Opportunity International Bank Malawi has been working to expand financial services and products for smallholder farmers in Malawi. In partnership with Feed the Future Partnering for Innovation, OIBM successfully scaled up services to base-of-the-pyramid customers in rural areas, specifically for groundnut, soybean, and orange-fleshed sweet potato value chains.
During the partnership, OIBM disbursed more than 5,000 loans (50 percent of borrowers were women) with an average loan size of $93, and trained more than 10,000 farmers in good agricultural practices and financial literacy. 9,272 farmers benefited from OIBM’s banking services. One key to OIBM’s success was its focus on providing intensive training and support to its smallholder farmer customers.
Recognizing that an educated customer is a less risky customer, OIBM conducted not only conducted “group sensitization” sessions with farmers about its financial products, but coupled that with additional training on financial literacy and good agriculture practices. OIBM implemented these additional trainings by partnering with NGOs and government extension service providers. This helped keep costs low so that OIBM products could bring profit to the bank, and the bank could keep providing financial services to smallholder farmers in Malawi
Training farmers in financial literacy and good agricultural practices reduced OIBM’s risk for working with smallholder farmers, who tend to lack disposable income or hold assets that banks generally use to reduce their risk, since the bank can simply seize and sell an asset to cover their losses for a defaulting customer. When OIBM customers understand how to calculate “money-in” and “money-out” in terms of calculating their costs versus income for paying off a loan or credit product, they pay their bills on time. And when customers apply good agricultural practices, of which many lack knowledge, they improve their yields, making more to re-pay their loans and perhaps even expand their farming business, requesting higher loan amounts and other financial products that ultimately are more profitable for OIBM to administer. The trainings also incentivized farmers to access the financial services in the first place, and even sign up for more when they found success with their initial participation.
Farmers like Sophilina, who lives in the small village of Chilima in Lilongwe District, participated in the OIBM trainings and accessed OIBM loans. With access to these financial services, she was able to establish her own nursery for orange-flesh sweet potato vines.
The lesson from this story for any entrepreneur or business working in base-of-the-pyramid markets is clear: Understand and invest in your customer in complementary ways. Doing so helps them to use your product effectively, benefiting them in multiple ways and creating stronger, better customers who can “graduate” into using higher value versions of your products. It is good for your customer, your business, and ultimately, the communities that you are working in.
How can your company integrate some of these practices in order to build a strong customer base in smallholder markets?