The Learning Lab analyzes applications from the first Scaling Competition of The MasterCard Foundation Fund for Rural Prosperity. Findings confirm key trends from the first Innovation Challenge and identify new trends around bundled service offerings and digital solutions.
By Adil Ababou
The MasterCard Foundation Fund for Rural Prosperity (FRP) completed its first Scaling Competition with 2015 winners announced in April 2016. The Scaling Competition helps to support the expansion of proven ideas for agricultural financial products, while the Innovation Competition supports the development of ideas for new products, services and, processes. To date each competition has completed 2 application rounds, with 2015 winners announced and 2016 applications currently being evaluated.
Applications targeting East Africa form large majority
The first round of the Scaling Competition received 124 proposals from applicants in 14 countries. The countries targeted for scaled interventions were heavily concentrated in East Africa (65%) followed by West Africa (27%). This trend magnifies a similar regional focus by applicants in the first Innovation Challenge.
At the country level, approximately 65% of proposals targeted Kenya, Tanzania, and Ghana – indicating a preference to scale models in markets with more mature RAF, mobile, and partner ecosystems.
Applications mostly came from providers, with agribusinesses leading a wide range of institution types
Analysis by institution type reveals that 80% of applicants provide a financial service directly (FSPs), with market enablers and capital providers accounting for the remaining applications. Among these FSPs; agribusinesses, MFIs, and FinTech/telcos submitted the most applications. Figure 1 below illustrates the more than 8 types of FSPs that applied, highlighting solar-pay-as-you-go providers and leasing/asset finance providers as rapidly emerging business models. The emergence of new types of providers confirms an increasingly diverse ecosystem of private sector actors engaging in rural and agricultural finance.
Figure 1: Applicants by region and type of institution
FinTech providers target the largest customer reach, leveraging the potential of digital and mobile technologies
Overall, a majority of applications (~60%) targeted a moderate customer reach of less than 50,000 customers, with only ~20% targeting over 500,000 customers (see Figure 2). Of course, larger scale may be correlated with shallower impact per customer, and scale targeting can be speculative at the application stage.
The range in scale appears closely related to institution type. For example, MFIs and Non-profits with higher-touch business models, requiring more in-person contact with clients and generally lower balance sheets, had smaller scale targets. However, market enablers that, by definition seek systematic change, generally had larger scale targets. Meanwhile, agribusinesses showed variation in target scale. This may be related to the institutions’ own size and financing capacity or the degree to which their value chain financing is locally customized.
Figure 2: Applicants by target customer reach and institution type
Of interest is the ambitious scale targets set by FinTechs which averages more than four times that of the typical applicant (see Figure 3 below). This trend highlights the importance of technology to scale up and sustain customer reach. FinTech and Solar-Pay-As-You-Go applicants, by definition, all rely on a mobile or digital technology platform compared to the more nascent use of technology by other institution types, many of which are still relying on traditional delivery channels to reach customers. However, mobile and data approaches are evolving rapidly, with commercial banks and MFI’s often partnering with FinTechs to deliver financial services through mobile or digital platforms. We’re excited to further understand new partnership models through our forthcoming Learning Lab deep dive study in collaboration with Innovation Challenge 2015 winners.
Figure 3: Proposed technology use by type of institution
Scaling applicants show less interest in bundled services than Innovation applicants
Unlike the trends from the Innovation applications, where two-thirds of applicants sought to experiment with bundled service offerings, Scaling applicants were more likely to scale a single-product financial solution (40% of applicants focused on credit only). Only one-third of Scaling round applications incorporated bundled solutions.
As illustrated in Figure 4 below, we observed three key trends among the applicants who proposed a bundled solution:
- 60% of MFIs proposed credit bundled with at least one other product (usually savings). This may represent an effort to mitigate credit risk since savings accounts can serve as a security measure.
- FinTech/telcos bundled transactions (payments) and other services to offer higher value-add solutions to customers. All of the “non-credit bundle” products below include transaction services, and FinTech/telcos were more likely than not to propose a bundle vs. transaction services alone.
- Of the bundled solutions proposed by commercial banks, 4 of the 5 represent bundles of 3 or more services.
Figure 4: FSP applicants by solution type and type of institution
Support services are integral to scaling up approaches
While the majority of applicants included some form of non-financial support services, there was significant variation by institution type. As illustrated in Figure 5 below, a smaller share of applicants prioritized agronomic training compared to financial literacy/management training (only 12% vs. 39% respectively, with an additional 13% of applicants providing both). The institutions that did offer agronomy support included agribusinesses (who have strong stakes in the quality and productivity of their smallholder suppliers), actors with high-touch business models (MFI’s and high touch non-profits), and insurance providers.
Figure 5: Non-financial service provision by type of institution
The 2015 Scaling applicants and five selected winners illustrate a diverse and exciting new landscape for the rural agricultural finance space. We look forward to continued operational and impact research with both the Innovation and Scaling competition winners.
While the 2016 competitions are now closed, we encourage those who are interested in applying for the 2017 round to monitor the FRP website and our social media outlets for news of their launch, as well as future announcements of 2016 competition winners.
Stay tuned for analysis on the 2016 competitions’ trends and themes.