Inclusive Finance Programme - 14 Years of Financial Services in East Africa

Mavuno is a Swahili word that is derived from kuvuna which means to harvest. Working through Community-Based Trainers (CBTs), the programme encouraged members of participating groups to sow the seeds of disciplined saving. This resulted in the reaping of various beneficial financially related harvests including loans, dividend payouts, satisfaction from financial empowerment and access to valuable literacy training, education and management skills necessary to boost entrepreneurship and business management.   

Since Mavuno was owned and institutionalized at the village level, there were other non-financial benefits enjoyed by the members. Social and economic benefits that are attributed to Mavuno include health, education, gender equality, food security, as well as collective learning and action platforms.

Mavuno was modelled against a backdrop of minimal infrastructure or external funding setup and based on short-term investments. Through its unique model, Mavuno was able to reach vulnerable populations previously unreached by formal financial providers. The model was crafted in three main phases: group formation, training and activity (actual saving and accessing of loans). Mavuno created a ripple effect with knowledge transfer from individuals to households. It was able to propagate desirable behavior changes including attitude change, confidence in decision-making and the identification of alternative livelihoods. 

Programme facilitators (CBTs) comprised Community Owned Resource Persons (CORPs) making it easier to integrate them among group members.  Not only did the CBTs mobilize and train the group members, but they also guided and supported the groups over the entire programme. Major support activities provided by the CBTs was to assess group needs and coordinate with the Project Coordinator (PC) in facilitating intergroup linkages and access to financial providers. To motivate them, the CBTs earned a stipend after the training sessions.

Although Mavuno groups targeted the youth and women from marginalized rural and urban communities, membership was voluntary and open to all adults above the age of 18 years. Ideally, Mavuno groups comprised 15-30 heterogeneous members. Trustworthiness, dependability and availability for weekly meetings were emphasized to the target beneficiaries who were smallholder producers and micro traders in rural and marginalized urban areas. 

Swisscontact acknowledged the group savings and lending model as a key contributor towards increasing the inclusivity of financial products and services among the rural and urban populations.  Between 2014 and 2016, IFP focused on group formation and financial literacy training of the Mavuno groups. However, 2017 brought about a paradigm shift with an emphasis on automating business and farmer groups and providing linkages to financial institutions. Using a customized, convenient and constructive application, Chamasoft, automation reduced paperwork, enhanced security on group data and information, improved transparency, and consequently trust among members. Not only was the app adaptable to both smartphones and feature phones and integrated a mobile payment option, but it also generated records that could be used as references by financial institutions. The app, therefore, enhanced transparency as group members were able to access their transaction histories, get message alerts, and even customize their profiles. Under the automation, a total of 105 groups (with a membership of 2,625) were captured from Nyandarua and Baringo counties in Kenya. 

Lessons Learnt

• Economic empowerment is critical for poverty eradication and behavior change. Through encouraging proper financial management, savings and opportunities for skill development, Mavuno has empowered and strengthened its members. It has increased community cohesion, especially among women at income-generating, investment and family welfare levels.
• It is important to integrate a needs-based training programme that complements financial literacy but focuses on vocational and life skills to aid the development of sustainable livelihoods.
• If group members have been consistent in saving, borrowing, and paying back loans, their group financial portfolio grows necessitating the need to access diverse financial products and services. Often, some of these needs go beyond what the groups can provide e.g., increased cash security and alternative investment options. The linkage relationship used should be personalized rather than thrust on group members as each group is unique and has different needs. As linkages create additional liabilities for each group, members must be ready to meet these costs.
• Once mavuno groups matured, they could function on their own and continue developing and managing their resource base to cater to their needs. Strong and flexible governance structures are essential for continued resource management even beyond programmatic setups. The intervention developed structures that served the needs of individuals and groups and were replicable in any setting.
• Saving groups play a pivotal role for individuals who lack options to save large amounts of money or have limited access to or no options to borrow.
• Digital platforms provide a gateway to a wider range of financial products and services in terms of access to market information and enhancing trade opportunities. Digitalization has equally improved the perception of the safety and security of funds, accuracy of records and limited the scope for leakage of group records which often resulted from keeping manual records.
• For projects wishing to replicate the Mavuno model, special attention needs to be placed on:

1. The Team: structure of the saving group and all facilitators including the Community-Based Trainers and financial institutions involved.
2. The Approach: open dialogue approach right from the beginning.
3. The Resources: human and non-human resources for planning, implementation, monitoring, evaluation, and learning.

The microfinance sector in East Africa is very vibrant and has been characterized by different types of formal and informal institutions, which play an important role in financial inclusion and provision of credit services to the Micro Small and Medium Enterprises (MSMEs). However, the ability of microfinance workers to provide relevant market-driven products and services remains wanting with there often being an obvious mismatch between microfinance training and what the market needs. For this reason, large numbers of underskilled personnel continue joining the job market and find it difficult to improve on their service delivery, therefore, affecting their product offering and ultimately financial access for smallholder farmers and MSMEs.

