Key elements of market – informed agribusiness Models

Like all businesses, agribusinesses should be built around a product/service and a niche market. Ideally, more products and services spawn more business models with some models eventually becoming separate business units.  When that happens, it becomes easy to assess the viability of each business model. Contrary to some beliefs, in a business model, money is just like salt. Without meat or vegetables, salt is useless.  The salt owner should be interested in those with meat, potatoes, tomatoes and other products. On the other hand, while some commodities need salt, some consumers don’t need much salt.

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Confusing a business plan with a business model

Most agribusinesses lack models.  They confuse a business plan with a business model yet a plan assists in executing a model.  A model is an attempt to turn your innovation into profit or economic value.  The following pillars help to characterize a business model without over-simplifying the complexity in agricultural value chains

    1. The owner -who will provide the product or service.
    1. Value proposition – What need or solution do you want to address?  Have you addressed a need?  Absence of a value proposition is the main reason why we end up with copycats who just watch what another person is doing and try to imitate rather than focusing on the customer.  A need is a value proposition.  What loans are needed from the customer’s perspective?  To what extent is a reasonable interest rate a solution to farmers?  What if loan amount is the real need?  What if the main issue is unfavorable conditions that insist on collateral not in line with the agribusiness?
    1. Market segmentation – Who are you targeting?  Are you targeting farmers, traders, transporters or individual consumers?  A clear target will enable you to model in line with business behavior.  Most models, especially financial ones, are locked in systems.  It is important to create your own market niche that can inform what products to provide.
    1. Distribution channel – What is your distribution channel?  How are you going to reach your customers cost-effectively?  Most banks ended up setting up brick and mortar structure to establish presence. However, the entire value chain may be better supported by ICT-inspired channels.  Where Point of Sale (POS) machines are missing at other value chain nodes, clients get stuck.  For instance, loan disbursement will not be useful if traders cannot transact from rural agro-dealers where they stay.  Neither can loan repayment be smooth.  When clients get money, they want to use it somewhere.  It is important to understand destinations where money will end up being used.  That will enable building of other networks like between farmers and agro-dealers who also know what farmers need.  Concentrating on the immediate client is a big mistake, particularly in the network economy.
    1. Identify niche markets – Invest in building relationships or ride on partners who have already built networks. That is how you can build more models and networks.
    1. Best use of resources – resource configuration.  Should you go and rent a building or work through agents?
    1. Identify core competencies – What are the skills, knowledge, abilities, expertise and attitude available for supporting all other pillars?
    1. Networks – You cannot work in isolation.  Which partners are you going to collaborate with?  Trying to dominate the whole value chain speaks to unjustified enrichment at the expense of other actors.

Some of the fundamental considerations in agribusiness models

It should be about capturing everyone.  Start with early adopters who can assist you in refining as you go.  Do not dream of creating wealth if you are not creating wealth for others. Starting with others builds a sustainable base for your wealth.  From early adopters you are able to refine your financial strategy. Most business models have too many messages which end up confusing potential clients. Concentrate on a core message and few benefits.

If tobacco farmers who come to the market once a year get preference for cash from banks, what about traders who are in the market throughout the year and drive food markets?  That ignorance is counter-productive because it lures many farmers into tobacco, leaving other potentially lucrative commodities.  Why don’t banks enable traders to also get cash when they need it?  That is why traders end up locking their money in the market with their relationships with farmers.  They know that once they bank it, the money will be given to external value chain actors who are not interested in agricultural markets.

Charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

If acronyms were a solution, poverty would be history in many African communities

Almost all development interventions into Africa are framed into acronyms. eMKambo will not give examples because there are far too many acronyms to mention and you know what we mean. Although they are designed to make programmes easy to remember, most acronyms turn development interventions into slogans. As if that is not enough, acronyms have not become embedded into African idioms or metaphors through which Africans have traditionally filtered ordinary ideas into knowledge routines.

