Scope of Work

Firm or Individual:Consultant

Program: AgriFin Accelerate

Scope of Project:Technical support for conducting Focus Group Discussions with cotton farmers in Petauke and Nyimba districts as well as one-on-one interviews with the ginning companies and service providers during this year’s ongoing pilot to digitize bulk payments

Country:Zambia

From:01 June, 2017

To:30 August, 2017

Task Manager:Christabell Makokha, Country Director

Program Context

Nearly one and a half billion poor people live on less than US$1.25 a day. One billion of them live in rural areas where agriculture is their main source of livelihood[i]. An estimated 70 million Small Holder Farmers (SHF) live in Sub Saharan Africa, over half of whom are women[ii]. Smallholders, who typically farm two hectares or less, provide over 80% of the food consumed in a large part of the developing world, contributing significantly to poverty reduction and food security[iii]. However, increasing fragmentation of landholdings, especially in infrastructure, coupled with reduced investment support, growing competition for land and water, rising input prices and climate change threaten this contribution, leaving many smallholders increasingly vulnerable.

Given increasing world populations and demand for food, SHFs occupy an important segment of the global agricultural value chain[iv]. Multinational buyers will increasingly rely on smallholders to secure their supply of commodities and to help satisfy consumer sustainability preferences[v]. At an estimated $450 billion, the global demand for smallholder agricultural finance is large—and largely unmet. Credit provided by informal and formal financial institutions, as well as value chain actors, currently only meets an estimated USD 50 billion of the more than USD 200 billion need for smallholder finance in the regions of sub-Saharan Africa, Latin America, and South and Southeast Asia[vi]. Impact driven smallholder agricultural lenders, such as Root Capital in Kenya and elsewhere, currently satisfy less than two percent of the demand.[vii] The volume and value of savings, lending and payment transaction SHFs in most African countries is not specifically measured.

Mobile phones are a powerful tool to access the electronic national retail payments system and enable vast numbers of clients to use a range of financial and informational services at lower cost. In agriculture, progressively more services are being delivered via mobile phone and as it was revealed in the 2015Farmer Benchmark and Payment Study, 92% of the respondents owned at least one mobile phone. Applications such as iCow and Farmpal direct specific, timely information on agricultural production methods to farmers through their mobile phones. Moving beyond one-to-one communication, M-Farm is an Internet- and SMS-based service in Kenya that allows farmers to aggregate; it publishes wholesale price information on 42 crops and provides a platform for smallholders to collectively sell crops and buy inputs, thereby lowering costs and accessing new markets.[viii]

AgriFin Accelerate Program Overview

Drawing on Mercy Corps’ experience implementing the AgriFin Mobile program and years of work in the agriculture, finance and ICT sectors, AgriFin Accelerate will support the expansion of digital financial services (DFS) to one million farmers in Sub-Saharan Africa (SSA) over six years, delivered by growing ecosystems of diverse service providers.AgriFin Accelerate’s primary target group is unbanked smallholder farmers living on less than $2 per day in Kenya, Tanzania and Zambia.

Three outcomes will contribute to the achievement of this goal:

Outcome 1: Market actors expand, improve and continue to offer high-impact DFS products and services that are tailored to address the expressed needs of SHFs;

Outcome 2: Farmers increase capability to access and utilize demand-driven, high impact technology-enabled financial products and services relevant to SHFs;

Outcome 3: Ecosystems around both supplier and farmers emerge supporting provision of digital financial and informational services to SHFs that are used at scale.

The program’s core innovations are: 1) a rapid iteration engagement model to drive innovative, client-centric product development; and 2) our work with partners to develop “bundles” of mobile-enabled services offering farmers affordable access to digital financial and market informational services. Specific focal areas for innovation will include the use of digital technology to educate and inform farmers to achieve financial health, tech start up acceleration, the use of new andalternative data to support financial service design and the use of human centered design techniques to ensure products are closely linked to the needs of farmers, particularly women and youth.

