Fund for Rural Prosperity applications illustrate landscape of RAF innovation

The Learning Lab analyzes the applications from the first innovation competition of The MasterCard Foundation Fund for Rural Prosperity.  The innovation landscape that emerges is promising:

The Mastercard Foundation Fund for Rural Prosperity (FRP) has completed its first innovation competition with winners announced on October 1. The $50 million fund expects to help at least 1 million people gain access to appropriate savings, credit, and insurance services. It will support innovative ideas - especially those driven by financial service providers and agribusinesses - that have the potential to grow to scale and deeply impact the lives of rural poor people throughout Sub-Saharan Africa.

The fund will operate two competitions per year until 2017. The Innovation Competition (just completed for 2015) supports the development of ideas for new products, services or processes, while the Scaling Competition helps to scale the most promising ideas or pilots.

Surge in private sector activity

In its first competition Fund for Rural Prosperity successfully surfaced nearly 400 innovation ideas from across the continent.  These applications offer an opportunity to better understand the state of the sector and the current landscape of innovations.  Lead applicants (as designed) were typically financial service providers or agribusinesses, and the quantity of proposals suggests an increasing interest among the private sector to invest in providing financial solutions to smallholder farmers. FSPs seem ready to look beyond traditional markets and the rapid evolution of digital technologies has opened new avenues for service delivery and risk management.  The stage appears set for the sector to gain momentum and rapidly grow in the coming years.

Geographic pockets of innovation?

Over half of all submissions came from either Kenya, Uganda, or Ghana, apparent geographic pockets of innovation.  While relational networks may play a role in the clustering of applications, this trend may also be linked to the importance of digital technology in most of the innovations (discussed further below) and the environment supporting technology-driven financial solutions in these three countries already. In Kenya, two-thirds of all adults, are active customers of M-Pesa, the mobile phone-based money transfer and payments service; in Uganda, as of August 2014, there were already three times as many mobile banking users than traditional bank customers; and in Ghana 91% of the population is estimated to own a mobile phone, and the country is a pioneer in mobile microinsurance.

A diversity of countries represented, with a handful of innovation heavyweights

Source: 

Analysis of FRP application data (2015)

Shift to technology-driven smallholder finance

As noted by the Fund Manager and confirmed in Learning Lab analysis, the submissions suggest the emergence of technological solutions, including big data, as a dominant force behind innovation in rural and agricultural financial inclusion. Innovations proposed included sophisticated mobile-based services with automated loan application and approval, holistic e-payment solutions, and new credit rating algorithms leveraging new sources of data or the creation of large databases with complex data mining tools.  

If you compare the innovations proposed in the FRP’s first innovation competition with smallholder financial solutions with published descriptions in a new database commissioned by the Learning Lab, there seems to be a marked shift towards greater use of technology, particularly digital and mobile platforms, to deliver financial solutions to rural clients: 

Innovation landscape appears more tech-oriented than current solutions

Source: 

Analysis of FRP application data and Learning Lab Smallholder Financial Solutions database (2015)

Bundling of products and incorporation of training

The innovation ideas seem to reflect a trend of bundling multiple financial products into a more complete financial solution for rural clients.  Only about 1/3 of financial solution proposals were single-product models.  Credit is unexpectedly the most common product included in any given model, but over 1/2 of the financial solution proposals included a savings product (much more than is represented in our database of existing solutions).  In addition, nearly 3/4 of proposals included some kind of training or technical assistance to clients, most commonly in financial management or agronomic training.  

Moving from financial products to financial solutions...

...with complementary investment in training

Source: 

Analysis of FRP application data (2015)

Going forward, it is certainly important that innovation gains even more momentum outside of geographic hotspots.  In addition, there seems to be room for even more risk-management solutions and other non-credit solutions.  But overall the level of energy and thinking going into improving financial solutions for the rural poor is a good cause for excitement.