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Failure to gauge readiness levels

Condensing programmes and projects into acronyms has masked the need to gauge a community’s readiness for a new intervention. The underlying assumption in every new community project is that communities are always ready for what comes from outside.  Yet in reality, readiness may take much longer than three years, at which point some programmes will be phasing out. African communities are not always waiting for new projects but continue innovating and coping with challenges whether new programmes come or not. Sometimes old knowledge prevents new knowledge from coming into the community.  It takes keen interest to make sense of that situation. A lot of resources have been wasted and continue to be wasted due to unwillingness or inability to figure out whether communities are ready for new projects/ideas/concepts/knowledge and practices.

Toward knowledge readiness indices

eMKambo is more than three years into identifying and codifying contextual readiness indices for agricultural communities. A critical question in this process is: What is the minimum level of readiness for farmers and specific value chain actors to understand principles and potential outcomes of an agricultural intervention? Without thorough understanding of readiness levels, it is easy to waste resources since adoption may not be achieved. Gauging readiness also implies understanding what people are currently engaged in, sources of knowledge, capacity to unlearn and accommodate new knowledge.

African communities have been exposed to too many ideas, mindsets and approaches from diverse sources including NGOs and politicians such that it is a mistake to assume that they will simply jump for any new idea immediately. It may take more than two years for readiness to seriously kick in. A related question is: How do we figure out the market’s readiness for new commodities or new finance? Acronyms cannot answer such a question, neither are they effective in creating awareness about a development programme’s principles and potential outcomes. They are not vehicles for skills or knowledge acquisition because that requires experiential learning.  That is why a readiness assessment index becomes very important.

Filtering community knowledge into engagement

Knowledge is most useful when it can be translated into meaningful community engagement and that goes beyond acronyms. It means communities have to be adequately informed in order to take part in a much longer and meandering path for increasing the quality, impact, and effectiveness of knowledge-driven community engagement. People may have all the information but that does not translate to community engagement without intentional efforts at brokering relationships.

A fundamental part of developing a community’s readiness index is building local people’s skills and tools in identifying the most relevant and credible evidence for their context. Whether communicating among themselves or making their case to policymakers and prospective funders, it is crucial that communities are confident in assessing and using relevant sources of evidence. Generating high-quality evidence is a community effort and is the result of everyone’s willingness to ensure members are fully equipped with the information they need. Rather than be passive recipients of what comes from outside, community members have to actively engage in the production and sharing of evidence.

Farmers and communities are not mere recipients of information

A community’s ability to evaluate the quality and credibility of information is becoming more important today as information sources are continuing to increase. It means they have to continuously update their evidence using their own individual and collective learning skills. Very few development agencies focus on strengthening communities’ ability to critically assess the information they receive. Instead, they continue pushing information to communities irrespective of readiness to receive and absorb such information. As a result, acronyms are forgotten as soon as the programme ends and communities go back to their routines and knowledge rituals.

When high quality evidence is available, farmers and communities can develop stronger awareness of the implications and risks associated with their potential choices. In this regard, the key imperative identifying and understanding what constitutes appropriate evidence and how to put that into practice.  In an era in which the availability of information is no longer a problem, African communities should be assisted to use credible sources of evidence.  Every time information is provided to farmers, it needs to be logical in structure and clearly communicate objectives and outcomes rather than be too general.

When farmers and communities are appropriately engaged in information generation and dissemination, they can facilitate professionals and researchers’ understanding of their needs.  In most cases, acronyms hide more than they should reveal in empowering communities. On the other hand, local knowledge sharing routines and rituals in most African communities are designed to enable heart to heart communication among all community members. That is how trust is built and community solidarity is enhanced. Rather than sticking with acronyms, developments actors can use these community approaches to reach more formal results faster, with less resistance to change. Each farmer or community member has a unique way of combining wisdom from diverse sources.  That is why an individual farmer absorbs knowledge from an agronomist, animal scientist, nutritionist, engineer, economist, environmentalist and many other professions and still continue to remain sane.

Charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

Formulae for valuating intangible assets long overdue in Africa

Capitalism may be accused of misleading many African countries into limiting the valuation of their resources to tangible assets such as buildings, minerals, land and wildlife. However, failure to account for intangible assets like local experiential knowledge, wisdom, trust, relationships and emotional richness cannot be blamed on capitalism or modernization. While they are ambitious to become knowledge economies, African countries have not yet developed formulae for valuating their intangible resources in ways that can get these assets recognized as collateral in the modernizing global economy.  It doesn’t help to measure knowledge and human capital in academic qualifications excluding abundant unspoken and undocumented knowledge among ordinary people. Continuous over-rating of academic and documented knowledge is preventing African countries from realizing their authentic socio-economic value.

