The world is in the midst of a difficult transition, moving from a degenerative “death economy” to a regenerative “life economy.”

The death economy is an economic system based on maximizing short-term profits, regardless of the social and environmental costs. It is characterized by a rapid depletion of resources and a disregard for the negative impacts of business activities, leading to extreme pollution and income inequality, and driving climate change, environmental destruction and other crises. Ending it has become a major global goal — particularly in low- and middle-income countries, where these crises often have an especially harsh impact.

Leaders in these markets realize that their countries’ well-being will depend on how successful they are in making the transition to a life economy. Based on maximizing long-term benefits for people and nature, the life economy is driven by companies that minimize and clean up pollution, regenerate destroyed environments, recycle, and pay workers a true living wage. Like these forward-thinking businesses, government officials, financial institutions and development agencies also recognize the need for enterprises that have the social consciousness, creativity and leadership required to help facilitate this transition.

My career has provided me with a unique view into this profound shift in the global business sector. As chief economist at a major international consulting firm beginning in 1972, my job was to help U.S. corporations maximize profits from emerging markets. We had a tongue-in-cheek name for ourselves: economic hit men (EHMs). We exploited human and natural resources — and we were extremely successful. After the demise of the Soviet Union in 1991, which spelled the end of the main alternative to U.S.-style capitalism in emerging markets, our EHM approach went largely unchallenged in these countries for more than three decades. However, in the process, we created the death economy, as U.S. businesses working in developing markets prioritized deregulation and profit maximization at all costs.

Then along came China.

The Reasons for China’s Rise in Emerging Markets

Learning from the successes and failures of American EHMs, China created its own EHM approach — one often characterized by the same core focus on profit and national self-interest as America’s, but packaged in the language of sustainable development. This strategy has turned it into the number one investor and trading partner in countries on every continent. Its loans to lower-income countries total nearly as much as those of all other governments combined, according to the World Bank.

A major cause of China’s meteoric rise in emerging markets is that its EHM strategy promotes the ideal of a life economy. Though the reality of its strategy may not always live up to this ideal, this approach reflects a real move toward sustainability in Chinese society. Since China began to reform its economy in the late 1970s, it has brought roughly 800 million of its people out of dire poverty — accounting for almost three-quarters of the global reduction in extreme poverty and generating almost 10% annual economic growth. As the country experienced increasing social benefits from its embrace of what it refers to as “a free market economy with socialist aspects,” it began to take steps to amplify those benefits by also protecting and enhancing natural capital — a strategy that started in 2007, and has since become firmly embedded in Chinese society. By 2018, the government had enshrined the goal of creating an “ecological civilization” — essentially a global life economy — into China’s constitution. This strategy has generated impressive results: To take one example, from 2013 to 2020, as reported in Bloomberg, China reduced air pollution nearly as much as the U.S. did in three decades.

This goal has become a key element of China’s approach to both domestic and international business. When I lectured at Shanghai’s China Europe International Business School, an MBA program that is consistently ranked among the top 10 in the world by the Financial Times, I often heard Chinese students lament the terrible pollution they’ve experienced for most of their lives. They repeatedly voiced their commitment to ending pollution, and they and their colleagues are promoting the life economy across the planet. And whatever the truth behind Beijing’s motives and claims regarding this strategy, the fact is that it appeals to emerging markets too.

Understanding Emerging Countries’ Views of Chinese and U.S. Businesses

I was traveling in Latin America when the January 2023 World Economic Forum convened in Davos, Switzerland. People there were proud of Latin America’s role in developing the kinds of sustainability efforts that are hallmarks of the life economy — something that was also reflected in the conversation at the Forum. At Davos, Colombian President Gustavo Petro and his Mines and Energy Minister Irene Vélez spoke passionately about greening their county’s economy, and they committed to ending oil and gas drilling. Brazil’s Environment Minister Marina Silva reiterated the Lula administration’s commitment to net-zero deforestation by 2030. And Brazil’s Finance Minister Fernando Haddad pointed out that more than 25% of the continent’s energy needs are met with renewables — twice the global average — and emphasized that the region is ideal for companies that want to guarantee their products are made with green energy. Other Latin American countries have made similar progress: In Costa Rica, for instance, nearly 100% of the electricity comes from renewables (though most of its other energy use still comes from fossil fuels).

When I travel to emerging countries like these, people ask me why U.S. corporations are not competing with China in the areas of non-fossil fuel transportation systems, water and wastewater treatment plants, inexpensive electric cars, and solar, wind and other renewable technologies. “What’s wrong with U.S. corporations?” the head of transportation for Quito, Ecuador asked me during a meeting in his office, where a Chinese team had presented a plan for electrifying the city’s public transportation systems. “We used to look to America as the leader in innovative technology. Not anymore.”

However, I also hear a lot of negatives about China. On that same visit, Ecuadorian officials expressed deep concern over Chinese gold and copper mines being constructed deep in the fragile Amazon rainforest. They are especially worried about two dams that will retain mercury, arsenic and other toxic byproducts. One is 63 meters high and the other 260 meters high, and they are liable to collapse because they are not designed to withstand the earthquakes that frequent the region. A breach would send poisonous chemicals into the Amazon River and out to the Atlantic Ocean. Furthermore, China’s companies are resented for importing Chinese workers instead of hiring locals, for selling products that require made-in-China replacement parts, and for bribing government officials.

12 Ways U.S. Companies Can Compete with China by Embracing the ‘Life Economy’

I like to think of China as the catalyst that can stimulate enterprising businesspeople to win over countries that desperately need support in developing their resources and lifting their people to higher levels of prosperity. The key factor here is to recognize the importance of committing to the long-term development of a life economy — one that goes beyond platitudes to promote truly sustainable solutions that benefit both businesses and their host countries. Needless to say, this is not only good for emerging markets, but also for future generations everywhere.

Here are a few suggestions for how businesses in the U.S. can succeed in emerging markets, while also advancing the development of a global life economy:

1. Develop and/or market products that are grown or produced locally.
2. Hire and train local people in management and sales, as well as more labor-intensive activities.
3. Hire local workers in management, and offer training programs whenever appropriate.
4. Reject products that use toxic, non-recyclable materials, including insecticides and fertilizers.
5. If involved in activities that disturb the environment, including any forms of extraction or agriculture, implement the most advanced protection and mitigation techniques.
6. Commit to buying carbon offsets for 100% of any pollution generated by the business.
7. Start projects that decrease CO2 emissions and other pollution.
8. Invest in poverty-reducing enterprises, including value-added processes that utilize locally grown fruits, flowers, nuts and vegetables.
9. Develop the market, locally as well as internationally, for microchips and other high-tech products.
10. Make sure to pay for the services and infrastructure the business uses, including water, sewage, medical and educational services.
11. Avoid black market money exchanges and all forms of corruption; be a model of fair competitive practices.
12. Be a good citizen: Support local sports events, recreational facilities, institutions and organizations that serve the community where the business operates.

By taking these steps, U.S. businesses can truly begin to compete with China in emerging countries. The guiding principle for gaining traction in these markets is to recognize that people around the world are becoming more and more conscious that ways of doing business must change. Companies that commit to transforming the death economy into a life economy will not only earn the support of customers and strengthen ties with governmental and other partners in emerging markets, they also will position themselves to be the success stories of tomorrow. And most importantly, they will help drive the movement toward a sustainable global economy that works for everyone.

John Perkins is an author, speaker and former economist. 

Photo courtesy of GovernmentZA.

A new wave of companies are bringing equipment powered by renewable, decentralized energy to smallholder farmers. Solar-powered refrigerators, water pumps and milling machines (among other devices) have the potential to significantly increase yields and reduce wastage. But turning that potential into economic impact — making productive equipment actually produce — takes more than just technology. It requires a deep understanding of the systems that these companies are disrupting, and raises a need for bundled interventions to address the overlapping barriers that farmers face.

To overcome these barriers, Acumen is supporting companies that are combining productive equipment with market access to help farmers improve their incomes. Market access — having a ready buyer who will purchase excess production and pay a premium for higher quality — is a fundamental criterion for impact investors or philanthropists to consider when investing in solutions that promise economic impact for smallholder farmers.

The Problem: Smallholder farming needs an enabling system in place to work

Smallholder farming produces 30-34% of the global food supply, and provides livelihoods for 2.5 billion people. Unfortunately, these farmers also comprise a significant share of people in poverty, so boosting their income can have a substantial impact on global poverty. Supporting smallholders can also help preserve the environment: Having food chains that are local and decentralized — with small farms, not factories, at the center — is a crucial part of building resilience to climate change. Yet for smallholder farmers to thrive, a core set of fundamentals need to be in place, including access to land, inputs, equipment, capital, advice — and above all, markets.

It has become clear that simply providing these farmers with modern equipment won’t address these multifaceted needs. A new piece of equipment might increase yields or improve quality, but to what end? Imagine a tree growing in a flower pot: If the growth has nowhere to go, it can become a strain — even a danger. Similarly, if a farmer cannot find a buyer to absorb their extra output, or one who’s willing to pay a premium for higher quality, the new equipment can make farming less profitable, not more. Too many agricultural interventions fail when farmers cannot find a market for their increased production and the boon becomes a burden.

Growing rural economies by linking them to better markets

The energy access field has broadened to include renewably-powered and efficient assets that are helping people in poverty improve their incomes. Smallholder farmers operate in rural areas, where grid electricity is often absent or weak. The combination of renewable energy and productive appliances can unlock profits for those farmers. But serving this market is different from selling a solar lantern or home system to a regular household: The equipment alone is not enough. As Lighting Global found, “a whole set of value chain issues, which vary in severity by country and crop, prevent farmers from being able to reap the full benefits of productive appliances.”

To address these needs, as part of our Pioneer Energy Investment Initiative Plus (PEII+), Acumen has recently closed follow-on investments into two of our most exciting portfolio companies: Promethean and S4S. Both companies (operating in India) are selling productive assets that benefit farmers, and both have taken the extra, essential step of providing farmers with a market for their produce.

Promethean’s weak grid refrigeration for dairy farmers

Promethean Power Systems designs and manufactures refrigeration systems for agricultural use in partially electrified areas. They began by selling bulk milk chillers to large dairies in India’s highly centralized dairy industry, which serve as aggregators for the milk from rural dairy farmers. The quality of milk is directly proportional to the time it takes for it to be chilled. After a short time, milk kept at room temperature is no longer suitable for premium products like yogurt; after six hours, it spoils completely. Promethean’s milk chillers aimed to address this challenge.

However, the company saw that the savings created by better refrigeration at these dairies were not being passed on to the majority of smallholder farmers. Many still lived too far away from the dairies, receiving lower prices for lower quality milk — or in extreme cases seeing their milk spoil before it could find a market.

“Distributed and decentralized milk chilling is ideal and necessary for all stakeholders,” said Jiten Ghelani, CEO of Promethean. “The challenge was, who was most likely to make that investment on a larger-scale basis?”

Promethean is stepping into this gap. Using a technical assistance grant from Acumen, the company developed a micro-chiller model that is affordable, can operate in weak-grid environments, and chills up to six 40-liter milk cans per day. Promethean then partnered with village-level entrepreneurs and farming cooperatives to establish chilling hubs in strategic locations. These entrepreneurs will purchase the micro-chiller and use it to provide market access to their community.

This approach is increasing the number of smallholder farmers who have access to a formal, transparent market for their dairy products, giving them an opportunity for more sustainable livelihoods.

S4S solar food dehydrators

Farmers often struggle to find a buyer for “ugly” produce, as buyers associate natural imperfections with poor quality. That is where Science for Society (S4S) comes in. The company uses technology to convert what is perceived as waste into value. S4S sells solar conduction dryers to women micro-entrepreneurs (MEs), who use the dryers to dehydrate fruits and vegetables, restoring the value of rejected produce to smallholder farmers. The MEs purchase the dryers on credit through asset finance partnerships.

From the beginning, S4S had market linkages in mind. Farmers would gain a new potential market for lower-grade produce: For instance, misshapen onions could be transformed into onion powder. Moreover, MEs had a guaranteed buyer in S4S, which purchased the dried product, aggregated it in a central facility, and sold it to large-scale buyers, including corporations like Nestle and Sodexo.

Yet something was missing. For any asset, maximizing utilization — i.e. the share of potential output that is reached — is the key to success, and S4S’ assets were underutilized. The potential market was still too far away for many farmers, so MEs were not receiving sufficient produce from farmers to pay off their dryers, let alone make a profit.

S4S solved this problem by moving closer. They established a network of village-level collection centers within 2 km of farmers. The efficiency gains are now as much as 16-30% for farmers, and this competitive advantage attracts more smallholders and allows S4S to maintain supply for its MEs. S4S moves produce from these collection centers to the MEs for dehydration, then it purchases the dried produce and sells it to large buyers, as it did before.

A systems-level approach to value chains

What Promethean and S4S have shown us is that selling efficient agricultural equipment requires companies to take a systems-level approach to a value chain, understanding how inputs, capital, labor and outputs work together. Only when companies have understood the system can they bundle the right combination of products, services and equipment to meet smallholder farmers’ multiple needs. That’s why investors and entrepreneurs need to look beyond technology for technology’s sake, and focus on how to use this tech to create value.

However, this broader focus does bring some challenges. For example, Promethean and S4S are dealing with more operational complexity, as both companies are now managing last-mile logistics and schedules. But the upside is that they are able to build long-term relationships with farmers, based on the value they are creating. Additionally, the small businesses built around these assets are providing new income for entrepreneurs at the village level.

In terms of whether the benefits of this approach outweigh the challenges, Mahesh Yagnaraman, Acumen India’s Country Leader, is unequivocal: “The market linkages that S4S and Promethean have built are more than just linkages. This is actually a core ‘asset’ of both companies. They have marquee customers, and leveraging that market enables these companies to go deeper in the supply value chain to create value for farmers. They are thus genuinely increasing the value across the chain with the smallholder farmer getting a fair share. This is why we are doubling down on our initial investments.”

What comes next?

Ensuring access to markets is just the first step when selling renewable energy-powered agricultural assets, not the last. Both Promethean and S4S are experimenting with additional value-added services that can increase farmers’ profitability. S4S is developing an impressive array of digital tools to boost farmers’ access to markets, inputs and credit. Meanwhile, Promethean is planning to make its hubs the entry point for a whole suite of end-to-end dairy services. For instance, the same village entrepreneurs that operate its micro-chillers are also selling cattle feed and offering connections to tele-vet services, with agronomy support and credit to follow.

Mechanization and improved access to all sorts of equipment are crucial for smallholder farmers to become resilient and profitable, but these tools are not enough. For farmers, all the links of the value chain need to be in place to turn productive equipment into a profitable investment.

Dan Waldron is Head of Insights, Christopher Emmott is Associate Director of Investing in Energy Access, and Christopher Wayne is Associate Director, Investing in Agriculture at Acumen.

Photo courtesy of Saumya Khandelwal, S4S/Acumen.

In the mid-20^th century, American agronomist Norman Borlaug pioneered enormous advances in disease resistance and crop yields, launching the “Green Revolution” that revolutionized food production and fed the world, for which he won a Nobel Peace Prize in 1970. Since then, the world has theoretically had enough food to adequately meet its people’s needs — although in practice those needs have never been met, primarily because of misallocation of resources. But there is a real and growing fear in development circles that progress toward global food security has stopped — and in fact reversed. Indeed, according to the World Food Programme, the world is facing “a food crisis of unprecedented proportions.” As the Food and Agriculture Organization pointed out in its 2022 State of Food Security and Nutrition in the World report, global food insecurity had grown by 150 million people since the onset of the COVID-19 pandemic, due to “conflict, climate extremes and economic shocks, combined with growing inequalities.” Moreover, e-MFP’s own Financial Inclusion Compass 2022 shows the same serious concerns among our survey respondents.

These fears are understandable: Access to reliable and adequate food is so fundamental that it defines who you are — your prosperity, prospects, hopes and resilience. If this basic need is not met, all other human development objectives are virtually moot.

So what does food (in)security mean? For one thing, it’s seldom binary: Low-income and vulnerable people are rarely either just food “secure” or “insecure.” Food insecurity is a complex phenomenon that comprises various dimensions and presents as a negative feedback loop: Poverty leads to food insecurity, which can cause poor physical and cognitive development, which can restrict productivity, which in turn exacerbates poverty in an ongoing cycle. And while there are over 800 million people who are hungry or starving, there are over 1 billion more who suffer from what has been called “hidden hunger,” struggling with poor nutrition and unreliable access to adequate food.

However, to describe this challenge purely in terms of access is too narrow. As the Food and Agriculture Organization frames it, food security has at least four dimensions, which include:

• Availability: the supply of food, which depends on domestic food production, imports, food stocks and food aid keeping pace with population growth;
• Access: people’s ability to buy or grow the food they need to thrive;
• Utilization: people’s knowledge about nutritious food choices and preparation, and also the nutritional content and safety of food; and
• Stability: which requires all of the other dimensions to be upheld over time — something that is threatened by severe weather events, price fluctuations and political conflict, among other challenges.

Adding to this complexity, there are multiple factors that impede or promote these dimensions. At the macro level, population growth and government policies — including agricultural sector incentives, international trade and transportation infrastructure investment — play a critical role. At the micro level, household food behaviors are influenced by people’s income level and education, social norms, and which foods are affordable and locally available. Between these two levels are the behaviors of all the other actors in the food system, including small-scale and industrial farms, processors, logistics providers, and vendors, among many others.

These drivers of food security are all perennial. But they are exacerbated today by other emerging factors, from global macroeconomic and geopolitical volatility (made worse by the Russian invasion of Ukraine) to the aftershocks of the COVID-19 pandemic — all of which has contributed to worldwide inflation and supply shocks. And of course, climate change increasingly threatens the livelihoods and food systems of the world’s most vulnerable populations as well.

It is clear that food insecurity remains a key global challenge: Tackling it will take the proverbial “village” — not just a single sector or entity. However, it’s also clear that the financial inclusion sector is uniquely placed to reach the populations that are most vulnerable to food insecurity and malnutrition. That’s why we at e-MFP are pleased to announce that the topic of the European Microfinance Award 2023 is “Inclusive Finance for Food Security & Nutrition.”

How inclusive finance can support food security

Food security and financial inclusion are intrinsically related. In fact, the elements of financial inclusion — giving low-income people the ability to plan, save, mitigate shocks, invest and smooth consumption — will typically increase people’s ability to afford and access sufficient, high-quality food. More than that, by working across the food system, inclusive finance organizations can also play a key role in expanding the availability and sustainability of quality food.