In a 2003 study in Kenya, Tanzania and Uganda to establish the need for formal microfinance training, Swisscontact confirmed it was crucial to develop a microfinance curriculum that could improve the standards of professionalism in the sector. As a result, Swisscontact initiated partnerships with training institutions to develop tailor-made microfinance curricula to address the needs of different levels of learners. The exercise to develop the multiple curricula was intended to meet the needs of students in learning institutions, employees serving in the microfinance sector and those interested in developing a professional career in microfinance. The projection was that the resulting curricular would provide skills that enabled learners and practitioners to confidently provide leadership within the sector. It was equally envisioned that the skills would ignite innovation through the development and delivery of unique products and services that address the needs of diverse clients who contribute to economic growth.

The intervention adopted a participatory approach and engaged with various sector players from the financial and educational institutions. As a basis for curricular development, Swisscontact initiated a multisectoral survey that sought to identify the various skill gaps that caused ineffective service delivery by stakeholders at the various stages. The identified stages included a two-year diploma, a two-year degree level of training and short courses running full-time for one to two weeks. The relevant contents were subjected to plenary sessions comprising of sector players who criticized and held discussions before validating and implementing them. To achieve relevance and sustainability, the curricula were hosted and delivered by the targeted institutions who continue to train the existing and potential microfinance students, employees and practitioners to date. 

At the initial stages, the curricular was rolled out for diploma and postgraduate learners.  Subsequently, full-time one-to-two-week short courses were offered. The final rollout was the implementation of the specialized training at the degree level.

Lessons Learnt

• Curriculum development should be a collaborative exercise involving all the relevant stakeholders as equal partners. This enriches the curriculum in terms of content, relevance, delivery modes and training materials.
• The process of developing training content is often lengthy and can take up to a year as the educational institutions go through a rigorous regulatory process.
• Previously, there was little collaboration between stakeholders - especially education institutions and product consumers. Cohesiveness between the two took long but once consensus was established, the process delivered a quality, relevant and market-driven curriculum.
• Periodic evaluation and review of curriculum by all stakeholders ensures that new and emerging issues are continuously updated and addressed.

This intervention sought to craft unique financial products, test them, and eventually implement them within the different Swisscontact projects. The innovative components included the warehouse receipt system, insurance for crops, digitalization of Mavuno groups and cooperatives and contract farming.

Warehouse Receipt System (WRS)

Often, smallholder farmers face huge post-harvest losses. Noteworthy, inappropriate storage and surplus production that usually leads to poor market pricing are among the key reasons for post-harvest losses.  Additionally, the lack of access to credit facilities from formal financial institutions makes it challenging to operate and ensure minimal losses. The project explored diverse alternatives that would enable farmers to get access to credit with minimal disruption. A Warehouse Receipt System (WRS) can ideally serve as a solution to allow farmers to store their agricultural produce in a certified warehouse. This same system can also serve as a financial arrangement through issuing the farmer with a receipt as proof of storage that can be used as collateral to secure credit from financial institutions. However, although warehouses fall into two categories: certified (regulated by authorities) and uncertified (unregulated), for farmers to benefit from financial institutions, they must store their goods in regulated warehouses.

The WRS works well in an established regulatory environment which provides for continuous monitoring of its operations. It offers a great solution to farmers who were initially unable to access credit as they lacked collateral. Being a financial product, the regulation sets standards for operationalizing the WRS among them insurance against possible risks, quality of products to be stored, security and farmer charges for storage.  

The WRS is anchored on clear collaboration and coordination between the private and public sectors. The public sector is responsible for ensuring the regulations on WRS are in place and enforced. At the same time, farmers who are the ultimate beneficiaries of the system have a responsibility to ensure that they store their products in the licensed warehouses. The private sector is also important in this arrangement and includes financial institutions, buyers, and farm input providers. Without the financial institutions, the end goal of the WRS cannot be achieved. Their involvement completes the entire model by providing credit to smallholder farmers. 

At the start of the second project phase in 2017, based on an assessment carried out in Tanzania, IFP decided to facilitate the process of setting up adequate regulated warehouses for the benefit of farmers. This initiative enabled farmers to decide when to sell their produce, thus earning higher from their farming activities. The farmers were also able to access post-harvest credit. The decision to pilot this IFP strategy in Tanzania (Kilimanjaro and Morogoro) was solidly driven by the fact that the country already had the necessary regulatory framework to guide WRS operations. There was also the willingness of financial institutions in Tanzania to provide credit to local small-scale farmers under the arrangement.  

