NTF4Ag: Emerging Lessons and New Frontiers brings together key results, insights and lessons from the case studies, pilots and cross-cutting research conducted by MEDA and its partners from 2017-2020 - with the overall goal of learning and documenting experiences of non-traditional finance for catalyzing smallholder agricultural innovation adoption. The report is framed around INNOVATE’s four learning themes along with key takeaways and supporting evidence from the ten research projects in the MEDA INNOVATE portfolio. The report concludes with potential opportunities for further learning, research and action by different actors in the smallholder finance landscape and ecosystem.
We welcome you to explore the summarized version of the report below. You can learn more about the findings and lessons from the research portfolio in the full length interactive PDF report.
Non-traditional finance can be an effective vehicle to incentivize the large-scale adoption of innovations among smallholder farmers. Generally, NTF includes products, services and/or delivery channels that go beyond standard lending and saving to actively engage with smallholder farmers, private investors and entrepreneurs, offering a broader range of bundled services (financial and non-financial). While the components of NTF are not necessarily new, the combination and application exhibit non-conventional business models.
Agricultural innovation includes (but are not limited to) changes and transformations in production and cultivation, post-production/cultivation handling and processing, use of improved inputs and technologies, adoption of ICT, new business practices and models, supply chain transactions and efficiency, inclusion and equitable opportunities, shifts in societal, gender or community norms, and revenue generation for market actors.
The INNOVATE research portfolio contains 10 projects conducted by partners in the 3 target regions. MEDA supported the selected partners to implement pilots or case studies, depending on the scope of the research question and overall hypothesis identified in their application. Of the 10 research projects, there were 4 in East and Southern Africa; 3 in South America; and 3 in South Asia. The projects were conducted by diverse organizations including finance companies, consulting firms, international NGOs, and research organizations.
The MEDA INNOVATE learning agenda was formed iteratively throughout the project while anchored on the overall research goal and key research questions related to adoption of agricultural innovations through non-traditional finance.
To understand and learn about different products, services, and models of non-traditional finance (NTF) and the role NTF may have in the adoption of agricultural innovations by women and men smallholder farmers in the three target regions: Eastern and Southern Africa; South Asia; and South America
There are varying definitions of customer centricity, but at its core, it is an approach (also a commitment, strategy, and perspective) that puts the customer at the center of all business decisions, processes and actions. The goal of customer centricity is assuring the success of one's customer and creating positive customer experiences. For INNOVATE, customer centricity as a key theme enabled MEDA and its partners to adjust activities and overall orientation to remember to ask ourselves: "Who is the customer? What do they need? What do they value? What can they afford? What influences decision-making and behaviour? What are the key drivers of adopting new products or services?"
A learning mindset and orientation will best serve firms and organizations to create and sustain value for farmer customer segments. Adopting such a mindset is not a one-time initiative or decision, rather, it requires buy-in and participation from all levels of the organization. Everyone is a stakeholder of ‘championing' customer centricity, all functions and divisions must collaboratively drive understanding and addressing customer needs and goals.
In the early stages of managing the INNOVATE research portfolio through kick off workshops in each region, quarterly reports, and initial monitoring visits, MEDA observed three categories of partners in relation to customer centricity:
MEDA used a prototype and hypothesis testing form to not only evaluate project proposals that were submitted for funding, but also throughout implementation and reporting for those selected.
MEDA learned from the INNOVATE experience that several key factors inhibit smallholder farmers to adopt innovations, and can be summarized in these four categories:
To address these factors, one can run an experiment (or multiple ones) to test a hypothesis on a possible product, service or campaign with a specific target customer segment. For example, if you're trying to learn about affordability and how to price a product for a specific customer segment, you can run an experiment using A/B testing12 to test a number of pricing variations among multiple groups (with similar characteristics) to determine which one(s) customers react positively or negatively to.
Among the ten organizations that received MEDA research grants, some were familiar with customer-centric principles and approaches, while for some, it was new. In some cases, MEDA provided targeted support to re-emphasize the principles of learning, testing and iteration – as opposed to delivering on the implementation plan and targets set out in the original proposal. An adaptive management approach was utilized by MEDA in managing the research portfolio by demonstrating flexibility, customized technical assistance and support based on each partner's needs and gaps.
CIDRE, a microfinance institution in Bolivia, has a long history of research, social and economic development, and inclusive rural financial services in the country. In partnership with MEDA INNOVATE, CIDRE sought to develop and pilot a non-conventional collateral (NCC) registry system, to standardize its own processes of registering, valuing, and monitoring NCC used by CIDRE clients for loans.
