Digital Finance Plus Readiness in Tanzania: Full Version

CGAP Digital Finance +
Readiness Framework
and Assessment for
Tanzania

1
Agenda
Readiness framework
Access to and reach of mobile infrastructure
Adoption and reach of digital finance infrastructure
Role of the government and regulation
Sector analysis – water
Sector analysis – education
Sector analysis – energy
Sector analysis – health
Sector analysis – agriculture

2
We assessed Digital Finance Plus readiness along
6 dimensions
SOURCE: Client Survey (Oct 2011); McKinsey Quarterly Survey (Jul 2011)
Digital finance plus enabling environmentSector-level digital finance plus assessment
4.1 Sector description
4.2 Sector impact on low-
income households
5.1 Financial service needs
along the value chain
5.2 Financial gap analysis
along the value chain
5.3 Barriers to provision of
financial products
4.3 Sector-specific actors
and regulation
6.1 Potential applications
of DF+ to address
barriers
6.2 Viability of observed
and potential
business models
6.3 Scaling and execution
capabilities
4.4 Sector challenges
6
5
4 3
2
1
Readiness
1.1 Technical infra-
structure readiness
1.2 Telecom industry
readiness
1.3 Level of adoption
3.1 Relevant financial and
telco regulation
3.2 Government support
3.3 Use of DF+ by the
government
2.2 Digital finance
readiness
2.3 Level of digital finance
adoption
2.1 Overall financial sector
readiness

3
Digital finance readiness assessment framework detail (1 of 6)
QuestionsFunctional area
1. Access
to and
reach of
mobile
infra-
structure
1.1 Technical
infrastructure
readiness
1.2 Telecom
industry
readiness
Phase
How many nationwide mobile
phone providers exist and how is
the industry changing?
▪ Describe the industry’s structure (number and size of
national and regional players), competitive dynamics,
and where experts see the industry going
How much do mobile services
cost and how have these prices
changed?
▪ Evaluate cost information for a phone, SIM card, 1
SMS, 10 minutes of call time, 1 MB of mobile data,
and trends across geographies
▪ How ubiquitous is mobile
phone and internet coverage
in the country and how might
it change?
▪ What type of networks exist?
▪ What is their quality and how
reliable are they?
▪ Evaluate the percentage of people with coverage by
region and available network speed with a particular
focus on the differences between rural and urban
areas and projected changes over the next 2-3 years
Analyses to conduct
How much of the country actually
uses mobile services?
▪ Examine trends in the percentage of adults with
mobile phone subscriptions and mobile internet
access across regions with a focus on rural vs. urban
How often are these services
used?
▪ Examine frequency of use and types of plans
1.3 Level of
adoption

4
2. Adoption
and reach
of digital
finance
infra-
structure
2.1 Overall
financial sector
readiness
2.2 Digital
finance
readiness
Phase
What products does the financial
sector offer?
▪ Describe products/services offered and their distribution
What types of digital finance
products exist?
▪ List digital finance products (distinguish between payment,
savings, credit, insurance etc.)
Analyses to conduct
2.3 Level of
digital finance
adoption
How many adults have adopted
digital finance products?
What are these products used for?
▪ Determine the percentage of adults using digital finance
products, the percentage of transactions (payment,
savings, insurance) done via them, and reasons for any
low levels of adoption
How many adults and businesses
would be open to using digital
finance products?
▪ Determine the percentage of adults and businesses
familiar with and open to using digital finance
▪ Evaluate this across regions with a focus on urban vs. rural
What is the competitive landscape
in the financial sector and how is it
changing?
▪ Describe the industry’s structure (number and size of
national and regional players), the role and reach of non-
traditional financial players, competitive dynamics, and
where experts see the industry going
What access to them do different
segments of the population have?
▪ Evaluate access to different financial products/services
across regions
How are these products distributed
and what are the minimum
requirements for use?
▪ Describe reach of typical distribution channel
What types of providers offer digital
finance products and how might the
landscape change over the next few
years?
▪ Map products to different types of providers (e.g.,
traditional financial institutions, telcos, microfinance)
▪ Describe major product, technology, and distribution trends

5
3. Role of
the
govern-
ment and
regulation
3.1 Relevant
financial and
telco regulation
3.2 Government
support
Phase
What are government digital
finance regulations?
▪ Examine additional rules specific to digital finance entry,
operations, and end users; these include partnership
requirements to offer products, architecture
(interoperability requirements), e-payment, product
offerings, accounting practices, anti-money laundering,
who can act as agents, and KYC regulation
▪ Identify regulatory gaps and barriers preventing or
slowing the implementation of DF+
What are government regulations
around information tracking?
▪ Examine rules about what data digital finance providers
can keep, use, and sell
What are government finance
regulations?
▪ Examine the rules on who can offer what products and
how they must be sold, and the clarity of these rules
Analyses to conduct
Does the government help expand
mobile/digital payment
infrastructure?
▪ Research on budget and subsidies allocated to these
infrastructures
▪ Identify policies that would help the spread of DF+
Does the government take action
to increase the number of digital
finance players?
▪ Evaluate of awareness raising and budget allocated to
organizations for digital finance
▪ Form qualitative view of the encouragement of new
entrants and joint ventures
3.3 Use of DF+
by the
government
Does the government use digital
finance products?
▪ Identify government benefit programs/transfer schemes
that actively use DF+ (and other spending and salary
payments)

6
4. Sector
analysis
and
challenge
identifi-
cation
4.1 Sector
description
4.2 Sector
impact on low-
income
households
Phase
4.4 Sector
challenges
What is the overall value chain
for the industry and structure at
each step?
▪ Describe actors and industry structure (number of
players, size, and competitive dynamics) for each
relevant step
What is the role of the
government in each step of the
value chain?
▪ Describe the role of public financing/provision,
subsidies, and relevant regulation
What is the significance of the
sector in the country’s economy?
▪ Determine the percentage of GDP accounted for by
sector, the percentage of workforce employed within
the sector, quality of services, productivity and
competitiveness accounting for regional variance and
international comparisons
What trends will shape the
sector?
▪ Describe relevant policy, technology, and macro
changes
What services are and are not
provided to low-income
households and what determines
access to these services?
▪ Describe actual services delivered to low-income
households and identify the variation in provision by
geography, income, and other attributes
What are the key challenges
in the sector?
▪ Overview of key shortcomings in the sector along the
value chain
Analyses to conduct
4.3 Sector-
specific actors
and regulation
What is the sector-specific
regulation affecting the delivery
of services?
▪ Describe sectors specific regulation, including
competitive regulation, product regulation , access
regulation, minimum service standards, customer
protection etc.