Finance is an integral part of food systems — from agricultural credit to farmers preparing for planting, to warehouse finance at harvest time, to weather or crop insurance. Inclusive financial service providers (FSPs) can also coordinate with other actors across the food value chain, including governments, agricultural research institutions, agri supply companies, food processors, transport providers and distributors. At every step, inclusive FSPs can direct their efforts toward making the production of food a more attractive alternative to growing non-food cash crops, while building long-term sustainability and stability in the agriculture sector through measures that encourage adaptation to climate change. Close engagement with food systems also gives FSPs the opportunity to support the production and distribution of nutrient-rich and diverse food products.

Beyond the food value chain, FSPs are well-positioned to support households that are especially vulnerable to food insecurity. As part of their interaction with clients, FSPs may encourage the use of higher-quality foods, including local or indigenous foods that are being supplanted by cheap, low-quality foods — something that can be influenced through education and by supporting projects that make nutritious foods more accessible and affordable. FSPs can even provide direct support, for example, by funding high-nutrition meal programs at schools serving low-income families.

The relationship between food security and inclusive finance can also flow in the opposite direction, since microfinance clients — the un(der)banked and excluded populations that are most affected by inflation, reduced access to food and climate change — often feel pressure to cut their quantity or quality of food when money is scarce. These clients often experience this scarcity when their loan payments are due, which is to say, when they are interacting with FSPs. By recognising and addressing this issue through various approaches, such as paying greater attention to debt stress or offering repayment flexibility, FSPs can provide as important a response to food insecurity as initiatives aimed at increasing food availability and improving nutrition. And of course there is also a huge and positive role for financial services to play in increasing food security, notably by strengthening household resilience in a broader sense through effective and inclusive savings products, income smoothing from loans and transfers, and protection from shocks through insurance products.

The EMA 2023: Putting the focus on Food Security & Nutrition

The European Microfinance Award 2023 on “Inclusive Finance for Food Security & Nutrition” aims to promote these sorts of solutions. Launched on March 15, it seeks to highlight innovations by financial inclusion organizations that safeguard access to quality and affordable food for vulnerable populations, and that increase the resilience of sustainable food systems.

To be eligible, organizations must be: active in the financial inclusion sector, fully operational for at least two years, and based and operating in a Least Developed Country, Low Income Country, Lower Middle Income Country or Upper Middle Income Country, as defined by the Development Assistance Committee for ODA Recipients.

The call for first-round applications is open until April 12, and the multi-stage evaluation process will culminate with the winner of the €100,000 prize (plus the two runners-up, who each win €10,000) being announced during European Microfinance Week in November. All finalists and semi-finalists will be featured in the annual e-MFP Award publication and can benefit from an enormous amount of positive exposure over the course of the process. All information on the topic, eligibility requirements, and application and evaluation processes can be found on the European Microfinance Award website.

In order to reply to any questions that applicant organizations may have when applying to the Award, e-MFP is organizing three Application Guidance sessions this month: an English session on March 28 (register here); a Spanish session also on March 28 (register here); and a French session on March 29 (register here).

We look forward to receiving applications from a diverse array of organizations in the financial inclusion sector that are innovating to ensure that low-income populations have sufficient access to quality and affordable food.

The European Microfinance Award was launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs — Directorate for Development Cooperation and Humanitarian Affairs. It is jointly organized by the Ministry, the European Microfinance Platform (e-MFP), and the Inclusive Finance Network Luxembourg (InFiNe.lu), in cooperation with the European Investment Bank (EIB).

Joana Afonso is a Financial Inclusion Specialist, Sam Mendelson is a Financial Inclusion Specialist, Fernando Naranjo Galindo is a Program Coordinator and Daniel Rozas is a Senior Microfinance Expert at the European Microfinance Platform (e-MFP).

Image courtesy of the European Microfinance Platform (e-MFP).

Nepal is uniquely vulnerable to natural disasters, including climatic ones like floods and droughts, and non-climatic ones like earthquakes and epidemics. Located in the centre of the Himalayas, its topography and climatic conditions make it one of the most disaster-prone countries in the world.

These disasters not only cause the loss of lives and property, they also pose severe threats to physical infrastructure and disrupt economic development. And addressing them will be costly: It is estimated that achieving Sustainable Development Goal (SDG) 13 (climate action) in Nepal will require US $47.4 billion for climate adaptation and $196.1 billion for climate mitigation between 2021 and 2050.

Making matters worse, the impacts of Nepal’s climate variability and extreme weather events are unevenly distributed among its people, with smallholder farmers and rural women disproportionately affected. It’s also a country where a climate-sensitive industry — agriculture — represents 24% of the GDP and employs 64% of the labour force (and 74% of the female labour force). Due to these circumstances, and considering that Nepal’s government is committed to achieving not only SDG 13 but also SDG 2 (food security) and SDG 5 (gender equality), the development of risk management tools for farmers is an imperative priority for the country.

The government of Nepal has put a particular emphasis on the importance of investing both in financial inclusion for smallholder farmers and in risk management tools that help them cope with climate-related threats. For example, Beema Samiti – the Nepal Insurance Authority – requires at least 5% of the total insurance policies sold by non-life insurance companies to be for agriculture, livestock and produce. The federal government provides a 75% subsidy on the insurance premium, which has helped to insure almost $24 million worth of agricultural products. However, insurance companies have leveraged this subsidy more for livestock than for other types of products, as claim settlement is easier to manage in this case. This excludes many farmers whose crops and livelihoods are essential to the food security and economic growth of the country.

Below, I’ll discuss a UN Capital Development Fund (UNCDF) pilot program that leveraged local partnerships, technical assistance, farmer training and an innovative product design to bring agricultural insurance coverage to Nepali smallholders. Though the program, which ended in 2021, was focused on the unique needs of Nepal, the learnings it generated could help inform efforts to expand the benefits of insurance to farmers in other climate-vulnerable countries in Asia and beyond.

Understanding the Different Types of Agricultural Insurance

Globally, there are several types of agricultural insurance, which include traditional indemnity-based insurance and index-based insurance.

Indemnity-based insurance typically protects against physical losses, and payouts are made after damage assessments are carried out. These damage assessments are difficult and time-consuming to execute in remote rural areas, while smallholder farmers — particularly women — often need their insurance payouts right away due to the demands of the crop cycle. As a result, indemnity-based insurance is more suitable for wealthier customers, who have enough cash on hand to cover their expenses while this assessment process plays out. It has proven not to be responsive to the needs of smallholders and others who are most affected by climate risks. What’s more, the concept of insurance in general is often challenging to explain to these customers, since the products are complex, and the financial literacy of these potential clients is usually low. These factors may partially explain why the penetration rate of agricultural insurance in Nepal — where most such products are indemnity-based — is around 1%.

Index-based insurance involves payouts that are triggered and calculated by historical data and a pre-determined index, which also determines the amount of the benefits. A yield index-based insurance — one of several types of index insurance — covers all risks that may affect the crop yield in a determined area, and the more farmers in that specific area who participate in the coverage, the less they each pay for the insurance premium. For example, the index may use historical data to project the expected amount of rainfall in a specific area, and to calculate the value of the insured yield. If the level of rainfall is lower or higher than the one predicted by the index, then payouts to the farmers can be triggered with no need for a lengthy verification process by the insurer. The straightforward design of the product itself makes it easy to understand, enhances transparency, helps to avoid disputes and may reduce costs for farmers.

Piloting a Yield Index Insurance Designed for Farmers in Nepal

To bring the benefits of index insurance to more Nepali farmers, UNCDF made a catalytic grant, coupled with technical assistance, to Jeevan Bikas Laghubitta Bittiya Sanstha Limited (Jeevan Bikas), a local microfinance institution, and Pula, a global insurance technology company. Through this support, we enabled these companies to pilot an area yield index insurance for smallholder farmers in the Morang district of Province 1 in eastern Nepal. The grant was used to:

• Unlock a government subsidy designed to offer insurance to smallholder farmers;
• Provide technical assistance to Jeevan Bikas on the design and roll-out of the product; and
• Build the financial capabilities of the farmers.

UNCDF helped Pula to design the insurance product together with Nepali insurance companies, in close cooperation with Beema Samiti and other stakeholders. We facilitated the approval of the insurance by Beema Samiti, and held discussions about premium subsidies with the Ministry of Agriculture and Livestock Development. We also organised a learning dissemination workshop on the area yield index insurance with non-life insurance companies in Nepal, explaining what these insurers would need to focus on to offer similar kinds of products.

To date, these efforts have enabled 15,380 smallholder farmers in the district, primarily low-income rural women, to receive insurance coverage to protect their rice yields against frost, excessive rainfall, heatwaves, hail, flood, drought, pests and diseases. The estimated total sum insured for these rice farmers was $4,000,000, which is equivalent to around $260 per farmer. About 70,000 smallholder farmers received training on the insurance product, which was delivered digitally, and 10,000 farmers received advice on agricultural agronomy.

Critical Factors for Successful Agricultural Insurance Products

In implementing this grant program, we identified several factors that are critical to the success of an agricultural insurance offering, which I’ll discuss below.

• Building the capacity of local financial institutions to design and pilot the insurance product: Although Jeevan Bikas is one of the largest microfinance institutions in Nepal, it needed new technical capabilities to develop and pilot index-based insurance. The technical assistance provided by Pula, highlighted below, was pivotal to the success of the product, helping Jeevan Bikas to:
  • Identify the average production history in the insured area, and the unit area of insurance (i.e., the unit of measurement that’s used to determine the amount of cultivated land covered by the insurance);
  • Determine if the yields of the farmers were lower than the historical benchmark, based on a sampling methodology;
  • Establish key product attributes like the basis for determining coverage amounts, the average sum insured per farmer, and the point at which payouts are triggered;
  • Define the payout amount based on the yield benchmarks vs. the yield attained;
  • Collect data from a representative sample of farmers after harvest, to determine the average yields and payouts for each unit area of insurance.
• Leveraging partnerships to crowd in finance from the private sector and promote uptake of area yield index insurance: As the largest area yield index insurance ever offered in Nepal, this program required multi-stakeholder partnerships, and commitment from both the private and public sectors. UNCDF, as a neutral broker of partnerships, is proud to have facilitated these interactions and helped the stakeholders navigate these relationships. Thanks to this project and our collaboration with Beema Samiti, Jeevan Bikas and Pula, offering yield index insurance products to smallholder farmers is now more feasible for financial service providers in Nepal. Beema Samiti and the local insurers it worked with for reinsurance were initially reluctant to participate in the area yield index insurance. There was no history of cross-border agricultural underwriting in Nepal and, at first, Pula’s reinsurance partners did not want to take on the risks. Through the close engagement we helped foster with these reinsurance partners, we were able to highlight the product’s potential to reach new markets in a cost-efficient manner. Similarly, our close engagement with Beema Samiti allowed UNCDF and our partners to familiarise the regulator with index-based insurance and its benefits.
• Empowering smallholder farmers with knowledge about agricultural insurance: Smallholder farmers often lack an understanding of agricultural insurance, which represents one of the biggest barriers to the product’s uptake. Focus group discussions conducted as part of the project showed that the farmers we were targeting shared this low level of awareness of agricultural insurance, including crop insurance, livestock insurance and area yield index insurance. Many also did not know about the government subsidy offered in Nepal, which (as mentioned above) covers 75% of the premium for agricultural insurance. The training we designed aimed to clarify the benefits of the product to farmers, and to explain how they could access and claim the insurance, in order to address key gaps in the knowledge, skills and attitudes of these potential clients.

Designing Sustainable, Scalable Agricultural Insurance Products in Emerging Markets

Our pilot project leveraged a government subsidy, but Nepal is on its way to graduating from its least developed country status, which will result in decreasing official development assistance. In this context, it is critical that financial service providers find a way to deliver and scale up agricultural insurance products in a more sustainable manner. Below are some suggestions for how they can make this happen.

• Product refinement: Our focus group discussions with the farmers were key to understanding their challenges and to better delivering the insurance product. The data collected during the pilot helped to improve the future payout structure of the product, which will provide farmers with insurance payouts if their actual yields fall below 70% of their average production yields, paying them up to 70% of the insured value of their yields.
• Use of digital solutions: The pilot project used digital technologies to deliver training to the farmers, and UNCDF sees a clear opportunity to use digital innovation to scale up the uptake of this type of insurance. For example, digitization can reduce the cost of distribution and transactions, provide farmers the flexibility and convenience of making premium payments using mobile money, and ease the claim process by allowing farmers to submit documents as digital photographs instead of physical copies. Through these and other benefits, digital technology can act as a catalytic enabler to the delivery of index-based agricultural insurance in Nepal and other low- and middle-income markets.
• Regulatory framework: It is important that financial service providers bundle area yield index insurance with other services such as loans and savings. This will make the product easier to deliver for a financial institution, which in turn will increase the uptake of the insurance. The right regulatory framework, however, needs to be in place to allow providers this type of flexibility.

This pilot program demonstrates the critical role of financial services in protecting development gains and giving farmers the best chance to mitigate the risks of extreme weather events. UNCDF will continue to work with the government of Nepal and our other partners in piloting and scaling financial mechanisms that provide meaningful change to the most vulnerable. We are also keen to work with other stakeholders in the broader Asian region to take this agenda forward and share our learnings. If you’d like to learn more about this work, contact Georgii Nikolaenko, UNCDF’s Learning, Knowledge Management and Communications Analyst, at georgii.nikolaenko@uncdf.org

Maria Perdomo is the Regional Coordinator for Asia at UNCDF. 

Photo courtesy of UN Women.

Extensive trade liberalization, often referred to with the shorthand term “globalization,” stands as one of the most transformative economic events of the last century — and also one of the most controversial. To some, the most important effect of globalization has been the rise in global living standards through the expansion of the middle class and the sizable reductions in poverty in countries — such as Japan, South Korea, Singapore, China, Vietnam, Malaysia and Bangladesh — that have leveraged export-oriented production and trade to their advantage. Other analysts focus on how trade liberalization has created winners and losers, and increased economic fragility.

In response to these downsides, many of which are fueled by price competition from foreign entities and the greater ease of shifting jobs from high- to low-wage parts of the world, some countries are reconsidering their attitudes toward greater trade openness. Given these trade-offs between reducing global inequality and protecting domestic interests, is globalization here to stay, or will low- and middle-income countries (LMICs) need to find alternative sources of growth in an increasingly protectionist world?

While there is a continuing debate around who has reaped the greatest rewards from globalization, a key consideration from an economic development perspective is how trade impacts the production possibilities of firms and the earnings of workers in LMICs. As countries reassess the extent of their engagement in international trade and as political support for protectionist policies grows, we’ve compiled relevant research insights to help illuminate the dynamics and repercussions of international trade. Our goal is to better understand what the current backlash might mean for business growth and poverty reduction in low- and middle-income settings, and for inequality across and within countries.

We will explore these questions below — with one small caveat: Globalization has important consequences in terms of environmental impact. And increased flows of capital across borders can also have disruptive effects on economies. Though these topics are worthy of further exploration, we limit our discussion to the economic impacts of global trade in goods and services in this article.

Globalization has broadly been a catalyst for global growth

For a number of LMICs, the expansion of international trade in the second half of the 20th century was an integral part of their economic transformation. As a percentage of GDP, trade grew from roughly one quarter of the world economy in 1960 to over one half by 2015. By far the largest enabler of this growth was the reduction of tariff rates: They fell by half in low-income countries during the 1980s and 1990s. An acceleration in export-led manufacturing growth followed in East and Southeast Asian economies such as China, Taiwan, South Korea, Singapore and Japan. These countries made investments that took advantage of expansions in high-wage, productive sectors such as manufacturing and services, and growing access to high-income consumers in other countries, to reap the rewards of an increasingly globalized world economy.

As a result, Japan found success in the automotive industry, becoming the world’s largest car manufacturer in 1981, with production accounting for almost a third of the global total. In China, South Korea and Taiwan, modern microchips — used in virtually every electronic device — became a production staple, and technological developments during the early part of the 21st century have only further entrenched the role of tech manufacturing in the growth of these economies. High-income economies were also strong advocates — and indeed beneficiaries — of trade liberalization in its early stages. During the 1990s, exports accounted for almost a quarter of the United States’ growth in output.

One of the key channels through which international trade impacts economic growth is through its indirect impacts on productivity across domestic firms. As Ana Cecilia Fieler, affiliate of the Yale Economic Growth Center (EGC), has found in her work with co-authors examining manufacturing and trade in Brazil (see a summary of her research here), LMIC-based firms that are engaged in international trade are more likely to upgrade their technology given the nature of demand from foreign customers. This has important indirect effects on economy-wide productivity, since this leads many non-importing firms to upgrade their technology as well, just due to the fact of being in the same supply chains as firms that are importing and exporting. These firm-to-firm benefits, in combination with factors such as human capital investments and support for small and medium-sized firms, differentiate the trade and growth experiences of regions such as Latin America from that of East Asia.

The Trade-Offs and Unequal Benefits of Trade Liberalization

However, while the global economy may have benefitted overall from trade liberalization, this growth has not been spread equally. Specific localities and groups of workers have gained at the expense of others. These disequalizing effects have not just been concentrated in high-income countries but have played out in low-income ones as well. As a result, despite globalization seemingly catalyzing overall growth in both high- and low-income economies, the argument started to gain traction that it was moving wage jobs that required a high school degree or less from high- to low-wage countries. While this debate continues, the geographic and local effects of globalization (also known as “spatial effects” in the literature) have become more apparent. Borderless company activity due to international trade means that communities which depend on a single dominant employer lose out on more than just jobs if operations are moved abroad. There are also broader local effects and knock-on implications for tax raising, spending on public services and social divisions, which can leave entire communities in distress, and feeling as if they have been harmed more than helped by the forces of globalization.

Recent research has shown that these imbalances in who gains and who loses from trade expansion are similarly apparent in low- and middle-income economies. A recent literature review by Amit Khandelwal, affiliate of the EGC and David Atkin at MIT found that since the vast majority of firms in low-income countries are not only small but also informal, the ability of these firms and their communities to receive the full benefits of trade is much more limited than previously imagined. This is apparent in the case of Vietnam, where lower U.S. tariffs on exports as a result of the U.S.-Vietnam Bilateral Trade Agreement led to increases in Vietnamese firm productivity. However, these gains came from the reallocation of resources, from smaller firms that were less efficient to larger companies that were more efficient. These smaller enterprises faced barriers to participating in the export market, which included substantial costs, such as government registration fees and insurance and shipping expenses, that small firms were too credit-constrained to overcome.

