H A N D B O DIGITAL FINANCIAL O SERVICES FOR AGRICULTURE K ACKNOWLEDGEMENTS IFC and the Mastercard Foundation’s Partnership for Financial Inclusion would like to acknowledge the generous support of the institutions that participated in the case studies for this handbook: AgUnity, Apollo Agriculture, aWhere, Bank Asia, Bank of Langfang (BOLF), Cargill, Digifarm, EcoNet, Farmforce, HelloTractor, JD Finance, MaTontine, MyAgro, Tigo Rwanda, TruTrade, and Tulaa. The generosity of each organization’s senior leadership, in terms of time and openness, has provided the handbook with invaluable depth based on actual market experience. IFC and the Mastercard Foundation would also like to extend special thanks to reviewers and contributors to this handbook: Wisdom Alorwuse, Natalie Baatjies, Margarete O. Biallas, Dean Caire, Soren Heitmann, Andrew Kasujja, Ruth Dueck-Mbeba, Joseck Mudiri, Riadh Naouar, Charlotte Ndaw, Rita Oulai, Minakshi Ramji, Beniamino Savonitto and Mark Wensley. Lastly, the authors would like to extend a special round of thanks to Anna Koblanck for her extensive editing and content development support. ISBN Number: 978-0-620-81328-0 H A N D B DIGITAL O FINANCIAL SERVICES FOR O AGRICULTURE K Foreword This is the fourth handbook published by the Partnership for Financial Inclusion, a joint initiative of IFC and the Mastercard Foundation to expand microfinance and advance digital financial services (DFS) in Sub-Saharan Africa. Previous handbooks have focused on the hardware and software components of a successful DFS deployment, risk management in mobile and agent banking, and the use of data analytics to expand access to financial services. This handbook is intended to provide information and guidance to financial service providers, including microfinance institutions, banks, mobile network operators, fintechs and payment service providers, on how to apply DFS in agriculture. The spread of DFS and information technology offers new ways of approaching agricultural development. Digital tools and data sources are changing numerous dimensions of providing financial and information services to last-mile, rural actors in agriculture, a sector that has been challenging to reach commercially but is critical to food security and economic development. By leveraging the growing availability of connectivity, mobile money services, simple mobile phones and smartphones, satellites and sensors, providers are increasingly able to bundle packages of services that smallholder farmers and small-scale agribusinesses can use to increase productivity and efficiency. There have not been many implementations of DFS in agriculture to date, and providers are just beginning to be able to benefit from emerging learnings. However, early feedback indicates that a key element of providing DFS products in agriculture is the necessity of creating diverse and new partnerships among actors who may not have worked together previously. This handbook, therefore, combines information on how digital technology has changed the provision of financial and information services for agricultural value chain actors, sharing lessons learned and experiences by some of the pioneers in the market. We hope that it will reach a broad industry audience at an opportune time, considering the pace of digital innovation and the importance of the agricultural sector to the economies and future of Sub-Saharan Africa. 2 DIGITAL FINANCIAL SERVICES FOR AGRICULTURE SECTION 1 SECTION CONTENTS 2 ACRONYMS 7 SECTION EXECUTIVE SUMMARY 10 SECTION 1. INTRODUCTION 14 3 SECTION 2. WAY TO APPROACH AGRICULTURAL FOCUSED CLIENT OFFERINGS 22 SECTION Overview ..............................................................................................................................................22 Agri-Value Chains: A Closer Look at Differences in Structure ................................................25 4 Identifying Common Agri-Value Chain Actors and Understanding Drivers of DFS Needs ...........................................................................................................................................28 Agri-Production Cycles: What Farmers Grow Lead to Different Customer Journeys .......36 SECTION Mapping Actors in DFS Offerings for Agriculture: Capabilities, Needs and Collaboration Potential .....................................................................................................................42 SECTION 3. DIGITAL SOLUTIONS FOR EXPANDING ACCESS TO 5 FINANCIAL SERVICES 46 Introduction ........................................................................................................................................ 46 SECTION P2B and B2P solutions aimed at rural retail customers ...........................................................47 Payments (P2B and B2P) ...............................................................................................................................................48 Savings and Value Storage ........................................................................................................................................... 56 Credit ...................................................................................................................................................................................68 6 Agri-Equipment Leasing ................................................................................................................................................ 81 Insurance ............................................................................................................................................................................89 SECTION Information Services ........................................................................................................................................................ 93 7 & 8 DIGITAL FINANCIAL SERVICES FOR AGRICULTURE 3 B2B solutions whose primary clients are agribusinesses and/or financial service providers ..............................................................................................................................104 E-Commerce ................................................................................................................................................................... 105 Data Collection and Management ..............................................................................................................................119 Agribusiness SME Lending ..........................................................................................................................................125 SECTION 4. BUILDING A DFS OFFERING: REQUIREMENTS, PARTNERSHIPS AND GOING TO MARKET 136 Introduction ....................................................................................................................................... 136 Justifying New Approaches: Putting the Farmer at the Center............................................ 136 Common ‘Access To’ Problems Facing Farmers ....................................................................... 138 Building a DFS offerring ................................................................................................................ 139 Phase 1: Assess and Design ..........................................................................................................140 Step 1: Segmentation in an Agri-Value Chain Context .........................................................................................141 Step 2: Calculating Values Associated with a Farmer-Customer Segment .................................................145 Step 3: Building Out from Production Cycles and Farmer Journeys ............................................................ 150 Step 4: Seeing the Entire Value Chain .......................................................................................................................151 Step 5: Defining DFS Offering Requirements ........................................................................................................158 Phase 2: Develop the Offering ......................................................................................................164 Step 6: Building Key Offering Components ...........................................................................................................164 Step 7: Assessing the Need for Partnerships ........................................................................................................167 Phase 3: Go To Market ...................................................................................................................169 Overview ............................................................................................................................................................................169 Step 8: Personnel ..............................................................................................................................................................171 Step 9: Product ............................................................................................................................................................... 172 Step 10a: Marketing ....................................................................................................................................................... 172 Step 10b: Promotion ....................................................................................................................................................... 173 Step 11: Service