<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 <a href="https://www.ictworks.org/do-farmers-really-want-to-be-paid-in-mobile-money/#.Wyqvx6kpDBL">ICTworks</a><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"> and is re-posted here with permission.

&gt; Posted by By Chrissy Martin, U.S. Global Development Lab, USAID


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:

1. We need to ask what the farmer actually wants.  

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.

2. We need to expand our idea of the user.

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.

3. We need to reassess the starting point. 

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?

Sub-Saharan Africa

Uganda

Keeping Clients First

Agent Banking

Blockchain and Cryptocurrency

Consumer Protection

Delivery Channels

Digital Financial Services

Financial Technology

Mobile Banking

Payments

Smallholder Farmers

Underserved Groups

Blog Post

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.
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.
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. Pula uses cutting-edge technology coupled with expansive distribution partners to make large-scale agricultural insurance feasible for rural farmers.
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.
At Venture Lab, we’re most excited about a few core areas of the typical microinsurance value chain that Pula disrupts:
Eliminating the purchase barrier: 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.
Increasing yields for customers with massive need: 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.
Lowering the cost to serve: 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.
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.
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> there is a massive market opportunity to support the world’s most vulnerable as they grow food to provide for their communities. 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.
Venture Lab is excited to be supporting Pula as they take on one of the world’s most significant challenges.
Have you read?

<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

Financial Service Providers

Fintechs

Index Insurance

Insurance

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.
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.
As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.

<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]
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.

<h4>Next gen small business finance solutions</h4>
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.

<h4>Insurtech for the underserved</h4>
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.

<h4>Financial services for smallholder farmers</h4>
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.

<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]
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.

<h4>All-digital consumer lending</h4>
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.

<h4>Consumer financial health</h4>
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.
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.
Image credits: Accion

Have you read?

<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

Apollo Agriculture

Lidya

Pula

Accion Venture Lab

Alternative Data

Credit

Financial Health

Impact Investing

Insurtech

MSME/SME Finance

Neobanks

PayGo

Refugees and Migrants

Remittances

&gt; Posted by Andrew Fixler, Freelance Journalist

<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">Specialty coffee</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.

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

This post was modified from its original version on March 4, 2016.

Have you read?

<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

Agricultural and Rural Finance

Risk Management

Underwriting

Editor's Note: Eric Noggle worked at Microfinance Opportunities when this research was conducted and published.

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.

&nbsp;
<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.

&nbsp;

<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>

&nbsp;

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 <a href="https://www.microfinanceopportunities.org/?p=2824">Zambia Financial Diaries Interim Report</a>.

Have you read?

<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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&nbsp;

&nbsp;

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Using Income Patterns to Segment Livelihood Groups: The Case of Smallholder Farmers

Zambia

<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

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 Reaching Half of the Market: Women and Mobile Money, 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.

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

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

Financial Capability

Women

Youth

&gt; Posted by Bobbi Gray, Research and Evaluation Specialist, Freedom from Hunger 

<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">The Last Hunger Season: A Year in an African Farm Community on the Brink of Change</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.

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

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.

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

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 The Last Hunger Season 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.

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

Have you read?

<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)

Kenya

Microfinance

&gt; Posted by Bobbi Gray, Research and Evaluation Specialist, Freedom from Hunger 

<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/">Portfolios of the Poor</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/">The Last Hunger Season: A Year in an African Farm Community on the Brink of Change</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.

The Last Hunger Season 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.

Think of “impact” or “change” in poverty in a more comprehensive way. 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.

Qualitative observations can provide rich insights into what “impact” is. Perhaps the most striking takeaway from The Last Hunger Season 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 where did you spend your money?, 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.”

Seasonality matters. 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.

Measuring hope and “softer” impacts. 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 The Last Hunger Season.

*This post was modified from its original version on June 25, 2014.

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

Have you read?