Other lower-income countries have also faced trade-offs alongside the gains from trade liberalization. In Colombia, reductions in tariffs on imports in the 1980s and 1990s were largely focused on sectors employing low-skilled wage labor. These wage workers saw their earnings fall as firms shifted from purchasing domestic goods to buying lower-priced imports. Meanwhile, Indonesia’s import tariff reforms have been shown to have reduced the wages of workers in companies that only sell domestically, in comparison to larger, exporting firms. And in India, work co-authored by EGC affiliates Michael Peters and Fabrizio Zilibotti, and Yale graduate student Tianyu Fan, finds that the growth of the consumer services sector generated by trade openness in the 1990s resulted in benefits that were skewed toward urban locations and high-income households, while rural workers employed in the slower-growing agricultural sector were excluded from this service-driven growth. While many of these impacts are context-dependent, it is clear that the benefits of trade are not dispersed equally. As a result, addressing the trade-offs between the increases in efficiency and the distributional consequences caused by trade liberalization has become a policy and political priority in low- and middle-income contexts as well as more affluent ones.

A recent “Voices in Development” podcast that we produced at Yale EGC illuminated these competing dynamics and consequences of international trade. In that discussion, Penny Goldberg, a trade scholar and former Chief Economist at the World Bank, outlined how small economies like Greece, where she was born, used international trade to reduce poverty in the second half of the 20th century. Simultaneously, competition from imports coming into high-income markets, such as the U.S. and much of Europe, did not disadvantage all workers with similar levels of education across these countries. Instead, it affected specific sub-geographies, raising or lowering income and wealth in a given area based on the changing international comparative advantage of dominant local manufacturing firms.

How Trade Protectionism in High-Income Economies Can Harm LMICs

As the notion that trade liberalization has exacerbated inequality has made its way into the political sphere, some countries have taken significant steps back in their trade openness. While actual trends in world trade have recovered after a sharp drop caused by the COVID-19 pandemic, the trade openness index has been in decline since around 2010, ending the uninterrupted growth it had experienced since the end of World War II.

High-income countries are arguably the biggest proponents of this retrenchment. The U.S. has blocked China’s access to crucial technology, and the U.S. and Europe have imposed export restrictions on materials needed for the production of COVID-19 vaccines. Developments like the ongoing U.S.-China trade war, the global energy crisis fueled by the war in Ukraine, and the turn toward protectionism in many countries’ political agendas suggest we may be approaching the “end” — or at least the slowdown — of globalization. According to Goldberg, this process of “deglobalization” will have consequences for consumers, as greater protectionism leads to higher prices, while also posing a threat to global coordination on salient issues such as climate change.

An even more pressing consequence is the threat deglobalization poses to low-income economies in terms of lost growth potential, as access to once-open markets becomes increasingly restricted. Firms in countries such as Singapore, Taiwan, Vietnam and Bangladesh that have relied on growing global demand for their exports are potentially facing a long-term decline in international business and trade. Some researchers expect the impact of this decline to depend on the strength of the internal market in these economies. But whatever its ultimate impact, the missed opportunities created by a slowdown in trade for smaller and slower-growing countries in South and Central Asia, Latin America, and sub-Saharan Africa present an under-recognized challenge to poverty reduction and business growth in these geographies.

There is a risk that this slowdown may erode the gains in living standards achieved by LMICs that embraced free trade and invested in their populations to more equitably take advantage of emerging global economic opportunities. For instance Bangladesh, as the world’s second-largest clothes exporter, has seen exports tumble as a result of the global economic slowdown, and recently had to obtain an IMF bailout. According to Yale EGC affiliate Mushfiq Mobarak, Bangladesh is just one example of how seismic shifts in the interconnected global economy will hurt poorer countries the most.

What Does the Future Hold for Globalization?

The global economy is expected to be in a downturn for the next few years, with the IMF predicting that a third of countries will enter a recession. Protectionism in the short run is likely to be a factor in how deep and long-lasting the global slowdown will be. Countries will continue to approach trade strategically to suit their best national interest. However, a developmentally sound approach would be to focus on where trade has the most gains to deliver, in terms of preventing price rises in all countries and enabling poverty reduction in low- and middle-income settings. Otherwise, there is a risk of “throwing the baby out with the bathwater,” as countries pursue self-serving responses which can do more global harm than good.

While rich countries grab the trade headlines these days, the future of global trade is very much in the hands of LMICs. Despite trade restrictions from high-income nations protecting their domestic industries, China is a leading global actor that has spent the past decade building trade-related infrastructure throughout the world. India has negotiated a host of preferential trade agreements in recent years, including 13 bilateral trade agreements and four plurilateral agreements with multiple countries. These agreements have produced modest results to date, but they provide a basis for deeper engagement despite the global turn away from multilateralism. Similarly, 54 member states of the African Union have signed the African Continental Free Trade Area Agreement, working toward increased trade within the continent.

In her podcast interview, Goldberg cautions that national governments will need to recognize the specific local effects of trade and address them head-on as part of smart redistributive policies. This action is key to renewing and realizing the promise of globalization. This can ensure that countries benefit from the positive impacts of trade, while also helping the specific regions and populations that experience any negative effects to transition systematically to new economic opportunities over time. In this century of large movements of goods and people across borders, rapid technological change, and climate breakdowns, achieving the global goals of poverty reduction and decreased inequality will require a widespread recognition of the interdependence between high- and low-income countries. While the current prioritization of strictly national interests might appear politically attractive and expedient, we will ultimately rise or fall together.

Aishwarya Lakshmi Ratan serves as the Deputy Director of Yale’s Economic Growth Center. Bomi Okuyiga is a Master’s candidate in Public Policy at the Yale Jackson School of Global Affairs.

Photo courtesy of Erik Odiin.

The Savings Learning Lab was a six-year initiative that supported learning among Mastercard Foundation’s savings-focused financial inclusion programs across Africa. At the initiative’s close-out event last September, program partners Savings at the Frontier (SatF) and Scale2Save discussed two ways they researched the impact of formal savings accounts on the lives of low-income people. 

Both of their client-centric research approaches went beyond access to and usage of savings accounts to understand the nuances of client preferences and behaviors. This is the kind of research needed to move the needle on savings for low-income clients. I’ll discuss these findings and their implications below.

The Qualitative Impact Assessment Protocol Research Approach  

The SatF program, implemented by Oxford Policy Management, worked in partnership with 10 financial service providers (FSPs) in Ghana, Tanzania and Zambia to develop innovative financial services for informal savings mechanisms and their users. These mechanisms include a range of collective savings structures, namely: Village Savings and Loans Associations, Rotating Savings and Credit Associations, Accumulating Savings and Credit Associations, agricultural affinity groups, less-structured savings groups, and susu collection. SatF was designed as an adaptive program to support innovation and test whether and how formal FSPs can serve these informal savings mechanisms and their users.

With support from Bath Social and Development Research Ltd., SatF took a qualitative approach to understand how formal savings accounts led to changes in livelihoods from the customer’s perspective. Their study examined the outcomes of a set of savings linkage products, which connected informal savings group members to formal FSPs in the three target countries over the course of the SatF program. To reduce the risk of biases, this research approach asked these customers about changes in their lives — and what they attributed these changes to — in an open-ended way. This approach was in contrast to more narrowly focused research methods that ask about a particular product or service, which might prompt the customers and create bias in their responses. 

The customers were asked about any changes in their financial practices, income-generating activities and financial well-being, and were invited to describe how and why these changes happened. SatF wanted to learn whether customers would attribute any of these changes to the savings linkage products without the researchers prompting them, or naming the products during the interviews. Listening to customers’ unfiltered thoughts about the impacts of these linkage products in a broader context helped researchers to understand the real impact of the products, and how the products led to these changes. 

SatF’s research provided highly detailed feedback to FSPs on customers’ behavioral patterns. The findings were complex, and there was great variation in the ways in which customers saved — e.g., saving with M-PESA, via savings groups, etc. But one common finding was that people talked about relationships and not products. What mattered to these clients was, for example, not the technical features of a digital savings account, but rather the human contact they had with the FSP’s agents when accessing these products. This highlighted the fact that working through agents can make FSPs more approachable: Because agents are embedded in the local social and cultural networks, customers have more confidence in working with them.

The Customer Outcomes-Based Research Approach

Scale2Save, implemented by World Savings and Retail Banking Institute, worked in partnership with 12 FSPs across six countries: Kenya, Uganda, Nigeria, Côte D’Ivoire, Senegal and Morocco. The program focused on establishing the viability of low–balance savings accounts and the use of customer-centric approaches to address barriers in savings account access, usage and affordability.

Sale2Save and its partner Centenary Bank in Uganda collaborated with CGAP to test whether a customer outcomes-based approach to consumer protection could be used as a measuring tool to assess Centenary’s savings product. Specifically, the customer outcomes framework was used to assess whether the product was working as intended, if it was improving the lives of target customers, and whether (and how) Centenary was contributing to Uganda’s financial inclusion goals. This approach is designed for FSPs and regulators, as it utilizes supply-side data that these organizations are already able to track. Having previously been tested with the Financial Sector Conduct Authority, the market conduct regulator in South Africa, and five FSPs in South Africa, the approach is structured and flexible enough to accommodate various financial products in different country contexts. It utilizes a framework that includes 156 qualitative and quantitative indicators, from which a much smaller subset is then prioritized based on both the challenges and realities that consumers face in a particular market, and on the information that’s available to support these measurements.

In Scale2Save’s case, the data used came from Centenary’s basic savings account, which targets youth and women. The Bank of Uganda (BoU)’s Financial Inclusion Strategy 2017 served as the basis for assessing Centenary’s contribution to country-level financial inclusion goals. The BoU’s five strategic goals identified 20 gaps they wanted to address. These gaps were used to map the customer outcomes indicators to the Ugandan context. From there, 10 foundational indicators were selected based both on the BoU’s national financial inclusion strategy, and on which data was available to Centenary’s central analytics team. 

To understand access barriers for youth (under 30), the approach evaluated whether Centenary attracts its target segments and retains these customers, both throughout their lifetime and through changes in circumstance and income. It looked at four elements: 1) which savings customers were new to the bank; 2) whether these customers were offered more sophisticated products once they hit certain benchmarks; 3) whether customers were offered loans; and 4) customers’ levels of account inactivity, as compared to the broader market. 

The results, outlined in more detail in this report, Application of CGAP Customer Outcomes Framework in Uganda, helped the bank understand that they were indeed reaching this customer group, at higher rates than the market, and that they were able to grow with these customers, offering more suitable loans and products as their needs evolved. The study also showed that account inactivity was higher than the norm. This allowed the bank to hone in on this inactivity, developing solutions that would boost client satisfaction and increase the sustainability of their product. 

The ultimate goals of the customer outcomes framework are to help authorities, like the Bank of Uganda, understand which strategies, policies, practices, activities, products and services work/do not work for customers; to evaluate the impact of financial services at a market level for all types of customers; and to assess if, and how, financial service providers are contributing to national financial inclusion goals. The Head of Financial Inclusion for the BoU emphasized how useful this pilot has been for them, allowing them to identify issues across banks, like product mismatch and inactivity, earlier — using information that banks already have available. As Uganda develops its new national financial inclusion strategy, the central bank believes it will be important to carry out this exercise again, and to make the case to all FSPs of its value. 

You can view the recordings of the close-out learning event here: Part 1, Part 2. And for more useful resources on this topic from SatF and Scale2Save, check out the Guide to Inclusive Savings, curated by the Savings Learning Lab.

Jenny Morgan is the Impact Pathways Facilitator for FinEquity.

Photo courtesy of International Monetary Fund.

The rainy season doesn’t always come to Zambia like it used to. In the last two years, when the rains have begun, they haven’t lasted long, and they’ve done little to quench the dusty fields. “The drought has really impacted us farmers,” says Inutu Musialela, 53. “We planted crops like maize and sunflower, but the rains ended, and the crops didn’t grow.”

In the 12 years that Musialela has worked as a “farm business advisor” (FBA), training other farmers on modern agricultural techniques and selling them supplies, she says the climate has changed significantly. Before, she told them to plant crops in rows, use fertilizer and protect their plants from pests. Now she spends just as much time showing them how to adapt to climate change, telling them to plant early maturing crops that require less water, or explaining that they should diversify what they plant in case some varieties fail.

Musialela is one of more than 300 FBAs – many of them women – trained in Zambia by U.S. business-minded nonprofit International Development Enterprises (iDE). Our training incentivizes the FBAs to teach other farmers how to run their farms as businesses, and how to use climate-smart agricultural practices to boost productivity. For instance, FBAs demonstrate the benefits of drip irrigation, dry mulching and hybrid seeds which sprout drought-resistant, high-yield crops. FBAs also link rural farmers with last-mile input suppliers and bulk produce buyers, reducing the time and money farmers ordinarily spend traveling to and from urban centers to sell their crops and access supplies.

Musialela’s experience illustrates how targeted support for women — particularly smallholder farmers — can benefit households and communities as they navigate the challenges of warming climates. It also demonstrates the kind of impact market-based interventions can have in preparing women farmers to play a leading role in addressing the climate crisis.

The Disproportionate Impact of Climate Change on Women and Other Marginalized Groups

Southern Africa has recently been impacted by persistent drought, erratic rainfall and other shocks, exacerbating food insecurity, extending the agricultural “lean season,” and increasing humanitarian needs for millions of people. Though these impacts affect everyone in the region, evidence shows that women and other marginalized groups are disproportionately impacted.

According to UN Women, the climate crisis isn’t “gender neutral.” Women and girls experience the greatest impacts, as droughts, heatwaves and other consequences of climate change amplify existing gender inequalities and pose new threats to women’s livelihoods, health and safety. As developing world communities are displaced and degraded by changing climates, women face increased incidence of gender-based violence, human trafficking, child marriage and other threats. Women farmers also face unique challenges, says the UN agency: “Agriculture is the most important employment sector for women in low- and lower-middle income countries. During periods of drought and erratic rainfall, women, as agricultural workers and primary procurers, work harder to secure income and resources for their families. This puts added pressure on girls, who often have to leave school to help their mothers manage the increased burden.”

According to the African Women’s Climate Adaptive Priorities (AWCAP) initiative, set up last year during the COP27 climate conference, women and children make up 80% of those needing assistance during humanitarian crises. And the initiative points to a report that found that poor women are 14 times more likely to be killed by a natural disaster than men. Moreover, existing inequalities facing women and girls limit their ability to transition to resilient water-energy-food systems, especially in the areas most affected by climate change. According to AWCAP, women represent just 15% of landowners in Africa yet produce 70% of the continent’s food. This presents a major challenge not only for women and their families, but for food security across the entire region.

Women Can Be Key Drivers of Agriculture and Climate Change Solutions

Yet despite these sobering statistics, there is some cause for optimism. It is well established that empowering women in agriculture can lead to economic benefits for women themselves, and for their households and communities. And when it comes to strengthening resilience to climate change, a growing body of evidence also suggests that women are key drivers of change. As Chiara Corazza, managing director of the Women’s Forum for the Economy and Society, says: “Our focus should not be on women as victims of climate change; rather on how they can be leaders, designers and implementers of solutions.”

For example, gender lens investment in women-owned or -led enterprises offers a powerful tool for enabling women to play this leading role. According to GenderSmart, a group dedicated to driving the use of gender-focused capital, a gender lens in agriculture typically focuses on “addressing the needs and challenges of women as agricultural producers and suppliers.” But a gender and climate lens can be applied in other ways that support farmers, including through investments in agricultural and food technology, fashion and other supply chains, and efforts to improve nutrition and increase the use of climate risk insurance and climate-resilient practices. GenderSmart points out that government pledges following the Paris Agreement provided an estimated $23 trillion in climate investment opportunity in emerging markets alone. With the growing awareness of the importance of focusing on women to maximize household returns and impact, there is potential for capital investment that empowers female farmers to rise above debilitating gender-based norms within their communities and become leaders in the global efforts to combat climate change.

Zambian Women Entrepreneurs Offer Proof of Concept for Climate Impact

In Zambia, iDE’s work has provided a proof of concept for the impact that women’s leadership in agriculture and climate resilience can make. We introduced Musialela to the British agricultural supply company Canon Garth, which has been operating in Southern Africa for decades. The company provides high-yield seeds to low-income farmers who don’t necessarily have the funds to pay for seeds to sow their fields. Canon Garth provides Musialela with groundnut seeds, which she, in turn, sells to the farmers she works with on credit. Farmers put down 50% of the price for a 20-kilogram bag, and the remainder is carried by Canon Garth as a loan — on the understanding that it will be repaid through Musialela once the harvest comes in.

Like all FBAs, Musialela offers these agricultural inputs and services as a small business entrepreneur. As a successful FBA, she has more than 3,000 customer farmers who follow her advice, buy her products, and help build resilient, inclusive and competitive market ecosystems — while providing her with a livelihood. If nonprofits, governments, community organizations and private investors work together to radically scale interventions like this one, with the goal of empowering small-scale women entrepreneurs like Musialela, we could unlock new sources of impact in emerging economies. As the world marks International Women’s Day, now is the time to consider how gender-specific programs could improve the lives of women farmers and their families, building climate-resilient food systems — and elevating women as leaders in the fight against climate change.

Simon Crittle is the Communications Director at iDE global.

Photo: Inutu Musialela; credit: Chipema Chinyama

Most economic outlooks for the near-term — from the International Monetary Fund (IMF) to Morgan Stanley — peg India as a bright spot in an otherwise gloomy economic milieu. The country’s economy is growing, and it is only a matter of time before India surpasses Japan and Germany to become the world’s third-largest economy — one of the early estimates for that to happen is 2027.

With this momentum coming as it takes over the Presidency of the G20, many believe India has a very real opportunity to emerge as the new factory to the world — a position China has held for years. India is already a leader in services exports (often dubbed as the world’s “back office”), and its new wave of digitalisation has allowed it to further consolidate that position, while also facilitating merchandise trade.

Meanwhile, The Economist thinks India’s likely ascent to surpass China as the world’s most-populous country is one of five key stories to watch for in 2023. Some analysts suggest that feat may have already been achieved.

But despite these developments, India’s growing potential will not be fully realised if women’s participation in the economy fails to increase — or worse still, falls.

Addressing India’s Low Female Labour Force Participation Rate

Today, the labour force participation rate (LFPR) for women age 15 and over in India is around 24%. This compares poorly with most countries, no matter which part of the world we look at. For instance, women’s LFPR (15+) is roughly 55% and 57% in the ASEAN region and the United States respectively. This highlights the under-tapped potential for millions of women workers to fill the growing number of factories and offices in India that can produce goods and services for the world.

As production gets deconcentrated and diversified around the world, countries with vastly smaller populations than India’s have much higher female LFPRs: For instance Vietnam — another contender to attract global manufacturing supply chains — benefits from a female LFPR (15+) of 69%, and its consistent success in this area has been lauded by the IMF. India’s Chief Economic Advisor, along with two Indian Economic Service officers, wrote a very well-argued piece on why the country’s female LFPR may not be as low as we think, given methodological issues in measuring women’s participation in the economy. But even if that’s the case, it’s likely that a corrected LFPR would still not demonstrate that the country is taking full advantage of women workers’ potential.