Accounting for intangible agricultural assets

A majority of African smallholder farmers have depleted their livestock, soil nutrients, water, wood, fish and other resources in sending their children to school. However, the promise of formal education has disappointed them and their children who, after graduating, cannot find employment that would enable them replenish resources that have been depleted over decades. There should be appropriate formulae for valuating resources that have been sucked from farming communities by formal education. Due to the absence of reliable markets, graduates from agricultural colleges who have ventured into agriculture cannot earn enough from agricultural activities to repay investments into their knowledge.

Agriculture is a combination of tangible assets (seed, equipment, livestock, cash, etc.,.) and intangible assets such as experience, knowledge, relationships, passion, ambitions, emotional depth, mental strengths, negotiation skills, relationships, trust and many others.  On the other hand, agricultural markets are more about intangible collateral such as knowledge, experience, relationships, trust and less about tangible assets.  While market experience is not a tangible asset, it has more value than tangible assets because the value of agricultural commodities is added in the market.  It is through intangible assets that farmers and traders are able to earn returns on their investment. Without these factors, sustainability of the whole agricultural sector is compromised. Intangible assets held by farmers and traders at individual level can be worth more than a tractor or a house in the city. However, because there is no way of valuing and recognizing such assets, knowledgeable farmers and traders remain in the economic fringes.

How the financial sector continues to looks at these issues

Since they have not invested in understanding intangible assets, financial institutions in Africa still consider tangible assets the only worthwhile forms of collateral. In a knowledge economy where intangible assets like innovation can build something out of nothing, one assumes financial institutions should rapidly be revisiting their notions of collateral to start with intangible collateral towards tangible collateral. Agribusiness models should be built from intangible assets to inform tangible assets required for effective production such as tractors, ploughs, water, technology, crop varieties, livestock breeds and others. Where agricultural financing is informed entirely by tangible assets, it constrains possibilities for innovation and emergence of new sources of value. Innovative youths armed with intangible assets are denied opportunities because they do not have tangible collateral.

The same people with tangible assets continue to benefit from financial institutions while innovative young people languish in poverty and unemployment. As if that is not enough, Africa has an over-supply of the same value chain models due to the financial sector’s preference for similar models that have reached their ceiling.  This practice promotes a copycat syndrome where several youths end up getting into tomato and eggs value chains because they are the ones financed by banks at the expense of potentially viable models considered green field. A dire need for new valuation models is also visible in how African companies which close down are assessed. Main considerations when valuating such companies takes into account equipment and infrastructure without considering investment in knowledge and experience built during the time the company was functioning.

 Why not convert the size of a market into collateral?

There is no longer any doubt that informal markets are a critical component of Africa’s invisible economy that has to be accurately measured and included in GDP metrics. With the right formulae, policy makers should be able to convert the size of informal agricultural markets into collateral. The collective experience in many informal African markets of large African cities like Harare, Lusaka, Accra, Nairobi, Cairo and Lagos can be more than 100 years. Very few corporate companies, who are considered bankable by financial institutions, have such knowledge and experience. In informal markets, knowledge and trends are continuously adapted and perfected in ways that increase credibility and legitimacy.

If properly captured and understood, knowledge and experience in African farming communities and agricultural markets can inform investment opportunities along several value chains. Investing in particular farming districts should start from market experiences of commodities and farmers from those districts. At the moment, most surveys focus on whether respondents have gone through formal education as opposed to deep inquiry about other forms of local knowledge that keep communities resilient. Each farming community and market has its own capacity to absorb knowledge and that capacity is determined by participants’ income levels, geographical location, demography and other factors.  If you take fruits like grapes to a remote rural market, they may not find buyers because of low income levels. Some  markets can determine the levels of imports into the country based on consumer tastes, demand and other factors.

