Digital commerce and lending platforms in agriculture: the case of Tulaa
Woman working in a tea plantation, harvesting the leaves, being careful not to be bitten by snakes hiding in the tall plants (Kenya)
Weak information flows within agricultural value chains are a main constraint to growth for all of its agents, whether producers, input suppliers, wholesalers, or others. Without a detailed and up-to-date view of the business potential (and needs) of all actors in the chain, it is impossible to develop anything more than very basic, two-way business arrangements that do not exploit the full potential of the chain. Similarly, the fact that most local and regional financial institutions lack insightful information on these value chains is a major barrier that prevents them from investing in agriculture on a consolidated basis.
A recent wave of African fintech startups is trying to exploit the potential of digital technology to connect all these actors together and align their incentives, generating new business and financing relationships in the value chain. Tulaa, a startup operating in Kenya and Ghana that began its activities in 2015, is a great example of this concept. Tulaa is a digital end-to-end platform that uses mobile technology and a last-mile agent network to connect together smallholders, input providers, large-scale commodity buyers and financial institutions, improving the flow of information among these actors and making it cheaper and easier for lenders to identify the most promising investments in the value chain.
How does Tulaa work? Value chain actors and financial institutions can register and upload their information on the platform, to allow other Tulaa members to peruse them. Afterwards, these actors can use this information to develop together specific value chain financing arrangements in which all transactions are digital and take place on the platform. A common example is a bank providing a pre-harvest loan to a farmer, which he uses to purchase inputs. After harvest, the commodity buyer repays the loan to the bank in lieu of the farmer, and subtracts the cost of the loan from what he pays the farmer for his products. Tulaa itself earns a commission on all transactions made on the platform, and is expected to break even by the end of 2019.
Apart from the immediate advantages, in terms of time and cost, of having these arrangements fully digitized on the Tulaa platform, there are plenty of additional benefits for all parties involved:
- Farmers gain access to more sources for input supply, more market channels for their products, additional financing, and can build a credit history on the platform. The platform also provides them with updated information on agricultural markets directly on their phones;
- Input suppliers can aggregate demand among smallholders on the platform to help increase sales, and build brand loyalty;
- Commodity buyers can source more and better quality products from different smallholders, and gain added assurance that they will be delivered regularly;
- Banks can increase the outreach of their agricultural portfolios, acquire important information on the value chain actors’ assets and financials, and reduce the overall credit risk associated to agri-lending.
Tulaa has already established partnerships with several large-scale input suppliers, such as Syngenta and OCP Africa, as well as commercial banks and MFIs such as KCB Bank, Musoni Microfinance, and Rafiki Microfinance. As of 2019, Tulaa had over 15.000 farmers on its platform, with about US$ 500.000 in total registered sales of agricultural inputs. The total share at risk of the credit extended to farmers through the Tulaa platform (i.e. over 30 days due) is about 5% of the total loan portfolio.
The start-up, which has won the Facebook Africa Innovation Challenge in 2017, has recently gathered substantial seed funding from a variety of different social venture funds, which it plans to use to expand the services it offers on the platform. The core challenges it is facing now to sustainability and upscaling include ensuring the proper alignment of the incentives for all actors on the platform, attract, as well as attracting enough capital to meet demand. Once it has managed to break even in its current state of operations, the start-up also plans to expand in the long term to other countries of East Africa.