In response to this issue, Prime Minister Narendra Modi has called attention to India’s female LFPR. He has made “women-led development” a priority item in India’s agenda for its G20 Presidency, which aims to be “inclusive, ambitious, action-oriented and decisive.” And last summer, he called for employers to offer more flexible workplaces, to help increase women’s labour force participation. The IMF’s Deputy Managing Director Gita Gopinath has echoed these calls for more labour force participation from women, speaking from the 2023 World Economic Forum in Davos.

However, bringing more women into the workforce — including wage/salary workers, self-employed workers and women-led enterprises — will require interventions at multiple levels, not only economic but also social and political. Below, I’ll discuss two areas where these interventions should focus.

Leveraging International Trade to Increase Women’s Economic Participation

International trade represents a strong avenue for India to advance women’s economic participation. The share of trade in India’s GDP — at 45% as of 2021 — has been growing steadily over the last two decades, aside from periodic dips and reversals that mirror global trends. India has pursued multiple bilateral free trade agreements over the years, which totalled 13 as of April 2022 — and more are currently under negotiation, including with the U.K. and E.U. Since the government has placed a high priority on increasing exports, trade is a key part of boosting women’s participation in the economy, both as workers and entrepreneurs.

Evidence shows that trade creates better jobs for women. Women workers in export-intensive sectors are more likely to be employed formally — they have a 20% probability of being informally employed in sectors with low levels of exports, compared to a 13% probability in those with high levels of exports. Trade’s impact on women can happen through multiple channels: It can lead to better job opportunities, better wages and more enterprise growth. India already has an encouraging base of roughly 15 million women-led micro, small and medium-sized enterprises (MSMEs), over 70% of which are in the manufacturing sector, and many of which are home-based: These women-led enterprises comprise over 20% of all MSMEs in the country. Trade can contribute to women’s economic empowerment not only by increasing the income channel flowing to these MSMEs’ employees upstream or in component supply, but through the creation of new jobs as these enterprises grow.

The servicification of international trade — i.e., the increasing reliance of global merchandise trade on services built into goods/products — also offers new avenues for women producers and traders to benefit. Not only is services trade growing faster than goods trade, but services also account for more than a third of the value added in manufacturing sales and exports. To tap these opportunities, improving women’s access to markets and trade finance is an imperative, to help facilitate and fund MSMEs’ growth into international markets. This can increase women’s participation in global trade, as both producers and employees in value chains and in trade-intensive services like tourism.

To open doors for its women to participate more fully in international trade, India should negotiate trade deals with a gender-lens perspective in mind, recognising that some sectors have high women representation (e.g., textiles, food processing, tourism and hospitality). To take one example, reducing barriers to the service trade can have particularly positive impacts on women, given the high employment of women in services. Some countries already include gender chapters in their trade agreements, to enhance women’s ability to benefit from the opportunities created by such agreements. The World Trade Organization (WTO)’s database on gender equality provisions in trade agreements maps over 300 such provisions across more than 100 agreements globally. Policymakers can review them and identify lessons, if any, for the Indian context. As the Director General of the WTO said in Davos 2023, the “future of trade is services; it’s digital; it’s green, and it should be inclusive.” India has the means to leverage these trends for the benefit of its female workers and entrepreneurs — but to do so, it needs to bring more women into its international trade traffic.

Digitalisation Provides a World of Opportunity to India’s Women

E-commerce has enormous potential to expand markets for women producers and traders. It can often even enable them to surmount social challenges to their economic participation, such as restrictive gender norms or lack of safe transport. This is already happening in many emerging markets, where the involvement of women-owned firms in cross-border e-commerce can be higher than their involvement in traditional, offline trade. For example, Kenyan and Nigerian women-owned firms make up 51% of all businesses in Jumia, a popular pan-African e-commerce platform — a percentage that is higher than women entrepreneurs’ corresponding share of overall businesses in both countries. A similar opportunity exists for women entrepreneurs in India: Cumulative exports by Indian exporters on the Amazon Global Selling programme — just one of many e-commerce platforms operating in India — have surpassed $5 billion. But women enterprises need more support to leverage these platforms, as studies show that the digital readiness of India’s women entrepreneurs is low, particularly in rural areas.

The International Finance Corporation (IFC) estimates that closing the gender gap in e-commerce could generate $300 billion for women entrepreneurs in Southeast Asia and Africa alone. India could experience a similarly dramatic impact, but only if women’s use of e-commerce is given greater attention, potentially under the aegis of the country’s “Districts as Export Hubs” initiative, which was launched by Prime Minister Modi in 2019.

The financing needs of women entrepreneurs is another area where digitalisation can play a constructive role. The IFC recently estimated that women-owned very small businesses in India have a credit demand of $11.4 billion. These gaps need to be plugged, allowing both financial service providers and women entrepreneurs to tap into the underlying opportunities. To that end, fintech offerings can make trade finance and short-term loans available to women, who as a group are known to face much higher barriers than their male counterparts in accessing credit. India’s government is also addressing this need through the PM Mudra Yojana program, which offers collateral-free loans. This provides welcome relief for women entrepreneurs, who often lack assets and therefore face hurdles to credit access. But a comprehensive evaluation of the program’s results from a gender-lens perspective is not available yet.

India’s burgeoning population and its concerted efforts to digitalise have combined with the growing globalisation of manufacturing and services to put the country in a unique position. It is poised to become one of the world’s dominant economies — but it won’t achieve its full potential if its women are left behind. By leveraging the same forces that have fueled its current momentum — international trade and digitalisation — India can empower its women to drive the country’s emergence as a global economic powerhouse.

Abhirup Bhunia is an international development consultant.

Photo courtesy of Sundaramoorthy Thimmarayan, ILO Asia-Pacific.

As we move further into 2023, it can take a lot of energy to think about energy. The world has a daunting task in front of us if we hope to limit global warming to the 1.5°C threshold (above pre-industrial levels) stipulated in the Paris Agreement. To achieve the Agreement’s goal of net-zero emissions globally by 2050, we must significantly boost energy efficiency and greatly accelerate the global transition away from fossil fuels, and toward new fuels such as green hydrogen and renewables such as wind, solar and thermal.

But many countries are struggling to achieve even modest reductions in carbon emissions, as reliance on fossil fuels in sectors like transportation, domestic heating, construction and other industrial processes remains high. And even if the leading countries that currently have net zero commitments do manage to achieve their goals, a 1.7°C temperature increase is still expected by 2100 as other countries transition at a slower pace, according to a McKinsey report.

Frankly, confronting the vast scope of the world’s energy challenges — and the dwindling time remaining to solve them — can leave one feeling less than energetic. So what should we do?

One thing that’s important to keep in mind is that things aren’t as bleak as they may seem. According to the International Renewable Energy Agency’s World Energy Transitions Outlook 2022, there has been key progress in recent years in moving away from fossil fuels and toward more renewables-based electricity. And if the rollout of renewables doesn’t happen fast enough to moderate global warming, carbon capture, utilization and storage can offer another solution. Meanwhile, experimentation with technologies like low-carbon hydrogen is beginning to show promise. And the recent resurgence of nuclear energy in the developed world reminds us that reliable, efficient, low-carbon power options already exist — though the nuclear power industry will require new, innovative technologies if it hopes to gain a foothold in the developing world.

But perhaps the most important reason for optimism about the global energy outlook is one that many people overlook: the emergence of a new generation of leaders and innovators who have the necessary skills, knowledge and dedication to solve the greatest challenge of our time. These young people have grown up under the shadow of climate change, and they rightly view it as a threat to their future. This has inspired many of them to choose career paths that will prepare them to tackle this threat head-on.

I believe most of our lasting energy and sustainability solutions will be crafted and managed by these future leaders — many of whom are currently pursuing degrees in higher education — including business school students who will eventually become the executives of a wide variety of public and private sector companies and organizations focused on reducing the effects of climate change. One of the most important teaching tools for these students are business case studies, because they allow them to develop the key skills of problem solving, quantitative and qualitative analytical thinking, decision-making, and coping with ambiguity — skills that will serve them well in designing the energy solutions of the future.

For over a decade, WDI Publishing, a division of the William Davidson Institute at the University of Michigan, has been publishing and disseminating business case studies to institutions around the world. Our collection of over 600 case studies put students in a variety of situations where they must solve an urgent dilemma experienced by an organization or company. Many of them address the obstacles faced by real companies in their quest to develop technology, products and services aimed at reducing emissions, combating climate change and achieving environmental sustainability.

I’ve selected nine energy-focused case studies from WDI Publishing’s collection, which are summarized below. They highlight some of the challenges of advancing sustainable solutions — while also running a profitable business. These case studies are available for purchase at 50% off their regular price through March 31, 2023, using the discount code ENERGETIC. (Note: You will need to create an account before you can purchase.) Most of these cases can be taught within multiple business disciplines such as leadership, strategic management, supply chains and marketing, to name a few — making them useful tools not only for emerging entrepreneurs themselves, but for the educators who are training them.

But to prepare our future leaders, we also need a constant pipeline of new cases that address energy innovations, especially in low- and middle-income countries. That’s why the William Davidson Institute is sponsoring the Energy Innovation in Low- and Middle-Income Countries Global Case Writing Competition, which aims to increase the number of academic business cases available about this very important topic. The winners of the competition will receive cash prizes ranging from $1,000 to $3,000. We invite you to submit your own cases (and teaching notes) by March 31, 2023: You can view the submission requirements here, and any questions can be sent to info@wdi-publishing.com

Volkswagen’s Clean Diesel Dilemma (Published 3.1.2016)

On September 18, 2015, the U.S. Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen (VW) Group, after it was found that the company had intentionally programmed turbocharged direct injection diesel engines to activate certain emissions controls only during laboratory emissions testing — not during actual use by consumers — using a “defeat device.” It turned out that the company had installed the device in 11 million cars worldwide, including 500,000 in the U.S., during model years 2009-2015, which meant these vehicles’ emissions were far greater than advertised.

This case explores how the company’s culture and corporate governance structure may have contributed to this crisis. In retrospect, how should the VW CEO have reacted to the news from the EPA? Were the sustainability measures and corporate social responsibility offices at VW simply engaged in greenwashing?

Tesla’s Battery Supply Chain: A Growing Concern (Published 4.22.2022)

In its 2020 impact report, Tesla said, “None of our scrapped lithium-ion batteries (LIBs) go to landfills and 100% are recycled.” Unfortunately, global recycling capacity for LIBs is in its infancy. Since large-scale production of Tesla vehicles only started in 2013, most of these vehicles are still on the road. But many expect that within the next few years demand for LIB disposal will rise sharply, and by 2030, 1.2 million tons of batteries will need disposal.

With environmental, social and governance reporting gaining momentum, how can Tesla remain a leader in sustainable enterprise, especially since its battery packs contained both toxic and rare earth metals? This case provides a history of electric vehicles (EVs), discussing the components of EV batteries, the EV battery supply chain and the process for EV battery recycling.

The University of Michigan Endowment Fund: Divesting from Fossil Fuels (Published 9.9.2020)

In September 2019, there were climate change strikes at the University of Michigan. Protesters demanded action on climate change, and among their concerns were the approximately $1 billion of fossil fuel investments in the university’s endowment fund portfolio. The university had previously formed the President’s Commission on Carbon Neutrality, whose task was to develop a set of recommendations on whether U-M should make a commitment to go carbon neutral. One of its goals was to reduce emissions to 25% below 2006 levels by 2025.

This case explores the thorny issue of whether entities like large, public universities can shift to more socially responsible investments, while still delivering the desired revenue.

Marathon Petroleum and Southwest Detroit: The Intersection of Community and Environment (Published 3.15.2022)

Over 25% of Marathon Petroleum’s 13 refineries are located in majority-minority communities, and its Detroit refinery is located in the ZIP code 48217, where around 80% of residents are Black, 12% are Hispanic and over 34% are considered to be in poverty. These residents also have higher rates of asthma, heart diseases and lung cancer than the residents of most other ZIP codes in Michigan.

To address concerns about its impact on 48217’s air quality and residents, Marathon Petroleum announced a Property Purchase Program that began in February 2021. This case explores the issue of environmental racism and who shares responsibility: Is it the oil company, the oil industry in general, the real estate market, zoning laws or other stakeholders?

SkySpecs: A New Horizon for Wind Energy (Published 7.15.2021)

SkySpecs is a company that helps the wind energy industry optimize the performance of wind farms, to improve productivity and efficiency and minimize downtime. It uses a proprietary drone system to automate the task of inspecting wind turbine blades and providing related analytics.

This case provides insights to entrepreneurs in nascent and growing industries who are grappling with how to grow their business, exploring the importance of strategy and value propositions, and the growth opportunities in expanding across different industries.

Interface: The Journey toward Carbon Negative (Published 3.23.2022)

Interface has been a leader in the carpet industry since the 1970s, and it is globally known for green innovations. In 2020, the company announced the launch of the first-ever carbon negative carpet tile. By combining observations of natural carbon cycles with principles of material science, Interface was able to create a carpet backing that doubled as a carbon storage material. This was possible because of the company’s use of bio-composites made from plant cells and other organic matter.

However, there are questions about whether the launch of this new product was the right decision for Interface. This case discusses the various factors that play a role in a corporation’s decision to go carbon negative, and how strong leadership can help push product innovation to reach this goal. It also explores the reporting dynamics of carbon accounting, and the motivations for companies to pursue environmental objectives such as carbon neutrality and negativity.

Mandalay Homes: Building Sustainable Innovation in Residential Construction (Published 7.7.2022)

Mandalay Homes, a home builder based in northern Arizona, is a market leader in energy efficiency-based construction. But it is at a crossroads as it develops a strategy for the future, as it is approaching the limit of the improvements it can make to sustainable homebuilding within its current paradigm.

Meeting the demand for residential and commercial buildings has a large impact on the environment due to land use changes, material consumption, operational energy consumption and water usage, and waste generation during the use phase of buildings. In 2021, the International Energy Agency found that, globally, the operation of buildings accounted for 30% of global final energy use, and 27% of total energy sector emissions.

This case explores how Mandalay’s future sustainability-focused strategy could take many paths, as the company grapples with the fact that it is pushing sustainability improvements without changing the actual behavioral aspects of how the U.S. housing market typically works.

Dell: Upcycling Ocean Plastics through Supply Chain Innovation (Published 6.18.2018)

Dell’s Ocean Plastics initiative was created as a result of research it conducted that proved that incorporating ocean plastics into its product packaging was not only feasible, but could also deliver meaningful cost savings over conventional sources of plastic — while diverting a substantial amount of waste from the oceans.

This case tracks Dell’s efforts to develop an open-source, scalable and cost-effective supply chain capable of delivering ocean plastics waste to its production facilities, and potentially to those of partnering companies through a consortium. It also explores several challenges to these efforts, allowing readers to understand the details of operationalizing an innovative supply chain.

Stripe: Encouraging Customers to Invest in Carbon Removal (Published 4.15.2021)

Should Stripe, a financial and Software as a Service company, get involved in carbon removal? The company is exploring innovative approaches to mitigating climate change, and when this case was written, it had recently launched a first-of-its-kind product, Stripe Climate, to enable business customers to individually divert a percentage of their credit card revenue to fund carbon removal technologies, with no additional fee paid to Stripe.

This case invites debate around the role of the private sector in advancing global climate change solutions. Although Stripe Climate does not (at least initially) generate revenue for the company, the case explores other compelling reasons for it to continue offering this new product.

Additional energy and other sustainability cases can be found at this link.

Sandra L. Draheim is the Case Publishing Manager at the William Davidson Institute (WDI).

Note: NextBillion is an initiative of WDI.

Photo courtesy of UNESCO-UNEVOC.

Sub-Saharan Africa has yet to undergo a full industrial or agricultural revolution. One of the main underlying reasons is a lack of energy. Energy is a precursor to both economic and social development. It is needed to fight poverty, power both brick-and-mortar and digital businesses, provide a modern education, ensure health and safety, provide clean water and sanitation, build roads, create jobs, produce and deliver food, and last but not least (if produced cleanly) to fight climate change.

Universal electrification, therefore, is the key to unlocking the continent’s vast potential. It is now widely accepted by development banks, national governments and multilateral agencies that providing modern electricity to hundreds of millions of rural Africans can only happen by scaling solar minigrids — small, localized power generation plants that deliver electricity to surrounding communities via transmission and distribution networks.

However, despite this growing consensus, scale remains elusive in Africa’s minigrid industry.

By the start of 2023, there was only one profitable minigrid developer: Husk Power, where I serve as chairman and chief strategy officer. As a result of this lack of widespread profitability, many investors have stayed on the sidelines. If that trend continues, universal electrification will not happen in Africa. What is needed is a clearly defined pathway for minigrid companies to develop sustainable business models and scale. Other industries have benefited from such roadmaps, which set forth a path to profitability and scale with clear and specific metrics — and timelines for achieving those metrics.

A Roadmap for the Rural Minigrid Industry

Based on our experience as pioneers in the rural minigrid industry since 2008, my fellow Husk executives and I decided to share our learnings, producing a roadmap for the industry in late 2022.

The roadmap lays out the main characteristics for viability and scale in the minigrid industry, and identifies the appropriate key performance indicators (KPIs) and timelines to achieve them. These KPIs incorporate the innovation needed in both technology and business models. Such innovation is possible, but only if R&D, private capital and concessional funding are directed at the right solutions. The roadmap is an attempt to shift the focus toward those solutions, not only for minigrid developers but for the entire ecosystem of donors, investors, suppliers and regulators.

So where should our focus be?

The biggest hurdle for minigrids has been the lack of a working business model. Without one, profitable companies will not emerge and investment will remain scarce. Barriers are largely two-fold: The costs incurred by minigrid developers are too high, and customer demand is too low. As a result, the electricity generated by most minigrids is not even being fully used much of the time (a challenge known as low capacity utilization).

Addressing these challenges is step one, and I’ll discuss some possible solutions below. But once the business model is working, there is still the non-trivial challenge of scale. Based on the current rate of minigrid deployment, the industry needs to achieve a pace that is 10 times the industry-leading deployment rate at Husk Power, which is able to roll out 16 minigrids per month on a sustained basis. At current rates, we estimate that it would take more than 100 years to reach the 100,000 – 200,000 minigrids needed to achieve universal electrification in Africa — yet Sustainable Development Goal (SDG) 7 calls for this to happen by 2030. Even after factoring in other solutions like grid expansion and solar home systems, it’s clear that the minigrid sector must scale dramatically if we hope to make global energy access a reality in the coming years.