7
5. Asses-
ment of
financial
service
needs and
gap
analysis
5.1 Financial
service needs
along the value
chain
5.2 Financial
gap analysis
along the value
chain
Phase
5.3 Barriers to
provision of
financial
products
What financial service gaps exist
at each step of the value chain?
▪ Evaluate financial service needs not being served at
all by current products or being served inadequately
across regions and provide a view of what existing
services are missing
How would the closing of each
gap increase accessibility and
affordability?
▪ Develop a perspective on which gap closings would
have the highest impact
What type of financial needs
exist for interactions across the
value chain?
▪ Evaluate financial product needed at each step
(payment access, financing, mediation, market
information, insurance, savings, etc.) and key
attributes of identified service (speed, simplicity,
timing, etc.)
What barriers to the provision of
the identified financial services
exist?
▪ Identify barriers, including a lack of physical financial
infrastructure (agent network/brick and mortar
financial institutions), information asymmetry between
actors, a lack of a cost-effective provision of the
financial service, etc.
Analyses to conduct

8
6. Digital
finance
plus
solution
feasibility
6.1 Potential
applications of
DF+ to address
barriers
6.2 Viability of
observed and
potential
business
models
Phase
Is there a feasible business
model for the product?
▪ Evaluate if there could be a financially viable business
model for this product given sector dynamics
Is there a feasible go-to-market
model to introduce this product?
▪ Evaluate go-to-market model that could achieve
necessary scale
Could a digital finance product
address the market failure?
▪ Determine if an existing or novel digital finance
product could address the market gap and overcome
the identified barriers
Analyses to conduct
What capabilities would be
necessary for a business to
successfully implement this
model?
▪ Develop perspective on capabilities and distribution
network necessary for a company to implement go-to-
market model and business model
How do those capabilities
compare with those of existing
enterprises?
▪ Map current provider capabilities to required ones
Are there actors capable of scal-
ing the existing business model?
▪ Identify the landscape of the actors in the sector and
evaluate scaling efforts
6.3 Scaling and
execution
capabilities

9
Agenda
Readiness framework

10
Summary of mobile infrastructure readiness assessment
1.1 Technical infrastructure readiness
• Tanzania’s four nation-wide MNOs operate a series of networks and standards ranging from 2G to
3.5G networks
• The penetration of these networks ranges from selected cities on 3.5G networks to 85% of the
population on 2G networks
• All major MNOs have committed to and are in the process of making major capital investments in 4G
networks, while continuing to expand coverage of existing 2G networks
1.2 Telco industry readiness
• Tanzania’s telco industry features 4 main competitors, Vodacom, Airtel, Tigo, and Zantel, with the first
3 accounting for 90% of the subscriber base
• Strong four-way competition has led to competitive prices and continued product innovation, with all
players offering mobile money and selected players launching mobile savings and credit products
1.3 Level of adoption
• Mobile phone adoption in Tanzania currently stands at ~60% and, below the regional average of 74%
• However, penetration over the past 4 years has been growing at approximately 10-12% per annum
• The continued extension of network coverage, declining mobile phone costs and growing household
income are expected to raise penetration to 70-80% over the next 2-3 years

11
Tanzania has been rapidly extending mobile coverage,
which has allowed the country to rapidly catch up to its peers
1.1 TECHNICAL INFRASTRUCTURE READINESS
SOURCE: Telegeography; press
Percentage of population living in areas with mobile
phone coverage
%, 2013
Overall assessment
Percentage of population living
in areas with mobile phone
coverage
%, historically
… but coverage is quickly increasing
Tanzania’s mobile coverage is slightly lower
than that of its peers …
Type of network,
% of population
covered
Ethiopia
Ghana
Kenya
Nigeria
Rwanda
South Africa
Tanzania
Uganda
India
Bangladesh
Pakistan
Myanmar
• Tanzania lags its peers in mobile
phone coverage, with 15% of the
population living without access to
a mobile network
• At the same time, mobile coverage
has been growing at close to 20%
per annum over the past 3 years
• Mobile coverage is expected to
reach 90+ % of the population by
2016
99
99
99
95
95
95
90
90
87
85
60
35
85
75
60
50
1312112010 2016
90+
+19% p.a.
70
85
3G2G

12
Tanzania’s MNOs operate a series of networks covering 60
to 85% of the population, depending on network generation
1.1 TECHNICAL INFRASTRUCTURE READINESS
2G 3.5G 1G 3.5GGene-
ration
2.5G 2.5G 3G 2G 2.5G 2.5G 3G 3.5G 2.5G 2.5G 3G 3G2G 3.5G
Platform GSM GSM GSM W-CDMA W-CDMA ETACS GSM GSM GSM W-
CDMA
W-
CDMA
W-
CDMA
GSM GSM CDMA2000 CDMA2000 W-CDMA W-CDMA
Evolution None GPRS EDGE None HSDPA None None GPRS EDGE None HSPA+ DC-
HSPA+
None GPRS 1x 1xEV-DO None HSPA+
Frequency 900/1800 900/1800 900/1800 Unknown Unknown 900 900/
1800
900/
1800
900/
1800
- - - 900/1800 900/1800 800 800 Unknown Unknown
Launch Nov-01 Apr-06 Apr-06 Dec-08 Dec-08 Sep-94 Aug-00 Aug-06 Aug-06 Q1 2011 May-13 Sep-13 Aug-99 - Nov-06 Nov-06 May-12 May-12
Status Live Live Live Live Live Shut
down
Live Live Live Live Live Live Live Live Live Live Live Live
Network
Details
Jan-14:
~85%; Dec-
11: 65-70%
(est.)
Jan-14:
88%; Dec-
11: 65-70%
(est.)
Jan-14:
~75%; Dec-
11: 65-70%
(est.)
Jan-14:
70% (est.);
Sep-11: Dar
es Salaam
Jan-14:
~70% (est.),
Sep-11: Dar
es Salaam
- Jan-14:
85%
(est.);
Dec-11:
67%
(1,173
BTS);
Dec-10:
63%
(1,057
BTS);
Dec-09:
60%
Jan-14:
80%
(est.);
Dec-11:
62%
(est.);
Dec-10:
60%
(est.)
Jan-14:
50%
(est.);
Dec-11:
35%
(est.);
Dec-10:
30%
(est.)
Jan-14:
70%
(est.)
Jan-14:
~20
cities
and
towns
(est.)
Jan-14:
only
selected
city
centers
Jan-14:
70% (est.);
Dec-11:
60% (est.);
Sep-10:
50% (est.)
Jan-14:
~50% (est.),
main towns
and cities
only
Jan-14:
Zanzibar,
Pemba, and
Dar es
Salaam
Jan-14:
Zanzibar,
Pemba, and
Dar es
Salaam
Jan-14:
Zanzibar
only (plans
expansion
to Dar es
Salaam and
other cities)
Jan-14:
Zanzibar
only (plans
expansion
to Dar es
Salaam)
2G 4G2.5G 2.5G 3G 3.5G 3.5G
GSM GSM GSM W-
CDMA
W-
CDMA
W-
CDMA
LTE
None GPRS EDGE None HSDPA HSUPA None
900 900 900 2100 2100 2100 800/
1800
Jul-99 Apr-06 Jul-07 Feb-07 Feb-07 Feb-07 -
Live Live Live Live Live Live In
deploy-
ment
Jan-14:
85%-90
(est.);
Dec-11:
75.8%
Jan-14:
85%-
90%
(est.);
Dec-11:
75.8%
Jan-14:
>50%
(select-
ed towns
and
cities)
Jan-14:
70%
(est.);
available
in
around
40 towns
and
cities
Jan-14:
70%
(est.);
available
in
around
40 towns
and
cities
Jan-14:
70%
(est.);
available
in
around
40 towns
and
cities
Laun-
ched six-
month
trial in
Msasani
Penin-
sular
district of
Dar es
Salaam
with
NSN in
Jan-13
2G network at ~85% 2G network at ~85% 2G network at ~85% 2G network at ~70%
SELF-REPORTED FIGURES MIGHT BE OVERSTATED