Monitoring, evaluation and learning (MEL) will focus on supporting the building of high impact services at the farmer level, expanded and sustainable delivery at the partner level, and development of related market-oriented interventions supporting ecosystem development. The program will collaborate closely around learning withMercy Corps’ existing AgriFin Mobile program, already working in Uganda, Zimbabwe and Indonesia for 2.5 years.

Purpose of Engagement

Cotton is a focal value chain for the AFA program in Zambia. With more than 600,000 cotton farmers (95% smallholders), it represents one of the largest value chains in the country. In the Zambian cotton industry, the process of paying smallholder farmers for their crop involves a massive, complex operation of delivering up to $50m in cash to over 300,000 highly dispersed farmers within a period of four to five months a year. The ecosystem for digitizing these payments is in its earliest stages of development and agent networks, thus far, are weak. The current system has multiple weaknesses that affect both buyer and seller. From the perspective of the buyer, the movement of high volumes of cash is costly and presents a significant security risk – for both money and company staff. Individual buyers have, in the past, attempted to develop partnerships with banks and mobile network operators but their lack of scale and expertise in partner selection and contracting have led to a series of suboptimal experiments. From the perspective of the farmers being paid, a major proportion of their annual income may be received in one day, which presents a security challenge and which generates great pressure to spend, either on the part of the farmer on consumer goods or through the social expectation to provide for less fortunate relatives.

In the last three years, two of the largest cotton companies have attempted various models of digital payment, but these ad hoc efforts have been hampered by multiple constraining factors. An overriding factor has been the lack of any meaningful scale to drive the development of the rural digital payments market and ecosystem, which is currently very weak. Only 12% of farmers claim to have ever used their phones to send or receive money (IAPRI, 2015) so, unlike in other countries that have existing digital payment platforms that agribusiness can leverage to pay farmers, in Zambia, in the short term at least, agribusiness and the farmers associated with them, will need to drive both farmer demand for and the market ecosystem’s ability to provide rural digital financial services.

AFA and Musika supported the cotton ginners and ZCGA to identify potential service providers to digitize bulk payments. AFA provided technical support to help the cotton ginners make informed decisions and successfully select one or more suitable solutions / service providers. This phase was completed in December 2016. This second phase will involve supporting the 6 ginning companies to roll out a pilot during the marketing season of 2017 to test different payment models, with a view to scaling up the most suitable models to a country-wide level in 2018. Starting in February 2017 and following AFA recommendations on the best service providers for the ginners to work with, ZCGA will manage this pilot to ensure smooth execution of the same. For this pilot, the cotton ginners will be focusing on two districts in the Eastern Province (Petauke and Nyimba), with a total of ~30,000 farmers. To avoid issues of sideselling which was a big barrier to success in previous attents to digitize payment, all the cotton ginners have agreed that any and all payments done to the cotton farmers in these two districts will have to be done through a digital platform. In addition, to gain traction with the service providers, the cotton ginners have to pilot with a significant number of farmers in order to justify the cost of investment for the providers.

The size of the pilot is estimated as follows:

  • Number of farmers in both Nyimba and Petauke: 13,750
  • Expected number of transcations by farmers: ~30,000 to 40,000
  • Extpected total payout for the crop: ~$1.5 million

The purpose of this engagement is to conduct research with smallholders farmers, the ginning companies, and service providers to understand their experiences with introducing e-payments in the districts of Petauke and Nyimba, as well as gather recommendations for scale-up activities.

