Almost 80% of the population in Africa is rural based, providing for a unique opportunity for financial service providers (FSPs) to serve a once untapped market. While the opportunity is ripe, many FSPs find it challenging to serve rural clients and smallholders profitability given the high investment costs associated with designing and delivering financial products and services. To better understand how these challenges can be addressed, the Lab followed the Musoni Kenya team, a technology-driven microfinance organization, to see how going digital can help achieve scale and drive profitability in smallholder finance.

In our third Learning Brief, "Understanding profitability in smallholder finance", the Lab outlines five pathways to profitability for FSPs to achieve sustainability. According to FSPs in the RAF Learning Lab portfolio, scale is the most common pathway used to drive profitability and serve smallholders.  With products offering lower margins, FSPs are able to achieve profitability when they sell enough units to minimize fixed costs. While simple in theory, achieving scale requires a solution that addresses the challenge of low-cost distribution. Digital innovations are one way to secure low-cost distribution systems in smallholder finance, a method that Musoni Kenya, for example, uses to reach scale and achieve sustainability.

In this seven-minute video Musoni, a winner of the Fund for Rural Prosperity USD 50 million challenge fund, explains how going digital, in terms of both their internal operations and smallholder product offerings, allows them to scale up and reach a mass market at cost. For instance, their newest bundled product, the Kilimo Booster – leverages digital solutions to offer smallholder and rural clients access to extension services – such as farm inputs, farmer trainings, and financial literacy training.

Going digital to reach the unreachable on Vimeo.

Watch the full video here to learn more about Musoni's business model. If you have any questions, or interest in sharing your experiences with business model sustainability, reach out to us at [email protected]