Lessons Learnt

• The organization of basic financial literacy training sessions and sensitization drives help in equipping programme beneficiaries (smallholder farmers) with enough information to make decisions and appreciate the benefits of the programme and its systems.
• Individual and community education, mobilization and marketing are significant in the initial stages of programme implementation to ensure that the smallholder farmers embrace programme activities on the onset.
• A one-stop outfit that caters for diverse needs saves smallholder farmers time and resources e.g., a warehouse that provides additional services like rice milling will be more attractive to rice farmers.
• The success of warehouses depends largely on smallholder farmers resource mobilization and access to quality farm inputs and financial services.

Contract Farming

Agriculture is the backbone of the Kenyan economy with many smallholder farmers in the rural area relying on this high risk and uncontrolled venture for their livelihood. The existing situation has unfortunately exposed the farmers to a myriad of challenges as they seek to earn a decent living. The majority of smallholder farmers normally lack easy access and available markets for their goods with quality of farming inputs and financial assistance also not easy to come by. Many farmers often either sell their produce individually at their farm gates to middlemen or local markets at given prices. This reduces farmers to being price takers irrespective of the financial, material and human costs incurred in the production and marketing process of their farm produce. Furthermore, they must bear the high risk and potential loss of not being able to market the entire amount of their produce.

The Inclusive Finance Programme introduced the Contract Farming (CF) innovation to smallholders in Kenya in 2017. This IFP innovation assists farmers to achieve higher incomes through increased productivity, improved access to financial services and markets as well as reduced knowledge gaps. A contract agreement is a fixed-term agreement between a group of farmers and a buyer (off-taker) and is usually entered into before production begins. The farmer groups then agree to deliver a specific quantity and quality of a designated crop grown in a prescribed manner to the off-taker who then agrees to pay the group a particular price on delivery. CF is relatively common in the production of fruits and vegetables for export or sale to specialized domestic markets especially supermarket chains.

IFP stepped in as a facilitator to bring together the relevant stakeholders and provide necessary technical assistance. The programme identified potential farmer groups, associations and cooperatives with the will and capacity to develop contract agreements with possible off-takers. Additionally, it linked the farmer groups with other relevant actors like input suppliers and financial institutions.

For farmers to be able to access international markets, they must attain a certification that meets global standards. The GLOBAL GAP (Good Agricultural Practices) Certification is the world's most widely recognized farm certification scheme. Unfortunately, the GAP certification fee is not affordable for most smallholder farmers. IFP identified this as a major challenge to the success of the CF intervention and sponsored several farmer groups for certifications in the production of tomatoes, mangos, onions, and eggplants. Farmers registered in the groups went through participatory theoretical and practical training sessions that were designed to give insights on good agricultural practices, food and safety standards, financial literacy, and agribusiness for sustainability. This experience ultimately equipped the farmers to improve their farm management practices through the use of technology and the reduction of exposure to reputational risks around food safety. The training also opened up market opportunities that would otherwise have been unavailable.

Unpredictable levels of rainfall consistent with climate change gravely affect rain-fed agricultural practices and reduce farming outputs. This presented a very high risk to the success of CF.  Ideally, CF works best when farmers practice irrigation or are located in areas with high levels of rainfall as they can continuously produce to meet the off-taker demand. This was not the case in some intervention areas necessitating an initial long-term investment by farmers to procure irrigation kits and build water panels.  This left the farmers exposed to huge losses in case of early termination of the contract by the off-taker. Additionally, payments were often remitted well after the crops were harvested leaving farmers vulnerable and entirely dependent on the off-takers trustworthiness. If for any particular reason the crops did not mature, the risk often fell on the farmers and no compensation was offered. As part of the facilitation and linkage process, IFP stepped in to ensure the farmer groups were not disadvantaged and exploited and helped them negotiate suitable and favorable contracts. IFP also facilitated the process of farmers taking up crop insurance. This insurance cover cushioned farmers from losses caused by adverse weather conditions and unforeseen events. The financial institutions that provided advances to farmers to procure farm inputs also offered insurance services to cover the total input costs incurred by farmers.

