SDM Case Study 1: ECLOF-Kenya

ECLOF-Kenya SDM Case Study

Key insights from ECLOF-Kenya CEO, Mary Munyiri, on her experience aligning smart business practices with social impact goals

Published on

January 31, 2019
Authorship: Mary Munyiri, CEO ECLOF-Kenya

If you’re working in rural and agricultural finance, “impact” is the name of the game. For many of us, we’ve chosen to work in this complex market with the primary intent to lift smallholders out of poverty and elevate rural economies. And while our passion is there and our hearts in the right place, the hard truth is that business realties can often make it difficult to drive impact in a financially sustainable way.

Take it from me. As CEO of ECLOF Kenya – a leading microfinance institution in Kenya – running a business in a risky market is no easy task. To serve smallholders well and to keep your business afloat, good intent is not enough. That’s why we teamed up with IDH Farmfit and the Mastercard Foundation RAF Learning Lab to shed light on the financial sustainability of our business model and map out a clear business case for serving Kenya’s smallholders.

Here are a four key insights from IDH and the Lab’s assessment of our service delivery business model that will inform how we shape our strategy in the coming years.

ECLOF-Kenya Full Case Study


A tailored package of financial and non-financial services that meet farmer needs can more than triple farmer income

In 2015, and in partnership with local cooperatives, we launched our monthly Climate Smart Agriculture (CSA) Dairy Loan. The CSA Dairy Loan aims to help dairy farmers finance infrastructure investments, inputs, and the purchase of cows. Structured as a group loan at affordable interest rates, our CSA Dairy Loan does not require conventional collateral – which most smallholders don’t have access to. Moreover, it is disbursed directly to the farmer when they need it, either in cash – often through their M-Pesa or mobile money account – or in kind by the partner cooperative. The loan is then repaid monthly through the cooperative.

While the design of flexible and affordable financial services is a notable step forward, the reality is that it’s not enough to guarantee a positive return for farmers. That’s why at ECLOF Kenya we are making an intentional effort to combine the CSA Diary Loan with a suite of non-financial services that can increase farmer productivity and income. These services include access to livestock insurance, veterinary support, climate smart and agronomic training, and a guaranteed offtake from partner cooperatives. 

As a result of this service package, CSA Dairy Loan farmers performed up to three times better than our regular dairy loan farmers, who have no access to training or guaranteed offtake. With the help of the loan and its supporting services, CSA Dairy Loan farmers can improve the diet of their cows and upgrade their farm infrastructure, ultimately increasing yields by over 230%, from six liters to 20–25 liters per day.

Beyond the impact itself, ensuring positive farmer returns is fundamental for our long-term sustainability as a financial institution. Increased farmer productivity and income can reduce risk. For example, the percentage of our CSA Dairy Loan portfolio past due by thirty days is a third of the regular dairy portfolio and a fifth of the overall agriculture portfolio.

Farmer Sustainability: CSA dairy farmers perform 3x better than the average ECLOF Kenya dairy farmer


Credit: IDH Farmfit and Learning Lab analysis


Enabling a holistic package of services not only benefits farmers, but also the dairy cooperatives they work with

Three years ago, when we started developing partnerships with local dairy cooperatives, we anticipated that they would benefit from our program. After all, a guaranteed and more productive farmer base can provide cooperatives with a higher, steady base of quality milk, and thus increased revenue. Yet, it wasn’t until last year, with the support of IDH and the Lab, that we were able to quantitatively measure the extent to which our partnership could be contributing to the profitability of our partner cooperatives.

In the case of one of our partner cooperatives, farmers participating in our CSA Dairy Loan program represent just 4% of the cooperative’s customer base. Yet, the SDM analysis by IDH and the Lab has shown that these farmers could be accounting for over 65% of the total milk sourced by the cooperative today. The bottom line is that CSA Dairy Loan farmers have more cows, are achieving higher yields per cow and are more likely to sell a larger share of their yields to our partner cooperatives compared to farmers who are not part of the CSA Dairy Loan program.

With a new understanding of the economics of our partnerships with cooperatives, we can think more strategically about our business model. For example, since cooperatives are benefiting from our CSA Loans, there is an opportunity to reshape these partnerships to share the costs of providing non-financial services to the dairy farmers with the cooperatives.

VCP Sustainability: Early evidence suggests the partnership with ECLOF Kenya is an important driver of the VCP revenue generati


Credit: IDH Farmfit and Learning Lab analysis


Reaching financial sustainability is hard, but not impossible if you pull the right levers

Designing a holistic service delivery model that also drives farmer impact, can come at a cost. The IDH and Learning Lab analysis found that if we account for costs subsidized by donors – primarily farmer training and on-lending – the CSA Dairy Loan average net margin over the last three years would come out to negative 78%; the equivalent to an average Operational Self Sufficiency [1]of 56%.

