Education expenses can be a significant financial burden on low-income families, especially smallholder families that have seasonal incomes. For cocoa farmers in Cote d’Ivoire — who have, on average, four kids in school — school costs come due in August or September, several weeks before their biggest harvest. This creates a liquidity problem that Advans Cote d’Ivoire is trying to solve with a promising new digital credit product. By leveraging partnerships with farmers’ cooperatives and telecom operator MTN, in a recent pilot Advans achieved 100 percent on-time repayment and notably increased school attendance among borrowers’ children. This innovative work with cocoa farmers earned Advans Cote d’Ivoire the 2018 European Microfinance Award for inclusive finance through technology.
Advans’ education loan product has its origins in a free digital savings product that Advans and CGAP designed and launched in 2016. Recognizing that many users of the product suffer hardship due to the mismatch between their farming cashflows and timing of school expenses, the company decided to explore the possibility of offering education loans to qualified customers.
Advans began the process by interviewing nearly 70 farmers, conducting seven qualitative surveys with cooperatives, and organizing focus groups with CGAP support. These discussions revealed useful information about its customers’ circumstances, needs and preferences, including the size of their families, their education-related expenses, their cashflows from cocoa and other sources, and their proficiency with mobile phones and wallets. Among other things, the research showed that customers wanted their cooperatives to play a role in the product, as they trusted the cooperatives and already interacted with them regularly. The interviews with cooperatives provided more generalized data on farmers’ cashflows and insights into the cooperatives’ willingness and readiness to play an active role.
Based on this research, Advans Cote d’Ivoire designed a digital education loan product and partnered with five cooperatives to deliver it to select users of Advans’ savings product. The cooperatives played several important roles. First, they helped Advans identify creditworthy farmers. Advans scored clients and determined loan limits based, in part, on past savings behavior, but it also relied on cooperatives’ data.
The cooperatives also helped identify borrowers in another way, beyond sharing data. The cooperatives had been borrowing from Advans to offer input loans to their farmers. Under these arrangements, farmers would repay their cooperatives, who would, in turn, repay Advans. Since Advans lacked visibility into individual farmers’ past repayment behaviors, the cooperatives agreed to cover 30 percent of any amount its farmers did not repay with regards to the new education loans. This gave Advans a way to tap into their knowledge of which farmers had not been good borrowers in the past, based on the assumption that cooperatives would not guarantee farmers they knew to be bad repayers. Being partially responsible for covering defaults also incentivized the cooperatives to be diligent about collecting repayment. From the cooperatives’ perspective, the partial guarantee also made sense. When farmers face liquidity shortfalls, they often go to cooperatives for loans. Guaranteeing a percentage of the education loans was less risky and less capital consuming than giving out the loans themselves.
The product itself was easy to use. Pre-approved farmers were able to request a loan within their limit through the Advans USSD menu and be approved automatically. Borrowers received their loans in August and September, in time to cover school expenses, and repaid them in installments as they sold their cocoa over the next three months. The cooperatives played a major role in the delivery of the product by helping Advans agents with farmer education and by supporting payment collection. Customer research showed farmers strongly preferred to pay at the time of cocoa delivery with the help of a cooperative representative, as they had been doing for their input loans.
The results were impressive. Every one of the 242 loans offered during the pilot was repaid on time. The loans had an average amount of $165, which is smaller than the typical productive microfinance loan but significantly larger than most digital loans, especially for first-time borrowers. At the end of the cocoa season, Advans Cote d’Ivoire and CGAP surveyed 45 borrowers to assess customer satisfaction. All of them said they were satisfied with the product, and 96 percent said they would apply again next year. About 60 percent of the farmers were satisfied with their loan amount, while 40 percent said it was not enough to cover the costs for all their children.
Most importantly, the surveyed farmers reported that the percentage of their children who started school at the beginning of the period increased from 49 to 73 percent.
What factors contributed to this success? Advans Cote d’Ivoire’s customer-centric approach clearly played a big role. The loan product was based on in-depth customer research and designed to create real value for Advans, participating cooperatives and farmers. The product enabled Advans Cote d’Ivoire to monetize digital savings accounts and incentivize farmers to use them. Cooperatives valued education loans as a means of differentiating themselves from other cooperatives and buyers, as the government mandates buying prices (and the arrangement with Advans Cote d’Ivoire made offering these loans less risky). Farmers found that the loans enabled them to send their children to school while building a formal credit history.
Advans Cote d’Ivoire’s partnerships with farmers’ cooperatives were also crucial. As CGAP has argued before, financial services providers should consider partnering with a wider range of agribusinesses to more effectively reach smallholders in rural areas. These businesses have extensive rural delivery channels and long-standing relationships with farming communities. Advans Cote d’Ivoire’s pilot gives an early indication of the potential that cooperatives and farmers’ associations have to enable access to financial services.
Overall, the Advans Cote d’Ivoire pilot shows that there is significant unmet demand among Ivorian cocoa farmers for short-term education loans. The fact that all the loans were repaid on time suggests that this could be a profitable segment for providers if operational costs can be managed. When the necessary conditions are in place, smallholder farmers can be a creditworthy segment, even for non-productive lending.
Encouraged by the pilot, Advans Cote d’Ivoire has increased almost five-fold the number of farmers it is lending to during the current season: 20 cooperatives are now participating, and the number of education loans has gone from 242 to 1,118. Based on the solid repayment rates during the pilot and feedback that farmers with many children needed larger loans, Advans Cote d'Ivoire also increased its average loan size from $165 to $190.