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How to better serve smallholders: Key learning from INNOVATE's 3-year initiative on non-traditional finance for agriculture
This blog is co-written by Kyla Levin-Russell (Senior Specialist, MarketShare Associates) and Clara Yoon (Project Manager, MEDA). The quotes from the online learning event were edited or condensed for clarity.
Four years ago, MEDA set out to address the research question, “which financial services can catalyze change among smallholder farmers?” Through a series of regional roundtable events and consultations with agricultural finance experts, a research opportunity emerged:
What is the potential of non-traditional finance (NTF) to catalyze smallholder agricultural innovation adoption?
With funding support from the International Development Research Centre (IDRC), MEDA launched INNOVATE in 2017, with the goal of managing a global research portfolio where pilots and case studies in East Africa, South Asia and South America would test and document NTF experiences, with the aim of using the lessons from the research to inform policy and programming on agricultural development.
As the project concluded this month, this blog highlights some of the key lessons and themes that emerged over the course of the INNOVATE project. Below is a snapshot of key milestones and learning agenda activities from 2016-2020.
INNOVATE Learning Themes
The INNOVATE learning agenda was formed iteratively throughout the project, as certain themes emerged from the project portfolio and engagement with other key stakeholders that gave insight into the key research question. During the final learning event (March 25-26, 2020 – watch the recordings for Day 1 and Day 2), held virtually due to the COVID-19 crisis, MEDA provided an overview of the 4 key learning themes:
- Customer centricity
- Smallholder products and services
- Smallholder household decision-making
- Policy and regulatory transformation
The final synthesis report, NTF4Ag: Emerging Lessons and New Frontiers, shares results and lessons learned from the case studies, pilots and crosscutting research conducted by MEDA and its partners over the last three years across the 4 learning themes.
Here, we highlight a few of these key insights drawn from the synthesis report and online learning event where partners shared lightning talks summarizing the lessons and results from each project and project advisors responded to overall trends in the ag-finance landscape:
Adopt a learning mindset to know your customer needs, pain points, motivations and aspirations.
The first learning theme, customer centricity, can help organizations gain a greater understanding of smallholder farmers’ needs, aspirations, and the barriers they may face to adoption. Organizations oriented towards learning and adapting to customer input are well-positioned to create and sustain value for customer segments by ensuring products meet their diverse and changing needs.
Carolina Trivelli, an advisor to INNOVATE from the Instituto de Estudios Peruanos points out that new players entering the ag-finance landscape differ from banks in both their recognition of the importance of collaboration and their focus on customer centricity: “Now we have these new players that know how to work with each other; they know, respect, and acknowledge the need for others. And, they are willing to begin building these collaboration schemes, that are complex, diverse, and based on the customer centricity. Because that’s the only way that this really works.” (Watch the fireside chat from Day 2)
INNOVATE partner, Dodore Kenya Limited takes a customer-centric approach to understanding and serving rural smallholder customers with its Agri-Wallet product. Vyone Ming’ate of Dodore shared in her lightning talk the importance of segmentation and recognizing that not all farmers are the same: “We have to understand the segment and package our products appropriately, as far as customer centricity is concerned. We can’t have one approach to all our farmers. That was one of our learnings. For instance, tomato farmers are different and unique from potato farmers.”
Credit alone is not enough – quality inputs, information, services and trusted relationships are critical and valuable for farmers.
Several projects highlighted the importance of understanding the context-specific factors that drive or prevent innovation adoption when providing smallholder products and services, our second learning theme. Some of the key takeaways for how to foster uptake include clear communication about what a product is and how it works, flexible payment terms, peer-to-peer learning, understanding household decision-making dynamics, and the bundling of financial and non-financial products and services to meet multiple needs.
Dan Zook of ISF Advisors shared on Day 1 of the learning event that product and service bundling are one of the top trends he is seeing in the sector: “You didn’t see all this bundling and packaging of services that you’re seeing now, like the models of Chithumba and World Relief, bringing together the access to inputs and the finance and the extension and market access. You didn’t see as much of that seven years ago.”