Lessons Learnt

• Private sector involvement in the agricultural sector provides expertise and plays a big role in the implementation of Contract Farming through their promotion of technological advancements and extension services.
• Awareness creation and education of individual farmers and farmer groups is important to prepare them to balance between prospects of high returns and the possibility of greater risks and losses, particularly when growing new crops.
• The Contract Farming intervention should ideally reduce price uncertainty for farmers. This is however not always a full proof solution as many times, farmers are tempted to start side selling to the local market when demand is high, and prices drastically increase more than the specified amount on the contract.
• Contract development should comply with the minimum legal requirements of the host country, considering the local laws. Contracts must indicate the supply duration, quality standards required by the buyer, farmers production size, cultivation practices required by the buyer, crop delivery arrangements, price, payment methods, loan recover procedures and insurance arrangements if any. It is however crucial that farmer groups are conversant with the legal terms of the contract to avoid exploitation.
• There is need for government policies to support the growth and protection of smallholder farmers and farmer groups to help them foster economic growth, financial inclusion, increase market power and raise their income and productivity.
• An insurance scheme taken under the cover of farmer groups makes insurance cover more affordable since the risk is spread and premiums are only deducted from the farmers’ income at harvest time.
• Economies of scale are a direct result of farmer groups and enable smallholder farmers to reach large markets that are beneficial, to individual farmers, off-takers and consumers.  The groups are also crucial in fostering farmer relationships, reducing side-selling through peer pressure, accessing farming inputs, reducing costs, and improving farmer bargaining power.
• Small-scale farmers in Kenya should be organized into legally registered self-help groups for legal protection in the case of contract breaching.

MFIs and SACCOs play an important role within developing economies by enabling community members to pull together resources and uplift their standards of living. However, many MFIs and SACCOs may only be able to offer a limited range of quality products and services suited to the needs of the members. This is mainly due to inadequate institutional systems and processes. While some challenges may be unique to each institution, crosscutting challenges may range from weak organizational structures, porous accounting systems, unskilled personnel, scanty minimum standards, inaccurate business principles among other issues.

In response to some of the major cross-cutting issues, IFP designed an intervention around the institutional strengthening of the MFIs and SACCOs in a bid to address the identified gaps. The choice of financial institutions was made based on their willingness to serve the underserved target beneficiaries. The programme organised several training sessions with board members, management, and staff within the institutions as they were directly responsible for increasing access to financial products and services. It was envisioned that a proper strategic plan, sound corporate governance and policies would enable identified institutions to customize products that were inclusive, relevant, and affordable to the underserved.

The intervention also designed a SACCO Start-up Kit in partnership with the Department of Co-operative Development and Marketing to build the capacity of new SACCOs and offer guidance when dealing with the challenges of their growth.

Lessons Learnt

• Institutional resource mobilization is key to addressing existing gaps and customizing products and services for SACCO clients. Cooperatives should be innovative in sourcing for funds, outside member contributions, to equip their staff and improve productivity.
• Constructive and productive relationships among all stakeholders in the ecosystem not only increases the probability of sustainable implementation of the intervention but also facilitates stakeholder growth and development.
• Member education and capacity building create awareness of their roles, responsibilities and rights, ensuring they become informed decision-makers, participants and clients in the operations and management of SACCOs.

Access to financial services is a vital component for economic empowerment and for uplifting the living standards of the poor as well as enhancing national development. Based on the argument that over 70% of the rural population depend on subsistence small-scale farming, their access to relevant and affordable financial services and productive assets has always been limited. Limited access to financial services may be caused by among other things lack of collateral together with poor credit history required when taking up loans. Poverty, lack of education, limited availability of financial service providers and inadequate financial literacy may equally contribute to reduced uptake of financial services.

IFP designed the microleasing intervention in 2007. A micro lease is an insured and structured loan product tied to a productive asset. The asset pays itself off from the production outputs over a given transaction period, and ownership transfer only takes place once the user has fully paid for the asset. As part of their facilitation role, IFP conducted feasibility and market studies. The intervention ensured preliminary dialogue with stakeholders to explain the proof of concept, supported contract negotiations between the key parties and organized capacity building sessions for the different stakeholders. Collaboration was possible with various microfinance organizations, SACCOS, insurance companies and asset suppliers.  

The project activities involved facilitating the provision of leases for the acquisition of productive assets by rural and marginalized urban communities. This approach saved the smallholder farmers and micro-entrepreneurs from upfront resource commitments. It helped them grow their businesses, increase their net incomes, and create additional jobs using productive assets.

Lessons Learnt

• Asset insurance, a crucial facet in microleasing, protects the lessee from unforeseen circumstances, instils confidence in the process of borrowing and creates peace of mind enabling them to focus on business stability and personal and family needs.
• The intervention not only focused on financial solutions but also offered non-financial incentives for example training and after-sales services. These initiatives put the beneficiaries at the centre of the process and encouraged feelings of personalized satisfaction.
• Flexibility and inclusivity of microleasing interventions, irregardless of collateral and credit history, promotes economic growth and cohesion.
• The success of leasing productive assets relies on the current and anticipated future economic outputs of the asset.
• Many financial institutions still lack capital for pre-financing productive assets. In many cases, it was difficult to find quality asset suppliers who the insurance companies agreed to work with.
• The microleasing concept is not always straightforward and is often faced by indirect challenges e.g., erratic weather conditions may affect the agricultural sector while lack of regulation limits the deployment of policies that protect the bottom poor.