Banks view agriculture in Africa as a huge opportunity — the continent has 60 percent of the world’s arable land and 80 percent of its workforce makes a living from the sector. It is very difficult, however, for banks to measure risk so that they can make lending decisions, especially when it comes to small farmers who tend not to have a conventional credit profile. In many instances, there is not even a national ID system that allows banks to identify them.
At the same time, one of the biggest obstacles for small farmers is access to capital. Not only are they geographically distant from most banking networks, but many lack access to information that would make them more bankable. For example, they have only irregular pricing data and are often not financially literate, or literate at all.
Thomson Reuters’ latest Africa Innovation initiative — the Bankable Farmer project — sets out to create credit risk profiles for smallholder farmers so that banks have more confidence lending to a sector that has huge growth potential, but remains crippled by lack of capital.
Project leader Saidah Nash Carter talked to Devex about the challenges small farmers face in tapping mainstream finance and how, through partnerships with farming cooperatives, banks, nongovernmental organizations and mobile startups, Thomson Reuters can help overcome them.
Here are some highlights from that conversation:
What inspired the project and what do you aim to achieve?
All my innovation work starts with conversations with customers, and the Bankable Farmer idea came out of a workshop with some of the largest banks in South Africa.
Our goal with the Bankable Farmer project is to try and inject more information into the lending process — giving banks the information they need through nontraditional means to be able to have confidence to make loans to farmers that are credit-worthy but don’t have a traditional credit profile.
What we’re doing is creating a business opportunity for the traditional banking sector. We’re trying to bring the large, traditional banking sector and connect it to the farming sector.
How will you do that in practice? From where will you pull the data and what kind of picture will that help build?
Essentially, we will look to gather and analyze data around farmers that our customers — the banks — can use as a quasi-credit rating.
There are numerous strands we can pull from. For example, many small farmers already use a mobile money platform for transactions and their activity here can provide insight into the risk they present. Partnering with platforms to gain access to this data will therefore be important.
We will also look at capturing ambient data around farmers — such as crop yields or weather data — that provide a picture of how well a plot of land is faring. There are even ways you can analyze social media interactions, looking at who farmers communicate with.
At Thomson Reuters, we have the ability to pull from all this data, and combine and analyze it, so we can look at ways to score a farmer.
Part of the project will also be about making farmers more financially literate so they understand the importance of a solid credit history. So we could also provide financial literacy training.
How important are partnerships to the success of innovation projects, especially those seeking to tackle complex problems?
We’re not trying to do this on our own — there are many data providers that have expertise we need. There are organizations, start-ups, cooperatives and others that we are building relationships with and whose work we won’t try to replicate. We know what we bring to the table — we want pilot partners that can bring their own expertise.
For example, working with farming cooperatives will help Thomson Reuters aggregate information on farmers quickly. We’re not in the business of trying to reach out to farmers directly.
There are also startups that provide farmers with anything from pricing information to tools and training and their reach will be useful to us. MFarm, for example, has 20,000 farmers on its platform.
How can you ensure and measure a sustainable business approach and social impact?
One of the things I’m passionate about is growing our business, while also having a social impact. And whenever there are opportunities to do well by doing good, and to prove that those ideas aren’t mutually exclusive — that you can care about profit and not be embarrassed about that, but also care about people and the planet — I’m keen to champion that concept. I think Bankable Farmer is a big piece of that and a showcase of what is possible.
On the bank side, the measure will be how many loans are made, their repayment rate and how valid our scoring proves. Is it getting the types of farmers that banks actually want to lend to?
If Thomson Reuters says to customer bank X that on a scale of 1 to 10, farmer Y has a score of 9, we have to be pretty sure he or she really is a 9. We provide data to these banks globally on a regular basis. We don’t want to fall foul of our relationship with them — we need to make sure that data are of high quality and well analyzed.
On the farmer side, we would look at how many loans farmers benefited from and how productive they were as a result.
What’s next for the project? How do you intend to bring it to scale and in what timeframe?
We have picked five countries to focus on — Rwanda, Kenya, Nigeria, South Africa and Ghana. Right now, we’re further along in Rwanda — we have a team of people there and that’s where I’m focusing most of my energy.
For the data we gather to be meaningful, we definitely need to have a critical mass of at least 1,000 farmers in each pilot. The bank that ultimately will be piloting will also have to weigh in — our approach is very much about co-creation.
Each pilot will likely take a different shape depending on the partners involved. They all have the same fundamental goal but how we actually achieve it will be different. In one country, for example, we might partner with a telecommunications company; in another country with a nongovernmental organization. But in every country there will be multiple partnerships — the government needs to be on board, we need a bank and some mobile component.
I hope the pilots will start this year. My goal is to have one of the five — probably Rwanda — up and running in 2016, followed by the rest some time in 2017.
How long it takes to develop the tool into a commercial product will depend on the outcome of the pilot. It could implode and people say it doesn’t work, or it could be the best thing since sliced bread. It all comes down to the quality of the outcome.
What are you most looking forward to at Devex World, and what is the one trend or innovation that you would like to discuss with other people from the wider global development community?
The thing that I’m interested in as a trend from an innovation perspective is this idea of co-creation. As global challenges and business problems become increasingly complex, we need multiple parties to come together to work on solutions.
Follow Focus On: Devex World for more conversations emerging from the global development event of the year.