13
93 7
The top four MNOs in Tanzania own 99% of the mobile
market (1/2)
1.2 TELECOM INDUSTRY READINESS
Assessment
Number of mobile phone providers in Tanzania
Growing number of providersHigh market shares of top three operators
2013
8
12
8
11
7
2010
7
Market share of top 3-5 players, %Number of MNOs1 No
84 15
93 7
83 17
100
1 Mobile network operator
SOURCE: WCIS
98
2
82 17
Tigo Tanzania 6,297
52
Zantel 1,803
8,996
Vodacom Tanzania 10,289
Benson Informatics
0
Smile Tanzania
0Telesis
Hits
1
3
Sasatel 4
TTCL
Airtel Tanzania
Number of subscribers
000s
100
55 24
1089
72 28
100
4
12
8
8
3
Ghana
Kenya
Nigeria
Rwanda
South Africa
Tanzania
Uganda
5
6
1Ethiopia
1
1
1
1
India
Bangladesh
Pakistan
Myanmar
Top 3
Top 4
Top 3
Top 3
Top 5
Top 3
Top 5
Top 3
Top 5
Top 3
Top 5
Top 3
Top 5
Top 1
Top 3
Top 3
Top 3
Top 1
Top 5
Top 5
Top 5
MNO
• Tanzania’s mobile phone industry is dominated
by 4 relevant players that control more than 99%
of the market; this consolidation is similar to that
observed in peer countries
• The number of providers has roughly stayed the
same over the past few years
• All major providers cover the key population
centers allowing for significant competition

14SOURCE: WCIS; Telegeography; BMI
Assessment
Airtel
Benson
Tigo
Zantel
Vodacom
Tanzania
Number of subscribers
000s; 2013
0
0
10,289
8,996
4
52
3
1
6,297
1,803
TTCL
Smile1
Description/history
Telesis
1 Smile is a wireless broadband operator, it does not offer voice services
Hits
Sasatel
Tanzania’s MNOs have taken different strategies to acquire and retain customers
• The Tanzanian mobile phone market
features strong competition with
incumbents and new entrants
actively competing for market share
• Players compete <_> diverse
strategies including innovative
service offering (Vodacom), network
coverage (Airtel), and low pricing
(Zanzibar Telecom)
• Ahead of competition on introducing innovative
services but only regains subscribers after
2011/2012 loss
• Substantial investments resulted in the widest
mobile broadband coverage, but high prices
limit service uptake
• Aggressively expanding coverage, low tariffs,
and promotions enable it to quickly gain
market share
• Owns modern infrastructure, capable of
providing fast data services, but reliance on
CDMA blocks smooth migration to LTE
• High prices and limited coverage prevent quick
customer uptake despite modern infrastructure
• Simple tariffs and affordable broadband
enable growth but lack of scale prevents fast
expansions
• 20 years of mobile experience in Tanzania
combined with developed infrastructure
enables it to maintain third place in the market;
recently aggressive in marketing
The top four MNOs in Tanzania own 99% of the mobile
market (2/2)

15
Tanzania’s MNOs offer an advanced set of digital finance
products
SOURCE: GSMA “Mobile Money Tracker”; Operators websites
Similar services offered by playersSimple mobile payments offering
Rwanda
Ghana
Kenya
Tanzania
Uganda
0
1
1
2
3
3
3
4
4
4
4
7
0
0
1
1
0
0
0
1
1
3
3
0
Simple digital
payment
product1
Advanced
digital
payment
product2
Number of MNOs offering digital finance products Description of product offering for biggest telco providers
Airtel
MIC
Tanzania
Limited
Vodacom
Tanzania
Zantel
South Africa
India
Nigeria
Bangladesh
Pakistan
Ethiopia
Myanmar
Basic Advanced
1 Simple: operator offers only bill payments, airtime top up, domestic money transfers, bulk payments, merchant payments
2 Advanced: in addition to the above, operator offers services such as loan repayments, debit, insurance, other banking products
Assessment
• Vodacom leads
the digital financial
service innovation
in Tanzania
offering the
broadest digital
finance product
portfolio
• Tanzania’s telco
industry compares
favorably with
other countries
based on its
offering of digital
finance products

16
Mobile phone access remains relatively expensive in Tanz-
ania, smaller players/new entrants provide lower price options
Assessment
5
10
11
6
5
14
70
50
45
54
50
47
6
6
5
5
4
3
Cost per
sec1
Cost per
SMS
Cost per 1
MB2
Airtel
Benson
Tigo
Zantel
Vodacom
Tanzania
New entrants and smaller players are providing lower cost
options
SOURCE: WCIS; company websites
TTCL
Smile3
1 For calls to other networks (off-net); 2 Based on monthly bundled plan of 5GB except Smile for which 3GB data plan was analyzed;
3 Smile Tanzania offers only mobile broadband services
n/a n/a
n/a4
5
7
8
10
11
13
14
Cost of comparable monthly prepaid access1
USD at PPP
n/a
n/a
n/a
n/a
South Africa
Tanzania
Uganda
Nigeria
Ethiopia
Kenya
Rwanda
Ghana
Pakistan
Bangladesh
India
Myanmar
Mobile phone access remains relatively expensive
in Tanzania
• Tanzania’s mobile
phone sector offers
a healthy set of
prices with new
entrants providing
low-cost
alternatives to
incumbents
in TZS

17
Mobile phone penetration in Tanzania remains below peer
average, however penetration is rising quickly
1.3 LEVEL OF ADOPTION
12
27
58
60
63
67
69
70
72
73
109
138
2
3
1
1
2
2
1
1
9
n/a
n/a
n/a
Mobile pene-
tration1
% of population
Mobile
internet
penetration
% of population
1 Not adjusted for multi-SIMming, i.e., individuals may own more than one SIM card and be counted multiple times
60
55
50
42
201312112010
+12% p.a.
Overall assessmentGrowing mobile penetrationTanzania’s mobile penetration is similar to its peers
Ghana
Nigeria
South Africa
Tanzania
Kenya
Mobile penetration
% of population
SOURCE: Analyses Mason; WCIS
Uganda
India
Rwanda
Bangladesh
Ethiopia
Pakistan
Myanmar
2013
• Tanzania’s mobile phone
penetration is below its regional
peers
• Over the past 3 years, Tanzania
has added approximately 5% of its
population to the subscriber base
annually
• Often penetration does not fully
reflect true access of different
people within a household, leaving
some question as to female access
to services

18
Access to mobile phone for rural, unbanked, and low-income
households is substantially lower than middle-/high-income households
Tanzania’s mobile phone access differs by household groups
SOURCE: FITS household survey
2012
• A substantial gap in mobile
phone access exists
between the group of
rural/unbanked/low-income
households (55-57%) and
the group of middle-/high-
income households (76%)
Household
consumption
above$2/day
Rural
Unbanked
Household
consumption
below $2/day
76.0
57.0
58.0
55.0
63.0
Households
that have or
can borrow a
mobile phone
Assessment
Percentage of total households
1.3 LEVEL OF ADOPTION