The role of evidence

Limited attention to evidence is the main reason why African countries are failing to utilize their resources optimally. For instance, market evidence should inform capability building. At the moment, most production practices follow dead data in the form of previous year’s prices and production figures. There are no formulae for supporting predictive capacity.  As a result, intangible knowledge from farmers and informal markets is not being used to inform curricular development. Relevant valuation methodologies will also prevent the current under-utilization of local knowledge and create strong conduits for harnessing such knowledge for socio-economic development. Meanwhile the whole of Africa is importing more than $40 billion of food annually in cash.  That shows Africans have money but lack the right knowledge models for putting that money into more productive uses. This situation may only change through revisiting priorities, informed by evidence generated by appropriate valuation mechanisms.

 

Charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

How the informal economy tackles the middle class trap

In African countries where agriculture is a major socio-economic activity, policy makers and development agencies seem determined to move economic activities from agriculture to manufacturing. The whole discourse around value addition suggests a strong desire to get rid of informal marketing of agricultural commodities and convert all commodities into manufactured products which can be bought and sold in supermarkets or exported as finished goods. While that sounds logical and sensible, there is evidence showing that such a transition will not by-pass the informal economy.

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Lessons from South Africa’s middle class trap

What the South African economy is going through is an important indicator of the fact that a distinct development approach unique to African contexts should not ignore the informal economy. By embracing the Western model of economic development, South Africa has become locked into a middle class trap without realizing it. The country is now being forced to develop agriculture as a second economy because the current industrial system has no room the majority of people to participate as economic actors. Inequality, poverty and unemployment are increasing due to deep structural challenges imposed by the Western model of economic development. The domestic market is too small for the level of industrialization that has been provoked in South Africa.

You cannot be a successful manufacturing country when the domestic market cannot afford what you are producing. Due to insufficient local buying power, South Africa has reached the limits of its industrialization. It is now trying to use the supermarket model to break out of structural economic challenges. That is why South African super market chains are spreading their wings into neighboring African countries and as far as East Africa.  In an aggressive effort to broaden demand for products from its sprawling industrial sector, South African supermarkets are getting into countries such as Zimbabwe, Mozambique, Malawi, Zambia and other countries where local companies cannot compete due to poor supply chains.

Besides triggering resentment in the business circles of neighboring countries, the super market model is not sustainable because the middle class in those countries is too small to sustain levels of production in South Africa. The supermarket model focuses on meeting the needs of the middle class who earn more than $4/day. On the other hand, the majority of African consumers earn less than $1/day.  That class does not go to supermarkets but resort to the informal market. No wonder the informal market is expanding in many African countries. Manufacturing is a good idea but once it puts finished products beyond the reach of the majority of consumers, it stops contributing to economic growth.  It becomes big business without growth or employment creation and that is not sustainable at all.

The importance of fully understanding domestic markets

Assuming developing countries are determined to move completely from raw commodities to manufactured agricultural products, it is critical to fully understand the domestic market before exploring foreign markets which tend to be highly competitive and antagonistic. You cannot talk of value addition without an accurate sense of how much stocks are available in domestic markets per given period.  Every country should strive to know the local demand for each of its commodities ranging from horticulture, field crops and livestock. Such intelligence should be disaggregated according to population, buying power, class, age, gender, consumer taste, consumption patterns and other important factors. Where   consumption of particular commodities is going up or down or remaining stagnant, reasons should be teased out in order to inform socio-economic decisions.

Diversifying sources of evidence

While much of the practical socio-economic wisdom is now within the informal economy, economists and financial advisors in developing countries are still reluctant or unable to learn from this important sector. They prefer sticking to text book knowledge which, unfortunately, is being borrowed from the West where the context is different.  Like all truth, knowledge from the informal economy is likely to be ridiculed first, violently opposed and then finally accepted as self-evident. One of the reasons this knowledge is being ignored is because it flies in the face of what is considered common sense in academic and policy circles.  Having invested a lot of resources into what they think is knowledge, it is difficult for formal knowledge systems to accept that reliable knowledge can be found in unexpected places like informal markets. However, developing countries do not have the luxury of letting such important knowledge languish in obscurity when it can provide the much-needed solutions.

Charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

Using experimentation to balance short term agricultural gains with long term value creation

Climate change and unstable agricultural markets in developing countries are forcing agricultural actors to rely on constant experimentation. Historical knowledge is no longer enough for decision-making as contexts are always shifting. The level of complexity is such that farmers, traders and financial institutions cannot fully depend on individual meticulous planning. There are so many copycats waiting on their wings to enter the market and disrupt cash flows. While planning remains very important, it is the consolidation of all individual plans that matters most. For instance, long-term national policy planning misses the point if not informed by short and medium-term plans of actors such as farmers.

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The main challenge in most developing countries is that agricultural value chain actors such as farmers, processors, financiers and development partners do not share plans and targets. As long as plans are locked in silos, it is impossible to achieve national policy goals.  Farmers tend to depend on short-term plans, mostly seasonal as opposed to a framework laying out three to four year plans. The majority of seasonal plans are designed to meet household needs first with the surplus going to the market. Since information about surplus is barely consolidated, markets are kept guessing and therefore unable to plan.

Dangers and drivers of short-term plans

While short-term plans are good at meeting emergent needs like food security, there is no room for learning from short-term plans. It is insufficient to learn from short-term initiatives that take three to six months. In addition, short-term initiatives fuel premature conclusions, misleading people to believe that there has been success, leading to replication of ineffective short-term outcomes. However, what is driving short-term planning are factors beyond farmers’ control like climate change and lack of a guaranteed market. In a changing climate, farmers cannot plan for five years because things can quickly change. On the other hand, without a guaranteed market, good farmers end up minimizing their surplus to 10 bags of maize when they could actually produce 100 bags if the market is available. The absence of reliable markets compels farmers to make short-term decisions. In addition, short-term planning discourages   consultation between value chain actors, leading to a mismatch between market needs and supplies.

 The situation is the same with short-term loans. There is very little to learn from two to six months loan cycles compared to two to five year or season cycles.  Focusing on short-term and medium-term plans is mostly recycling of the same plans. It is difficult to plan your budget or predict your growth patterns without a strong evidence base in such a scenario. That is why the relationship between banks and farmers end up getting sour because the market suddenly becomes flooded with unexpected commodities. It means a farmer or trader’s three year cash flow is suddenly disrupted as more farmers start getting into the same commodities.  This reinforces a tendency to rely on short-term planning.

The power of experimentation in building adaptation capacity

The fast moving and competitive environment requires value chain actors who can generate and test hundreds of strategic options. Many farmers and traders are already progressing through trial and error which is certainly experimentation, characterized by cycling through many ideas quickly, testing commodity assumptions, getting feedback and building on what is. They are embracing experimentation as a strategy for maximizing their ratio of insights over time and money spent. While experimentation makes sense to farmers and traders, it is not yet natural behavior for other value chain actors such as formal buyers and financial institutions. These prefer the comfort zone of business as usual. Running an experiment is not their first instinct.  Any new opportunity is considered green field, which means it is an unexplored territory and high risk.

While a few formal institutions try to gather data, such data is isolated from the whole agricultural ecosystem and fails to generate sustainable business models. The data does no enable agribusinesses to discern the potential impact of innovative agricultural ideas. On the other hand, experimentation in farming communities and informal markets has the virtue of being both evidence-based and emergent. A well-designed value chain experiment quickly tests the merits of available ideas, generates new and relevant insight into the deep needs and behaviors of farmers, consumers and other actors. It also opens up new avenues that may not be apparent when information is continuously recycled.

Keeping pace keep pace with change

African value chain actors such as informal traders are keeping pace with the current relentless change through experimentation and quick learning. They are always training themselves to tune into deep customer needs and work hard to fulfill those needs. It is through experimentation that high quality information and knowledge is generated. The difference between a tangible commodity like a tomato and knowledge is that you can produce soup from a poor quality tomato and be satisfied with the poor quality of the soup but poor quality information and knowledge will lead to poor decisions which will cause the business to collapse. In most cases, smallholder farmers need high quality information and knowledge in order to compete in the fast-moving market. There is no gain in receiving the same information and knowledge twice. It is becoming very important to equip and empower every value chain actor to test and advance new ideas based on deep customer insight and real-world feedback.

Most African organizations prefer to learn from mistakes made by organizations in a different context like the West. That is why they are failing to produce extraordinary and original work. Getting fluent in failure requires a certain amount of grit and perseverance which our institutions do not want to experience. Unfortunately, the organizational life of all financial institutions is built around avoiding failure and stamping out risk. Unfortunately playing it safe, refusing to venture down blind alleys and sticking to what they know, locks them in the same models such as contract farming.