<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)

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

<a href="http://www.flickr.com/photos/55034788@N08/5758970864/"><img class="aligncenter wp-image-14750" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/04/5758970864_fa51c58c71_z.jpg" alt="" width="600" height="398" /></a>The 450 million smallholder farmers around the world, who comprise the majority of those living in absolute poverty, have <a href="http://dalberg.com/documents/Catalyzing_Smallholder_Ag_Finance.pdf">an enormous unmet financing need</a>. Such financing requirements include small loans for inputs like seeds and fertilizer. A few weeks ago, seven leading social lenders, who collectively disbursed $360 million in 2013 toward agriculture financing, joined forces to spur sustainable growth and instill responsible practices in this vital lending area: they formed the Council on Smallholder Agricultural Finance.

Launched at the Skoll World Forum in Oxford, the Council is made up of Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investments AG, Root Capital, the Shared Interest Society, and Triodos Investment Management. The Council will meet regularly, share experiences and insights, and develop best practices and industry standards across three areas: market growth; responsible lending principles; social and environmental impact.

The Council particularly targets loans to “missing middle” agricultural businesses in low- and middle-income countries. The “missing middle” refers to businesses that require financing in the $25,000 to $2 million range, which are amounts often deemed too large for microfinance and too low for commercial banks. These businesses include producer organizations, companies that source from smallholder farmers, and companies that provide productive assets to smallholder farmers, often on credit. These companies can serve hundreds to thousands of farmers, offering an array of services including market access support, training, financial services, and accessible assets. Though millions of smallholder farmers are connected to these missing middle businesses, the vast majority are not.

There’s a huge opportunity to expand the missing middle agricultural financing market. The groups in the Council plan to increase their combined disbursements in this area to a total of $500 million by 2016. They also aim to facilitate successful market entry for new lenders. Research indicates the addressable financing gap for this market area to be about <a href="http://dalberg.com/documents/Catalyzing_Smallholder_Ag_Finance.pdf">$12 billion</a>.

While promoting market growth, the Council will look to instill responsible practices – across social, environmental, and corporate governance areas - among all financial institutions serving the missing middle market. The Council created a <a href="http://www.csaf.net/lending/lending-principles/">set of responsible lending principles</a> for these lenders, which include principles on transparency, prevention of overindebtedness, trusted information sharing, and fair treatment.

To ensure that their lending efforts are creating positive social and environmental change, the Council created and endorsed a set of <a href="http://www.csaf.net/impact/">seven impact metrics</a> that its members will collect and share annually, and use as a basis for deeper impact analysis in the future.

To learn more about the Council on Smallholder Agricultural Finance, <a href="http://www.csaf.net/">click here</a>.
Image credit: <a href="http://www.flickr.com/photos/55034788@N08/5758970864/" target="_blank">Africa Renewal / UN Photo / Fred Noy</a>
Have you read?
<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/2014/01/29/the-hunger-games-are-real-for-millions-of-people/" target="_blank">The Hunger Games Are Real for Millions of People</a>
<a href="http://cfi-blog.org/2014/03/31/asset-based-financing-and-flexible-repayment-schedules-to-better-serve-africas-smallholder-farmers/" target="_blank">Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa's Smallholder Farmers</a>

New Council to Expand Responsible Financing for Agriculture

Responsible Digital Finance

&gt; Posted by Laurence Dare and Stephanie Hanson, East Africa Policy Manager and Director of Policy and Outreach, One Acre Fund

Expanding access to finance isn’t enough. Clients need access to financial products that they will actually adopt. That’s why addressing customer needs, one of the pillars of the <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion" target="_blank">Financial Inclusion 2020 Roadmap to Inclusion</a>, is so critical for making finance more inclusive. For smallholder farmers in rural Africa, <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;cad=rja&amp;uact=8&amp;ved=0CDoQFjAB&amp;url=https%3A%2F%2Fwww.mfw4a.org%2Fdocuments-details%2Ffinancial-inclusion-in-africa.html%3Fdl%3D1&amp;ei=osUwU9zeJPSQ0gHDioCoDA&amp;usg=AFQjCNEfXdiaXnDcAXy1C7BZ66UuPIxtYg&amp;sig2=hPgAjLL1GQrJmkjN1Pq3PQ&amp;bvm=bv.63587204,d.dmQ" target="_blank">where inclusion rates are 19 percent compared to the urban rate of 34 percent</a>, the financial services provided don’t come close to <a href="http://api.ning.com/files/BpcxhYIbWSb--9dVh4I6Vp8t042J6m87aqI8DN47rXSg*4UvXaDtH5vNtygCoe5x-zKwCF14kyP*ktfXrOePlLwVwQS3uCEd/Initiative_for_Smallholder_Finance_Briefing_1.pdf">meeting the demand</a>. Asset-based financing and loan products with flexible repayment schedules can help close this gap.