19
Agenda
Readiness framework

20
Summary of digital finance infrastructure readiness
assessment
2.1 Overall financial sector readiness
• Tanzania’s banking sector includes 50 licensed banks and a number of regulated and unregulated
microfinance institutions
• Despite the large number of licensed institutions, the formal banking sector serves only 14% of the
population, focusing predominantly on the urban salaried workers and commercial lending
• A number of attempts by large commercial banks to extend their products to the unbanked have
resulted in significant write-offs and their subsequent withdrawal from this segment
• Micro-finance institutions are the only players extending significant credit to low-income households,
credit procedures and collateral / guarantor requirements are however burdensome and constitute a
serious barrier to credit
2.3 Level of digital finance adoption
• Mobile money has experienced exponential growth over the past 5 years
• Starting from virtually no use in 2009, mobile money uptake has increased to over 11 million users in
2013, which equals 49% of the adult population
• Key uses of mobile money are sending and receiving money (predominantly from remittances
payments,) which account for almost 70% of all mobile money transactions
2.2 Digital finance readiness
• A notable barrier to mobile money adoption is still the lack of access to mobile phones for significant
parts of the population
• Rural penetration of mobile money remains relatively low and account activitiy while growing is still
low

21
10
14
19
40
50
Uganda
Rwanda
South Africa
Kenya
Tanzania
Tanzania’s banking sector includes 50 licensed banks, with the top 10
banks accounting for ~75% of lending and ~85% of deposits
Number of licensed banks
Assessment
255,553
303,036
319,813
399,950
413,818
438,583
491,904
654,446
1,354,770
1,806,865
444,562
313,715
556,359
686,711
700,927
886,162
1,291,335
2,288,263
2,582,328
3,918,095
20.6
15.4
7.5
5.6
5.0
4.7
4.6
3.6
3.5
2.9
23.4
15.4
13.7
7.7
5.3
4.2
4.1
3.3
2.7
1.9
2.1 OVERALL FINANCIAL SECTOR READINESS
…and market share is split among the leaders
M/s, %
Top 10 banks hold 73.3% of the loan market
Top 10 banks hold 83.6% of the deposit market
Top 10 banks in Tanzania by deposits, 2012
Top 10 banks in Tanzania by loans, 2012
Total loan volume in TSH millions
Total deposit volume in TSH millions
Tanzania has more banks than its peers…
• Tanzania has a diverse
banking sector with over 50
licensed players
• While the formerly state-
owned banks still dominate,
a number of regional and
international banks have
achieved considerable
market share
SOURCE: Bank of Tanzania

22
Tanzania’s banking sector has become more competitive,
but it still lags peer countries
0.56
0.30
0.10
0.35
0.47
0.27
0.11
0.19
Ethiopia
Kenya
Uganda
Bangladesh
Tanzania
Ghana
Nigeria
India
Rwanda
South Africa
n/a
2005 2010
0.59
0.36
0.31
0.29
0.27
0.24
0.22
0.16
0.15
0.15
• Tanzania’s
competitiveness
has substantial
improved over the
last couple of
years
• Compared to ist
regional peers
especially South
Africa and Rwanda
competitiveness
remains low
Top 3 banks’ market power (Lerner index) Assessment
SOURCE: Tanzania Banking Survey

23
A high use of non-bank products compensates
Tanzania’s low penetration of bank product
Assessment
29
41
14
33
23
34
26
21
14
38
18
44
10
19
7
9
7
9
8
8
16
17
30
15
24
42
14
10
25
33
26
40
28
44
41
30
63
75 11
Rwanda
Nigeria
Zambia
Uganda
Zimbabwe
Ghana
South
Africa 4
Tanzania
Botswana
Kenya
Financially excluded
Use informal mechanisms only
Have/use non-bank products
Have/use bank products
34.4
13.7
20.1
7.3
38.7
51.4
6.8
27.6
Rural Urban
Tanzania lags peers in bank product use Gap driven by rural consumers
• Tanzania has the lowest rate of
bank product use among its
peers
• Low penetration is driven by the
focus of the formal banking
sector on the urban salaried
worker
• Uncollateralized lending to low-
income households is virtually
absent from the system
• Tanzania’s high level of non-
bank financial product use is
driven predominantly by a rise in
mobile money use
• Non-bank product use is
particularly high in urban areas
where over half of urban
consumers use mobile money
Percentage of adult population with
particular financial products, 2013
Percentage of adult population with
particular financial products, 2013
SOURCE: FinScope

24
MFIs are the only financial institutions extending significant credit to
low-income households
Tanzania market profile
MFIs Borrowers
AccessBank – TZA 15,819
Akiba 27,111
BRAC – TZA 104,225
ECLOF – TZA 5,051
Equity Bank Tanzania 7,176
FINCA – TZA 82,288
IDYDC -
K–Finance 572
MBF 2,478
Mbinga Community Bank 6,053
Mtoni 1,351
MuCoBa 5,601
Mwanga Community Bank 8,314
NMB -
Opportunity Tanzania 8,959
PRIDE – TZA 100,055
PTF 6,108
SEF – TZA 1,198
SELFINA 7,746
Tujijenge 8,265
Victoria Finance 155
VisionFund TZA 33,394
YOSEFO
Loans
USD
32,596,119
46,766,487
20,267,459
1,467,041
60,487,310
29,593,107
354,157
194,029
212,031
908,172
2,004,364
4,024,608
5,140,608
773,508,940
6,206,129
37,028,179
1,147,468
263,569
4,002,088
775,268
342,857
7,080,836
2,521,617 18,120
1. NGO MFI
(not regulated)
2. Microfinance companies
(regulated by BoT with lower capital
requirements than regular banks)
3. Commercial and community banks
(regulated by BoT)
4. Savings and credit cooperative
societies
(regulation limited to annual audit)
Tanzania recognizes 4 types of
microfinance institutions with
different levels of regulation
Lending to low-income households
requires:
- Significant collateral
- Multiple guarantors
- An involved application process
with often multiple visits
- rates vary between 30-80 p.a.
SOURCE: Tanzania Banking Survey

25
Tanzanian access to formal sector finance has increased in
recent years largely because of the adoption of mobile money
Adults served
by the
non-bank
formal sector
Banked adults
55.9
13.1
13.8
9.1 6.3
Insurance
13.0
49.0
1.1
Use mobile
money
4.5
MFI/SACCOS
member
4.4
Assessment
13.6m
2.8m
3.4m
1.9m
11.9m
0.2m
3.1m
1.3m
Percent
1.1m
1.0m
% of adults 2009% of adults 2013
This increase in non-bank service is driven
by mobile money
Growth has been driven by the non-bank
formal sector
2.2 LEVEL OF DIGITAL FINANCE ADOPTION
• The rise of mobile
money is driving
Tanzanians’ increased
financial access
• Banks and insurance
providers have also
played a substantial role
in this rise as each
industry increased users
by over 1 million
between 2009 and 2013
• MFI/SACCOS
membership remained
relatively constant,
suggesting enrollment
may have plateaued
SOURCE: FinScope