The Challenges Facing Africa’s Minigrid Industry

According to the roadmap, cost, quality, demand and some level of local scale are needed to achieve a reasonable return for investors. Only when profitability is achieved is scaling possible. As obvious as that may seem, many developers have attempted to replicate unprofitable business models — with predictable results.

Fixing this is not simple, and it requires a new approach that is fundamentally different and more impactful than the traditional utility model — which has only consisted of selling electricity and collecting payment. In rural communities that have no history of reliable electricity, this status quo approach is not workable. For one reason, the vast majority of households and businesses in these communities have never bought machinery and appliances that use electricity. With no power to run them, why would they? Therefore, minigrid companies must be “utilities ++” in the off-grid and weak grid areas where they operate, by focusing as much or more on demand than on supply. This often requires demand-stimulation activities in the community (like partnering with farmer collectives) and marketing and sales efforts that energy suppliers often lack.

Compounding this challenge is the fact that rural communities in Africa rarely if ever have as much wealth as urban areas. Full-time or part-time work is scarce, and the consumer’s ability to pay is weak. So minigrid companies need to provide a low-cost service to match the needs of the consumer, even though they do not yet have the economies of scale or the subsidies enjoyed by the centralized grid.

Unfortunately, they cannot address the affordability issue by compromising quality. To kickstart the rural economy, users need consistent power — and they often need lots of it. For farmers to join the 21st century economy and replace rain-fed irrigation and hand grinding with pumps and mills, their power requirements go up 10 to 100-fold. For clinics and hospitals to store vaccines and operate on patients, they need reliable power 24/7. Providing high-quality power at low cost is not easy at the current scale of minigrids, but it is necessary to make the business model work.

And then there is still the problem of scale. Billions of dollars are needed to achieve universal electrification in Africa. To attract such investment, minigrid developers must show the return on investment that investors expect. Therefore, scale is also directly linked to profitability.

Light at the end of the tunnel

These challenges may be vexing, but they can drive incredible innovation — not just in technology, but in business models, organizational capacity, sales and marketing, and modes of finance. Companies that invest in all of these areas can succeed, and are succeeding. The fact that Husk Power achieved profitability in both Asia and Africa in the last quarter of 2022 is evidence of that.

Africa’s energy industry found success in the last decade in providing basic levels of electricity from small solar home systems (for lighting and phone charging). But in the remaining years before the SDGs’ target date of 2030, the industry must shift to providing higher levels of energy that can kickstart rural economies. Centralized power utilities have failed for decades to fulfil this role, and they continue to be mired in under-resourced management and heavy debt, with only two of 39 countries surveyed in sub-Saharan Africa having profitable utilities as of 2016. Meanwhile diesel generators — which have filled the gap left by grid failures and produce more power than the grid in 17 countries in the region — are also no longer an affordable option, either economically or environmentally.

As we look toward the coming months, 2023 can finally be the year that minigrids emerge as the solution for universal energy access, and more importantly for powering rural growth, in Africa. The roadmap is there, and the destination is clear. Now is the time for the industry to follow it.

Brad Mattson is chairman of Husk Power Systems, and board member of the Africa Minigrid Developers Association (AMDA).

Photo: A Husk Power minigrid. Photo courtesy of Husk Power Systems.

As we discussed in an article last fall, according to FINCA survey data, which covers 11,000 households in 13 countries, almost 80% of our clients experienced deteriorating food security as a result of lost income between 2020 and 2021. This is just one sign of the impact COVID lockdowns had on low-income communities around the world — and it offers a glimpse into the coping strategies these vulnerable households must employ to respond to financial shocks.

Further financial shocks are a virtual certainty for these households, and our data also reveals the resilience strategies our clients are likely to employ to navigate them. We also assessed these clients’ underlying risk factors, to see which of them have the highest potential to rebuild their savings, since strengthening savings habits and rebuilding their assets are key to their future resilience.

Using the data set mentioned above, our model shows how these families sustained their daily consumption through savings, credit and selling off assets. Using supervised machine-learning classification algorithms, we were able to create profiles that were associated with each type of coping strategy. To varying degrees, these coping strategies left families in an economically weakened state — and therefore more vulnerable to future economic disruptions, whether at the household or a more generalized level.

Using Savings to Purchase Daily Necessities

The most common coping strategy — and presumably the least painful one — was using savings to buy necessities, which was reported by 58% of clients.

Studies show that people who save are better able to pay their bills on time, feed and support their families, and even earn more over the long term.

Our analysis shows that people who used their savings to supplement lost income were mainly business owners and regular salary earners.

Interestingly, four out of five people with enough savings to absorb financial shocks were women with higher education, who tend to have better saving habits.

Borrowing for Consumption

In response to lost income, a third of FINCA clients borrowed money for daily consumption. But this short-term strategy comes at the cost of more debt and interest. Consumption loans were more prevalent among people who lacked strong savings habits. They were also more common for people with stable jobs and access to credit (56%), especially wage-earning men in urban areas (70%).

The Global Findex 2021 survey paints a very similar picture; only about half of adults in developing economies were confident they could mobilize resources within a month if faced with an unexpected need.

Families who cover their daily expenses with consumption loans are putting their future at risk, as credit is becoming more expensive due to rising interest rates. Often, these households struggle to put enough food on the table, so they will clearly have trouble paying their debts.

Selling off Property

Selling off assets was the last and likely the most painful coping strategy. It was employed by 24% of FINCA clients, especially those who work in agriculture and have no other income. This is the only coping strategy that was explicitly associated with poverty, used by 43% of those who were poor and dependent on agricultural incomes.

There was also an age dimension to this strategy, which was more prominent among those over 40 years of age. Due to its relative infrequency, and limitations in our data, this model maxes-out at 50% probability, while the others reach 70% and 80%.

One of the main disadvantages of this strategy is that people facing hard times will most likely agree to accept a lower price for their hard-earned assets, and will pay more to replace them later. A family that has effectively consumed their capital during a crisis isn’t only poorer and less resilient — their future is more precarious as well.

A Stronger Willingness to Save

The continued slump predicted for the global economy will further damage the financial health of many vulnerable families, especially those whose savings and assets are depleted, or who have incurred new consumer debts. But negative experiences can have a powerful, and sometimes positive, effect on future behavior.

Following the shocks they’ve experienced, more than half of our clients hope to save more money in the future. Self-employed people, whose earnings are more volatile, are especially motivated to save as a buffer against income shocks.

Children are also a driving factor — among the self-employed, 76% of those with three or more children express a stronger intention to save. Finally, the intention to save is enhanced by the ability to save. Plans to save more are more common among people with less than 10% probability of poverty.

While it is encouraging that 60% of respondents are more motivated to save than before, financial institutions have to play their part to help rebuild savings habits, especially among those who are currently underserved. The Global Findex 2021 survey reports that account ownership around the world increased by 50% during the past 10 years, from 51% to 76%. But about two-thirds of unbanked adults said they could not use their newly opened accounts without help, a percentage that will likely increase as financial services become more digitized.

Making Saving Affordable and Desirable

Low-income households are the most likely to under-save, in part due to information and knowledge gaps. The Findex data confirms that especially now, when financial services are predominantly digital, financially inexperienced users may not be able to benefit from account ownership if they do not understand how to secure its benefits and avoid consumer protection risks.

FINCA’s research team is currently exploring ways to make savings products easier to access, use and afford. We have recently published a study showing that remote coaching through phone and text messages was effective at stimulating more active account usage, including the use of banking agents, which increased by as much as 264%. Coaching also increased the number of transactions by as much as 250% among those who participated in at least eight phone-based coaching sessions.

Future economic shocks — driven by climate change, among other factors — will have a disproportionate impact on low-income households. Strengthening their savings habits, rebuilding their emergency funds and helping them utilize digital financial solutions now will help to prepare them for the challenges ahead.

Download the data summary report here.

Scott Graham is Vice President for Research and Data Science, Anahit Tevosyan is Director of Research, and Andrée Simon is president and CEO of FINCA Impact Finance at FINCA International.

Photo credit: Evandro Sudré

The transboundary impacts of the COVID-19 pandemic, climate change and the Russia-Ukraine war have exposed the fragility and inequity of global food systems. But though calls for the transformation of food systems abound, there is no quick fix.

In our previous NextBillion article, we used a systems thinking tool called the iceberg model to show that sustained, large-scale change only happens if the entrenched patterns that drive a system are changed. These entrenched patterns include the mindsets and behaviors responsible for the kinds of institutions, rules, regulations and priorities that characterize the system. Thus, changing a system that perpetuates the problem to one that perpetuates the solutions requires attention to deep-rooted ways of doing things. As Einstein put it: “We can’t solve problems by using the same kind of thinking we used when we created them.”

Strategies to transform food systems typically focus on introducing new technologies, scaling up proven innovations, and putting more money into programs that have shown promising results at small scale. But there’s hardly any attention dedicated to breaking down the bad habits, mindsets and institutions that are perpetuating the problem.

We work at the International Maize and Wheat Improvement Center (CIMMYT), an international research organization dedicated to supporting innovations in agriculture to advance sustainable rural development. For half a century, CIMMYT has worked with partners like the Food and Agriculture Organization to scale up conservation agriculture (CA) practices among smallholder farmers in Africa, Central America and South Asia. We’ve experienced mixed success. CA improves soil health and crop yields through farm practices that maintain soil cover (mulch), cause minimal soil disturbance and enable crop diversification. It allows soil fauna, such as earthworms, to decompose organic matter on the surface, and increases the soil’s fertility, carbon storage and water holding capacity. Planting in CA fields requires the use of equipment that can make small holes, or narrow strips, through the mulch and into the soil, allowing seeds to be planted in specific spots while leaving the rest of the soil undisturbed. These implements, which include drillers and seeders, also keep most crop residues (i.e., mulch) in place at the surface. We refer to this as no-till farming. It offers many advantages over ploughing — the forceful overturning and mashing of the topsoil to reveal the soil underneath. But ploughing has been the dominant way of preparing land for planting in most of the world’s agricultural traditions, so changing this practice constitutes a major break with the past.

Intentionally breaking down the dominant modus operandi to make space for the build-up of a completely different way of working is not a common approach in international development. How can we make this sort of shift, in which the scaling up of a new technology or practice is based on the scaling down of an existing practice? In this article we use a tool called the X-curve to help highlight the actions that can contribute to healthier soils and more stable crop yields, by simultaneously scaling down unsustainable farming practices and scaling up CA and other practices that protect soil health.

Using the X-Curve to visualize systems change

The X-curve is a simplified visualization of transition dynamics: It helps us to better understand the process of generating and anchoring new sustainable practices and structures, while also questioning, destabilizing and discontinuing existing unsustainable ones. As shown in the figure below, the X-curve starts by defining a current dominant system (on the left) that is transforming to a new system (on the right).

To move from the dominant system to a new system, we need to pay attention to the interaction between two parallel transitions:

• The scaling up of innovations, including: getting the market to embrace them; institutionalizing them in our organizations and regulations; and anchoring in the minds of stakeholders that this is the new way of doing things. This transition is represented by the green S-curve going up.
• The destabilization and intentional scaling down of the existing mental models, structures and technologies, in order to create space for alternatives to emerge. This is represented by the orange S-curve going down.

The two curves cross each other in a space of chaos, an uncertain period where the dominant and emerging system are out of equilibrium. At this point in the transition, there is uncertainty and ambiguity about the future, as it remains unclear in which direction the system is moving forward. Seen through a more positive lens, this space could also be called a window of opportunity, as it is also the period when there’s room for doubt and openness to change. This is the tipping point when the dominant system breaks down and is phased out, because it is no longer able to fulfil its original function, and is also unable to meet the needs of the emerging system. To take a well-known example from the communications sector, the analogue phone could not fulfil key functions in an emerging system designed for digital phones, which made the analogue phone system obsolete as the accessibility of digital innovations increased around the world.

understanding farmer ploughing practices in order to change them

Before we can use the X-curve to develop strategies to change farmers’ soil management practices, it’s important to understand the reasons behind their current practices.

Ethiopia’s 50 Birr note

Smallholder farmers in the Global South produce about one-third of the world’s food. For the past 100 years they have relied on ploughing equipment to prepare land for the next growing season. This involves cutting and inverting the topsoil, to eliminate weeds and residues from the previous season and to open up the soil for planting new seeds.

Ploughing in the Global South is largely done by hand hoes, or animal- or machine-powered moldboard ploughs. As illustrated by Ethiopia’s 50 Birr note (see photo on the right), the archetypical image of a successful farmer around the world is someone who ploughs the land, rather than someone who protects the soil and its biodiversity from erosion and overexploitation. In another clear example from Africa, the words “kurima” in the Shona language of Zimbabwe and “kilimu” in Swahili mean both agriculture and ploughing. This shows how deeply ingrained ploughing is in these cultures.

Outside efforts to boost agricultural output in the Global South have also tended to focus on ploughing practices — specifically, on encouraging farmers to shift from animal-drawn ploughs to motorized alternatives. Support for mechanization in the Global South from abroad often comes in the form of powerful tractors with heavy disc ploughs. These disc ploughs go deep and move a lot of soil, which requires a lot of energy — and thus they rely on high horsepower tractors.

moving toward a more sustainable approach to farming

It may appear that tractors and disc-ploughs are welded together, but as a matter of fact they’re separate farming implements: The tractor is simply the power source, and it can carry any implement — from ploughs to no-till direct seeders. Hence, if the plough is eliminated the tractor’s size and horsepower requirements can be reduced, allowing farmers to use smaller, less expensive tractors. But despite these benefits, informal and formal teaching in many farming communities focuses on how to use ploughs to increase yields through weed control, and not on alternative options for soil health based on the withdrawal of ploughing to enable conservation agriculture.

However, doubts about this dominant system have been growing for decades. Ploughing is hard work, it increases soil degradation and decreases carbon stocks. Moreover, labor availability and energy costs have made ploughing prohibitive for the ageing, often female-led farming workforce. Combined with the movement toward climate change mitigation and adaptation measures, which hinge on maintaining carbon in the soil, people globally have started questioning the dominant practice of ploughing. This has led to growing interest in a more sustainable and resilient approach to farming, one that increases carbon sequestration and improves rather than diminishes soil health for future generations.

CIMMYT and many other agricultural R&D organizations have been experimenting with CA, and we have found that minimal soil disturbance is a critical component of the practice. A lot of CA research has revolved around the effect of different minimal and no-till implements on soil biodiversity, fertility and carbon build-up. Through our experience with multiple donor-funded projects, we’ve seen the need for complementary investments in awareness and capacity development around no-till techniques, as well as private and public sector engagement to accelerate and institutionalize their widespread adoption. There is growing recognition in the agriculture and development sectors that this transition is necessary, as illustrated by global statements such as the African Union’s ambition to “retire the hoe to the museum” by 2030, and the Sustainable Development Goals’ focus on soil management and other sustainable farming practices.

Returning to the X-curve: Due to this openness to new practices, many countries may be approaching the intersection between the breakdown of ploughing as a “normal” practice and the build-up of no-till farming as the new norm. That would put them at the point of chaos in the X-curve, where they are experiencing contradictions and uncertainties in their use of different tillage techniques. As mentioned, there are already alternatives for tillage that improve crop yields and soil health. However, no-till techniques also have some downsides: They are not very successful in weed management, often requiring the use of herbicides which are associated with various health, environmental and financial risks. At the same time, the cost, accessibility and farmer awareness of no-till implements are generally low. With low and scattered demand in rural areas, the private sector is not very incentivized to make these implements more accessible.

Thus, to introduce no-till techniques, it is also necessary to broaden the focus of farmers to include not only crop yields but also the long-term benefits of healthier soil. To that end, it’s important to change the commonly held stereotype of a farmer as someone who ploughs, to a new image as someone who acts as a steward of the soil, in order to encourage other farmers to make the transition to no-till techniques. It is also necessary to show farmers examples of how these new practices can still solve their problems — specifically, weed control. Zambia offers a nice example of how this shift can be advanced on multiple fronts: The country is institutionalizing no-till farming and deinstitutionalizing ploughing through a national task force hosted by the government to promote public-private partnerships for the adoption of no-till techniques, and through universities teaching about CA.

x-curve learnings: unlocking alternative solutions to sustainable agriculture

It is difficult to say how long a period of chaos or window of opportunity will last. But with the growing acceptance that our food systems require a fundamental transformation, it is inevitable that there will be drastic changes in the way we manage farm soils. Policymakers, investors, businesses and civil society have the combined power to slow down, speed up and direct the processes in this transition. Sooner or later, the food system challenges the world is facing will require a sustainable shift in mindset, leading companies to convert their farming implements to no-till alternatives, and producing new solutions to the problem of weed control in CA systems.

The X-curve shows that the development sector’s dominant singular focus on scaling up innovations is not doing justice to the complexity, the multitude of small changes, and the diversity of stakeholders involved in achieving a sustainable change at scale. The downward S-curve that illustrates the breakdown of existing practices has a strong influence on the upward S-curve that highlights the adoption of new ones. As a result, the X-curve shows that systems change is not only about adding elements, but also about modifying or withdrawing those elements which do not fit into a sustainable vision of the future. Increasing our focus on the downward S-curve opens the door to new ways of establishing and entrenching a new order, as adopting something new also means letting go of something old.

Adopting new practices comes with risks, especially for vulnerable smallholder farmers, and we need to be more intentional in understanding these risks and addressing any trade-offs if we hope to convince people to change their practices. This may involve raising farmers’ awareness that their dominant practices are problematic in the long run, showing them that there are alternatives, and finding ways to counteract the downsides of the change by maximizing the benefits of the new approaches. Accomplishing this will require the investment of more time and money — not only in developing and scaling up new ideas, but also in facilitating the process of scaling down old ones. This dual focus can help us execute two simultaneous transitions in farming, moving it away from ploughing and toward soil conservation, and sparking the necessary transformation of global food systems.

This article was supported by CIMMYT and made possible with the generous support of the German Federal Ministry for Economic Cooperation and Development (BMZ) commissioned by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) through the Fund International Agricultural Research (FIA), grant number: 50094078. The authors thank Josef Kienzle, Christian Thierfelder and Simon Fonteyne for their suggestions to improve the article. Any opinions, findings, conclusions or recommendations expressed in this publication are those of the authors and do not necessarily reflect the views of CIMMYT or the donors.

Eva Valencia is a Scaling Coordinator at the International Maize and Wheat Improvement Center (CIMMYT), Lennart Woltering is a Scaling Catalyst at CIMMYT, Frédéric Goulet is a social scientist at the Centre de Coopération Internationale en Recherche Agronomique pour le Développement (CIRAD, France). 

Photo courtesy of Mathias Isenberg.