How can experimentation be taken to the next level?

Policy makers and formal institutions have to stop defending models that are no longer working. Rather than continue emphasizing indiscriminate formalization, they should fully understand local business dynamics. What is the point of a CR14 when every trader ends up doing the same thing or can swiftly change to other commodities?  It’s not about location but swift changes in business. You may know where a trader does business but how does that help a trader to grow if s/he decides to change from specializing in fruits to furniture or community tourism?

All value chain actors in agriculture and rural development should be empowered to build their capacity for experimentation. While some farmers and traders are always experimenting, those lessons are not being codified for everyone to learn. The last time African graduates conduct experiments is at secondary school and few at tertiary education level. Community experimentation is taken for granted although it may not require hi-tech laboratories.  In fact most fields, pastures, local markets and water sources constitute laboratories which could be used to advance community knowledge without waiting for external knowledge. There is no reason why African graduates should not be as open and as curious as possible for as long as possible—to the evidence, feedback and signals coming into their communities. At the moment, most people in African countries go through primary school, secondary school and tertiary education without making a career decision. That is why we end up with graduates looking for any job, for example, engineers teaching at primary school. Besides constituting short-term planning, this education system and mindset translates into lost years in terms of contributing to the economy.  By the time graduates find their true calling or career, they are already about to retire.

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

Which country has achieved economic growth through micro finance?

If you answer the above question correctly, a ton of pearl millet is waiting for you at eMKambo. When many organisations across the globe are merging in order to sustain some level of competitiveness, why are developing economies finding it sensible to take the micro finance route? There is enormous evidence showing that companies that can drive economic growth do not use micro loans to fuel their activities. Instead of transforming the formal financial sector so that it can fully support exploitation of natural resources, African policy makers are registering more micro finance institutions.

For example, Zimbabwe had 143 registered Micro Finance Institutions (MFIs) in March 2015 and by 30 June 2016, the number had risen to 164 registered MFIs (15% increase within a year).  On the other hand, the country has 14 commercial banks, most of which have an SME division which deals in micro loans and therefore competes with MFIs. Taking into account the existence of SME departments within commercial banks and many unregistered MFIs, it means micro finance is much larger than what is visible.

For agricultural-based economies, it is serious mistake to finance agriculture through MFIs, especially when MFIs do not understand agricultural markets. Saving is about opportunity costs which formal financial institutions prefer to ignore. Borrowers such as farmers and traders are rational decision makers who can weigh how much it costs them to save money in a financial institution three months when they could spin such money more than five times in their agribusiness during the same period.

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How far can African economies run on micro wheels?

African reserve banks should answer many searching questions. Why are they promoting more micro finance institutions when banking sectors are already congested and economies are not growing fast?  Since some MFIs are now taking deposits, should people do away with banks and deal with MFIs? You can only do so much with a micro loan. By going micro, we are limiting people’s entrepreneurial imagination and innovation. Besides confusing people by not clarifying these issues, the micro finance fever is encouraging double-dipping in ways that weaken national economies. A micro finance culture locks targeted clients such as women and youth into vending and a survivalist mindset when they should be aiming for growth. The more micro your focus the more you take your eyes off the big picture.

A micro finance culture is also incentivizing rent-seeking and unethical financial practices.  For instance, when banks see that their licenses do not allow then to charge certain interest rates, they go into bed with MFIs in order to milk clients. That way, they end up benefitting from interest rates as high as 20% when the law says they should not charge above 10% interest. Rather than certify dozens of MFIs, why are African reserve banks and ministries of finance not promoting the organic growth of savings clubs into village banks? Such organic growth is more sustainable unlike the current scenario where MFIs are taking over community savings clubs models and introducing bureaucratic structures that contravene the original social cohesion at community level. As a result we are losing valuable knowledge on how communities have financially sustained themselves for generations. As if that is not enough, many MFIs are riding on livelihood projects by development partners.  As soon as the projects comes to an end, MFIs pack their bags and leave.  As a result, communities start rebuilding their local savings clubs from scratch.