26
Approximately 70% of mobile money users predominantly
use the service to send or receive money
25.6
Pay bills,
fees, and
business
transactions
37.6
Save or store
money
33.1Send money
Receive money
9.9
Assessment
8.0
Percent
2.4
Uses of mobile money
2.2 LEVEL OF DIGITAL FINANCE ADOPTION
• While mobile money
has seen significant
growth, subscribers
predominantly use it
for sending and
receiving money
• Efforts to expand
usage to general
business transactions
are in early stages
11.9
Use mobile
money
9.1
6.2
SOURCE: FINSCOPE
Millions, in million Households, in
million

27
Use of mobile money differs substantially between
rural/unbanked/low-income and mid-/high-income households
Tanzania’s mobile money penetration
SOURCE: FITS household survey
• Tanzania’s mobile phone
penetration is in line with its
peers
• Over the past 3 years,
Tanzania has added
approximately 5% of its
population to the subscriber
base
• Often penetration does not
fully reflect the access of
different people within the
household, leaving some
question as to female access
to services
Household
consumption
above$2/day
Rural
Unbanked
Household
consumption
below $2/day
53.0
29.0
29.0
25.0
35.0
Mobile money
user in houshold
Assessment
2.2LEVEL OF DIGITAL FINANCE ADOPTION
2012, Percent

28
Of the non-users of mobile money, the majority quote the
lack of a mobile phone as the key barrier
Assessment
Percent
For products beyond payment, more fun-
damental product questions need to be
addressed first, not addressed in chart
The lack of a mobile phone is the main
barrier to mobile money adoption
2.3 DIGITAL FINANCE READINESS
• The lack of a mobile
phone remains a
serious obstacle to
adoption for mobile
payments
• For other mobile
products such as
insurance and credit,
knowledge of the
product itself is the key
barrier
• Digital finance can
address these problems
more effectively than
bricks and mortar
branches by using
mobile technology to
educate and reach
potential consumers
High fees
Knowledge
about registration
4.5
8.3
Distance to mobile
money agent
8.5
Don’t have
mobile phone
60.4
4.8
5.6
Don’t know
product
Cannot
afford
15.4
Does not
know how
it works
Does not
know where
to purchase
64.2
Insurance
Credit product
8.0
Don’t know
product
Cannot
afford
35.2
Does not
know where
to purchase
37.5
SOURCE: FinScope

29
Agenda
Readiness framework

30
The telco industry is regulated by the Tanzanian Communication Regula-
tory Authority that is implementing a series of key regulatory initiatives (1/2)
Telco regulatory framework
• Tanzanian Communication
Regulatory Authority
• Provide effective
competition
• Protect consumer interest
• Regulate rates and
changes
• Manage radio frequencies
Stability • In place since 2003, and
has introduced significant
regulation
i. Interconnection fees regulation
Termination charge set by TCRA, TZS
• Significant focusing of lowering termination charges to
increase competition among mobile phone subscribers
• Introduction of rate schedule that is designed to reduce
termination charges from 112 TZS to 26.96 TZS by 2017
26.9628.5730.5832.4034.12
112.00
2017161514132012
Telco
Regulatory playing field Key regulatory initiatives
3.1 RELEVANT FINANCIAL AND TECLO REGULATION
Regulator
Task

31
The telco industry is regulated by the Tanzanian Communication Regula-
tory Authority that is implementing a series of key regulatory initiatives (2/2)
Telco regulatory framework
ii. Mobile SIM registration
Telco
Key regulatory initiatives
• Compulsory registration of all active SIM cards
nation-wide
• Hosted June 2009, final deadline postponed to 2013
• Disconnection of 650,000 subscribers for failure
to register
iii. Mobile number portability
• Regulatory initiative to enable the portability of
mobile numbers when switching MNOs
• Part overall reform package aimed at increasing
competition between MNOs
• Originally planned for 2013, postponed to 2014 to
allow for technical implementation
iv. Universal Service Access Fund
• Dedicated financing vehicle to increase mobile
connectivity in rural areas
• Bid-based tenders for subscribers to expand
coverage to underserved areas
• A number of contracts awarded in 2013 to all
four major MNOs

32
The banking sector is regulated by the Bank of Tanzania
Banking regulatory framework
• Bank of Tanzania
• Prudential regulation
• Operational guideline and
regulation
• Sector-wide and player-
specific risk management
• Further financial inclusion
• Regulator for over 15 years
i. Credit bureau
• The BoT has recently licensed two credit bureaus to
compile data from all licensed banks and MFIs
• Credit bureaus are currently establishing reporting
relationships
Telco
Regulatory playing field Key regulatory initiatives
i. National ID card system
• Tanzania is introducing a national ID system that uniquely
identifies each citizen
• In conjunction with the credit bureau, this system is
expected to significantly raise credit provision
i. Agency banking
• The BoT has recently introduced a new agency banking
framework enabling the delivery of banking service through
licensed agencies
• Agency banking is expected to substantially lower cost and
widen access to financial services
Stability
Regulator
Task

33
Agenda
Readiness framework
Sector analysis and challenge identification
Assessment of financial service needs and gap analysis
Digital finance plus feasibility assessment
SOURCE: Source

34
Key takeaways: Agricultural sector analysis and challenge
identification
AGRICULTURE – SECTOR ANALYSIS AND CHALLENGE IDENTIFICATION
4.1 Sector description
4.3 Sector-specific actors and regulation
4.2 Sector impact on low-income households
4.4 Sector challenges
• The Agriculture sector suffers from low productivity, which can be understood by evaluating several drivers across the
value chain (land, inputs, mechanization, extension, aggregation, marketing), including
– Small average plot size per farmer relative to peers, lack of widespread access to improved seeds and fertilizer, weak
irrigation infrastructure, inadequate provision of extension services, low access to agronomic information, and low
producer prices due to lack of bargaining power and poor dissemination of market information
• The government has recently relaxed its regulation of the sector – farmers are able to circumvent the burdensome
(government-controlled) cooperative legislation to self-organize into free-enterprise associations. Export restrictions on
cereals have also been relaxed, enabling farmers to net higher incomes
• However, there is still inadequate public investment in the sector – the government has only dedicated 6% of the
national budget to the sector, falling short of its 10% commitment under the Maputo Declaration
• The great majority of farmers in Tanzania are smallholders – there are estimated to be more than 5 million farming
households in the country
• A majority of smallholders are subsistent agriculturalists – they consume a majority of what they produce and bring a very
small surplus to market
• Tanzania is highly dependent on agriculture for economic output and employment, as it constitutes 27% of GDP and
accounts for ~75% of employment
• Two out of three Tanzanian farmers produce food crops - 85% of cereal production consists of maize and rice (paddy),
which are the two most important crops
• The sector has several stakeholders – inputs (seeds, fertilizer, chemicals) are supplied by major international input
companies and local agro-dealers, production is mostly done by smallholder farmers, with a few large-scale commercial
farms for cash crops (e.g., horticulture, legumes), extension support is provided by the Ministry of Agriculture,
aggregation (where it exists) is done by producer associations, and marketing is done by traders; several local and
international NGOs also play along the value chain