It’s easy to feel overwhelmed by all the critical challenges we face globally. For me, one source of hope and inspiration are the entrepreneurs we support at Miller Center for Social Entrepreneurship, whose innovative solutions to these challenges demonstrate that business really can be a force for social good.

But for social entrepreneurs to flourish, they must learn from each other. To that end, we asked entrepreneurs from Miller Center’s Clean Water and Climate-Smart Agriculture in-residence program to share some thoughts on their innovations, the challenges they’ve overcome and the lessons they’ve learned. The insights these eight leaders shared can aid fellow social entrepreneurs in their journeys toward building sustainable businesses that help end global poverty. (You may have seen them at last fall’s SOCAP conference, where they took the stage to present their social enterprises during a standing-room-only pitch session.)

Whether working to increase smallholder farmers’ yields or profits, improve farmers’ distribution and market access, or promote solutions to drinking water or sanitation, these entrepreneurs expressed a few common themes, which I’ll share below.

Pay Close Attention to Customers’ Needs

Rather than relying on generic, theoretical or top-down solutions — or assuming that a workable solution in one situation can be generalized to another set of circumstances — successful entrepreneurs begin by thoroughly understanding the needs, obstacles, environment, influences and dynamics of the people or communities they intend to serve.

For example, Cycle Connect focuses on helping isolated farmers acquire the assets they need to increase yields and reach buyers for their products. “We meet our clients where they are: in deep rural areas disconnected from roads, markets and connectivity,” said CEO Emmy Okkema. “By being close to our clients in the last mile, we are able to understand their farming cycles, social structures and financial capacity.” Based on this familiarity with its customers’ needs, Cycle Connect has provided more than 12,000 farmers with productive assets they need — including oxen, plows and transport such as bicycles and motorcycles — which the enterprise also plays a key role in distributing to the farmers. As Okkema describes it, her company is the only successful provider of these essential assets, “due to our farmer-centric loan terms, community-based oxen sourcing and tailor-made business training that includes renting out oxen in the farmers’ villages.”

Adapt to New Challenges

Entrepreneurs must often deal with unexpected challenges — particularly when working in emerging markets. Sometimes, they need to move away from what originally seemed like a viable path, in response to changing conditions or new pressures.

That’s what The Harvest Fund — which leverages technology, finance and training to support marginalized women farmers in Africa — did when it faced a sudden obstacle with one particular crop. “After we pivoted toward tomato production, the markets experienced an extreme drop in fresh tomato prices,” said Michelle Kurian, the enterprise’s executive director. “We then brainstormed ways to easily process fresh tomatoes to tomato paste at farm level.” Zambia has only two tomato products companies, and they generally import their tomato paste, so The Harvest Fund realized it could fill a supply chain gap with its farmers’ locally produced paste.

Gravity Water, which turns rain into safe drinking water for schools in developing countries around the world, encountered a challenge of a different nature. “When Gravity Water first launched in Nepal, the country was still rebuilding after two devastating earthquakes in 2015,” said Danny Wright, the company’s founder and executive director. The earthquakes’ destruction complicated Gravity Water’s mission due to post-quake water pollution, limited electricity to run water filtration systems, and lack of money and knowledge to fix the ones already installed. The enterprise responded by developing an innovative, 100% electricity-free solution combining rainwater harvesting, elevated storage and gravity-fed filtration to meet the needs of its customers.

Natural disasters have also presented challenges to Miyonga Fresh Greens, which works with growers across East Africa to export fresh vegetables and fruits to markets in Europe. The effects of climate change have led to more severe weather, and in some Kenyan counties where Miyonga works, heavy rains were destroying crops, causing a reduction in yield, diminishing the product quality of harvested produce and creating unpredictable supply for the company to distribute. To address this challenge, “in 2020 Miyonga introduced innovative agro-processing technology, creating dried and powdered fruit products to expand growers’ value beyond fresh horticultural products for export and local consumption,” said Grace Njoroge, operations manager.

In other cases, a lack of local resources can complicate a company’s original business plan. For Sauti East Africa, their initial concept of creating a platform to connect low-technology farmers with market information faltered when they discovered that data sources profiling buyers and sellers in East Africa’s marketplaces simply weren’t available. “We were falling short of addressing one of the greatest needs for farmers in East Africa: finding buyers for their products,” said Lance Hadley, the company’s CEO and co-founder. Sauti responded by establishing its own directory of buyers and sellers, enabling them to connect farmers to this information directly.

Solving funding challenges is another area that requires creative solutions. For example, getting funding to help vulnerable communities gain access to clean water is easier than finding funders willing to pay for the ongoing maintenance of the handpumps, taps and other systems necessary to sustain that water access. SaniTap is addressing this gap through an innovative financing mechanism to rehabilitate — and maintain for 15 years — water sources serving hundreds of thousands of people in Madagascar. “SaniTap will use the fast-emerging carbon offset market to finance the work,” said Andrew Tanswell, managing director. “Carbon credits will be generated from the restored provision of safe drinking water, and will then create revenue through their sale to large corporations that seek to go carbon-neutral and net-zero.”

But perhaps the most counterintuitive example of a business challenge these entrepreneurs shared was from AMAATI, which had to think creatively when its efforts were actually too successful. The Ghanaian social enterprise, which is working in Northern Ghana to revive the use of fonio, an ancient, nutrition-dense cereal grain, initially targeted only women smallholder farmers. “Women’s land access was the key problem we wanted to solve,” said CEO Salma Abdulai. “However, when men realized that women using marginal lands for fonio started growing other crops after the land was regenerated, they insisted on getting the land back.” AMAATI responded by involving the men in the cultivation of fonio, too. “Once they started benefiting from their relationship with AMAATI, they realized how important it was for their wives to continue using the land,” Abdulai said.

Forge Deeper Connections with Customers, Funders and Partners

Many of these social entrepreneurs acknowledged how critical it is to establish and extend connections with customers, partners, funders and other parties.

For example Warc Africa, which designs and sells regenerative farming inputs as a service, found success when they “pivoted to a partnership approach with suppliers and downstream buyers to shift to fairer pricing and cash-and-carry — resulting in more inputs delivered to more farmers at prices that helped farmers save $100 per acre on maize input bundles, and [allowed] Warc to operate with no credit risk,” said CEO Christopher Zaw.

In Uganda, Cycle Connect leveraged its relationship with customers to help farming families overcome their physical distance to markets for their products. “The past year we set up six smaller branches in last-mile trading centers that are 50 miles from nearby towns,” said CEO Emmy Okkema. “This allowed us to build strong relationships with farming communities and see more clients faster. With this strategy we saw a 70% increase in loans, and we now have a 95% repayment rate.”

Grace Njoroge at Miyonga also believes in the power of strong business relationships. “One aspect that has greatly contributed to Miyonga’s growth is forming strategic partnerships,” she said. “Over the years we have partnered not only with the farmers we work with, but also with institutions and development agencies. The partnerships have enabled Miyonga to not only gain funding for our projects, but also increase our resources, access a wealth of knowledge, increase revenue and reach a wider market — thus enabling us to bridge the gap between opportunity and expertise while improving the livelihoods of smallholder farmers.”

Conclusion

Listening. Connecting. Remaining flexible and agile. Working to understand the specific needs of a particular community, market or location. Then finding innovative approaches and solutions that meet those needs.

In all our conversations with entrepreneurs that attend Miller Center programs — and others we meet across the globe — these are the foundational elements of building a successful business. We hear them time and time again, they’re simple and straightforward. But that doesn’t make them easy.

Doing business is challenging, particularly in emerging markets. Collectively, we owe it to these dedicated, creative and brave innovators to do whatever we can to support their efforts — whether helping them hone and expand their business skills, providing much-needed funding, or working directly to advance their impact.

These entrepreneurs are our future. And their continued accomplishments give all of us hope for that future.

Brigit Helms is executive director of Miller Center for Social Entrepreneurship.

Photo credit: AMAATI

Africa’s insurance penetration rate in 2019 was only 2.78%, significantly lower than the global average insurance rate of 7.23%. Insurance penetration in Africa is concentrated among the urban elite, with minimal adoption among the remaining 90% of people with low and middle incomes — the very people who often face the most risk of financial shocks. As a result of this lack of coverage, 14 million low-income households in Africa are pushed into poverty every year due to unplanned health costs alone.

The rise of the microinsurance industry in the early 2000s was motivated by a belief that low insurance penetration among the mass market was driven by the high cost of insurance. The industry assumed that reducing prices would be sufficient to increase demand. However, with these mass market insurance offerings still failing to deeply penetrate African markets over the last 20 years, many have shifted to the belief that there is actually a deep-seated demand-side issue — maybe customers just don’t understand or see value in the benefits of insurance. 

Turaco’s rapid growth across Kenya, Uganda and Nigeria over the last three years is debunking the myth that there is no demand for insurance among low- and middle-income customers on the continent. People in these market segments are acutely aware of their financial volatility and the risks they face. Because of this, they understand the value of insurance and will pay to protect themselves. Our team consistently records sales conversion rates of 30 – 50% when we call customers to explain our insurance products (whereas typical cold call conversion rates are about 2%). There is no doubt: Low- and middle-income customers in Africa will pay for insurance. 

We believe there are three aspects of our model that enable us to unlock this latent demand for insurance, which I’ll discuss below.

Make buying insurance frictionless

Buying insurance is very much a rational decision. However, when the time comes to reach for your wallet or set up a mobile money or bank transfer, that moment when you part with your money is typically an emotional act. We therefore work to separate the rational decision to buy insurance from the emotional act of having to pay for it, by distributing insurance through a subscription-like model that leverages the existing transactions customers make while using other financial services provided by our distribution partners. Our model relies on partnerships with companies that have existing ongoing financial transactions with mass market customers; these companies are excited to help distribute insurance due to the increase in revenue, reduction in customer churn, and improvement of portfolio resiliency they see from the addition of insurance to their product offerings.  

For instance, a farmer can opt into our health insurance coverage when accessing a seasonal loan from agricultural service provider One Acre Fund. The farmer chooses to purchase the coverage at the beginning of the planting season, and the premium is added to their loan repayment. Similarly, a motorcycle or taxi driver can have the fee for motorcycle and accident insurance deducted from their mobile wallet on the ride hailing app SafeBoda. 

Turaco utilizes a digital platform to manage policy administration, claims and other backend processes: By leveraging API integrations between this platform and our distribution partners’ own backend platforms, the addition of insurance doesn’t add any significant administrative burden to the partner, and it provides a seamless experience for the customer. There are no additional forms to fill out or payments to make: Insurance becomes an easy “yes” when it only requires a marginal increase to an existing transaction.

Overcome customers’ lack of trust in insurance

It is critical for people to trust both the insurance and the insurer, since insurance as a product is only valuable if the insured person can trust they will be paid when they make a claim. There is a general lack of trust in insurance among African consumers, and for good reason: Many insurance products in Africa are slow to pay out, or have complex exclusions.

We’ve made a concerted effort to overcome this lack of trust in the industry. Turaco’s motto is that we are in the “claims paying business.” We design products that are simple and straightforward to claim. Then, using our tech-driven claims processes, we are able to pay claims fast, usually within a few hours of receiving documentation. 

We also leverage the brand trust of our distribution partners to reassure customers that they can trust that we will pay valid claims. If an end user already trusts a distribution partner enough to do business with them, then they will be much more willing to work with Turaco when the distribution partner makes a “warm” introduction to us as their insurance partner.

Design insurance products with the customer in mind

While a low price alone may not have been enough for the broader industry to create demand for insurance, making sure the price point works for low- and middle-income customers is still important.

To help keep our offerings affordable, Turaco simplifies products to cover the biggest risks that most customers face (e.g., hospitalization, death, theft of a productive asset), in order to ensure that the benefit levels for the price point make sense. In cases like hospitalization, which can lead not only to multiple expenses but also to lost income, customers are provided with a simple flat rate payout to cover all these financial needs. We also work with our partners to structure payment frequency to align with our customers’ income. For example, farmers pay for their insurance coverage once a year around harvest time but are covered all year round, while motorcycle drivers can pay for monthly coverage in small increments throughout the month. 

Simplicity keeps the price down and makes insurance accessible to people who have never had it before. Ultimately, by designing easy-to-use products focused on low- and middle-income customers’ biggest needs, and selling them seamlessly through trusted channels, we’ve been able to tap into incredibly high demand for insurance among these market segments. 

What’s next for insurance market expansion in Africa

The African insurance market is expanding, and several recent developments are promising for the sector. For example, evidence from comparable markets, as highlighted in a 2020 McKinsey report, shows that market liberalization and deregulation, mandatory insurance, increased access through wider distribution, public-private partnerships, and regulation to support innovation and access all lead to higher levels of consumer trust and adoption. We are excited by the efforts we’re seeing from African regulators to enable innovation in their insurance markets, supported by programs like BimaLab, funded by FSD Africa. These structural reforms are on the rise across the continent, and they should spark increased adoption of insurance, similar to the trend in more developed markets.

These developments, combined with the growth and regulatory support of mobile wallets and payment infrastructure that we’ve witnessed over the past several years, are creating a more enabling environment for digital insurance innovators like Turaco. We’re excited to be a leader in the ongoing development of Africa’s insurance market over the coming years, as we work to bring vital risk protection to the people who need it most.

Ted Pantone is CEO and co-founder of Turaco.

Photo via Global Devlab. Credit: Bobby Neptune for DAI

Entrepreneurs in emerging markets looking to start or grow their business often rely on outside capital. To attract this capital, they must show funders that they have a good understanding of both the opportunities and the challenges they will face — and that they have the grit to capitalize on these opportunities and address these challenges.

Having a good business plan is a key part of building this credibility with funders. But despite its importance to their enterprise’s success, many entrepreneurs struggle to develop a strong business plan that instills confidence among potential funders.

In our work at the William Davidson Institute and in our previous careers, we have reviewed and participated in the development of business plans for hundreds of enterprises in the healthcare sector. From these experiences, we have identified six common mistakes that undermine both the credibility of a business plan and the funding prospects of the entrepreneur who developed it. We’ll discuss these pitfalls in the context of the healthcare industry, but they apply to many enterprises in other sectors in emerging markets.

Lack of an entrepreneur with skin in the game

If a funder had to choose a single factor that can make or break a business plan, it would be the entrepreneurs proposing the plan. Who will lead the proposed enterprise? Who is investing their time and personal money in it? How much skin do they have in the game?

Investors want to see leadership and commitment in these individuals. They also want to see entrepreneurs who have invested their own money to such a level that they will suffer significant personal financial loss if the business fails. In short, they want to support entrepreneurs who have a strong incentive to make their business succeed — and who will not walk away when the going gets tough, leaving investors with losses.

We have seen multiple examples of business plans put forward by a group of doctors who have been successful in a high-income country to which they migrated. They want to give something back to their country of origin by establishing a high-quality medical facility there, but they don’t plan to move back there to lead it, because they have a lucrative job in their adoptive country. Such business plans are not attractive to investors.

Overly optimistic revenue projections

Business plans often show exaggerated revenues, especially in the first few years. This is because entrepreneurs tend to incorrectly estimate factors like the size of the market, the rate at which a customer base is likely to grow, or the effect of competition.

In the healthcare sector, a useful business plan starts with a careful understanding of who the customers and payers are — and what that means for potential market size — based on a clear understanding of the epidemiology of the diseases the company will address. The plan then recognizes that the business in question will only be able to serve a fraction of that market. Determining a reasonable market size requires the enterprise to assess competition, the ability of patients or insurers to pay, travel costs, the likelihood of disease, and other factors specific to the service offered and the geographic location. The timing of the company’s projected revenues also needs to be realistic. It takes multiple years for revenues to build up, and any business plan of a new healthcare institution that projects significant revenues immediately after commencing operations signals to investors that the planners either don’t have a good grasp of the market — or worse, that they are deliberately exaggerating to deceive potential investors.

In our experience in the healthcare sector, hospitals typically take five to seven years to reach a high level of capacity utilization. Yet in the meantime, there are many fixed costs that must be met — and they start the moment that a hospital begins operation (more on that below). Consequently, it is normal to have losses and negative cash flows in the first two years of operation, with a successful new private hospital only reaching the break-even point in its third or even fourth year.

Business plans that gloss over this reality to paint a rosy picture of fast revenue growth can turn off investors, because such plans underestimate the company’s financing needs, risking a liquidity crisis and failure. They suggest an entrepreneur who is either inexperienced or dishonest. Neither is good.

Underestimated costs

On the other side of the cost/revenue equation, entrepreneurs in emerging markets tend to ignore or underestimate their costs in a way that completely undermines the financial viability of their business model. An accurate estimate must address several costs that are often overlooked. For instance, it must include not only the cost of equipment, but also the cost of maintenance, repairs and parts for that equipment. It must determine if supplies are readily available locally, or if they must be imported — and if they must be imported, it must cover costs associated with any restrictions or tariffs on those supplies. It must accurately reflect the cost of the time spent by everyone involved in running the business — including the owners themselves, who need to spend a good deal of time on the company and could be earning a salary elsewhere. And it must take into account the cost of buildings and land: These may not be included in accounting costs if the facilities are owned by the entrepreneur, but that doesn’t mean there is no cost to using them. Foregoing the opportunity to rent or sell them is a real cost, and needs to be included in any business plan. Construction costs also need to be benchmarked against other construction projects of equivalent complexity and quality in the same market. The timing of all these costs relative to the enterprise’s revenues is also important: While the revenues will often be delayed, the costs will be incurred immediately. Has the entrepreneur planned for the appropriate cash outflows?

A common mistake we have seen in healthcare startups is to assume that their personnel cost as a percentage of revenues will be equivalent to that of a mature facility. Yet in contrast to established facilities, much of a startup’s staff will work well below capacity in the early years. For example, if a nurse can care for 10 patients, that nurse’s salary must be paid even when s/he is caring for only one or two patients in the first months of operation. We have seen such errors result in loan default and financial loss due to insufficient cash to reach break-even, despite good demand. To an investor, this sort of assumption gives the impression that a management team does not understand the cost structure of their industry — and specifically, that they don’t realize what will be required as the startup grows to scale.

To address these flawed assumptions, experienced investors know they will need to remodel the business plan themselves to have a better estimate of how much money is needed. But not all are prepared to do that. The correct approach is for the entrepreneur to build the model from the bottom up, looking at patient numbers and how many staff are needed to treat them.

Lack of access to expertise

Human capital is another cost, but its importance warrants a separate discussion — especially in a field like healthcare. Human capital challenges begin at the top and can flow through the entire organization.

Does the entrepreneur have the right personnel to manage the institution? Being a good doctor isn’t the same thing as being a good business manager. Is someone with experience managing a facility included in the business plan?