Early in the project, MEDA worked with CIDRE to adopt a lean and agile approach, borrowed from best practices used in software and application development. CIDRE used the information and feedback to design a plan to develop and test a ‘Minimum Viable Product' (MVP), rather than spending a lot of time and effort on a fully developed registry system.
— Mauricio Moscoso, Head of Risk, CIDRE IFD
The second learning theme relates to Smallholder Products and Services and the question, "What do smallholder farmers value and what are they willing to pay for?" For those working at the intersection of agriculture and finance, we know that smallholder farmers are extremely cash-flow sensitive and that most loan products are not designed to align with smallholder client needs and circumstances. The few banks and financial service providers that have successfully developed appropriate and affordable products or services for farmers, "have done so through a mix of product, distribution, and collateral customizations – all of which begin with a fundamental understanding of smallholder clients want and need."
Businesses and NGOs alike face the challenge of finding the right product-market fit: the degree to which a product satisfies a strong market demand. This is even more difficult to do for smallholder farmer customers. Irregular cash flow, crop seasonality and price sensitivity must be considered to align and design the right product or service to meet smallholders' needs. Although learnings from the INNOVATE projects are context-specific, the following takeaways are relevant for a variety of actors in the smallholder finance landscape.
Price and cash-sensitivity are factors critical to product and service design and delivery, especially when it comes to smallholder farmers. Price-setting must consider how much customers will pay, and in many instances it is difficult to get this information by directly asking farmers. Without this understanding, there can be a disconnect with how products or services are priced in the market, and what customers are willing to pay. Another factor that should not be underestimated is cash flow. Products and services marketed to smallholder farmers must not only meet a market demand, but also be affordable and appropriate in terms of payment or financing terms and mechanisms, and align with crop calendars.
The learning journey of I-DEV International through its pilot in Peru captures lessons and insights on the importance of cash flow constraints, willingness to pay and also relevance/value perception of ag-technologies by farmers. I-DEV collaborated with a -tara cooperative – the Asociación de Productores de Tara del Norte (APTN), located in San Marcos, Cajamarca, Peru. The pilot initially set out to (1) introduce precision solar drip irrigation solutions, and (2) integrate the use of Peru's national mobile money platform (BIM) for loan repayments and usage of the system. However, a few months into the pilot, it became evident that introducing several new elements and innovations to APTN farmers at the same time was not feasible or realistic.
I-DEV instead focused on providing locally-available drip irrigation systems, which are much less costly than importing solar-run systems. Through a series of Human Centered Design (HCD) workshops and exercises, I-DEV learned these lessons/takeaways:
The final report shares relevant lessons for organizations working with farmer cooperatives/associations in designing affordable financial mechanisms for agtech upgrades such as drip irrigation systems.
Among several of the INNOVATE research projects, MEDA observed that demand for quality inputs was just as important as the financing needed to acquire such inputs. The emphasis on quality inputs is due to the impact on improved yields and future net revenue. While accessible, affordable and appropriate ‘agricultural credit' is needed, credit alone is not enough. The recent industry trend of bundling products, services and information as a strategic and efficient (and sometimes cost-effective) way to support and create value for farmers was also observed across multiple INNOVATE projects.
iDE Nepal, in partnership with Muktinath Bikas Bank and two local NGOs, implemented a 20-month pilot that sought to increase household income through investment in climate-smart agriculture technologies. The project focused on women and marginalized groups, and offered a service bundle that combined non-traditional financial service (NTFS) loans and crop insurance products to stimulate commercial vegetable production. A key success factor of this pilot was the bundled offering of climate-smart loans, crop insurance, access to agricultural technology and inputs, technical support, as well as access to extension services and information via collection centers in the communities.
Building on INNOVATE research in Malawi and Kenya, MEDA launched a learning paper on A Customer Centric Lens for Good Agricultural Practices and a series of online discussions on leveraging farmer data to build the business case for agricultural investments by farmers. By taking a customer-centric lens to promoting Good Agricultural Practices (GAP), MEDA proposes a shift in orientation among industry actors and the need to broaden the GAP agronomic perspective (“how to grow") to include the business case centered on markets. For smallholder farmers, adopting GAP is a business investment decision, not just a behaviour change decision. Changing agricultural practices requires additional resources, not just inputs, but in many cases, more labour. Markets have different specifications which determine the minimum or maximum number of GAP standards that should be implemented. This means farmers must align their production practices and their cost of production with the specifications of the markets to which they sell.