35
Tanzania is highly dependent on agriculture for economic output
and employment, similar to other developing economies in Africa
SOURCE: World Bank (2010); CIA Factbook; team analysis
Other
75
5
20
Agriculture
100% =
2011
Industry
Services
25.59 million
employed
With a strong majority of the workforce employed by agriculture, this sector will be critical to reducing poverty
4.1 AGRICULTURE – SECTOR DESCRIPTION
Mozambique
5%
10%
15%
20%
25%
30%
35%
250 500 750 1,000 1,250 6,000 10,000 50,000
0%
-5%
0
Tanzania
Kenya
Uganda
Zambia
China
South
Africa
Brazil
USA
GNI/Capita
% of agriculture contribution in national GNI Workforce breakdown by sector, %

36
100
90
80
70
60
50
40
30
20
10
0
2020E2015E20102000
The majority of agricultural activity is focused on cereal
production
SOURCE: Kilimo Kwanza; ASDP; ASDS; CAADP Compact. CIA Factbook; FAO (2013)
Market value by
agricultural product
%
Area planted by crop
type
100% = 8.8 million ha
Area planted by
cereal type
70
16
10
4
Maize
Paddy
Sorghum
Millet
Wheat
2010
1
72
15
8
6
Crops
Livestock
Hunting and
forestry
Fishing
2010
100% =
TZS 4.1 trillion
66
11
11
7
Cereals
Pulses
Oil seeds &
oil nuts
Cash crops
Roots & tubers
Fruits &
vegetables
2010
3 1
Agriculture
Services
Manufacturing/Industry
Key takeaways
Real GDP by sector
% • Agriculture
contributes a
significant share to
GDP, although the
relative GDP
contribution is
projected to
decline over time
• Cereal production
comprises the
largest share of
agricultural
production, with
maize being the
most important
crop

37
The Tanzanian agriculture sector suffers from low productivity
as evidenced by the poor yields in its major crop
SOURCE: Ministry of Agriculture; FAO (2013); FAOSTAT
Tanzania scores at the bottom of its peers in maize yields
Zambia 2,244
Uganda 2,686
Mozambique 854
Tanzania 1,366
Kenya 1,393
Malawi 1,650
Ghana 1,737
Ethiopia 2,137
749
1,667
2,193
1,240
1,871
3,059
2,655
2,499
2008 2012
CAGR
%
-2
4
9
2
7
5
-2
-3
Maize yield
Kg/ha
Key takeaways
• One of the major
impediments to agricultural
growth is the low
productivity of land and
labor
• Maize yields of 1.2 MT/ha
are ~40% lower than
peers’ average
• Tanzania’s maize
productivity has declined
even as peers have
registered large
productivity gains over a 5-
year period
• Key factors driving the
poor performance include
– Low public expenditure
on R&D, inadequate
financing, poor
production techniques,
underdeveloped
markets, poor rural
infrastructure

38
Growth in the agricultural sector is hindered by a number of
bottlenecks along the value chain and beyond
▪ Small arable land
utilization: only
30% of potentially
productive area
under agricultural
production
▪ Limited average
plot size:
smallholders
control 0.9-3.0 ha
on average
▪ Onerous
administrative
procedures:15-
step process to
obtain a land title
▪ Inconsistently
enforced land
rights
▪ Low fertilizer
application: Only 9
kg/ha used, ~40%
lower than peer
average
▪ Weak demand for
improved seeds:
farmers are unable
to purchase even
limited offerings on
market, only
absorbing 40% of
stock
▪ Underdeveloped
capacity of agro-
dealers: lack of
business skills and
unattractive margins
to serve
smallholders
▪ Inefficient
government input
subsidies: late
payments and non-
functioning vouchers
▪ Farmer information
constraints:
inadequate agrono-
mic knowledge on all
aspects of production
▪ Inadequate
extension services:
too little staff with
inadequate resources
and underdeveloped
capacity
▪ Low level of
mechanization: only
24% use animal
traction and 13% use
mechanical power
▪ Budget constraints:
insufficient allocation
and late
disbursement of
funds by government
to extension works
▪ Heavy reliance on
natural elements:
predominantly rain-
fed agriculture is
highly susceptible to
adverse weather
conditions
▪ Unavailability of
long-term storage:
only 1% of farmers
have access, forcing
remainder to sell at
low prices to avoid
spoilage
▪ Cash flow
constraints:
farmers have urgent
need for cash so
can’t afford to hold
produce
▪ Underdeveloped
physical
infrastructure:
dearth of all-weather
roads in rural
regions
▪ Low level of
private investment:
smallholders and
enterprises lack
access to financing
▪ Weak market
linkages:
underdeveloped
relationships
between agro-
processors and
producers,
especially in value-
adding schemes
Challenges
▪ Low level of
commercialization:
majority of produce
consumed in the
home
▪ Non-consolidated
aggregation/off-
take: fragmented
producer base with
weak negotiating
power
▪ Poor price
discovery: non-
transparent
commodity pricing
▪ Weak market
linkages:
underdeveloped
relationships
between agro-
processors and
producers
1 432 65
1.1
1.2
1.3
1.4
2.1
2.2
2.3
2.4
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
5.1
5.2
5.3
5.4
6.1
6.2
4.4 AGRICULTURE – SECTOR CHALLENGES

39
Several actors are involved in the agricultural value chain
Private
sector
Govern-
ment
FBO
NGOs
Key value-chain focus
Stakeholder Examples Land Input
Prod-
uction
Sto-
rage
Marke-
ting
Pro-
cessingDescription
Seed and
input
companies,
agro-dealers
Mix of international and local companies
import/produce seed, fertilizer, and crop protection
products; distribution happens at the local level by
agro-dealers
Commercial
farms
Large scale, mechanized crop production and value-
added processing ; could also involve model plots
and outgrower schemes for and knowledge transfer
initiatives to involve smallholders
Traders Small-scale traders purchase commodities at the
farmgate and sell them on to agro-processors (e.g.,
mills, food processors)
Warehouse
receipt
program
Warehouse operators provide infrastructure and tools
for fumigation, storage; and packaging of
commodities. Collateral managers also provide
receipt verification, financing, and deposit insurance .
Development
institutions,
social
enterprises
Organizations provide support to farmers and fund
initiatives all along the value chain, including by
providing inputs, giving agronomic and business skill
training, and enhancing market linkages
Extension
agents
Free locally based government agents providing
farmers with training on an ad hoc basis, including
through field demonstrations and test plots
Farmer
cooperatives,
SACCOs
Producer associations whose objectives include
increasing access to improved inputs, extension
services and market; some organizations, like
SACCOs, have a long history of effectively providing
loans and facilitating access to capital

40
Currently, Tanzania is only utilizing
~30% of 37 million hectares of arable land
SOURCE: FAOSTAT
Non-arable
50.5 mil ha (53%)
11
15
20
30
31
41
48
65
Mozambique
Zambia
Kenya
Ghana
Tanzania
Ethiopia
Uganda
Malawi
Share of arable land used under agricultural
production, %
Total arable
land
Million ha
Total Tanzania land
Arable land utilization
100% =
Non-arable
Arable
2011
88,580
58
42
5
14
36
37
16
27
23
49
1