 What is the difference between MFI and Commercial Bank in terms of services?  

To ordinary people, commercial banks and MFIs offer the same services although MFIs are famous for high interest rates. SME departments in commercial banks compete with MFIs for clients.  The situation would be better if there was a recognized pathway along which clients like SMEs can graduate from MFIs to commercial banks on the basis of business performance and growth. Since such pathways are missing, most MFIs convert business loans into consumer loans. Cases where 30 -40% of MFI loans end up going to school fees are very common.

Business potential and viability as superior collateral

Besides limitations explained above, the banking sector in every African country is failing to develop appropriate financial products which recognize the fact that a business’s potential and viability is superior collateral than immovable property.  By not recognizing such an important resource, financial institutions get obsessed on saving at the expense of wealth creation. Saving money is not useful if that money cannot create meaningful wealth. Business viability, including associated relationships and communities of practice, should be in the fore-front as fundamental components of collateral. One should get a loan on the basis of business potential and growth. However, due to reluctance by banks to fully consider business contexts, many SMEs end up resorting to micro loans as an emergency or desperate measure. When loans are more of emergencies and stop gap measures, the rate of default increases.  The onus is on banks to completely understand businesses they support.  At the moment, many SMEs take loans as a last resort because banks have not bothered to creatively know their clients’ business dynamics.

The myth of separating business from family

Most African banks and MFIs are still hooked onto the notion of supporting profit-driven enterprises instead of embracing the social entrepreneurship component which ensures a win-win outcome. No business person can survive without taking care of family needs. Banks should not continue to kid themselves thinking that there is a clear boundary between business and family. That is a big myth. Considering the socio-economic nature of African businesses, especially SMEs, banks should extend loans that have two parts – 70% business needs and 30% household or livelihood needs.  This can be accompanied by two repayment strands (business and family).  It doesn’t help to continue pretending that a borrower whose child has been chased away from school for lack of school fees will ignore that urgent issue when s/he has borrowed money for business.  The reality is that s/he will pay school fees with part of the loan and work hard to repay it. It is therefore important to introduce a two tier loan facility which caters for business needs and household needs.  That way, clients will fully open up about their circumstances.

Limitations of the agency banking model

While the agency banking model has made some in-roads into African economies, it has started revealing serious loopholes, one of which is the big brother mindset by banks. An agent such as an agro-dealer will have invested a lot in building a niche market and,  here comes a bank interested in working with the agent but not keen to recognize and compensate prior investments. As a result, the agency banking model becomes a burden to the agent. Financial institutions should ensure the principle of agency banking is informed by reliable evidence. Banks should conduct research to find out how much it would cost them to set up a new branch and develop a market niche as opposed to riding on what the agent has already done.

Evidence from such research should inform the crafting of appropriate revenue sharing models based on special skills and experiences brought by each agent rather than introducing a one-size-fits-all revenue sharing model skewed in favour of the bank. Many banks and MFIs are just getting into agriculture markets and start issuing out loans without supporting the market as institution.  Their assumption is that money is the only most important business factor. That is why many models are suffering still-births.  Supporting a very small part of the value chain does not entitle banks to claim a larger share of the profit. How can you expect to reap everything when you have just provided resources for harvesting yet the farmer put all the other resources including seed?

Towards alternative models

Financiers are not assisting their clients such as traders to develop their markets.  On the other hand, they still insist on group lending which does not give enough room for individual brilliance to shine. Why should champions be yoked with slow movers? Policy makers should desist from locking small businesses into micro-financism. Rather than impose financing models, development partners and governments should help economic drivers such as irrigation schemes establish their own needs-based and contextual credit facilities. Loans for horticulture should be different from those intended for livestock.  Such segmentation is fundamental for success. Meanwhile, the potential and limitations of micro finance in driving authentic economic growth remains an unproven theory in many African countries.

 

Charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMKambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

Why we need a healthy handshake between numbers and intuitions

Due to the hype surrounding Big Data, there is a temptation for economic planners in developing countries to over-depend on quantitative data (numbers) at the expense of qualitative data (stories). There are many valid reasons why economic planners should not ignore local intuitions that offer a better interpretation of what is beyond the data (numbers). Working on the forefront of informal agricultural markets has made it clear to eMKambo that what is measurable is sometimes not the most valuable. Local intuitions and emotions can be more valuable than numbers. There is a hidden story behind each commodity price.