Several projects in the INNOVATE portfolio tested and offered bundled models to serve clients. Luke Colavito of iDE oversaw a pilot in Nepal that combined non-traditional financial service (NTFS) loans offered by Muktinath Bikas Bank, crop insurance products, and capacity building to stimulate commercial vegetable production. In Luke’s lighting talk, he shares some of their project’s success in reaching smallholders, and particularly women: “Muktinath bank endorsed the business correspondent model as a new financial offering in their portfolio. It reduces their costs, lowers interest rates, links technical support to finance and strengthens the income of the collection centers. We are working with Muktinath bank and others to scale this approach. We’ve also found that the private insurance industry is interested to use the collection centers as their insurance agents. We see both interventions as key to coping with climate change and important for supporting local institutions that empower women and disadvantaged.” (Watch the iDE presentation from Day 1)
Decisions by smallholder farmers are not solely driven by revenue growth; saving time and/or money are key, especially for women.
On the learning theme of smallholder household decision-making, several INNOVATE projects draw attention to the specific circumstances of women smallholders, and the need to tailor solutions to target and provide value to women. Bidhaa Sasa, a last-mile finance and distribution company in Kenya, offers affordable and accessible household goods and agricultural tools to rural women. Through the series of experiments supported by INNOVATE, the company demonstrated women’s interest in and ability to pay for products that they perceive as valuable.
Rocio Perez Ochoa of Bidhaa Sasa describes in her lighting talk how Bidhaa Sasa successfully challenged the myth that farm investment decisions can only be made by men: “We were very happy to realize that even if anything to do with the farm is perceived as a man’s business – in the baseline survey we had a quote again and again…‘big investments are something my husband is in charge of.’ But at the end of the day, if you have a tailor-made solution that is suitable for the women, meaning we don’t ask collateral, we don’t ask credit histories, we serve them with women like themselves, then suddenly it’s not such a man’s business anymore.” (Watch the Bidhaa Sasa presentation from Day 1)
For effective collateral reforms, efforts within the enabling environment and among agricultural finance ecosystem actors must be coordinated and streamlined.
For our fourth learning theme, INNOVATE projects examine the role of the public sector to support innovation-friendly policy and regulatory transformation. On day two of the final learning event, John Amimo of AFRACA discusses the role of the Central Banks and regulators in supporting the emergence of fintechs (financial technology companies), telcos (telecommunication companies) and other key players in the ag-finance ecosystem, particularly in the case of Kenya: “I must commend our regulators, the Central Banks, for allowing these innovations to take place. To give an example, it was really hard for the Central Bank of Kenya to allow an innovation like M-PESA to come in and compete with the commercial banks, but I’m glad the Central Bank had to change some of their policies to allow this to happen.”
Collateral requirements are a common barrier for smallholder farmers, particularly women, who seek to access formal financial services. In his lightning talk, Mauricio Moscoso, Head of Risk at CIDRE in Bolivia, raised the importance of regulatory environments in supporting innovations such as the expansion of non-conventional collateral (NCC): “The main limitation for collateral type access to finance channel are the difficulties imposed by the judicial system. In order to control or improve the risk perception we need more reforms. It’s not only necessary to register non-conventional collateral, we also need to improve the likelihood that financial institutions will recover the assets, as cheap as possible and as fast as possible. (Watch CIDRE’s presentation on Day 1)
The lessons from INNOVATE generated key recommendations that can be prioritized and undertaken by implementers, policy makers, donors, and the private sector, including:
For implementing organizations and the private sector:
- 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
For policymakers and regulators:
- 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
For donors and funders:
- 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
With the closing of INNOVATE, MEDA appreciates the generous support from IDRC to conduct this important research, and the opportunity to partner with ten diverse, creative and innovative organizations/companies committed to serving smallholder farmers. MEDA is also grateful to the many farming families that also engaged and participated in this project.
We hope the INNOVATE lessons enable stakeholders we’ve engaged with throughout the project to re-think how programs and policies are implemented, and how products and serviced are designed and delivered. For a deeper dive into the INNOVATE research, we invite you to read the full final synthesis report, and well as access the suite of INNOVATE publications and learning products.