41
Key takeaways
3
1
5
17
18
32
36
42
Uganda
Mozambique
Tanzania
Ethiopia
Ghana
Zambia
Kenya
Malawi
SOURCE: Ministry of Agriculture; FAO; FAOStats; IFPRI
8
9
22
29
49
28
30
2
Tanzanian farmers make negligible use of fertilizers on their plots
2007 2011
CAGR
%
-8
-7
11
13
7
15
29
10
Fertilizer usage
Kg/ha
Tanzania has very poor usage of inputs: fertilizer
• Although fertilizer use
in Tanzania has gone
up in the past few years,
Tanzanian farmers continue to
apply ~40% less fertilizer/ha
than their peers’ average
usage
• Low fertilizer usage is driven
by a few factors
– Poor access to credit:
both farmers and
importers/wholesalers
suffer from financing gaps
– Farmer information
constraints: inadequate
agronomic knowledge on
proper use of fertilizer for
specific crop types and
ecological conditions
Related to
financing gap2

42
…as they face several challenges in accessing and purchasing
them, despite their many benefits
83
17
100% =
2011
37.2 M ha
Planted area with improved seeds, %
With improved
seeds
Without improved
seeds
Tanzanian farmers make little use of
improved seeds …
SOURCE: FAOStats; team analysis
Tanzania has very poor usage of inputs:
improved seeds
• Demand for improved seed by Tanzanian farmers is diminished
because of number of factors, including
– Lack of smallholder pricing power: fragmentation of farmer
base inhibits negotiating power through bulk purchases
– Inadequate access to financing: credit provision for farmers
and agro-dealers is limited; banks do almost no lending to the
former, and do limited lending to latter via credit guarantees
– Poor government subsidy program administration:
government subsidy payments to agro-dealers are often late and
sometimes subsidy vouchers are not honored at point of
redemption
– Underdeveloped capacity of agro-dealers: low incentive to
serve smallholders because of the high cost of service and lack of
business skills to weather low-margin business
Related to
financing gap
2

43
67
33
100% = 5.8 M households
Households receiving extension
advice, %
Extension advice
received
Extension advice
not received
SOURCE: National Sample Census of Agriculture 2007/2008; Wageningen University and Research Center; IFPRI
… and even those receiving them face serious challenges in the
quality and efficacy of services provided
Relatively few smallholder households
have access to extension services…
Tanzanian farmers receive low-quality extension
services to assist them in their cultivation practices
• Extension services are essential to enhancing agricultural
productivity by teaching smallholders farm management skills
including, inter alia, correct land preparation, timely planting, pest and
disease control, and soil nutrient balancing
• Extension in Tanzania is almost entirely financed by the
government via the Ministry of Agriculture Food Security and
Cooperatives (MAFC)
• The provision of adequate extension services is limited by a few
factors, including
– Low budget allocation: insufficient funding to hire an adequate
number of personnel and provide them with resources to carry out
impactful demonstrations and field experiments
– Late budget disbursement: sporadic and often delayed
payments of extension workers and for tools
– Poor capacity: extension workers suffer from low education
levels and weak morale, thus limiting their ability to counsel
farmers
– Weak transport infrastructure: absence of reliable means
(roads, public transport, etc.) for extension workers to reach
farmers
Related to
financing gap
3

44SOURCE: National Sample Census of Agriculture 2007/2008; IFAD; Team analysis
1.8%
2.1%
Not stored 16.4%
In locally made traditional structure 33.6%
In sacks/open drum 44.5%
In airtight drum
In improved locally made structure
Few Tanzanian farmers have access to proper storage options …
Method of harvest storage
%
… due to the absence of infrastructure
and financing options
Although 90% of smallholders store their produce, most
use suboptimal conditions and put their commodities at risk
Related to
financing gap
Ideal storage
methods
• Having adequate access to storage
facilities is important because it enables
producers to maintain the integrity of
their surplus produce; post-harvest
losses range from 25 to 35% of yield in
areas where that lack proper facilities
• Storage is also crucial to enable farmers
to hold their post-harvest commodities to
take advantage pricing cycles
• However, a dearth of storage
infrastructure, a lack of access to
credit, and their immediate need for
cash prevents farmers from investing in
storage infrastructure and/or holding on
to their commodities for the desired
length of time
4

45SOURCE: National Sample Census of Agriculture 2007/2008; Team analysis
0%
1%
1%
1%
2%
3%
5%
5%
15%
67%
Government regulatory problems
Marketing problems
Cooperative problems
No buyer
Lack of market information
No transport
Crop market too far
Transport cost too high
No problem
Open market price too low
Low prices are the biggest driver of dissatisfaction for farmers
Several challenges remain in redressing
marketing gaps
Farmers experience various marketing
problems when selling their produce
Related to
financing gap
• Most households report that the open
market price for their produce is too low;
this is driven by a number of factors,
including
– Non-consolidated aggregation/off-
take: fragmentation of producer base
leads to weak negotiating power against
traders
– Poor price discovery: inadequate
farmer ability to discern market prices
and drivers
– Weak market linkages: few
relationships between farmers and agro-
processors/other end customers in high-
touch production and marketing
arrangements (e.g., outgrower schemes,
contract farming)
– Government policy: export bans on
staple crops prevent farmers from taking
advantage of higher prices in neighboring
countries
5

46SOURCE: Comprehensive Africa Development program (CAADP); TAFSIP
99
1
Share of agro-products processed, %
Not processedProcessed
Tanzania does negligible value addition
to its agro product The challenges to the agro-processing industry are manifold
The level of value addition through agro-
processing in Tanzania is very low
Related to
financing gap
• Tanzania is exporting unprocessed agro-products when the
agro-processing industry cannot meet domestic demand
• Only an estimated 1% of Tanzania agricultural produce is
processed compared to between 20 and 70% for some
medium-level third-world countries
• The low capacity in agro-processing is driven by a number of
factors, including
– Poor physical infrastructure in rural areas, with a dearth
of all-weather roads
– Limited private-sector participation and a low level of
investment by farmers and agribusiness enterprises,
accentuated by the reluctance of banks to lend for
agricultural and agro-industrial investments
– Limited knowledge of value-adding opportunities and
innovative marketing approaches such as contract farming,
outgrower schemes, warehouse receipts, commodity
exchanges, options trading etc.
6

47
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
12-201311-1210-1109-1008-0907-08
% of the total budget
Total government budget
Total agriculture sector budget
Key takeaways
SOURCE: Calculations based on MAFAP public expenditure database for the URT
Comparison between agriculture sector
budget against total government budget,
TZS Billions
Government spending in agriculture and related services is low
Public expenditure in direct and indirect support
of the agriculture sector has lagged targets
1 Agricultural research, extension services, payment to producers, storage, training, inspection etc.
• The Comprehensive Africa
Agriculture Development program
(CAADP) targets 6% annual
growth in the agricultural real
GDP by allocating 10% of the
national budget to the
agricultural sector1
• However, this is not the case as
the agriculture sector has only
been getting an average of ~6%
of the national budget for the
past 6 years
• TBD
6

