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Key Strategies for Banks Expanding Reach to MSME Segment in Kenya(1)

Banks continue to boost financial inclusion in Kenya by providing retail finance to the MSME segment. The banks’ total SME lending portfolio in December 2013 was estimated to be 23.4% of their total lending portfolio but considering that the largest percentage of businesses in Kenya are in the MSME sector, financing to MSMEs should continue to grow. In this briefing note, we explore strategies to be employed by banks in Kenya to increase financing to the MSME segment in the face of competition from formal and informal financial services providers.

Bundling to Make Agriculture Insurance Work

Bundling agriculture insurance with other services that form part of the agricultural value chain, like credit and farming inputs, is emerging as a solution to help make insurance more tangible and get better outreach and scale faster, manifesting into better economic and social outcomes. A key insight emerging from the cases analysed is that, to make bundling work, it makes a lot of sense to ensure that there are tangible value propositions for all the players involved in the value chain.
MicroSave with ILO’s Impact Insurance Facility has developed use cases of bundling agriculture insurance with agriculture value chains in India, Kenya and Zambia. For instance, bundling agriculture insurance with inputs such as seeds enabled small holder farmers in Kenya to increase investment in their farms and increase productivity. 98 per cent of these farmers could access credit linked with the insurance.

MSME Finance in Uganda-Status and Opportunity for Financial Institutions

Ugandan micro, small and medium sized enterprises (MSMEs) contribute over 80% of output, 75% of the GDP, and significantly to the employment in the country. Thus, MSMEs play an important role in the economy of the country. However, they are unable to leverage their growth potential on account of constraints particularly the access to finance.

MicroSave conducted an assessment of Ugandan MSME sector, their financial needs and consequent product development opportunities for financial service providers. This note features MSMEs’ access to finance in Uganda and charts a potential roadmap for banks and other financial institutions in Uganda as they expand and downscale to serve the MSME market. We provide actionable recommendations for financial institutions to strengthen finance delivery to tap the opportunities that MSMEs in the country present.

Addressing the Soil Health Crisis in India

The government, seems determined to promote more judicious use of fertilisers. The Prime Minister launched a nation-wide “Soil Health Card” (SHC) scheme in early 2015 to rejuvenate India’s exhausted soil. Using a grid-wise approach, representative soil samples from the fields are tested for nutrient content in designated chemical laboratories.

How SHC works

Accordingly, macro and micro nutrients needed by the soil are identified and translated into specific, measured quantities of fertilisers required. This information, printed on the SHC, is made available to the farmers in that grid through the state agricultural departments. Thirty million SHCs were issued in 2015-16 and the Ministry of Agriculture aims to cover the entire farming population by 2018-19. In addition, on a pilot basis, the soil health information is made available at fertiliser purchase points —Primary Agricultural Credit Societies (PACS) and POS devices-enabled fertiliser retail shops.

However, farmers still buy large amount of fertiliser, disregarding SHC recommendations.

MicroSave recently conducted a study into farming practices in two paddy-producing districts of Andhra Pradesh (West Godavari and Krishna) and elicited farmers’ views on fertilisers, soil health and SHCs. Though our findings relate to a select sample in a specific region, they are indicative of attitudes and practices of kharif paddy farmers across the country.

Farmers appear convinced that there is a perfect causal correlation between high fertiliser usage and more output. As a corollary, they believe their farmlands have ‘good soil health’ if they yield the desired output. Farmers are not concerned that they need not use increasing amount of fertiliser to ensure this ‘good soil health’! In fact, they are not sure that the advice based on the SHC can be relied upon; especially when they perceive that the yield might improve by using ‘just a little more’ fertiliser.

SHCs are not easy to use—they give general recommendations regarding the quantity of fertilisers required over the entire crop season whereas, in reality, fertilisers should be used in varying amounts over the different stages of the crop growth. So, even those farmers who start with the intention to use less fertiliser as a result of the SHCs ultimately have to fall back on their own judgement to decide on the amount of fertiliser to be used at each stage of the cropping cycle.

For present income flows

If crop growth appears to be below normal at the middle of the season, the farmer will usually apply large amounts of fertiliser. For farmers who have already bought bags of fertilisers, it is a sunk cost and so the prudent course of action is to apply more – even if the government’s SHC suggests otherwise. Maximising yield and fear of loss are the salient concerns.

The government has started to provide recommendations on the SHC as per the crops sown. But more needs to be done. The farmers need SHC recommendations tailored according to crop growth stages. Promotional campaigns must deconstruct the myth of “more fertilisers” as a panacea for better yields.

Soil health must be positioned as crucial to the long-term productivity of land, which will be irredeemably lost if the focus is only on present income flows.

A behavioural approach based on understanding farmers’ realities needs to be used. Many farmers are share-croppers seeking to maximise short-term yields with little care or concern for the long-term health of the soil. Others, who own their land, do not expect their children to farm and “live off the land”. So they aim to maximise short-term yields to finance the education seen as the passport to a job and freedom from the toil of farming.

It is essential that the government executes this initiative with attention to detail. The SHC scheme can go a long way in ensuring long-term food security of over 1.25 billion Indians.

The above write up was earlier published as a news article on The Hindu BusinessLine

MSME Finance in Malawi-Status and Opportunity for Financial Institutions

Malawi aspires to achieve sustainable growth and economic development and become a middle-income country with a per capita income of US$1,000 by the year 2020. While Medium, Small and Micro Enterprises (MSME) play a critical role in economic growth and development in most economies, they often face a number of challenges in their quest for growth.

MicroSave conducted a study to understand the needs of MSME clients to give insights towards redefining the credit products and services to better serve this market niche. The findings indicated that most clients find it difficult to access ideal loan sizes to invest in their businesses due to inability to meet the collateral requirements, lack of proper business records, low cash flows and short loan repayment periods among others.

We bring forth more details on the findings and recommendations in this briefing note.

MSME Finance in Rwanda-Status and Opportunity for Financial Institutions

Rwanda aspires to progress from a low income, agriculture based economy to a middle income, knowledge based service economy by 2020. In its economic development, as per the vision 2020 document, Rwanda sees an important role of MSMEs who account for approximately 97% of businesses, contribute to 55% of the total GDP, and employ around 41% of the population.

MicroSave, conducted a study to assess the state of finance to MSMEs in Rwanda which revealed that though MSMEs are adequately served by financial institutions ( in terms of MSMEs accessing savings/current accounts from formal financial institutions), a significant number reported that their financing needs are rarely met by financial institutions. This briefing note elaborates on key findings of the research and how financial institutions can profitably serve this strategic and niche segment in Rwanda.