The DrumNet Project:
Lessons Learned from a Microfinance Initiative in
Kenya’s Agricultural Sector
Tom Rausch, PRIDE AFRICA
European Microfinance Platform
November 2010
Agenda

Background

DrumNet in the Field

Lessons Learned
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
Microfinance and PRIDE AFRICA
Background
PRIDE established a microfinance model that scaled across several African countries,
but model effective only in urban and peri-urban areas
The PRIDE Network

PRIDE created in 1988; one of the first to successfully utilize
group solidarity microfinance approach in East/Southern Africa

Model designed in Kenya, then replicated in Malawi, Tanzania,
Uganda and Zambia; network now serves 250,000+ clients

Traditional model inadequate when dealing with rural farmers
facing long/risky crop cycles and poor group unity

PRIDE focuses on agricultural sector in 2003 to achieve larger
organizational impact and design microfinance approach for
smallholder producers
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
What We Found…
Background
We found weak linkages between key actors in Kenya’s agricultural sector; made the
design and deployment of mutually-beneficial financing products extremely difficult
Banks
Agro-Dealers
Producers
Buyers
Rural Broker
Urban Broker
1. Due to smallholders’ low productivity and geographic dispersion, most buyers choose to
work through brokers. This reduces the price farmers receive for their produce.
2. Banks face high transaction costs and risk when trying to deliver financing products to
poor, isolated farmers. Products either not right for farmers or not profitable for bank.
3. Agro-Dealers forced to take on input credit burden, so cannot provide other key services.
2.
3.
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
The DrumNet Project
Background
DrumNet introduced a platform that facilitated and incentivised cooperation
between supply-chain partners, thus making producer financing increasingly feasible
Banks
Producers
Buyers
Agro-Dealers
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
The DrumNet Platform
Background
DrumNet’s Platform was two halves that made a whole; a rule-based business
process made efficient by a central IT System
Business Process

End-to-end process with defined roles and
responsibilities for supply-chain partners

Created a standardized, predictable, ruleoriented environment in which partners
could engage and complete transactions
Registration
& Training
Planting &
Scouting
Contract &
Loan
Input
Collection
Harvest
Produce
Collection
& Payment
IT System

Single unified database (Postgres)
connected to a web-based portal (Java)

Interactive with mobile phone
technologies through SMS Gateway

Enabled business process by reducing
communication and transaction costs
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
Agenda

Background

DrumNet in the Field

Lessons Learned
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
DrumNet Operations
In the Field
After joining DrumNet, farmers gained access to a fixed purchase price contract from
a large buyer; that contract, along with a TIF, secured a farm input loan from a bank
1
2
3
Recruitment and
Registration
Contract
TIF and
Loan
0254 0102 000032
Embu Farmers Group
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
DrumNet Operations (Continued)
In the Field
Partner agro-dealers alerted to farmers’ needs and farmers alerted via SMS when
inputs available; farmers collect inputs using a cashless transaction process
5
4
Cashless Input Pick-up;
Agro-dealer Paid Directly by Bank
Bill of Materials and
eToken Notification
eToken: 368293
Seed:10kg
DAP: 500kg
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
DrumNet Operations (Continued)
In the Field
Farmers plant and progress is tracked via SMS scouting; when farmers confirm crop
is ready, they receive pick-up date and aggregate produce at agreed collection point
6
7
8
Cultivation and
SMS Scouting
Harvest
Collection Point
Pickup scheduled
for 27 March 2010
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
DrumNet Operations (Continued)
In the Field
Buyer takes title of produce at collection point; SMS verification process triggers
payment invoice leading to repayment of bank loan and DrumNet/farmer payments
9
10
Invoicing and Payment
Buyer Collection and
Transaction Verification
Bank
Buyer has collected
7500kg seed
Buyer
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
1)Yes 2)No 3)Call
Agenda

Background

DrumNet in the Field

Lessons Learned
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
Key Lessons: Market Demand
Lessons Learned
DrumNet was implemented across Kenya and provides a good basis to draw lessons;
first is that demand for Ag finance services is high, but flexibility is also important

DrumNet active in five Kenyan Provinces in collaboration with
two large agro-buyers, a commercial bank, several agrodealers and 4,000+ farmers

Facilitated several different supply-chains, including baby
corn, French beans, passion fruit, sunflower and others

As expected, farmers keen to join and take advantage of
services; banks and agro-buyers also eager to get involved

Also as expected, common request for larger loans to acquire
irrigation equipment, storage facilities etc

Less expected was that many farmers demanded smaller
loans and, in some cases, no loan at all
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
Key Lessons: Loan Repayment
Lessons Learned
DrumNet saw improved repayment rates as the project progressed, but never hit its
target; need for crop insurance apparent, questions about loan guarantee utilization

Repayment rates increased as project advanced, from nearly
complete default to better than 70%

Increase largely due to improved production techniques, more
flexible loan packages and better definition of rules/penalties

But repayment rates never approached target of 90%;
primary culprits included poor weather and side-selling

Kenya hit by drought from ‘07 to ‘09, must bundle loans with
crop insurance and procurement of irrigation technologies

Side-selling brought on by the entrenchment of brokers, but
also due to bank apathy because of partial loan guarantee
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
Key Lessons: Operating Environment
Lessons Learned
DrumNet started in 2003 and faced many operating environment challenges; issues
remain, but noticeable movement towards friendlier rural microloan atmosphere

Operations suffered from restrictive bank practices that
forced farmers to travel great distances and DrumNet to
submit an abundance of paperwork for each transaction

Also legal issues, e.g. SMS not considered a legal
document, leading to dramatic payment delays, etc.

However, with the introduction of Agency Banking, as
well as innovative banking products like M-Kesho and
Iko Pesa, rural, smallholder lending is becoming more
practical in Kenya

Also have progress in policy space and technology
infrastructure that improve the timeliness and reduce
the cost of financial transactions
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
Parting Thoughts
Lessons Learned
DrumNet operated as a research project, but has the potential to run as a profitable
service provider; this increasingly the case given Kenya’s current trajectory
Market
Capacity
Environment

Demand for financial services is rife among
key agricultural players and the local
environment is increasingly accommodating

With the integration of technology and
other essential products, high repayment
rates can be achieved without astronomical
time/monetary costs

The (large) missing piece is the build of a
more professional software that can
handle volume and reduce the need for
extensive human input
Source: PRIDE AFRICA
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector
Thank You
Lessons from a Microfinance Initiative in Kenya’s Agricultural Sector