Many healthcare entrepreneurs fail to address these questions: They propose big hospitals, but only have a handful of part-time specialists available to work there. To attract funders, they must show that they have access to staff with the specific skills called for in their business plan — at the quantity necessary to make the business viable. In the case of a hospital startup, they must demonstrate that they can hire not only doctors and nurses, but also technicians capable of operating imaging devices, performing lab work, maintaining equipment and so on.

It’s essential for a business plan to take these staffing needs into account, since shortages of healthcare personnel are pervasive in emerging markets (and also in many developed markets). For example, treating cancer patients with radiotherapy requires a specialist radiation oncologist doctor, a medical physicist and a dosimetrist. Medical physicists usually need a master’s degree in physics, plus a clinical residency in treating cancer. They are in short supply. One planned cancer center business we encountered in Central America had to be shelved when the only fully-trained medical physicist in the country left for Europe after receiving a lucrative job offer. Another example from our work in Latin America shows how far a business may need to go in order to ensure it has staff: The enterprise operates a chain of cancer centers, and has to plan new facilities five years in advance, giving it time to sponsor the training of future staff in radiotherapy and medical physics programs at universities, so it can hire them to work at the facility after they graduate.

Ignored Risks

There are risks associated with all the factors we’ve discussed. Running a business involves recognizing and addressing those risks. Does the business plan recognize the full range of possibilities on revenues and costs? Does it recognize the possibility that personnel or equipment won’t be available, or that regulatory hurdles might emerge? And does the plan include strategies for mitigating these risks? Investors are well aware of the risks of doing business: They much prefer to support entrepreneurs who have prepared for them.

Investors will be far more impressed by a business plan that thoroughly thinks through the risks that a business will face, than by one that gives these risks limited attention — or worse, that doesn’t mention them at all. One small family-run company we worked with in an Eastern European country was remarkably prepared for its due diligence, which included a good risk analysis. It was clear by the end of the first day that this was a team worth backing. Indeed, the company survived a severe economic downturn just three years later. Today it is the largest private healthcare provider in its home country, has expanded to a second country, and is publicly listed.

Vague governance

A robust business plan will include a clear delineation of responsibility, authority and the right to residuals — i.e., the right to determine what happens with any revenue that exceeds costs, and who has the obligation to figure out how to cover any costs in excess of revenues. The plan will address several key governance questions, like: How is the chief executive chosen, and who has the right to make that decision? How is the board chosen, and who has the right to choose the board members? What is the purview of the CEO versus the board? Does the allocation of responsibilities make sense? Do those with responsibility have the authority to act on that responsibility?

Lack of clear governance decisions at the beginning can undermine the entire business later on, when important decisions have to be made. For instance, one hospital we worked with was a joint venture between two large and successful organizations. However, its governance called for an agreement between the leaders of the two organizations in the event of a disagreement at lower levels. Not surprisingly, an issue eventually came up, and the two organizations disagreed about how to handle it. The lack of clear delineation of authority and responsibility ultimately caused the joint venture to dissolve. In another example, the board was unclear about succession plans, and after significant internal conflict, the hospital lost both its CEO and its CMO. If there had been greater clarity about expectations and timelines, only one or the other would likely have left, but lack of clarity resulted in the departure of both, and the hospital went through a few very difficult years.

Avoiding the six mistakes discussed above can significantly improve an enterprise’s chances of receiving funding. While our focus in this article is on healthcare, these factors will affect the viability of plans in other sectors as well. Some sectors will have other factors that need to be considered, and the emphasis on the factors discussed above might differ for other industries. But they are important to potential investors regardless of the industry.

Paul Clyde is the president of the William Davidson Institute (WDI), the Tom Lantos Professor of Business Administration and the Movses and Maija Kaldjian Collegiate Lecturer of Business Economics and Public Policy at the University of Michigan’s Ross School of Business.

Ioan Cleaton-Jones is Senior Director, Healthcare Delivery at the William Davidson Institute. Previously, he was the Principal Healthcare Specialist at IFC, World Bank Group.

Photo credit: fauxels

Learn more about how WDI supports emerging markets businesses through Consulting and Training.

Waste, inefficiency, short-term thinking and a lack of focus were some of the problems identified in a New York Times article about the future of foreign aid. That may seem unremarkable — it’s a common enough critique.

But the article was written in 1962. Sadly, 60 years on, many of those same issues still plague the sector today. 

Economists have observed that foreign aid does not appear to have generated economic growth in developing countries all around the world. Though the modest size of global aid budgets may be a factor in this lack of impact, spending more is unlikely to solve the problem, as only about a third of aid even makes it to governments and organizations in recipient countries. And in many cases, developed countries give aid to support their strategic allies, commercial interests, and moral or political beliefs, rather than the interests of the local people. That can lead to inefficient spending on ineffective projects — and when the donor country’s strategic interests change and the aid dries up, recipient countries often find themselves back where they started. 

In light of these shortcomings, it’s not surprising that, despite noteworthy global progress, most of the countries that were poor 60 years ago still have high rates of poverty today. And those countries that have largely driven the declines in global poverty — China and India — owe their progress primarily to internal economic reforms and growing international trade, not foreign aid. Indeed, the ingenuity of innovators and the stream of investments to support entrepreneurs, both local and global, have been the main determinants of long-term development progress in emerging economies. 

However, foreign aid’s inability to generate consistent economic growth and poverty alleviation is not due to a lack of effort. It is due to a lack of innovation. 

To sustainably support development, foreign aid must evolve to support high-impact, market-creating innovations that advance local prosperity. Market-creating innovations transform complicated and expensive products into simple and affordable ones, making them accessible to many more people in society. These innovations are unique in their ability to trigger economic prosperity at scale. 

The Power of Market-Creating Innovations

For example, at a time when the United States had similar demographics to many of the world’s poorest countries today, innovators across the country created new markets that made products accessible to a whole new population of Americans. Isaac Singer built a multinational company that made sewing machines accessible; Henry Ford did the same with the car; and believe it or not, Bank of America got its start as Bank of Italy, targeting hard-working immigrants that were left out of the banking system. 

As these American innovators created new markets that served millions more people, the markets generated many other things that benefited society, including jobs, taxes, regulations — and perhaps most importantly, a belief that a nation can prosper through innovation. These people and the businesses and markets they created changed the culture of America.

A similar process took hold in Japan after World War II, as market-creating innovations took center stage in the war-torn country’s recovery. Though it’s now one of the richest countries in the world, in 1950, Japan was poorer than Mexico and Colombia. Its prospects for development were poor, and prosperity seemed unlikely. But Japan developed, and continues to prosper, primarily through investments in market-creating innovations.

For example, Sony’s humble beginnings in a bombed-out factory did not stop its founders Akio Morita and Masaru Ibuka from making consumer electronics simple and affordable for many Japanese people. From the transistor radio to the Walkman, Sony developed more than a dozen market-creating innovations from 1950 through the 1980s. Sony wasn’t alone, however. Toyota, Honda, Mitsubishi, Suzuki, and many of the Japanese companies we revere today also created new markets that served Japanese people left out of the existing market. These markets had a similar impact on Japan as they did on America. They created jobs, generated taxes and instilled a culture of innovation across Japan. 

A similar phenomenon — investing in and reaping the rewards of market-creating innovations — is possible even in the world’s poorest regions. 

Across Africa, the average person now has access to a mobile phone. This sector has supported more than 3 million jobs, generates billions of dollars in taxes, and is worth almost $140 billion in economic value. Meanwhile, in India, Narayana Health, Aravind and other healthcare organizations are making it possible for average Indians to consume formerly expensive and inaccessible healthcare services. And in Brazil, innovators such as Nubank and MindLab are transforming financial services and education respectively. 

In light of the proven, long-term impact these businesses can generate, what if foreign aid focused on cultivating a culture of market-creating innovations globally?

How foreign aid can support market-creating innovations

Investing in market-creating innovations is complex — but critical. Governments in high-income countries across the world fund locally-led innovations to create jobs and advance critical services. But while the foreign aid industry is well-versed in investing in poverty alleviation, it has not evolved to invest systematically in supporting the efforts of governments, local private sectors and institutions to build systems that can help generate both social impact and sustained prosperity. 

However, a number of programs are emerging that are anchoring their investments and activities on innovation and the creation of new markets in underserved areas. Over the past several months, I’ve had the opportunity of serving on the steering committee of a new program with much promise. The Investing in Innovation (i3) program is a cutting-edge, pan-African initiative that aims to kickstart a new way of mobilizing aid, business and African institutions in order to support local innovation. 

The initiative began its inaugural year in 2022, by supporting the efforts of 30 promising early- and growth-stage entrepreneurs working in healthcare supply chains (including companies like LifeBank, Vaxiglobal, Zuri Health and Meditect) to deliver affordable, high-quality health products to underserved populations. In its second year, i3 will support another 30 promising early- and growth-stage startups in the healthcare sector. The program is funded by the Bill & Melinda Gates Foundation and sponsored by Merck Sharp & Dohme, the World Health Organization Regional Office for Africa, AUDA-NEPAD, and AmerisourceBergen. It offers selected innovators access to markets, risk-tolerant financing and investment-readiness support. 

Over time, i3 will build a robust ecosystem of partners and innovators that will help ensure Africa’s healthcare infrastructure is strong. As a result, if it succeeds, the program will not get bigger, but smaller — and ultimately, it will end. But its end will simply signify the emergence of a strong and vibrant healthcare ecosystem for Africa.

This model provides a strong contrast to the typical, open-ended approach taken in foreign aid, which is based on the unspoken assumption that the aid will still be needed in the future — i.e., that it will ultimately fail to generate self-sustaining economic growth. Instead of continuing to support a myriad of programs that add value but don’t fundamentally put a country on the path toward prosperity, more foreign aid programs should model themselves after the i3 initiative. If they do, it will mean the beginning of the end is near for these programs — and that’s okay. The goal of foreign aid was never — and should never be — to aid forever. The end of foreign aid will signal the beginning of prosperity for all.

Efosa Ojomo leads the Global Prosperity research group at the Clayton Christensen Institute for Disruptive Innovation.

Photo: Henry Ford drives the 20 millionth Model A off the assembly line. Photo credit: Txemari. (Navarra)

Entrepreneurship is a long game, and identifying the right product, service, model or market is just the beginning of the process. Even if you have a great product and a promising market, success is never guaranteed. How many times will you get knocked out of the saddle and climb right back in? Will you give up after the second, third or even fourth blow?

With all the challenges and uncertainty of running a business, winning often comes down to grit.

For Arindam Dasgupta, co-founder and CEO of Tamul Plates in India, quitting was never an option. Through long, anxious and draining days and nights, he persisted. Neither a global pandemic, the loss of loved ones, repeated catastrophic floods in his operational areas, an unprecedented national demonetization that wiped out his company’s cash stores, nor the depletion of his personal finances could shake his commitment. For over a decade he fought to keep his business alive because, simply, he believed. 

And he was right.

As of October 2022, the company was reporting annual revenue of INR 2.14 crore (approximately US $268,000), with 60% of its sales coming from the export market. And last November, Tamul closed on a follow-on investment of INR 4.5 crore (US $563,000) from a Mumbai-based investor. 

“This investment will help Tamul to grow from an INR 2 crore company to a 50 crore (US $6.3 million) company in the next five years,” Dasgupta says. “We are also in the process of buying an industrial plot 40 km from our current location, [and] plan to set up a world-class production and packaging facility.”

What makes him happiest is the company’s recent decision to increase staff salaries by 30%. It is validation of the vision he has for his business, his community and the planet — a vision that kept him going during the challenges of recent years. “For the first time since the pandemic,” he says, “people around me are really smiling.”

As an early investor in Tamul Plates, Upaya Social Ventures has watched Dasgupta and his team navigate both the pandemic and other difficulties — and their approach has highlighted several qualities and practices that investors like us look for when assessing potential portfolio companies. Below, we’ll discuss how Tamul has managed to thrive in the face of adversity, and what we’ve learned from our efforts to support it throughout these challenges.

The Characteristics of a Resilient Entrepreneur

Founded in 2010, Tamul manufactures environmentally-friendly, biodegradable tableware made from the thick sheaths of the leaves of local areca nut trees. The company is based in the Barpeta District of the state of Assam, in the sleepy northeast corner of India, and it has a stated commitment to employ rural households, with a focus on women and youth — as a result, many of its workers are from indigenous tribal communities. For most of its workers who come from this underemployed population, Tamul is the first formal job they have ever held. They collect leaf sheaths, wash and dry them, shape them into different plates and bowls using mechanical presses, and package and market the products. 

In Tamul’s early years, Dasgupta and his two co-founders bootstrapped the company, starting with one mechanical press made with the help of a Kolkata-based small machine manufacturer. The team sold their plates locally, and used the proceeds to procure more machinery and expand their workforce.

But when they approached investors — even impact investors — they were rebuffed by most. Investing in a rural, low-tech operation seemed like a high-risk/low-return prospect.

However, for Upaya Social Ventures, which invests with a mission to help create dignified jobs for the poorest of the poor, the impact potential of Tamul was clear. In 2015, together with Artha Impact, we committed INR 48 lakhs (approximately US $75,000 at the time) to help grow the business.

Back then, our initial investment flouted the standards of acceptable risk that were typical among impact investors. In those days, Upaya’s Pioneer Capital strategy of investing in early-stage (often unproven) concepts and entrepreneurs was still seen as a novelty in the sector. But Tamul’s business fundamentals were solid. The process for building the presses that Dasgupta had created was scalable, and the supply chain matched well with a local economy dominated by small family farms. And most of all, the effort was driven by an entrepreneur who believed in the work and threw himself into every aspect of the business.

This is not hyperbole: When the Upaya team first visited the company in Barpeta that year, we went house-to-house in the villages and spoke to people who were all part of the Tamul production process. At every stop, Dasgupta was walking the fields with farmers who were collecting the areca nut sheaths, to better understand how to improve the collection and cleaning of the raw material — or quizzing the young men working the presses on proper processes and maintenance. 

Of course, in many of these conversations, it seemed everyone was happy to share their opinions on how Dasgupta could run his business better. But what stood out to the Upaya team was how he took the time to really listen to them, suspend judgment, and not just hear what they were saying but understand why the issues they were describing had emerged. He insisted on learning the details, because they informed the optimal design of the machines, shop floor processes and incentive structure for the company’s employees. Dasgupta paid the same attention to his customers, many of whom lived in large cities like Kolkata and Delhi, listening to why they had purchased Tamul products and bringing their design ideas back to Barpeta to incorporate into the next product cycle. These details mattered more and more as Tamul scaled, and this feedback ensured that the enterprise could sustain its product quality and customer following.

Investors like to say, “bet on the jockey, not the horse.” It can be challenging, however, to determine exactly what characteristics an investor should look for in an entrepreneur during due diligence. Dasgupta set a standard for the type of founder that we at Upaya looked for in subsequent deals: leaders with deep and authentic ties to their clients, workers and communities, and an obsession with the details of their craft.    

As it turned out, this foundation created a resilience in Dasgupta and earned him the trust of his employees — both of which were vital for navigating the series of once-in-a-lifetime challenges to come. 

Leadership in Unprecedented Times

Tamul made it through several near-death crises — including in 2016 (demonetization) and 2018 (floods) — but the COVID-19 pandemic brought the operation to the brink of permanent closure. The first wave and ensuing lockdown in 2020 halted all production for several months, but with an emergency loan from Upaya and a creative crowdfunding campaign, the company survived and started the slow process of rebuilding.

Then 2021 brought with it the much deadlier Delta wave, and this time the consequences were far more severe. Dasgupta lost loved ones to the virus. Even as he struggled to make funeral arrangements, one by one Tamul’s clients rescinded their orders. Delivery channels, ground transport and shipping routes came to a halt. Large gatherings were banned, and demand for Tamul’s products vanished. 

For months, the enterprise was in limbo. By late summer of 2021, its factories sat empty and many workers had left to look for work elsewhere. In a conversation with the Upaya team, Dasgupta admitted that a shutdown was imminent — though he could barely bring himself to utter those words. As a last-ditch effort, Upaya and Dasgupta managed to line up a fellowship that would give him a chance to resurrect Tamul.

Thankfully, these efforts worked. One year later, Tamul is profitable, has surpassed its revenue goals, and has reinstated over 3,000 jobs in the community. “Every impact investor hopes to find an entrepreneur with grit like this,” said A B Chakravarthy, Upaya’s India Country Director, who worked closely with Dasgupta on the turnaround. “Against all odds, he never gave up.”

Looking back on our work with Tamul Plates through these turbulent years, a critical lesson emerges that may resonate with other impact investors: All entrepreneurs must deal with constant adversity, and many of these challenges are significantly amplified in emerging markets. In these contexts, the skill and determination of the entrepreneur often makes the difference between success and failure. For investors working in these markets, it’s essential to take the time to get to know the entrepreneurs in your portfolio, to understand their strengths and unique needs, and to provide support that can help maximize their potential. By combining this support with the grit and commitment of an entrepreneur like Arindam Dasgupta, we can build businesses that can weather even the harshest of circumstances.

Sachi Shenoy is the founder of Calidris and a co-founder of Upaya Social Ventures. Steve Schwartz is a Fellow with the World Economic Forum and a co-founder of Upaya Social Ventures.

Photo courtesy of Upaya Social Ventures.

Digitalization has quickly become the go-to strategy for improving the performance of Latin America’s micro and small enterprises (MSEs). Many governmental and private initiatives have supported their technological transformation over the last few years, primarily since COVID-19 restrictions drastically altered their way of conducting business. It is well known that implementing digital solutions in a firm’s operational processes can provide numerous benefits: expanding its customer base, boosting productivity and creating efficiencies, thereby accelerating revenue growth. But we know little about how MSE owners themselves experience these changes. For example, how do they think that digitalization has affected their sales? And which digital solutions have improved their business, and by how much?

To answer these questions, Decodis — a social research company using tech-led listening to provide nuanced insights into vulnerable populations — has been tracking the digital journey of a sample of 114 mostly women-led MSEs in Colombia, Mexico and Peru since late 2021, through four automated surveys. This study aims to help inform the decisions of the DigitAll program, an initiative led by Fundación Capital and supported by the Mastercard Center for Inclusive Growth. Through DigitAll, Fundación Capital has been promoting and facilitating the adoption of digital solutions for over 50,000 MSEs in these three countries since 2020, with the goal of integrating them into the digital economy. The findings presented in this article reflect the results of the first two surveys of the study, which were executed between December 2021 and August 2022.

Social media and digital payments are front-runners in MSEs’ digitalization 

Chart 1 below compares the results of our first survey — conducted between December 2021 and February 2022, several months after the start of the DigitAll program — to the results of our second survey six months later. The first survey showed that there was already high uptake of social media and digital payments in early 2022, with considerably lower uptake of marketplaces and business management systems — e.g., digital systems for financial and inventory control. In August of that year, there was continued progress in the adoption rates of all digital solutions. Social media and digital payments continued to be the most widely used, with 86% of the total sample taking up one or both of these tools. In contrast, marketplaces and business management systems remained the least adopted.

