/2014/04/24/new-council-to-expand-responsible-financing-for-agriculture/" target="_blank">New Council to Expand Responsible Financing for Agriculture</a>

'The Last Hunger Season' - Book Review (Part Two)

<em>&gt; Posted by Bobbi Gray, Research and Evaluation Specialist, Freedom from Hunger </em>

<a href="http://www.thelasthungerseason.com/"><img class="alignright wp-image-15287" style="border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/06/9088752.jpg" alt="" width="250" height="388" /></a>In 2009, <a href="http://www.portfoliosofthepoor.com/"><em>Portfolios of the Poor</em></a> illustrated a rich array of formal and informal financial services and money management practices used by the poor. For this reason, it has become a foundational text for development professionals seeking to address poverty through financial inclusion.

<a href="http://www.thelasthungerseason.com/"><em>The Last Hunger Season: A Year in an African Farm Community on the Brink of Change</em></a>, by journalist and author Roger Thurow, chronicles the lives of four smallholder farmers in Kenya over a year’s time. His conclusions further enrich our understanding of household financial decision-making processes and tradeoffs made by the poor on a daily basis.

Along the way Thurow describes the critical role that the Kenya-based One Acre Fund plays in improving agricultural knowledge and practices by providing training and credit for agricultural inputs such as seed and fertilizer to families that have one acre of land or less. All four families followed in the book are <a href="http://www.oneacrefund.org/">One Acre Fund</a> program participants.

<em>The Last Hunger Season </em>provides some important lessons for us as financial service practitioners. It helps us re-frame how we view client impact and design impact assessments. Let’s look at a few themes.

<strong>Think of “impact” or “change” in poverty in a more comprehensive way. </strong>Thurow shares the story of Leonida, a 42-year-old Kenyan mother of seven children. Several times each year, she must choose between feeding her children and paying school fees to keep her oldest son in a boarding school. Hunger is the tradeoff that Leonida accepts because she sees education as the ticket to a better future for her children and her family.

When we only look at reported hunger as a metric for smallholder farmers, for example, given this information we might conclude that the program is failing Leonida. However, when we expand our assessment, we might see that the increase in income is directed toward education—to the detriment of family nutrition and health in the short term. However, this attention to education is deliberate and reflects the values and priorities of this family.

By only monitoring and measuring the “direct” benefits of a program, we risk getting an inaccurate picture of change or impacts at the household level. It’s important to note that to date, with participation in the One Acre Fund program, Leonida’s production has <a href="http://www.huffingtonpost.com/roger-thurow/g8-summit_b_1525882.html" target="_blank">increased</a> from three 90-kilogram bags of maize to 10.

<strong>Qualitative observations can provide rich insights into what “impact” is.</strong> Perhaps the most striking takeaway from <em>The Last Hunger Season</em> is that when we use only quantitative measures, we are hard pressed to fully understand the impacts of a program.

As Thurow follows the families and illustrates the difficult decisions they make (and the underlying reasons behind those decisions), we are forced to wonder whether the research methods that we, as practitioners and researchers, rely on to assess the outcomes of a project can effectively capture this type of decision-making in action.

For example, one day, two of Leonida’s daughters return home from their local school, in the middle of the day, to collect school fees for their tuition. They have been asked not to return to school until they can pay their fees. They have missed lunch at school, and Leonida also has nothing to offer them to eat.

She knows that if she doesn’t pay the full amount of the school fees for her oldest son, he will surely be sent home and all of her past efforts to keep him in school will be for naught. So, she makes a difficult decision. By allowing her youngest (female) children to go hungry, she keeps the majority of the money for her oldest (male). She sends the two youngest back to school with partial payment, hoping this will buy her time to make a full payment later when she can find other ways to gather the funds.

If we evaluate this in terms of <em>where did you spend your money?</em>, we would see that she spent money on school fees. However, it is equally important to understand what she did NOT spend her money on as well as her reason to prioritize school fees over food. Leonida explains, “A person with one child who is a doctor or lawyer is above a person with seven children who haven’t been educated.”

<strong>Seasonality matters.</strong> Though this is not a new concept, as we follow the four families through a year, we come to fully appreciate another challenge we have in understanding client impact: the time of year that we conduct a client assessment can make a big difference in what we find.

When clients are interviewed at the height of the “hungry season,” we are not going to detect very positive outcomes. Conversely, if we conduct our assessments immediately after the harvest, we risk overestimating client well-being, as it can be short-lived. As Andrew Youn, President of Once Acre Fund notes, “Harvest time is a time to dream. To dream of improving lives, feeding families, sending children to school, investing in livestock.”

Some research methods and assessments take seasonality into account. Thurow reminds us of the importance of factoring in seasonality when designing assessments and interpreting the results.

<strong>Measuring hope and “softer” impacts. </strong>At the end of the year, along with increases in harvest results, hope appears to be one of the tangible impacts of One Acre’s credit and agricultural support program.

One could easily argue that Thurow wrote the book to elicit this emotion in the reader. But it’s possible that there is more here than just a writing style; it suggests an important consideration for us when we design evaluations of both short- and long-term program impact.

We typically evaluate the benefits of access to and use of microfinance products using quantifiable measures – for example, agricultural output, household income, business revenues, amount of savings, increase in assets, and others. Yet, we could learn a lot more about some of the “softer” impacts such as client attitudes and perceptions about their lives, including hope.

Instead of approaching household outcomes only by whether there was more income in one year’s time, what if we instead accepted that a client’s perception of her well-being is an adequate composite for assessing her comprehensive, complicated financial and non-financial life? Or, in the least, what if we incorporated these “soft” aspects as integral components for gauging program impact?

We know that we can’t prove impact by relying only on hope and a positive perception of a client’s current life or future—or can we? Thurow paints a compelling picture that illustrates why and how the process of moving out of poverty is slow and painstaking. He makes the point that hope seems to be the vital fuel that helps propel this engine forward. Attitudes and perceptions may turn out to be a more accurate indicator of wellbeing than a long list of quantifiable indicators. It is something we should test. If smallholder farmers are hanging onto hope for a better future, perhaps we as evaluators should as well.

In part two of this post I’ll discuss some of the client-centered program design insights shared in <em>The Last Hunger Season</em>.

<em>*This post was modified from its original version on June 25, 2014.</em>

<em>Image credit:</em> <a href="http://www.thelasthungerseason.com/" target="_blank">The Last Hunger Season</a>

<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2014/06/11/climate-change-adaptation-for-smallholder-farmers/" target="_blank">Climate Change Adaptation for Smallholder Farmers</a>

<a href="http://cfi-blog.org/2014/03/27/agriculture-microinsurance-in-africa-to-subsidize-or-not-to-subsidize/" target="_blank">Agriculture Microinsurance in Africa: To Subsidize or Not to Subsidize?</a>

<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

'The Last Hunger Season' - Book Review (Part One)