Interview: Understanding Financial Inclusion in Rural Africa

In 2015, MasterCard Foundation, an independent, global organisation launched the Fund for Rural Prosperity [FRP] – a $50 million, seven-year commitment to find, support, help to scale up, and learn from innovative ideas that expand financial services to smallholder farmers and other economically disadvantaged people living in rural communities across 24 African countries.

In an interview with Ann Miles, the Director of Financial Inclusion at The MasterCard Foundation, we discussed the foundation’s effort to scale financial inclusion for agri-businesses and smallholder farmers in rural Africa.

Ann Miles, Director of Financial Inclusion The MasterCard Foundation.
Photo Credit: Ann Miles

Hello, Ann. Tell us about MasterCard Foundation’s interest in advancing financial inclusion and the FRP fund.

Our work in financial inclusion really looks at three key areas of activities. The first one is around technology and how you can deploy mobile technology to advance financial services for people who are unbanked. The second is where the Fund for Rural Prosperity [FRP] fits – that is our agriculture portfolio. Through this, we are supporting a lot of different ways to finance not only smallholder farmers but also agri-businesses that are linked to smallholder farmers in Africa. The third area is working with microfinance institution and other financial institution to scale up their products and services to the unbanked. Here, we look at alternative delivery channels – how we can move beyond brick and mortar to deliver financial services and products to the unbanked.

The FRP fund is the first one of its kind for the Foundation to support companies that are either innovating or scaling up their financial services to reach more poor people in rural areas of Africa. It is a way to engage different private companies to deliver those financial products and services to those who either do not have access or limited access to good products and services. So we are talking about credit products, savings products and in some case insurance or payment products. Many of them are also engaged in farming.

So far, how many people or companies have benefitted from the FRP fund?

Since the fund was created, we have now committed almost half of the $50 million. About $24 million has been disbursed to 19 different companies in about 12 to 15 African countries to drive access to financial services for smallholder farmers and rural poor people.

Initially, when we set up the FRP fund, the goal is to enable one million poor people in rural Africa to have access to savings, credit and insurance products but through our current portfolio, we believe that we are already achieving that. It is likely that we will exceed the one million target.

The kinds of companies that we have supported so far provide input finance. Some of them are offering insurance while others are addressing literacy issues and providing pay-as-you-go solar. In one case, we have a company establishing a credit bureau for rural agri-finance and trying to get credit information on smallholder farmers as well as a company working on payments and savings. It’s a real range of companies but working with rural communities and smallholder farmer is the common theme.

Why much focus on agriculture and small holder farmers?

I think it is because most smallholder farmers still live in rural communities, that is more than 50 percent of the population and more than 60 percent of the population still derives income from agricultural activities. That is why we still think it is important to still focus on this segment of the market. We think agriculture will be important as a key sector for contributing to economic growth and productivity across Africa. Besides, agriculture has the opportunity to provide employment and work. Besides, people in rural communities are still engaged an agricultural activity one way or the other.

Language is really an issue, especially when you are working with rural communities. You can’t assume people are speaking a dominant language in the country.

What are the obstacles to financial access to smallholder farmers in rural Africa?

There are myriads of challenges facing smallholder farmers. Sometimes they have poor crop output and we have definitely seen the effects of climate and soil degradation on the productivity of some of the farmers. Then, the ability to repay their credits becomes compromised and as a result, you could have lenders backing away from this section of the market because the risk is just too high. While unfavourable weather conditions have always been a risk, it is becoming more pronounced.

And there is also the use of technology. Not everyone is comfortable with using mobile phones. You have to be very careful when you are using technology to deliver financial products and services. For instance, if someone is accessing digital credit for the first time, s/he may not understand the terms of that credit. He may be taking on more credit than he should to support either his business or crop production. That is another potential area of risk.

While unfavourable weather conditions have always been a risk, it is becoming more pronounced.

How can these risks be mitigated?