Among other financial services, smallholders desperately need access to financing for basic inputs—improved seed and fertilizer—that could dramatically increase their agriculture productivity. Properly designed, this financing could make an important contribution to growth and poverty reduction in Africa.

<img class="aligncenter wp-image-14492" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/het1099.jpg" alt="" width="525" height="348" />Unfortunately, microfinance products created for Africa’s poor do not necessarily meet such needs. Most microfinance institutions are <a href="http://pdf.usaid.gov/pdf_docs/pnadf010.pdf">concentrated in urban and peri-urban areas</a> and primarily offer cash loan products on strict repayment schedules. These products meet the needs of the urban and suburban poor, most of whom receive small but frequent income from businesses or jobs. Smallholder farmers have different challenges.

Unlike urban clients, smallholder farmers receive the majority of their income all at once after harvesting. As small jobs come in, such as day labor on a neighbor’s farm or a local construction project, farmers can earn some extra income, but this is incremental and unpredictable. A cash loan product on a strict repayment schedule does not meet these financing needs.

How should a loan product be structured to meet the needs of smallholder farmers? At <a href="http://www.oneacrefund.org/">One Acre Fund</a>, we designed a product pairing asset-based financing and a flexible repayment schedule that is working for 180,000 smallholder farmers in Kenya, Rwanda, Burundi, and Tanzania.

Instead of cash, One Acre Fund lends the assets that farmers need for success. By buying through us, farmers are able to avoid the potential pitfalls associated with local sellers, such as poor quality or fraudulent inputs and high prices. Our organization sources materials from large suppliers, negotiates bulk fates, and imposes rigorous quality control standards.

There are other advantages to lending assets rather than cash, as well. Farmers are less intimidated by taking a loan when they are receiving a comprehensive package of inputs that is proven to be profitable. Because it shares features with <a href="http://www.ifad.org/operations/projects/regions/pn/factsheets/nena_islamic.pdf">Islamic finance models such as murabaha</a>, asset-based lending can provide a workable alternative for Muslim clients.

[caption id="14458" align="alignright" width="342"]<a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/graph.jpg"><img class="wp-image-14458 size-none" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/graph.jpg" alt="Money flows in throughout the season rather than all at the end. In the past three years, One Acre Fund has seen stable and steady repayments." width="342" height="241" /></a> Loan repayment money flows in throughout the season rather than all at the end. In the past three years, One Acre Fund has seen stable and steady repayments.[/caption]

For the lender, the asset-based lending model lowers risk and reduces the need to assess credit worthiness. The lender knows what investment the client has made and knows that the investment can be used in a profitable business model. It also allows for specifically tailored training. With all of their clients using the same inputs, microfinance institutions can provide precise information on how to use them to maximize profits. Our field officers provide highly-specific training at weekly meetings to ensure that clients get the most out of their investments. Field officers also use these meetings to encourage continuous repayment and offer modest incentives for meeting targets early.

Instead of enforcing a strict weekly repayment structure, our flexible repayment structure has just two deadlines for clients. First, farmers must meet a “prepayment” requirement before they receive any of our services (roughly 10 percent of their total loan size). The second repayment deadline is the final one, due after the harvest. After paying that first 10 percent, farmers are free to make repayment on their own schedule, at any time throughout the season.