The case study by Agronomy Technology Limited (ATL) analyzed a non-traditional finance mechanism in Malawi, called the Chithumba Model, and demonstrated the need to segment and customize GAP training for farmers. Chithumba offers a bundled service that includes loans, inputs, GAP training and marketing services. A key finding in the study around GAP uptake revealed that although 99% of clients claimed that the GAP information was useful, only 21% adopted the full set of recommendations from the training. Women adopted GAP at a lower rate than men (15% vs. 28%). The top reason cited for not implementing the recommended GAP (by 64% of respondents) is because they are too labour intensive.
The third learning theme builds on the previous one on smallholder products and services, but incorporates how decisions are made at the household level. Family units are dynamic, complex, and diverse – there are various factors such as social norms, power dynamics and market realities which impact how smallholder households make decisions, especially along competing household and farm business needs. MEDA INNOVATE is particularly interested in decision-making around adoption of and investment in agricultural innovations.
As much as the agriculture-related business decisions that smallholder farmers make are critical to designing appropriate products or services (covered in learning theme no. 2), increasing net revenue is not the sole driver of how decisions are made and prioritized at the household level. Decisions, big or small, especially when there's a financial and time usage impact, ultimately reflect power dynamics between family members.
For women especially, critical dimensions such as saving time and/or money make certain products or behavioural changes more appealing than others. This was noted by Bidhaa Sasa, as their business model targets and focuses on rural women who are at the bottom of the pyramid and can afford products priced under $100. In testing the range of new agricultural tools and technologies to potentially add to their product catalogue, a key learning on the transformational nature of products was cemented for the company. In order to create demand and drive adoption for a product with good repayment rates, the product itself must be transformational for the customer such as improving living conditions or farm productivity.
— Bidhaa Sasa's final learning report
Much research has been dedicated to understanding and improving rural women's authority in intra-household decision-making, due to positive correlations with development outcomes such as increased expenditure on household health and education, household nutrition and reproductive, maternal, neonatal and child health. Furthermore, increasing joint decision-making within households has been identified as a way to transform power relations between women and men, thereby contributing to women's empowerment and improved development outcomes, including improved rural livelihoods.
The complex and dynamic nature of how farming households make decisions and prioritize necessary investments (farm and off-farm) is a cross-cutting research theme for MEDA INNOVATE, because the intersection of finance and innovation adoption is at play. INNOVATE research projects demonstrated a range of findings specific to their contexts and communities related to adoption of agricultural innovation and family relationships.
Trust is a recurring theme we often hear about in inclusive market systems development, and a necessity in achieving financial inclusion for all. All entities that serve and work with smallholder farmers play a critical role in delivering products, services and information at the right time, for the right price and using the appropriate delivery channels. However, creating loyalty and fostering trust takes time, intentionality, consistent delivery of value, and clear messaging to valued customers.
Customer centricity drives companies and organizations to focus on the customer and user experience (CX/UX), and can address some of these barriers to innovation adoption and use. Understanding smallholders' diverse needs and circumstances, and tailoring products and services to specific farmer segment types, is key to fostering innovation adoption. Beyond the design phase, effective marketing, which offers clear information to farmers about product benefits and costs and employs farmers' trusted channels, can foster product uptake. And finally, ensuring products adapt to customers' evolving needs and circumstances, and that these changes are communicated clearly and transparently, can support ongoing use of a product and customer loyalty by ensuring a positive customer experience over time.
One holistic fintech solution that was studied within the INNOVATE portfolio, is the Agri-wallet, a product offered by Dodore Kenya Limited. The Agri-Wallet aims to address a shortage of loans for smallholder farmers and takes an ecosystems approach to enabling different users (farmers, buyers, input suppliers) to participate and gain value from the platform. The Agri-wallet enables farmers to purchase high quality seeds, fertilizers and other necessary inputs by providing earmarked credit, transferred to a digital account.
This final learning theme on policy and regulatory transformation focuses on the opportunities for governments to pursue inclusive and innovative policies for agricultural finance, with an emphasis on smallholder farmer populations. Even if there's an existing ecosystem of actors supplying products and services to smallholder farmers, the enabling environment (including policies and regulation) must be supportive to advance finance and innovation targeted for rural households. A helpful distinction between the enabling environment and ecosystem are defined by Dalberg and the Rural and Agricultural Finance Learning Lab:
The enabling environment is determined by the regulatory, financial, knowledge, and digital infrastructure in any given smallholder finance context
The ecosystem is composed of actors providing financial and non-financial services to smallholder farmers – and is embedded within the enabling environment
MEDA builds on these two domains with the understanding that smallholder agricultural households function in a series of interconnected ‘systems' (see diagram) radiating outwards from the household unit – to agricultural market systems, community and social domains, and infrastructure and policy (or, the enabling environment).
