A new blog series, jointly authored by the Mastercard Foundation Fund for Rural Prosperity (FRP) and Rural and Agricultural Finance Learning Lab (the Lab). 20/20 will share learnings and insights from the FRP portfolio of challenge fund winners. FRP supports businesses that are developing new products, services, or processes that can increase access to finance for rural people in sub-Saharan Africa. The first blog in the series explores lessons from Empresa de Comercialização Agricola’s (ECA) FRP-funded initiative in Mozambique.
Empresa de Comercialização Agricola (ECA) is an agronomy business that operates in the remote Manica province of Mozambique. In 2015, ECA was awarded USD 443,000 from the Fund for Rural Prosperity (FRP). With this funding, ECA planned to roll out a technology platform that would allow farmers to receive SMS updates and mobile payments for the sale of raw maize by mobile money as opposed to cash. The platform would enable ECA to communicate directly with its farmers via SMS, providing them with pricing information, technical advice, meeting scheduling, and weather information services. With FRP funding, ECA also proposed to partner with a local Mobile Network Operator to build a rural merchant network based on existing retail outlets where farmers could withdraw their mobile money. In this blog, we outline the main barriers ECA faced in implementing their project and the important lessons they learned in the process.
When it comes to doing business in sub-Saharan Africa, rural Mozambique is considered one of the more challenging contexts on the continent. Significant economic disparities exist between people living in urban versus rural areas. This disparity is mainly due to the limited and unreliable physical infrastructure in rural areas compared to the cities. 66% of Mozambique’s adult population transacts exclusively in cash, and under a third of rurally-based adults own an account at a formal financial institution. Maputo City Province and Maputo Province are the only two provinces in which all districts have financial access points.
A key driver for ECA’s application for FRP funding to help digitize their payments to their farmers was to move away from cash transactions to reduce the cost of cash handling, and to diminish losses due to administrative mistakes, fraud, or hijacking of their transport service providers. But the lack of government incentives to operate in rural areas has dissuaded most financial service providers from expanding their operations outside of urban or peri-urban areas. There are limited opportunities for rural communities to access financial products and services. Without the presence of a locally-based financial institution to enable farmers to convert mobile payments into cash (also known as cash-in/cash-out infrastructure), and vice versa, ECA would have to rely on partnerships to help solve these challenges.
ECA planned to build on a pilot they had run in partnership with Technoserve and a mobile network operator (MNO) partner. The pilot ran in 2015, as part of Technoserve’s Connected Farmer Alliance, with 150 farmers who were paid for their maize via a mobile money wallet set up by the MNO partner. While the pilot suffered a few challenges – most notably customer satisfaction issues related to poor network coverage – farmers were paid into their wallets when they delivered maize to ECA, and were able to immediately cash out next door in the town.
Buoyed by the relative success of this small pilot, ECA set out to implement it on a larger scale with FRP support. But due to the low population density and remoteness of the region ECA operates , the MNO partner struggled to see a clear business case for investing in mobile infrastructure development. This, combined with poor mobile connectivity and agent network infrastructure in the area, affected the project’s ability to scale up. And when political violence in the area escalated in 2016, farmers fled the region, abandoning their homes and crops in the process. While these setbacks were significant and meant that the project was unable to meet its original objective of setting up a digital payment platform, ECA was able to register over 1,000 new farmers, of which 75% were active customers as of the final project report in mid-2018.
1. ECA wanted to digitize their payments to farmers, but could not solve for the inherent distribution challenges involved. Most of the difficulties ECA encountered in implementing the proposed project stemmed from the challenges they faced in setting up a mobile payment system in a remote location with limited infrastructure.
Lesson learned: If MNOs don’t see the business case for investing in a particular region – due to low population density, poor infrastructure, or limited uptake of mobile phones – this is a clear signal that the ecosystem is not yet ripe for the deployment of a technology-based product or service. Policymakers have a role to play in improving access to financial services to rural customers, in terms of creating incentives for the private sector to expand into rural areas. Donor funding should be used to support other activities until the ecosystem has matured to a point where it can support technology-based solutions.
2. ECA needed to find a long-term partner willing to invest in building a cash-in/cash-out infrastructure. Shared distribution of risk and benefits is key for a successful partnership, and to date, ECA has struggled to find partners who are not only able but also willing to share the risk. ECA also struggled to find a financial services partner that was willing to build in flexible lending processes to account for the specific challenges of operating in rural, isolated areas. Furthermore, the partner needs to be willing to work in rural areas for long term benefits (e.g. more than five years).
Lesson learned: Take the time to build relationships with key individuals within partner organization(s) before entering into a formal partnership. Understanding the constraints of a potential partner can help set clear expectations between both parties and facilitate a partnership in which risks and benefits are shared and incentives are aligned. The Lab’s second Learning Brief explores these issues in greater detail, and offers a preliminary guide for last mile firms, such as ECA, looking to partner with financial institutions.
ECA’s experience demonstrates the challenges of setting up and deploying a digital payment system in an isolated, infrastructure-poor area. Having said this, ECA acknowledges that without FRP support, they would not have been able to take their pilot to the next level. Despite the objectives of the project not being met, ECA has learned valuable lessons over the past three years and, when the right partner(s) with the right digital platform comes along, they will be better equipped to enter into a mutually beneficial partnership, for the ultimate benefit of their 7,000+ farmers.
The Learning Lab works to identify and share knowledge relevant to our learning agenda and our users, but also to create new knowledge through research and facilitated learning. Original content from the Learning Lab includes news about the Lab, analyses we've conducted, knowledge products we've created, and posts we've written about other relevant initiatives.
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The Mastercard Foundation Fund for Rural Prosperity is a USD 50 million challenge fund that offers matching grants to private sector FSPs and enablers seeking to develop and scale-up solutions for financial inclusion of smallholders, and other poor rural clients.