As agri-tech firms and other innovators turn their attention to the protection, tracking and last-mile delivery of agricultural commodities, their apps and services are helping to reduce the risk associated with lending to farmers.
Smallholder farmers in remote, rural areas face a multitude of challenges in terms of getting their food to market safely and efficiently, and achieving a fair price for it. Erratic and expensive energy supplies, insufficient storage facilities, poor roads and unsuitable transportation methods mean perishable goods often lose some, or all, of their value before they reach processors or other buyers. Difficulties in tracking and recording the location, quality, volume and price of produce makes it easier for unscrupulous middlemen to cheat producers. These hurdles trap many farmers in a subsistence loop, which prevents them from increasing their profits and scaling up, and reduces lenders’ confidence that any loans will be repaid.
Even when commodities do reach buyers safely, the informal, cash-based nature of many trades means farmers often lack solid transaction records. Such records would not only help them to identify problems or opportunities to grow their business, but also demonstrate to lenders that they represent an acceptable risk.
In just 1.5 years, agri-tech company, Savanna Circuit, has helped to overcome a number of these challenges for over 800 small-scale dairy producers spread across six dairy cooperatives in Kenya. Through the company’s MaziwaPlus solar-powered ‘chilling-in-transit’ system and associated app, these producers now enjoy increased profits and are easily able to keep proper transaction records. As a result, a number of dairy producers have been approved for loans, which they have used to expand their business or buy inputs such as feeds, says Savanna Circuit’s co-founder, Emmastella Gakuo.
Under the MaziwaPlus system, milk is delivered from small producers to their local cooperatives by motorbike in specially designed aluminium tanks connected to solar panels. The tanks maintain the milk temperature at around 5oC until it reaches the cooperatives’ cooling plant, where it is chilled to 3oC. The milk is also weighed and pH tested on collection, with this data fed automatically into the MaziwaPlus app. An electronic receipt is then sent to the producer’s mobile phone with an agreed milk price from MaziwaPlus – minus a small commission that is shared between the producer and the cooperative – when the milk is sold on to processors. The e-system provides producers with a daily income statement and production records, which lenders require for credit scoring and, in some cases, for collateral.
Savanna Circuit has also added a second milk collection in the evening, allowing some dairy producers to almost double their income by selling milk that had previously been consumed at home. Along with reduced losses from spillage and spoilage, resulting from using the well-sealed, refrigerated tanks, this additional collection has helped farmers increase their average incomes from around €71 per month in October 2017 to €134 per month today. By receiving milk partially chilled by the MaziwaPlus tanks, cooperatives have also reduced power costs by up to 18%.
Savanna Circuit is now in the process of transitioning to using three-wheeler MaziwaPlus bikes to further reduce costs, and plans to apply MaziwaPlus technology to trucks with 10,000 l capacity within the next 3 years, says Gakuo.
Launched in 2014, fast-growing business-to-business (B2B) logistics platform Twiga Foods is rapidly scaling up its work facilitating access to credit for farmers and food vendors in Kenya. The company currently connects more than 8,000 farmers in Kenya with food vendors by helping to manage everything from harvesting to centralised storage in state-of-the art cooling and ripening facilities, and eventual delivery to retailers. Acting as a wholesaler and a logistics provider, the company offers farmers a guaranteed market for their produce, as well as transparent pricing and farming advice, while ensuring that produce reaches buyers in perfect condition. All transactions are recorded electronically, which enables lending partners to build a picture of a farmer or vendor’s creditworthiness.
Twiga Foods currently offers interest-free input loans to mid-size farmers and is looking to scale this service up by partnering with lenders, who would offer them low-interest commercial loans. The company is collaborating with the International Finance Corporation (IFC) and a commercial bank with a view to launching 18-month loans to cover some or all of the €45,000-62,000 cost of establishing mid-sized farms, which Twiga Foods would guarantee offtake from. The predictability of Twiga Food’s daily demand, with the company willing to sign contracts to buy the farms’ offtake at fixed prices for months and years ahead, means lenders can be confident they will be repaid, co-founder and executive director Grant Brooke says.
On the vendor side, Twiga Foods partnered with IBM Research in 2018 to offer blockchain-based working capital loans to 220 food kiosk owners in Kenya, under an 8-week pilot. IBM used machine-learning algorithms to analyse purchase records from vendors’ mobile devices and create a de facto credit score. Then, blockchain technology was used to safely accelerate the loan application and disbursement process. Twiga Foods says that recipients of the 4-8 day loans – which were typically for around €25-30 at an interest rate of 1-2%, and were used to buy stock – were able to increase their order sizes for produce by 30% and their profits by 6%, on average. The company aims to roll the pilot out further and is also on the brink of launching a 48-hour interest-free working capital product for vendors with another lender. In November 2018, Twiga Foods raised almost €9 million from investors led by the IFC and now plans to expand across East Africa.
As new technologies like those employed by Twiga Foods and MaziwaPlus support the creation and analysis of more data about farmers’ business transactions – while helping to access markets for their produce and reducing the risks it is exposed to – smallholders’ access to agri-finance will continue to increase.
Andrew Mwok, a dairy farmer in Kaptabuk, West Pokot County, credits MaziwaPlus transaction records for enabling him to obtain credit for the first time. He took a KSH 100,000 (€887) facility – now repaid – from his local cooperative in March 2018, and used the funds to purchase four dairy cows, doubling his herd size to eight. This was followed by a KSH 320,000 (€2,837) loan, which he received through a state-subsidised scheme in November 2018, paying interest rates of around 10%. Mwok used this second loan to set up a dairy unit, including the purchase of equipment and feed. He hopes, by mid-2019, to borrow a larger amount from a commercial bank to cover dairy operations and expand his production further.
Mwok, who used to engage in dairy production as a subsistence activity with his mother, says that since using MaziwaPlus, their daily milk deliveries have increased from 50 l to 170 l, and they now run the farm as a business.