This type of flexible repayment schedule works because it meets the needs of smallholder farmers, boosts demand for credit and <a href="http://www.econ.yale.edu/conference/neudc11/papers/paper_146.pdf">increases the amount invested in farm inputs</a>. And it has been shown that offering a flexible repayment schedule generally <a href="http://www.hks.harvard.edu/fs/rpande/papers/repayfreqjeea_1107.pdf">does not increase delinquency or default</a> among microfinance clients.

At One Acre Fund, the flexible repayment schedule has been very successful, supporting a growing number of clients as well as excellent repayment statistics over the past three years. Our overall repayment rate is over 98 percent.

Image credit: Hailey Tucker, One Acre Fund

Have you read?

<a href="http://cfi-blog.org/2013/07/29/financing-smallholder-farmers-with-fairtrade-access-fund/" target="_blank">Financing Smallholder Farmers With Fairtrade Access Fund</a>

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<a href="http://cfi-blog.org/2014/03/03/weather-index-insurance-to-benefit-from-new-nasa-satellite/" target="_blank">Weather Index Insurance to Benefit from New NASA Satellite</a>

Asset-Based Financing and Flexible Repayment Schedules to Better Serve Africa’s Smallholder Farmers

Eric Noggle

Senior Research Director 

Amee Parbhoo

Rob Stevens

Crop Insurance

Andrew Fixler

Somen Saha

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.

Anna Koblanck

Jeffrey Riecke

Peer Stein

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

On Thursday NASA and the Japan Aerospace Exploration Agency <a href="http://www.washingtonpost.com/blogs/capital-weather-gang/wp/2014/02/27/nasa-launching-game-changing-satellite-for-global-precipitation-monitoring/?wpisrc=nl_buzz">launched a new weather and climate satellite</a> that generates a near-global view of precipitation, closing previous large observation gaps. This development has the potential to inform an array of important weather-related activities, including weather index insurance.

The satellite, known as the Global Precipitation Measurement (GPM) satellite, uses a radiometer and dual-frequency radar to measure the presence and even the intensity of rain, snow, and ice, to a time window of three hours, across a geographic range of 65 degrees north to 65 degrees south latitude. Data generated by the satellite will be publicly available to anyone around the world.

[caption id="attachment_14147" align="aligncenter" width="587"]<a href="http://www.nasa.gov/press/2014/february/nasa-and-jaxa-launch-new-satellite-to-measure-global-rain-and-snow/#.UxSe_fldWSo" target="_blank"><img class=" wp-image-14147 " style="border:0;margin-top:8px;margin-bottom:8px" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/14-055-gpm1_0.jpg?w=490" width="587" /></a> A Japanese H-IIA rocket launching the GPM satellite from the Tanegashima Space Center in Tanegashima, Japan.[/caption]
NASA’s predecessor satellite was only able to detect rain, and not to varying intensities. It also covered a more limited geographic area of 35 degrees north to 35 degrees south. The new NASA satellite could prove an invaluable resource for weather-related initiatives like disaster response and relief.
Weather index insurance is well-positioned to benefit from the newly detailed precipitation data. Weather index insurance offers a payout to farmers in the event of extreme weather, such as drought or a hurricane. The financial support helps farmers sustain their families while their source of livelihood, their land, recovers. This safeguard also makes it less risky to take out loans to invest in the productivity of land. The payout is triggered by weather index readings that register as extreme weather. This mechanism yields low transaction costs – a necessity as it rarely is practical for insurance agents to travel to smallholder farmers and verify the weather and land conditions.
Available weather data has been a limiting factor for the scope and accuracy of weather index insurance. A few years ago, those with index insurance hit by Hurricane Sandy in the Caribbean were not able to receive payouts because the limited range of the NASA satellites in operation did not cover the impact zone. As the new satellite expands the data’s geographic reach, weather index insurance is also positioned to expand. With the new satellite, weather index insurance could expand beyond rain, too. Hail storms, for example, are currently a significant risk in countries like Malawi and Zambia, but the data has been lacking to support weather index insurance with hail coverage.

