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Because I am something of a super geek, and what I like to think of as the new-old guard (I mean, I had a TRS-80 in my house growing up), when I hear the term “defragment,” the first thing I think of is hard drives. Fortunately, for everyone’s sake, that’s not what we are here to talk about today. Instead on today’s 153rd Terms of Reference Podcast, I speak with Jason Wendle. He is the Director of the Rural and Agricultural Finance Learning Lab, which focuses on identifying more and better financial solutions for smallholders.
In our conversation, Jason and I discuss the continued fragmentation of the financial market seeking to serve small hold farmers and how the Lab and its many partners are working to connect the dots between the necessary trifecta of access to markets, knowledge and finance. I’m sure you’ll love this talk about the types of financial difficulties facing smallholder farmers, how fintech is starting to bridge the gap, but also how, ultimately it will also take a conscious evolution from traditional lenders to find true scale and sustainability.
You can connect with Jason here:
https://www.linkedin.com/in/jason-wendle-aa79b96/
IN TOR 153 YOU’LL LEARN ABOUT
- The difficulties of making agriculture financially sustainable, across scales, geographies and history
- The independent interests of the MasterCard foundation to promote financial inclusion
- How microfinance has plenty of room to grow and research to complete
- The role of RAFL in organizing knowledge across a vast network of partners in 22 countries
- The ingredients to ensure financial products can sustainable cater smallholders with customer-focused product
OUR CONVERSATION FEATURES THE FOLLOWING
Names:
- Rural and Agricultural Finance Lab
- MasterCard
- The MasterCard Foundation
- Kenya Bank
- Initiative for Smallholder Finance
- “Inflection Point: Unlocking Growth in the Era of Farmer Finance” (Paper)
http://www.mastercardfdn.org/wp-content/uploads/2016/04/Inflection-Point_April-2016.pdf - Root Capital
- Elon Musk, Tesla
- M-Kopa home solar systems
Topics:
- Microfinance, rural, farming, smallholders
- Risk, credit scoring, financial analytics
- Agriculture, agribusiness, social subsidies
- Agricultural technology, agricultural IT
Places:
- Dakar
- Nairobi, Kenya, West Africa
- South Saharan African
- Ethiopia
- Uganda
EPISODE CRIB NOTES
Download an automated transcript.
03:51
Rural and Agricultural Financial Lab – A MasterCard initiative
Started along MC’s interest
Smallholders are key, underserved group
Strategy consultancy came to the table, figuring things out, learning paths
Intertwined with MC
Allows access to large funds and countries
Microfinance is a lot of niches
Trying to build a community around smallholder finance
The MC Foundation wants truly charitable purposes
USD 12b in assets
Main interest: financial inclusion
You can’t work with the poor if they are not in the system
Microfinancing initiatives focus too much on urban areas
09:04
Learnt
Fragmentation is a systemic financial problem in A&D
Financial inclusion progrems also do not understand the particular needs of smallholders
Seasons affect amortization tables
Last 5 years have opened up the discussion for the mainstream
Ground partnerships have started cropping up in rural areas
The key word is “de-fragmentation”
Large agribusiness started to fill in the microfinancing gaps
RAFL began partnering with them for initiatives and technology
IT developers made an app
14:04
Managing an alphabet soup of learners
RAFL merges the partnerships
The smallholder sees the final solution, not the vast infrastructure of partnerships behind
RAFL unifies learning
It alerts partners about similar things happening
Questions about non-financial information that influences financial product development
RAFL tries to coordinate research and information among partnerships
Some partners collect agricultural performance data
Makes sure the unanswered questions haven’t been answered already somewhere else in the network
Identify the critical research, informational needs
Mobile finance has been out there for a while
Only now analytics are being brought up
Satellite, weather data sources are being considered
The challenge is to make sense of it all, make it useful
Convince partners to share data
For financial and credit scoring, but also to develop better products, save costs
Small loan companies have valuable information, if aggregated
20:36
Big (chunks of missing) Data
Financial institutions are skeptical about data sourced from local organization
Negotiations become critical
Some markets are harder to reach in a profitable way
There’s risks, droughts and stuff
But the real issue is the systemic transaction costs
It takes technology, infrastructure, skill
The business model is fragile as of now
Financial institutions don’t have all pieces in place to go in
Partnerships are a must, but there’s a lot of skepticism
But interest is growing
Who’s gonna be the one?
RAFL convinces financial institutions to keep investing in research
Market size estimates are big drivers
Kenya’s largest bank is pouring
25:37
Technology to save the day! Or
There’s a large penetration of mobile, not smartphone
SMS is huge, apps not so much
Expectations about ultra low cost phones running Android
But there’s places where smartphone penetration is low (Uganda refugee)
All in all, phone penetration will likely won’t keep the young on the fields
Future: partnership with Initiative for Smallholder Finance
Joint publication: Inflection Point
Calls to action, research:
#1 Customer (smallholder) focus
Often products don’t reflect farmers’ needs
A switch towards human-centered design
Smallholder finance takes different schemes, you can’t just stamp “farming” under the name and call it a day
#2 Partnerships that share cost, risk
No partner alone can keep it going, at any scale
Organizations looking to prospect the financial needs, costs, ROIs
Root Capital still needs partner to cover currency fluctuations
Should there be a private-driven risk-sharing pool fund?
Smallholder funding underwriting
Pretending to succeed without some measure of subsidies does not seem the way forward
32:18
But, farming is important, we all can agree on it… right?
There’s subsidies for farming everywhere!
They might not be perfect
But they’ve been critical, particularly of all to reach critical volumes
Training and knowledge transfer is also a historically government-funded endeavor
Otherwise, elementary financial partners would not provide the already limited support
(Insurance)
Social insurance: whole societies should helm the cost
Ethopia: underwriting to limit high farming risks
35:31
Standard practice in smallholder microfinance?
RAFL is young
Partnerships aren’t quite consolidated, as most came in in the last year
Annual gathering, learning workshop
Private sector more and more excited
Customer-centered design is a new hit in finance
New business mentalities, currently under exploration
37:06
Jason’s choice
“Face-to-face people”
Elon Musk
M-Kopa home solar systems
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