While reaching financial sustainability is not an easy task, we are positive that it can be achieved. The comprehensive package of services offered by the CSA Dairy Loan comes with a high fixed cost ticket, making our portfolio highly dependent on scale to reduce the cost to serve.  But this hurdle doesn’t need to be a barrier. Based on findings from the IDH and Lab analysis, under our current business model our CSA Portfolio would breakeven at 1,300 farmers, a target we are on track to reach by 2022.

Similarly, on a per customer basis, the CSA Dairy Loan is showing strong profitability potential, with average revenue per farmer growing at an annual 15%. This increase is primarily driven by higher loan sizes and diversified income from interest and fees. Net customer income could increase further, should we adjust interest rates to market rates for new borrowers, something which would enable us to breakeven at just 600 farmers.

Alternatively, we could achieve self-sufficiency through a 35% saving on the cost to serve, an ambitious target but one that we will explore through increased staff capacity – to reduce the cost of outsourced farmer training – and through potential cost sharing agreements with our partner cooperatives.

[1] Operational Self-Sufficiency (OSS): A measure of financial efficiency equal to total operating revenues divided by total administrative and financial expenses. If the resulting figure is greater than 100, the organization under evaluation is considered to be operationally self-sufficient. In microfinance, operationally sustainable institutions are able to cover operating costs with client revenues

FSP Sustainability: Under its current funding structure, the CSA dairy loan has a positive net margin of 7%


Credit: IDH Farmfit and Learning Lab analysis
*Click the image to view the animation


Donor support has significantly helped ECLOF Kenya get to where it is today, but there is a way to structure donor capital in more sustainable way

The design and implementation of the CSA Dairy Loan would not have been possible without DFID’s contribution. Including a KES 7.8M (USD 75K) grant for training and KES 48.2M (USD 475K) repayable grant to cover the cost of funds for CSA Dairy Loans and to lend at below market rates.

With time, however, we have come to understand that lending at subsidized rates distorts the market and creates a hard to change precedent with customers. In addition, DFID’s funding would have benefited from capacity building support, such as loan officer training versus farmer training, to reduce the portfolio’s vulnerability once the funding expired.


What’s next for ECLOF?

Supported by the findings of IDH and the Lab’s assessment of our CSA Dairy Loan, we have signed three new MOUs with aggregators in the dairy value chain. We have plans to roll this model out to 16 new locations in the regions we serve by 2022.

In addition, we will work closely with our partners to build their capacity in capturing and sharing farmer level data that can enable us to assess farmer impact on a regular basis. The design of an ICT system that can support these data capabilities will be critical and something we are currently seeking to fund through donor technical assistance support.

Finally, the analysis has proven to be key for our fundraising efforts. In Dec 2018 we raised KES 30M (USD 295K) debt from Rabobank Foundation towards the advancement of the CSA Dairy Loan portfolio. Going forward, we will continue to focus on raising affordable debt (versus 100% grant funding) to ensure our pricing is competitive, while also in line with the market.

The CSA Dairy Loan has been a challenging but rewarding journey to date. And while the future will not be a walk in the park, I am more excited than ever about the opportunity ahead for smallholder farmers and financial service providers in the RAF community. There is still a lot of work to be done in building sustainable and impactful business models, but the work will be well worth the effort.

After all, if our business model doesn’t work for all, in the long term, it won’t work for anyone.

About the Author(s)

Learning Lab Contributor

ECLOF Kenya’s main business is in micro and small business loans. It has recently identified SME lending and agricultural lending as important priorities in its portfolio, with an objective of reaching 10% and 25% share of portfolio respectively. Currently a Micro Finance Company Limited by Guarantee, ECLOF Kenya is in the process of becoming a share-holder owned institution, with the objective of becoming a deposit taking institution in the coming years. ECLOF Kenya has worked with numerous partners, in line with the mission “to enable clients to realize their dreams and experience abundance of life through the provision of financial and related nonfinancial services.” These partners include DFID, Kiva, Unilever,, ORB Energy among others.

Original Content

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.

IDH Farmfit
Learning Lab Contributor

IDH drives sustainability from niche to norm; by convening companies, civil society organizations, governments and others in public-private partnerships. Together with our partners, we design, co-fund and prototype new economically viable approaches to realize green & inclusive growth at scale. Our approaches are designed to drive sustainability in commodity sectors and sourcing areas, while delivering impact on the Sustainable Development Goals. Through Farmfit, IDH supports the development of viable business models that deliver finance and other services to smallholder farmers. IDH is supported by multiple European governments, and works together with over 500 companies, 35 civil society organizations and 40 governments, in 11 sectors and 11 landscapes, worldwide.

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