When we heard about this exciting development, we reached out to Véronique Faber, Executive Director of the Microinsurance Network, to see what she thought. "This data will be a game-changer, especially as NASA plans to give access to everyone in the world," she said, adding, "Stakeholders involved in weather index insurance for small farm holders will watch this space closely!"

Along with these potential advantages, it’s important to consider a few factors that might constrain the satellite’s ability to support weather index insurance. Typically, insurance product pricing and design is calibrated using historical data on claims and damage. This will be lacking at first when the new satellite data comes on stream, and could limit its rapid use. There is also the potential for the satellite’s new techniques to not be as accurate as hoped across all regions. It’s still not uncommon for particular satellites to be more or less accurate for particular geographies. For instance, the previous NASA satellite was more accurate in the Caribbean and East Asia than it was in Africa.

*Some of this post's content was generously provided by <a href="http://www.microensure.com/" target="_blank">MicroEnsure</a>.

Image credit: <a href="http://www.nasa.gov/press/2014/february/nasa-and-jaxa-launch-new-satellite-to-measure-global-rain-and-snow/#.UxSfnPldWSp" target="_blank">NASA/Bill Ingalls</a>

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Weather Index Insurance to Benefit from New NASA Satellite

Michiel Sallaets

&gt; Posted by Michiel Sallaets, Communications Manager, Incofin Investment Management

Approximately 2.6 billion of the world’s 7.1 billion people live on less than $2 per day, and smallholder farmers are the single largest group of these, with over <a href="http://www.researchgate.net/publication/228121188_Savings_for_the_Poor_Banking_on_Mobile_Phones" target="_blank">600 million people</a>. Despite some progress, the provision of financial services to rural communities, and in particular to individuals whose livelihoods depend on agricultural activities, remains a challenge. Specific risks, such as weather conditions, disease, and variations in market prices create barriers for providing financial services to this group.

Impact investors, local governments, and even local private lenders are working to overcome these challenges, and some successful models have emerged. Yet difficulties remain. The Dalberg study “Catalyzing Smallholder Agricultural Finance” showed that the smallholder demand for financing could be as large as $450 billion (estimate for 2011). In addition, of the financing that is currently provided (estimation of $9.4 billion in 2011), 90 percent is for short-term finance. Thus, only 0.2 percent of smallholders seeking financing for investments in the infrastructure and equipment that can help them achieve higher yields and productivity have their needs for financing met.
<a href="http://www.fairtrade.net/single-view+M5cbea340f8b.html" target="_blank" rel="attachment wp-att-11847"><img class="aligncenter wp-image-11847" style="border:0;margin-top:15px;margin-bottom:15px" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/07/farmer.jpg" width="560" /></a>Understanding and addressing smallholder financing needs is critical in reducing poverty. Through more than 12 years of supporting rural microfinance institutions in developing countries, Incofin Investment Management has seen this repeatedly. Fairtrade International, a global non-profit working to provide a better deal for farmers and workers, had seen the same problem among its network of more than 1.2 million farmers and workers. In a survey conducted in 2012, Fairtrade farmers in Latin America alone expressed a need for $500 million to invest in infrastructure, working capital to cover purchases like seeds and fertilizer, and bridge financing to cover the period between harvest and receipt of payment from a buyer (trade finance). The survey highlighted the high demand and lack of supply for long-term loans that provide farmers with the opportunity to invest in new technologies and equipment that can lead to improved efficiency and higher yields over a sustained period.
Recognizing this gap, Incofin IM, Incofin cvso, Fairtrade International, and Grameen Foundation joined to establish the first fund to focus on the unmet demand by smallholders for long-term loans. In October 2012 the Fairtrade Access Fund was launched with $1.75 million of capital. Incofin IM is responsible for managing the fund while the other three parties take the sponsor role. The Fund is an impact investment fund designed to provide rural people with opportunities to increase their market access through financial products and technical assistance that meet the specific needs of farmers. Its investments are designed to have a positive social impact on the lives of smallholder famers while delivering a fair financial return for the fund’s investors.