Scope of Work

The scope of work sets terms of reference for consultant; for the purposes of this engagement, the consultant will work with AFA to achieve the following key objectives:

  1. Conduct farmer-centric research to understand farmer experience in e-payments vis-à-vis previous experience with e-payments and/or with cash payments
  2. Understand the ginners experience in rolling out e-payments, given the proposed approach where the ginners are using a multi-channel and multi-partner approach as opposed to just working with one service provider
  3. Understand the experience of the service providers, identifying lessons learnt and recommendations for further scale-up of e-payments

The scope of work shall include the following activities:

  1. 10 focus discussion groups with smallholder farmers in Petauke and Nyimba districts (5 FGDs in each district). Each groups should have an average of 5 participants. The consultant should aim to have at least a third of the participants being women
  2. One-on-one interviews with ginning companies and their distributors / field officers. The interviews should be with a field officer, finance officer, and a senior manager who coordinated the pilot from “head office”
  3. Service providers (MTN, Airtel, Zanaco, and Zoona). The interviews should be with the executing field team as well as a senior manager who coordinated the pilot from “head office”

Deliverables

The consultant will provide AFA with the following deliverables, with specific timelines to be agreed in the approved workplan:

  1. Inception report (due 19 of May, 2017): which will include the proposed workplan and detailed execution strategy, with clear timelines and responsibilities
  2. Project progress updates: a phone or in-person debriefing should be held at the end of every two weeks to review findings to-date
  3. Final report (30st of August, 2017): which will include:
  4. Word document on pilot outcomes (successes, failures, recommendations for scale-up activities etc.)
  5. Provision of all required evidence of activities requested by AFA
  6. All supporting documents and work product, including field day photos etc.

Project Learning Agenda

In order to meet the requirements of the donor agreements for the AgriFin Accelerate program, Mercy Corps must be able to demonstrate a return on investment in terms of impact on smallholder farmers through this project. Linked to the public benefit of this funding and objectives of the program, AFA will share selected project learning publically, to drive improved understanding of the enviroment for digital services for smallholder farmers.

To achieve its objectives to expand services to one million smallholder farmers, increasing farmer incomes and productivity, AFA seeks to build on the current field of learning linked to these specific learning questions:

  1. What impact has this pilot had on SHF income, productivity and resilience to shocks?
  1. What capacity building tools have the highest impact on SHFs willingness and ability to use digital financial services?
  2. What distribution channels are most effective for delivery of services to SHFs (POS, agents, ATM, merchants etc.)?
  3. How and to what extent have the project partners (in this case, the service providers and the cotton ginners) been successful to achieve scale and commercial sustainability?
  4. What are the main drivers of success and failure of different partnership approaches i.e., Effective partnership models enabling digital financial services for SHF?

Necessary Skills and Experience

Given this is a complex project requiring multi-stakeholder engagement, the consultant will need to have strong communication skills, be highly organized, and be able to problem-solve and adapt as project and partner needs emerge / change through the pilot. In addition, they need to demonstrate contract management and donor reporting capability / experience. Knowledge of agriculture and the state of DFS in Zambia is also imperative for the execution of the activities outlines above.

Ownership/Control of Work Product/Publication

Ownership and control of all work products related to this scope of work and partner engagement will belong to AFA and any learnings or publications derived from the work product will require prior written approval from AFA.

Authorship and Acknowledgement

Matters relating to authorship and acknowledgment of any materials produced by the consultant during the course of this engagement are addressed in the main contract agreement entered into between Mercy Corps and consultant for performance of services for AgriFin Accelerate.

Task Manager/Reporting

The Task Manager for this engagement is AFA Zambia Country Director, Christabell Makokha. The consultant will direct all communications to the AFA Zambia country director.

[i] IFAD, Smallholders, food security, and the environment, 2013

[ii] IFAD, “Sub-Saharan Africa: The state of smallholders in agriculture”, Schonberger and Delaney 2011.

[iii] Peck, Anderson, “Segmentation of Smallholder Households: Meeting the Range of Financial Needs in Agricultural Families”, CGAP Focus Note #85, April 2013.

[iv] Dalberg, 2013

[v] Dalberg, 2013

[vi] MasterCard Foundation, “Inflection Point: Unlocking growth in the era of farmer finance”, April 2016

[vii] Dalberg, 2013

[viii] Peck, Anderson, “Segmentation of Smallholder Households: Meeting the Range of Financial Needs in Agricultural Families”, CGAP Focus Note #85, April 2013.