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Unfortunately, in a world that is becoming seriously data-driven, qualitative data is being seen as anecdotal, unreliable, small and insignificant. As if that is not enough, researchers who specialize in qualitative data are being swept aside by the big data revolution which is more interested in quantitative evidence that can be manipulated by machines. Yet there is no doubt that qualitative data is better at revealing people’s emotions, intuitions, experiences and worldviews. Although qualitative evidence is the sticky stuff that is difficult to quantify, it is good at generating incredible depth of meanings and values.

With the rise of Big Data, it seems development organizations and private companies are also now valuing quantitative more than qualitative data. For instance, the introduction of drones in agriculture is expected to generate a lot of real time data on what is actually happening in farming areas. Investments in technologies such as drones are threatening the future of qualitative data which cannot be captured by drones. One of the reasons why organizations over-rely on numbers (quantitative data) is that qualitative data is not easy to measure. Yet, what is not easy to measure can represent a community’s competitive intelligence and advantage. Most quantitative data gathering and processing methods strip information of its context, meaning and stories so that it can be standardized and clustered.

Integrating numbers and stories

A complete picture of the reality on the ground in most African communities can only emerge from integrating quantitative and qualitative evidence. For agricultural value chain actors to form a complete picture of the agriculture market, they need both numbers and stories because each of them produce different types of insights at varying scales and depths.  While numbers can reveal quantified data points, stories can reveal the social context accounting for those data points.

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On the other hand, more numbers do not necessarily translate to more insights. Several organizations have huge data bases which are difficult to convert into meaningful insights. When organizations value quantitative results more than qualitative results, they reinforce an assumption that statistically normalized and standardized data is more useful and objective than qualitative data. Yet it is more meaningful to balance the quantity (number of farmers or volumes of commodities) with the quality of agricultural insights and commodities.

 The importance of not losing people’s experiences

When organizations start making decisions based on numbers only, they end up losing people’s stories and actual experiences. Without human decision-making, farmers and other value chain actors lose their capacity to reflect on the morality of their actions and that is not ideal in a changing climate.  Qualitative data generates emotions and inspiration that enable communities to know what they need to know. That is why collecting and analyzing stories produces rich insights more than can be generated through quantitative surveys. Through stories, communities stumble on surprises that can inspire innovation and imagination. You cannot say the same about a string of numbers.

Numbers alone do not respond to the emotions of everyday life such as trust, vulnerability, fear, lust, security, love and intimacy. It is hard to use numbers to represent the strength of an individual farmer’s affiliation to his crops or animals and how such affiliation changes over time. On the other hand, qualitative data approaches reach deep into people’s hearts. That is why a relationship between a farming community and a contract company’s brand becomes more emotional than rational. When policy makers want to build stronger ties with agricultural value chain actors, they should embrace both numbers and authentic stories. That is because stories contain emotions which cannot be found in a normalized dataset.

Why we need to balance a data-centric approach with a human-centred approach

Solving global challenges such as climate change, malnutrition and poverty certainly requires a health combination of numbers and stories.  Data-driven approaches are already asking many questions that can only be answered through stories (qualitative data).  One such intriguing question is: What does the behavior of farmers and traders tell us about the role of big data (numbers) and qualitative data (stories) in agricultural markets and farming communities?  The process of answering this question can show why quantitative data alone is not able to reveal all the influences of socio-economic development. Quantitative data alone will not tell you what consumers really want but stories that resonate with consumers can shed more light.

Many communities in developing countries are already experiencing uncertainty, unpredictability and information load as a result of digital technology and related influences. In order to keep up with uncertainties such as climate change and poverty, they need both numbers and stories. Big data is not going to replace traditional forms of intuitive learning and making sense of the world. Although quantitative data may suggest necessary changes in a particular community, qualitative researchers are going to remain critical in surfacing the impact and context of those changes from a socio-cultural perspective.  However, since stories have their own limitations, quantitative data is an important avenue for enabling communities to experiment with alternative ways of thinking about learning and knowledge sharing in the 21st century.

 

charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6