Working through Fairtrade certified producer organizations, such as farmers associations and cooperatives, the Fairtrade Access Fund offers a full range of loan products to meet a variety of financial needs. It also provides technical assistance to the producer organizations as a means of strengthening their management and agricultural practices, making them better candidates for future financing. By addressing both the lack of access to appropriate funding and some of the factors that create this market gap, the Fund seeks to further stimulate the development of smallholder farmers.

Choosing to focus on Fairtrade-certified cooperatives is a means of ensuring that the Fund delivers a strong social return. The lack of negotiating power of an individual farmer means that downward pressure on prices from large buyers can result in a farmer selling his crop for less money than he invested in producing it. The Fairtrade minimum price ensures a transparent price that allows farmers to plan for the coming period. By increasing access to financing for Fairtrade certified organizations, further incentive is provided to other producer organizations to seek certification.

Since its launch in Latin America, the Fund has provided nine loans for trade finance and long-term investments to Fairtrade cooperatives in Honduras, Peru, Paraguay, and Nicaragua. The first long-term loan disbursed by the Fund will be used by COCLA, a Peruvian cooperative with a long history of working with Fairtrade certified organizations, to purchase new machinery for drying coffee and cocoa. Drying the coffee and cocoa themselves allows the producer organization to receive a higher price for their beans. They also produce and distribute value-added products made with these commodities, such as roasted coffee and chocolate bars that are sold in supermarkets and their own coffee shop chain. COCLA generates impact in the short term for its 24 member cooperatives by increasing the processing capacity, the quality of the final product, and the diversity of options for the cooperatives and their members. With products like this, the cooperative becomes more attractive to prospective members, as it helps them improve product standards and timely delivery, due to the increased processing capacity. For example, two new cocoa cooperatives are in the process of becoming members of COCLA, a decision made more attractive by the facilities, such as access to a new drying machine, that COCLA is able to offer them.

There are also significant benefits for the farmers, in part because it brings more of them into the Fairtrade circle (where they get a better price and access to more markets). In the long term, farmers also have the opportunity to access better prices and increase the volumes they can deliver to the cooperative. Furthermore, the investment in the new coffee and cocoa drier will generate new jobs in several links in the production chain of COCLA.

Since its launch in October four new investors have entered the fund, helping it to grow to over $7.5 million. The total amount lent so far has reached $4.85 million, and Incofin IM is currently assessing transactions with prospects in eight countries to finance coffee, bananas, honey, sugar cane, blueberries, sesame, and walnuts. By replicating its experience with COCLA and other Fairtrade certified cooperatives on a larger scale, the Fairtrade Access Fund aims to push the boundaries of financial inclusion as it reaches out to the world’s smallholder farmers.

For more information on the Fairtrade Access Fund, visit the <a href="https://www.incofin.com/en/fund/fairtrade-access-fund" target="_blank">Fund’s website</a>, or contact <a href="mailto:info@fairtradeaccessfund.com" target="_blank">info@fairtradeaccessfund.com</a> 

<a href="https://www.incofin.com/en/team/michiel-sallaets" target="_blank" rel="attachment wp-att-11837"><img class="alignleft wp-image-11837" style="border:0" alt="" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/07/1ac2c15.jpg" width="120" /></a><a href="https://www.incofin.com/en/team/michiel-sallaets" target="_blank">Michiel Sallaets</a> joined Incofin Investment Management in February 2013 as the Communications Manager. Previously he worked as a PR consultant in the Belgian PR department of Hill+Knowlton Strategies where he advised clients such as BlackRock, Citibank and Adidas on media relations and developing communication strategies and materials. Furthermore he helped clients in building strong relations with stakeholders using social media. He began his career at Burson-Marsteller where he did an internship in the PR and PA department, being responsible for the media relations of the high-level event "European of the Year Awards."

Image credit: <a href="http://www.fairtrade.net/single-view+M5cbea340f8b.html" target="_blank">Fairtrade International</a><a href="http://www.occupycooperative.com/" target="_blank">
</a>

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Financing Smallholder Farmers With Fairtrade Access Fund