Chart 1: Evolution in the adoption of digital solutions

It is not surprising that social media and digital payments are the most popular solutions among these businesses. Their adoption was already spreading among MSEs in the region due to the COVID-19 crisis, when most of these businesses experienced a severe decline in revenues, with some (25%) even forced to temporarily close their stores for several months due to the strict lockdown measures imposed in their countries. As Claudia, a woman entrepreneur manufacturing and selling clothing at a textile market in Bogotá, Colombia, said: “It was very tough. We had no sales because the market was closed for six months. Yet we still had to pay rent.”

Like most companies worldwide, these firms were pushed to adapt their business models to stay afloat, leading them to implement digital solutions to sell online: “When the pandemic started … we began posting some things on Facebook and WhatsApp and doing delivery. This allowed us to, at least, maintain sales,” said Jessica, the owner of a stationery shop in Lima, Peru.

From digital adoption to increased sales

To capture the impact of digital solutions on business, we asked the entrepreneurs in an open-ended way what effect each solution had on their sales and overall business. For social media, marketplaces and digital payments solutions, we asked three questions: 1.) Has this digital solution had any impact on your sales? 2.) How much do you estimate that impact to have been? And 3.) In what other ways have these solutions impacted your business, and why? For business management systems, we only asked the third question. Most of the entrepreneurs had a great deal to say: All those who responded affirmatively — with neutral or enthusiastic expressions — to the first question were categorized under the “moderate to high impact” label. In contrast, those who responded negatively — with disapproving or negation expressions — were classified under the “little to no impact” label. Chart 2 below shows that business owners were generally enthusiastic, with 65% to 73% specifying that the tool was positive for their sales.

Chart 2: Creating sales improvement estimates from an open-ended question

However, as shown in Chart 3 below, 34 of the 114 respondents were able to be more specific and provide quantitative estimates of the impact on their sales. They mentioned two different types of impact: 1) sales growth and 2) share of total sales. The first estimate involves the percentage of total sales increase as a result of using each digital solution. The second involves the percentage of total sales that are now coming through each tool — i.e., how many customers buy through social media and marketplaces vs. in-store, and how many customers pay through digital payments vs. cash.

Chart 3: Quantitative estimates of sales impact from digital tools

These estimates, while not reliably verified or captured across the entire sample, provide a picture of the extent to which each solution may influence sales, and the degree to which they are embedding themselves into the business. For example, digital payments were estimated to have created a 42% increase in sales on average, even though less than half of sales are paid digitally. Conversely, social media and marketplaces were estimated to increase sales by 26% and 28% respectively, but they were involved in an estimated 70% and 61% of sales among the sub-sample who specified a quantitative figure.

All of this evidence is quite promising — it would seem that digitalization has a sizable impact on sales, according to business owners themselves. But is it credible? To shed some light on interpreting these numbers, we delved a bit deeper and asked respondents how these digital tools increased sales to this extent.

Digital Payments: How do they help improve sales?

Out of all participants using digital payments, most (65%) said they experienced an impact on sales since adopting them. These payment methods have enabled businesses to grow primarily by attracting and retaining non-cash customers. As María, the owner of a small restaurant in Lima, mentioned: “Sometimes people would not buy from you because they … did not have cash. Now, with Yape [Peru’s leading digital wallet], they can instantly pay me.” It makes sense that the impact on sales should be so high, given that digital payments can bring in new clients.

In addition to the impact on sales, business owners mentioned several other advantages of using this solution. For instance, 37% saw an improvement in the convenience of making sales transactions — e.g., they can make and receive payments quickly and without complications, like worrying about having change, and the money now goes directly into their accounts. Others mentioned benefits like improved security, increased credibility with clients, and the ability to track transactions.

Social media: How do they help improve sales?

Out of all participants using social media, most (73%) said they experienced an increase in sales due to adopting this solution. The most-used app is WhatsApp: However, as Diagram 1 below shows, making a sale is a more intricate process involving different social media apps at different points in the sales journey.

Diagram 1: Sales journey using different social media apps

Facebook, Instagram and TikTok are used mainly to reach the market through posting photos and videos of the products and services, sharing offers, and checking comments. But as a customer moves toward a purchase decision, the conversation shifts to WhatsApp, where the business owner answers questions and negotiates delivery. As Julia, the owner of a handmade jewelry business in Lima, explained: “I post photos on Facebook, and once the person is interested … I add them to my WhatsApp contacts on my personal phone and start coordinating the sale.” The customer then pays digitally, and the business owner shifts to WhatsApp once again to confirm payment and monitor delivery and post-sale concerns. Once a customer has been added to WhatsApp, business owners further advertise their products and services to them by sharing their business catalogs and promotions using the app’s status and broadcast features to encourage recurrent purchases.

Online Marketplaces: Nascent promise for even bigger sales growth?

While very few business owners have started utilizing marketplaces (like Facebook Marketplace) to sell online, this solution has shown initial signs of important growth — five out of seven participants using them reported a positive impact on their sales due to these platforms. That was the case for Raquel, a woman entrepreneur selling ornaments from her home in Lima: “More or less 30% [of sales] are from people that I already know. And the rest are from new people who contact me through these platforms.”

Survey responses from several respondents highlighted the potential of marketplaces to grow small business revenues — and revealed a key reason behind their effectiveness: While social media is limited to existing clients or those within the business owner’s social network, a marketplace immediately expands the reach beyond those limitations. For some business owners, these marketplaces have become so important for their sales that they have ceased to have a storefront and gone completely virtual, saving money on rental costs and generating sales more efficiently.

Business management systems: A driver of efficiencies rather than growth

It is clear that business owners see digital payments and social media as drivers of revenue growth. However, the same does not apply to business management solutions, which include point-of-sale inventory tracking systems and apps like Treinta that provide both inventory and financial control services. While participants reported experiencing positive impacts in adopting these systems, they did not associate these benefits with economic returns. When referring specifically to inventory control tools or features, respondents talked about improvements in sales control, stock management and production, as well as reductions in human errors and manual work. And when talking about financial management tools or features, participants cited improvements in accounting control and organization, better data management, greater customer trust, and easier decision-making. However, they did not describe these benefits as sources of revenue growth.

Furthermore, although there has been a nascent upward trend in adopting business management systems since our first survey, most entrepreneurs are still reluctant to implement them. More than half of those not using these systems replied negatively when asked if they would be interested in adopting one, mainly because they feel their inventory is small enough to manage without digital support: “I do not find it necessary because I do not have too many products. … Thus, I do not need to make an inventory,” explained Guillermina, the owner of a small grocery store in Puebla, Mexico.

Coming out of an economic slump during the pandemic, having faced the possibility of their firms shutting down — and seeing many other firms that did — it may be understandable that business owners have focused first on digital solutions that provide a sizable and immediate boost to revenues. Moreover, it is not surprising that they favored those digital tools they were already using in their personal lives — 81% said they had already been using social media, 88% had been using messaging apps (such as WhatsApp) and just under 50% were already using digital payments.

If these preferences continue, then the adoption of marketplace platforms should be next on the list for adoption. However, whereas using social media and digital payments in their personal lives decreases the barriers to adoption in using these tools in their businesses, understanding how to set up and manage a marketplace page is likely to be more intimidating for business owners without direct assistance.

We will continue this research for another six months, during which time we will conduct two more surveys. Going forward, we will expand our focus beyond the acquisition and use of digital solutions, to understand how embedded they are in the business — and where else business owners see value in digitalization.

If you are interested in learning more about this research, contact us at info@decodis.com, or visit our website to read our latest publications.

Daryl Collins is the CEO and Founder, and Maria Pia Torres is a Project Manager at Decodis.

Photo courtesy of Adam Cohn.

In recent years, much of the attention in the impact finance sector has gone to the stewards of capital — investors, foundations and other funders — with stakeholders across the industry wondering what drives them most and which approaches work best. Yet this one-sided focus tends to draw us away from the sector’s real purpose. Impact can’t be achieved without input from the recipients of capital: the entrepreneurs.

Most investors firmly believe that catalytic capital is the type of impact finance that entrepreneurs value most. It offers flexible terms and can attract additional capital from third parties. It accepts disproportionate risk and/or concessionary returns. It is patient and provides more innovative and tailored financing structures. And it is the most crucial part of any blended finance transaction. But since most research has only explored investors’ views on catalytic capital, we wondered whether their assumptions about its value align with entrepreneurs’ actual opinions about it. What advantages do they see in the practice of catalytic capital and blended finance? How do they feel they benefit from the development of this field? And what improvements would they like to see in the efforts of investors and other funders to support entrepreneurial impact solutions?

To help provide answers to these questions, the Initiative for Blended Finance at the University of Zurich, the Bertha Centre for Social Innovation and Entrepreneurship at the University of Cape Town, and Roots of Impact conducted research with a different perspective. With support from the Catalytic Capital Consortium, we focused on the end users of catalytic capital and asked quite provocatively: “What’s in it for the entrepreneur?”. Our goal was to learn what value they really find in this type of financing — and as a result, how these structures might be improved. To that end, we asked the following questions:

• Does catalytic capital deliver on its promise?
• Does it, in fact, catalyze?
• And what exactly are the features that enable it to help entrepreneurs deliver on their missions?

The difference between ‘just useful’ and ‘truly catalytic’ capital

Our research was based on in-depth conversations with 26 experienced entrepreneurs from different sectors in Asia, Africa and Latin America. Each of them is driving positive change and has come up with breakthrough innovations. What we found is that they have nuanced perspectives and can describe exactly what is most catalytic and valuable to them. Yes, financing terms are important, but there are additional factors that matter a lot. Our interviewees clearly see a difference between capital that is “just useful” and capital that is “truly catalytic.” More importantly, their experience is affected by the specific characteristics and broader context of the catalytic capital provided to them.

For instance, many entrepreneurs like blending capital within single financing rounds (vertically) as well as over the entire entrepreneurial lifecycle (horizontally). And they prefer to do this by blending grants and concessionary capital with investments from a range of capital providers, including impact investors, development finance institutions and foundations. We found a lot of unexpected diversity in entrepreneurs’ experiences and opinions of catalytic capital. Yet there were some common characteristics of truly catalytic capital that stood out, which highlighted what entrepreneurs value most in these investments, including:

• Introductions to other investors and field resources.
• Collaborative investors that lead, share, simplify and/or streamline due diligence processes with co-investors.
• Capital structured to be flexible, efficient, patient, concessionary and reputable for early- and growth-stage enterprises. Also, capital that rewards outcomes and incentivizes additional capital through matching.
• Capital that is blendable within a financing round as well as over the funding lifecycle of an enterprise, which provides reasonable terms facilitated by grants, concessionary and subordinated positions, and by using tools such as convertible notes. Within a financing round, having a lead investor who offers shared due diligence and respect for the entrepreneur is important, since this streamlines the process for entrepreneurs and enables them to continue working on their businesses.
• Interconnection between capital and strategy. Entrepreneurs think of capital as a tool for developing and growing their businesses, and to that end, they must keep both their funding needs and their broader strategy aligned. Therefore, investors who also think long-term and relationally between capital and strategy are key partners.
• Long-term innovation support through grants. This support enables entrepreneurs to experiment, innovate and improve, and these grants take risks that equity investors do not want to finance, but that they expect to see from scaled enterprises.
• Relationships with investors who respect entrepreneurs’ local knowledge of impact and their vision for the enterprise and its impact strategy — and who encapsulate this respect in the terms of the capital itself. One-on-one relationships with this sort of investor are highly valuable for entrepreneurs.

What can capital providers do with these insights?

If we really care about driving positive change for people and the planet, it is essential to regularly scrutinize our assumptions. Therefore, we would like to encourage everyone in the impact field to listen carefully to what entrepreneurs have to say. As the value creators on the ground, they are the ones who make the difference.

We very much hope that catalytic capital providers will review and discuss our findings, draw their individual conclusions, and put them into practice to achieve better impact. Our study is meant to be a holistic consideration of capital that can make a difference for early- and growth-stage enterprises. Since entrepreneurs connect the structure of finance raised to the broader context in which it can be catalytic, investors can maximize the value of their funding with actions and terms that are aligned with the company’s growth plan, timeline and broader financing journey. This way, they can establish a partnership that truly supports the needs of the entrepreneurs.

While this broader context is often considered secondary, our research has made it clear that it’s actually essential: Funders must listen to and honor entrepreneurs’ viewpoints, in order to make their capital not “just useful,” but truly catalytic.

Bjoern Struewer is founder and CEO at Roots of Impact, and Jed Emerson is the Global Lead of Impact Investing at Tiedemann.

Photo credit: RODNAE Productions 

Imagine you get a text from a credit company stating that your loan repayment is due in a few days. But you have never taken a loan from the company — and in fact, you’ve never heard of them. Unfortunately, this type of identity theft is an increasingly common scenario in Africa. At Identitypass, the identity verification business I co-founded to serve the African market, we process over 1,000 identity verifications daily across 30 African countries, and at least one of every 10 of these identity checks is flagged as a stolen identity.

This problem is driven in part by the expansion of digital access on the continent. African fintech and other tech-driven startups are under pressure to create frictionless signup processes to reduce barriers for new digital users across different kinds of services, and this sometimes comes at the expense of better security. Bad actors take advantage of this, causing an uptick in identity theft and other types of fraud in the digital ecosystem. As Africa’s digital economy continues to grow, with predictions that it will be worth six times its current value by 2050, and new businesses and individuals come online daily, these illicit activities are bound to increase.

It has therefore become an urgent need for tech startups to build better ways of establishing trust. When correctly done, Know Your Customer (KYC) — the process of identifying and verifying users’ identities — is especially critical to preventing the activities of bad actors and helping genuine users gain trust in the system. However, many African startups, particularly new ones with ambitious customer acquisition goals, view KYC only as a process that allows them to tick the compliance checkbox for regulators.

This attitude can put them and their customers at risk. KYC isn’t just a matter of compliance; it is a crucial mechanism for preventing fraudulent activities. And rather than viewing it as a destination, KYC is a journey that tech startups must embrace wholeheartedly.

KYC is the Key to Fraud Prevention – And a Source of Customer Insights

KYC has many benefits that go beyond regulatory compliance. Along with serving as a means to ensure that a customer is who they say they are, KYC data can be a vital way to gather insights that can activate other fraud prevention mechanisms and improve business outcomes. For example, transaction monitoring cannot effectively occur without adequate and correctly done KYC: Financial institutions often rely on KYC information to profile clients, understand them better, and detect suspicious activity that can alert them to fraud.

Additionally, businesses often leverage KYC data to generate insights on their clients for other purposes, including product optimization and marketing. For instance, an uptick in customer registrations in a particular town could indicate a growing appetite for a company’s products in that area. As a result, it may decide to double down on customer acquisition in that community. This is especially important for startups in Africa, where market data to generate quality customer insights is often largely unavailable.

Successful KYC Requires Flexibility

In light of these benefits, KYC should be seen as an opportunity for businesses, rather than simply as a regulatory requirement. Regarding KYC as a chore to be performed half-heartedly could prevent startups from appropriately executing it, causing them to fail to extract maximum benefits from the process. To avoid this, these companies should adapt KYC to their customers’ needs. They should also be flexible, as these processes often require a nuanced approach to fit the company’s target audiences.

KYC best serves users and businesses when executed within customers’ real-world contexts. And the African market has a lot of unique contexts that affect KYC processes, such as varying degrees of internet access, a lack of identity databases in some countries, and the absence of street addressing in some areas.

Understanding the diverse circumstances of the target market is vital to deploying KYC efficiently. For instance, a company targeting customers who tend to lack government-issued identity documents will struggle with KYC if it insists on carrying out these processes in the typical format — i.e., requiring a government-issued ID at the start of the KYC process. Consequently, some businesses may choose to pre-register these customers, then facilitate their acquisition of official identity documents in partnership with government agencies, rather than working only with customers who already have valid IDs. Similarly, requiring the physical submission of identity documents — a practice that’s still common at some traditional banks — is a recipe for failure when working with a digital-savvy demographic, like young, urban, middle-class customers who are familiar with electronic KYC. It is key to attune KYC processes to customer needs — but of course, this must be done within the bounds of regulation.

KYC Innovation is Crucial

At Identitypass, we provide tools to help our customers verify the identity of individual users or businesses, gain a deeper understanding of them, and prevent fraud in real time. Our work has given us a front-row view of the constantly changing global digital landscape, and we’ve seen how KYC has continued to evolve as a critical component of digital businesses. An excellent example of this is the move from paper-based KYC processes, which were the norm years ago, to the current use of digital collection and verification methods.

To capitalize on these changes, African startups should prioritize constant innovation and improvement in their KYC processes. For instance, businesses can deploy artificial intelligence to analyze customer data, detect and flag suspicious activity in real-time, and generate reports required by regulatory bodies more quickly and accurately. Additionally, KYC process automation can allow businesses to verify new customers’ identities quickly and efficiently by accessing digital identity databases. According to McKinsey research, “banks that increased end-to-end KYC-process automation by 20 percent saw a triple benefit effect. They increased their quality-assurance scores by 13 percent on an absolute basis, improved their customer experience by reducing the number of customer outreaches per case by 18 percent, and they enhanced productivity by increasing the number of cases processed per month by 48 percent.” As these numbers suggest, innovation is key to robust KYC systems that combat fraud while at the same time improving customer experiences.

Beyond AI and automation, some other forms of KYC innovation include biometric authentication, the use of blockchain technology to create a shared, tamper-proof record of KYC information, and the use of data analytics to identify patterns and trends. Other innovations range from open banking APIs to allow financial institutions to access and share customer data more efficiently, to mobile-based KYC solutions that enable customers to complete the KYC process through their smartphones. In essence, KYC is a key component of tech products — and as these products evolve, KYC mechanisms should improve too.

For these reasons, it’s in the best interests of Africa’s tech startups to take thorough advantage of innovative KYC tools and processes, and to view their efforts to optimize KYC as an opportunity to improve their products, better serve their customers and increase their business success — rather than as an obligation to be fulfilled. This is particularly important when you consider that KYC is not cheap: It can reportedly cost Nigerian banks up to $ 1 million per year. By embracing KYC expenses as an important investment in their business, African companies can capitalize on the continent’s rapidly growing digital ecosystem, while minimizing fraudulent activities and taking vital steps to build customers’ trust.

Lanre Ogungbe is the co-founder and CEO of Prembly, the parent brand of Identitypass.

Photo credit: Ketut Subiyanto.