Meeting conventional collateral requirements such as land or property titles is often cited as one of the main barriers for smallholders in accessing and using formal financial services. Women, who face unequal access to land and property, and are unbanked at higher rates than men, are unlikely to be able to meet formal collateral requirements for affordable or appropriate loan products for their agriculture-related financing needs. MEDA authored a learning paper on ‘Experiences in Gender-Sensitive Solutions to Collateral Constraints' taking a gender lens on how non-conventional collateral (NCC) in agricultural lending can contribute to improved access to and use of credit by smallholder farmers, especially women farmers.
As a result of perceived and actual risks of lending to smallholder farmers, credit products that do exist for smallholder agriculture require high rates of collateral, often over 200% of the value of the loan. Given limitations on property ownership and inheritance, it is particularly difficult for women to meet these collateral requirements. Evidence suggests that smallholder farmers and other financially excluded groups, as well as financial institutions themselves, could greatly benefit from alternatives to conventional collateral and/or borrowing without collateral at high interest rates.
Women, even those living in poverty, often have some type of collateral, just not the kind that are generally accepted by formal lenders, often as a result of lack of a structure to secure the use of them. Collateral registries can serve as a public database that allows financial institutions to register security interests in movable property and mitigate the risk for customers and themselves. However, for collateral registries to be effective, the necessary legal and regulatory frameworks that recognize them and hold parties accountable must also be in place.
A growing concern and challenge for producers all over the world is the increasing threat and reality of climate change. Smallholder farmers are even more vulnerable to climate change and crop failures compared to established commercial farmers. They are also less equipped with the tools, knowledge and financial capacity to build resilience to shocks and disasters. Women, who compose nearly 50% of the agricultural labour force in developing economies, are further disadvantaged “with fewer endowments and entitlements than men, even more limited access to information and services, gender-determined household responsibilities, and increasingly heavy agricultural workloads owing to male out-migration."
— FAO's 2016 State of Food report
Global efforts to adapt to climate change require policies and actions at national and regional levels to address vulnerabilities and risks, while also promoting resilient and sustainable agricultural systems.
The transition to sustainable and resilient agricultural production at the smallholder farmer level requires the use of improved technologies (including climate-smart agriculture), increased availability of appropriate financial instruments, and a supportive enabling environment to support a long-term and capital-intensive transition.
This NTF4Ag report demonstrates promising potential for non-traditional finance in the smallholder finance landscape, not as a replacement of traditional financial and banking services, but as a complement and tool to fill in current gaps.
Below are some of the actions that can be prioritized and undertaken now, and opportunities for further research among the diverse actors working on smallholder agricultural development and financial inclusion, as these two agendas go hand in hand.
Utilize segmentation methods to uncover not only demographic data, but also behavioral data and insights among the clients you serve
Identify and assess adoption-related factors of financial services and agricultural innovation for different women and men smallholder farming segments
Assess the current policy framework and regulation that hinders or has unintended consequences of financial exclusion for smallholder farmers – especially regarding collateral requirements
Incentivize financial service providers to test, innovate and develop products and services that will reach new or unfamiliar customer segments
Coordinate with and learn from other donors and funders where priorities in the smallholder finance landscape overlap, especially in similar regions and country contexts where such lessons can roll up into policy recommendations for country governments and inform future funding priorities
Compare different funding models and mechanisms most effective for contributing to development research, demonstrating value for money, and generating impact for smallholder farming families
This report was compiled and designed to inspire readers not only to learn from the 10 research cases and MEDA's cross-cutting research and analysis of these projects, but also to enable readers to re-think how programs and policies are implemented and how products and services are designed and delivered. With a decade left to achieve the 2030 Agenda for Sustainable Development, assuring the viability and resilience of small farmers worldwide is crucial to meeting the SDGs. With the right combination of leveraging innovative tools, technology, capital, policies and collaborative partnerships – national and global efforts are on track for supporting smallholder farmers to achieve dignified, stable and secure livelihoods within agriculture and beyond, for the well-being of themselves, their families and rural communities worldwide.
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