Insurance can certainly be one of the risk mitigants to financial access and we need to continue work on the first leg, which is to understand potentially what the role for insurance is. For example in the FRP, one of our projects is looking at index-base livestock insurance for farmers and pastoralists in Kenya. So we have to see how this is working in light of some of the challenges that are happening to this particular segment of the market.

In another case, we have a mobile app for agro-insurance. Again, we want to see if these insurance applications and products are delivering the services to the farmers and rural clients as expected.

In the case of digital credits and the use of technology, it will be important for clients to understand how to use the technology and how the technology may improve their access to financial services and products. But the providers [the company selling the products] have to make sure that the clients understand how this technology is being deployed and what benefit it may have to the client. For example, we are working with one project in Cote d’Ivoire which is actually doing an app in the local languages to address some of the weather issues of clients. However, because not all the clients can speak French or English, they are actually going deeply into customising those apps for local languages.

Language is really an issue, especially when you are working with rural communities. You can’t assume people are speaking a dominant language in the country.

Insurance can certainly be one of the risk mitigants to financial access.

Can we look beyond technology to increase access to financial inclusion in rural Africa?

I don’t think technology is the only solution. I think it should be backed with more support for technical assistance and training. But I do think technology can help providers and institution bring down their costs to serve these communities. However, the important thing is that the beneficiaries or the clients need to understand what these tools are and what they are using. It has to be coupled with good training and good support from the provider.

How does MasterCard Foundation measure the impact of what works and what doesn’t?

We try to understand the impact from our client level through our learning map. We are looking at how access to this technology and services improve client’s lives and we measure this in certain select projects. We think this will help inform all clients and other projects in the fund.

In term of what is not working, that has also been documented very carefully. For example, there are challenges that we may not have thought about at the beginning of the project. It could be as early on as ‘is the project having trouble getting implemented’? And if so, ‘why are there challenges to the implementation we didn’t think about from the outset’?  ‘Are there other challenges to implementing the programme’?  So we document this in our learning map and at the end of the year, all of the providers come together and share those experiences. We will be learning all these across all 19 projects to see what’s working well and what is not working that well.

Apart from providing these funds, does MasterCard Foundation offer technical assistance to recipients?

Under the current structure, there is no technical assistance. But that is probably one of the things we are learning too – that maybe in addition to just providing the fund itself, we might want to offer support in terms of technical assistance facility as these projects are getting implemented.

The important thing is to really understand what smallholder farmers need.

Going forward, what qualities are you looking for in potential recipient of the FRP?

The proposals and the company can come from anywhere in the world, but it has to be working in a particular country in Africa. We are looking at a couple of things which are 5 basic criteria:

• Can the company implement the project? What’s the company capacity?
• Does the project have commercial viability? Could it potentially have a commercial proposition for the company?
• What is its development impact? We need to understand, how this project is going to affect ultimately the client, the beneficiaries or the smallholder farmers? Will it be in an improvement of income or productivity of their crop? What is that development impact?
• To what extent is this idea innovative? Are they bringing forward something that is a new approach or model and altogether new product and service?
• To what extent will this project improve to some extent the capacity development of the end users?

Those are the five criteria and each of them is weighed a little bit differently. The first two are weighed 20 percent each. The following two is 25 percent and the last, 10 percent.

What should we expect from MasterCard in terms of financing financial inclusion in rural Africa?

I think the foundation will continue to contribute significant resources to agriculture and financial inclusion – the ability to finance and support smallholder farmers and agribusinesses, the ability to give smallholder farmers an opportunity to save and invest in their businesses and to make payment. For us, financial inclusion in agriculture will remain critical to our work going forward in rural Africa.

For companies enhancing financial inclusion in rural Africa, what are your recommendations?

I think the important thing is to really understand what those smallholder farmers need. Understanding their current environment and tailoring your products and services to what they need. This will help farmers improve input and productivity of their crops. Actually, some may need a safe place to save and this gives them access to a savings account. Some may need credit for other needs like education or healthcare. It may not necessarily be for inputs.

Editor’s Note: This article is not a sponsored post and does not express the views of Rural Reporters.