Leveraging Risk Tolerant Capital for Loan Product Innovation: A Case Study of ECLOF Kenya’s Partnership with Kiva

Published on

April 8, 2021

In 2015, the microfinance organization, ECLOF Kenya, launched their "Climate Smart Agriculture" (CSA) loan product in Embu, Kenya, to provide financing and training to dairy farmers in the region. Following its traditional group lending model, ECLOF launched this CSA group loan model with positive results. While ECLOF successfully launched this product, they wanted to know how to increase demand and scale it to other regions in Kenya. ECLOF partnered with Kiva and the Mastercard Foundation to try something new. Instead of only disbursing loans to farming groups as ECLOF has always done, they decided to pilot individual liability loans for the first time.


Patient and Risk Tolerant Capital Leads to Loan Innovation

The CSA loan product began in 2015 through the support of DFID's FICCF (Financial Innovation for Climate Change Fund) as an initiative to finance productive assets to increase dairy productivity, capture animal waste for biogas, and raise the living standards of dairy farmers. The loan product finances assets like cow sheds, water storage tanks, improved cow breeds, and biodigesters for household energy needs. These assets work to increase dairy yields and provide more stable income in preparation for an increasingly volatile climate future. Kiva and ECLOF partnered together to help scale and increase the take-up of their new CSA loan product. Kiva was inspired in part by Innovations for Poverty Action studies¹‚² that showed higher loan take-up rates were possible if collateral requirements were relaxed and suggested ECLOF try this approach by offering an individual CSA loan alongside their CSA group loan product. ECLOF had never had an individual loan product before, outside of a larger small and medium-sized enterprise product, so this was a significant new step for them. 

“From a strategic standpoint, ECLOF Kenya aims to diversify its portfolio by increasing the individual lending portfolio from 3% to 10% by 2022. When the opportunity to consider an individual loan for the Climate Smart Daily Loan came up, ECLOF Kenya was thrilled to test this new model. It has turned out great with positive impact in the lives of our customers.” 

- Esther Moyi, Head of Credit and Marketing, ECLOF Kenya 

This new individual loan is offered to farmers who are members of a partnering dairy collective and have supplied milk for at least one year. The loan size is from 10,000 Ksh to a maximum of 500,000 Ksh, with loan terms ranging from 3 to 36 months, depending on the loan's size. The loan has a one-month grace period, and the payments are collected each month through a check-off system by the dairy cooperative at a flat interest rate of 1.5% per month (15% per year). This individual loan requires milk delivery slips to certify a strong record with the dairy cooperative, two guarantors from that also supply to the same dairy cooperative, and the loan size can be no more than 66% of the average net amount received by the dairy cooperative over the past 6 months. Any loan used for purchasing dairy cows comes with livestock insurance, access to extension officers that provide training on CSA practices.

To minimize the risk of testing this new individual loan product, ECLOF fundraised the CSA loans on the Kiva.org marketplace, whose crowdlending community raised more than $70,000 in loan capital for dairy farmers in Embu. Kiva's funds were provided at zero percent interest to ECLOF and were raised for each individual ECLOF customer who was featured on Kiva's marketplace. This loan capital risk reduction through the partnership with Kiva allowed ECLOF to experiment with a new product design.


¹ Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya, 2016

² Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups, 2014


Example of a Kiva-funded loan that was raised in December 2018

Example of a Kiva-funded loan that was raised in December 2018



Initial Learnings on Increasing Borrower Demand for Individual Loans

Finding #1: Listen to Customers to Understand Their Preferences

Before the pilot began, Kiva researchers interviewed 580 dairy farmers. About half were existing ECLOF customers, and the other half were members of the same dairy cooperative but not yet ECLOF customers. The survey results showed that 83% of the farmers preferred individual loans, with women farmers less likely to want individual loans than men - 78% to 86%, respectively. Additionally, the farmers that preferred individual loans were more likely to be more successful farmers as they were more likely to own more Friesian dairy cows, have higher milk yields, and have higher dairy revenue.

As Silas, a dairy farmer in Embu says, "Some [group] members don't feel good when they have to sign on someone who is getting more money. Loan taking should be a secret. When it's [an] individual [loan] you will put much more effort to produce." On the other hand, an ECLOF farmer, Michael, says, "Group is better than individual because you will get advice and guidance from the group member[s] so it's safer. You will borrow with a plan rather than blindly." For the 83% of farmers who prefer individual loans, offering this new individual loan product can allow ECLOF to reach more dairy farmers than before and increase customer satisfaction. 

Listening to customers is essential in successfully launching new loan products, and this is becoming easier and cheaper to do as mobile technology continues to advance. Kiva's research team programmed the survey onto mobile tablets using the free and open-source software Open Data Kit and collected the data using the affordable Ona.io data collection platform. Microfinance organizations should continue to invest in mobile data collection tools and conduct lean data surveys similar to the work 60 Decibels has led in helping organizations to understand their customers' needs during these ongoing Covid-19 challenges.

Finding #2: Don’t Be Afraid to Pivot Based on Early Feedback

After launching the individual loan product to 150 farmers in Embu in 2017, ECLOF started to analyze loan repayments and gather feedback from their loan officers to further improve the demand for the loan. ECLOF adjusted the loan term by increasing the maximum loan size from 300,000 Ksh to 500,000 Ksh to reflect the larger amounts more productive dairy farmers needed and extended the loan term duration to accommodate those larger loan sizes and help those farmers with smaller cash flows. These changes created a greater incentive for more successful farmers to take-up the individual loans rather than group loans.

Finding #3: Partnering with Dairy Cooperatives Can Improve Repayment Rates and Help Scale a Loan Product but May Skew Towards Male Borrowers

Since starting the individual CSA loan in 2017, ECLOF has now funded 185 individual CSA loans, accounting for 17 percent of their total CSA dairy farming portfolio. ECLOF has also expanded this loan product offering from one dairy cooperative to now partnering with four dairy cooperatives across Kenya. During the past year, with the challenges that borrowers faced with Covid-19, delinquency and default rates increased across ECLOF's portfolio. Yet, the CSA customers had lower delinquency and default rates compared to the other ECLOF customers. This is partly due to CSA farmers' connection to dairy cooperatives, where their loans are paid back through a weekly check-off method. Additionally, ECLOF has not seen any differences in default rates between group and individual CSA borrowers. 

Farmers also benefit from access to non-financial services such as livestock insurance, veterinary support, climate-smart and agronomic training, and a guaranteed offtake from partner cooperatives. Previous research has shown that CSA Dairy Loan farmers performed up to three times better than regular dairy loan farmers, who have no access to training or guaranteed offtake. CSA Dairy Loan farmers can improve their cows' diet and upgrade their farm infrastructure, ultimately increasing yields by over 230%, from six liters to 20–25 liters per day.

One dimension to watch out for when partnering with dairy cooperatives to source loans is that men are more likely to be account owners at dairy cooperatives even if women are primarily doing the dairy farming activities. As of December 2020, 38% of ECLOF's CSA customers reflected the account ownership gender gap of dairy cooperatives. 

Lastly, this loan product provides a higher customer value to ECLOF because the dairy cooperative partnership model allows loan officers to manage a higher caseload. This cost-effective and high-value model will help ECLOF to continue to scale this loan product.

Solomon, a dairy cooperative member in Nyandarua County who expressed interest in becoming a future ECLOF CSA customer

Solomon, a dairy cooperative member in Nyandarua County who expressed interest in becoming a future ECLOF CSA customer.



Challenges to Scaling a New Product

ECLOF's loan innovation and Kiva's research reveal several lessons for other financial service providers looking to launch a new loan product:

  1. Individual loans only work with the right environment - Financial service providers must be careful when offering an individual loan product to borrowers used to a group lending model. ECLOF loan officers learned that offering individual loans to existing groups of borrowers caused some disruption as existing group members thought their group was being broken up. In contrast, when ECLOF has partnered with dairy cooperatives that are more established, and farmers are less likely to have strong groups, they have been more successful in scaling the individual loan product. ECLOF also has seen that offering farming training has been essential for increasing the CSA products' awareness and uptake.
  2. Building trust with loan officers, partners, and borrowers takes time - When ECLOF first launched the individual loan, some loan officers were initially uncomfortable with the lending model's change. As Moyi says, "It is important to take time to fully orient the loan officers about the new lending approach prior to starting to ensure that buy-in and understanding is harmonized across the board." When ECLOF expanded the loan product into a new region, Nyandarua County, it took a long time to build trust with local farmers and the dairy cooperative leadership. It takes significant time to launch a loan product in a new market, and building trust with potential customers is a never-ending effort. Customers may be fearful that a microfinance organization will change the loan conditions after they have created a contract or that the organization intends to take away their livestock and property. More than 40% of the farmers interviewed in Nyandarua County by Kiva researchers in 2020 reported that they were not interested in receiving any loans in the next 12 months. Qualitative interviews revealed that most did not want to have any debt, and older farmers were afraid to pass on debt to their children. Rumors can spread quickly, and ECLOF needs to ensure its loan terms are communicated clearly and use its loan officers as brand ambassadors.
  3. Low and volatile prices threaten agricultural loan demand - The price of milk is closely connected with take-up and demand for ECLOF's CSA loan. More than 49% of the dairy farmers were not satisfied with the lack of price consistency of the milk sold to the dairy cooperative. These price fluctuations make dairy farming risky and discourage farmers from making investments in their dairy business. In part because of the price of milk dropping over the past two years, 57% of the dairy farmers interviewed reported less dairy revenue than two years ago. Gaining higher and more stable milk prices will continue to be a key factor in the take-up and scale of this CSA loan product and future agricultural loan products.

ECLOF Kenya is continuing to invest in scaling their individual CSA loan product. This innovation has allowed ECLOF to provide financing to farmers who prefer individual loans while maintaining strong repayment rates and improving farmers' livelihoods. Financial service providers should continue to take risks to have a deeper impact, and Kiva can help encourage this with its patient, risk-tolerant capital.



  • Spencer MacColl, Senior Impact Manager, Kiva
  • Sadia Riaz, Impact Fellow, Kiva
  • Clara Colina, Program Manager, RAF Learning Lab

About the Author(s)

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.

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Kiva Labs is a program to deepen the outreach and impact of financial services to the most underserved part of the market through the extension of Kiva’s proven low cost re-finance model to incentivize loan products with high impact potential. Kiva Labs presents a rich platform for learning and acceleration across a diverse set of alternative models aiming to address the challenges of poverty reduction against the backdrop of the known limitations of the standard microcredit model and slower macroeconomic growth in Africa. Kiva’s unique capital, diverse network, technology, and highly visible brand can help the financial inclusion sector better adapt to the challenges of the day.

Kiva's partnership with The MasterCard Foundation will enable us to deepen financial access and impact in Africa by providing crowdfunded capital, capacity building, data and research to introduce, expand, and ultimately encourage others to replicate the delivery of evidence-backed loans in underserved markets.

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