48
A number of stakeholders are driving several initiatives to
improve value chain dynamics
Description
Southern Agriculture
Growth Corridor for
Tanzania (SAGCOT)
• Facilitating the establishment of linkages between
smallholders and large commercial farms
• Modern irrigation system will increase productivity
Agricultural Sector
Development
Program (ASDP)
• Improvement of farm inputs accessibility
• Construction and rehabilitation of infrastructure
• Promotion of agricultural mechanization
Agro-dealer program
• Improved input use and increased output
• Increased number of traders involved in agribusiness
Marketing
Infrastructure, Value
Addition, and Rural
Finance (MIVARF)
• Kilimo Kwanza (Agriculture First) is an initiative aimed
at mobilizing all sectors of the economy to bring about
an agricultural revolution in Tanzania.
• The pillars of Kilimo Kwanza are: financing, policy,
and regulatory incentives for increased private sector
investments
Rural Micro, Small,
and Medium
Enterprise Support
Program (MUVI)
• Radio Stations used to spread the message regarding
the Muvi programs
• In rural areas, stations took the initiative to get the
local people to assist with the training to interview
people with the aim of covering issues/areas within
the Muvi program
Southern Highlands
Food Systems
Program (SHFS)
Main sponsor (s)
• The Southern Highlands Food Systems Project is
under implementation by FAO in Tanzania, with
funding from Germany
Type
• Improve productivity
and security in the
southern region
• Improve production
and productivity
• Enhance input
access and build
capability
• Increase financing
and development of
market
infrastructure
• Provide financing
services
• Enhance technical
support and
capacity building

49
Agenda
SOURCE: Source
Readiness framework

50
Key takeaways: Agriculture sector financial service need and
gap analysis
AGRICULTURE – FINANCIAL SERVICE NEEDS AND GAP ANALYSIS
5.1 Financial service need along value chain
5.2 Financial gap analysis along value chain
5.3 Barriers to provision of financial products
• Similar to many peer countries in SSA, there is a clear disconnect between the importance of agriculture to the Tanzanian economy
and general access to financing – although agriculture accounts for ~30% of the GDP, only ~10% of commercial lending goes to the
sector
• Even where financial products are offered to farmers, they are only available to a small niche relative to the wider smallholder base –
beneficiaries tend to belong to strong producer associations, grow horticultural or other types of cash crops and have strong relationships
with a monopsonic value chain actor (e.g., outgrower and contract farming schemes with agroprocessors)
• The needs of smallholders are only being met to a limited extent
– Loans: minimal access of credit to farmers; few national banks lend to select producer associations with extremely high collateral
requirements at market rates of 25%; MFIs (e.g., FINCA, Pride) also lend to producer associations, but at high rates of 50-200%,
while village-level moneylenders extend credit at extremely burdensome rates of up to 300%
– Insurance: extremely rare, except for nascent efforts within “closed loop” market ecosystems in which a partnership of value chain
actors (e.g., Sacau project by Monsanto, Yara, Barclays) provide weather-indexed crop insurance bundled with other financial
products (e.g., input credit) and collateralized with warehouse deposits, often only covering the value of inputs (not the entire harvest
value)
– Agronomic, weather, and market information: only 7,000 extension workers nationally, thus providing minimal frequency and
quality of agronomic support to farmers; however, there are a number of mobile-based applications (e.g., Tigo Kilimo by Tigo, by
Kilimo Salama by Snygenta Foundation), directly reaching farmers via helplines and SMS to provide advice on farm management,
weather forecasts, market price information, etc.
• Smallholder farmers and other players have a range of finance-related needs across the value chain, including
– Loans: short and long term lending for acquisition of inputs (seeds, fertilizer, agro nutrients), access to mechanization during plan-
ting (tractor rentals), harvesting once crops are ready (extra labor hire), to market based on pricing cycles
– Insurance: protection against extreme hydrological conditions (e.g., drought, excess rainfall) to recoup investment in inputs and
labor
– Agronomic, weather, and market information: knowledge on farm management best practices (e.g., input application, disease
control), localized weather forecasts, and market prices by crop and geography
– Smallholder farmers/SMEs in the agriculture sector are a low priority segment for most financial institutions due to the
unmanageable risk and high cost-to-serve, low presence of collateral, and variability of harvest performance

51SOURCE: IMF; Central Bank data
30
22
30
24
29
25
44
28
31
1
44
6
8
101112
15
NigeriaKenyaMozam-
bique
Sub-
Saharan
Africa2
EthiopiaTan-
zania
Malawi GhanaUganda
Agriculture as a share of GDP and commercial bank lending, 20081 , in %
% Lending% GDP
1 2008 reflects latest available data
2 Commercial bank lending across SSA is estimated at <10%, with the exception of Malawi, Tanzania and Uganda
5.1 AGRICULTURE – FINANCIAL SERVICE NEEDS ALONG THE VALUE CHAIN
As in much of SSA, a clear disconnect exists between the importance of
agriculture to the Tanzanian economy and general access to financing
Key takeaways
• Agriculture is a
key driver of
the Tanzanian
economy,
contributing
28% of GDP
• The agriculture
sector has
limited access
to commercial
bank lending:
it receives on
average 2-3
times less
credit than its
fair share
based on GDP
contribution

52
Many of the value chain gaps are related to limitations in the
meeting of smallholder and other actors’ financing needs
The nature of the agricultural sector makes providing financing less desirable
• Unique risks
– High operational and price risks due to weather, disease/pests, makes it hard to
diversify for banks in many monoculture regions
– Seasonal and multiyear cycles
• Time inconsistency
– Lag exists between investment needs and expected revenues
– Need patient capital with a long horizon and a tolerance for risk
• High transaction costs
– Loans are often in small amounts
– Borrowers are often dispersed in remote/rural areas with no distribution access
• Informality leads to a lack of collateral and information
– Absence of land titles or registered assets
– No financial statements or credit score from credit bureau
• Low level of financial literacy
– Limited understanding of the benefits of financial services and products
• Governance
– Substantial government intervention is increasing uncertainty
– Subsidies and repeated debt forgiveness are creating a moral hazard

53
Financing for staple crops, which constitute the largest share of
Tanzanian production, is especially challenging
SOURCE: Expert interviews; literature review
Markets for staple
crops are often
highly politicized
Staple crops
require significant
economies of
scale to attract
financing
Lack of product
differentiation
makes it harder to
finance staple crop
value chains
• Small producers often compete with larger, more
efficient producers in the country/region
• Scale is often required to ensure quality (e.g.,
through mechanization, storage infrastructure)
• The presence of multiple traders and
intermediaries increases the risk of diversion and
side selling unlike in cash crops, which are more
integrated
• Food reserve purchasing by governments creates
unpredictability
• Legacy of government supply/subsidy of inputs
distorts the market but is hard to reform

54
Smallholder farmers and other value chain players have a range
of finance-related needs across the agricultural value chain
SH = smallholder
AD = agro-dealer
EA = extension agents
PS = other private sector
Gov = government
1 432 65
Financingneeds
• PS: long-term
loans to private
enterprise to:
a) build agro-
processing plants;
and b) on-lend to
farmers
participating in
outgrower/contract
farming schemes
• SH: market
information
systems to enable
easy price
discovery
• SH: depository
accounts
(checking and
saving) to park
cash following
commodity sales
• SH: payment
receipt for
commodity
transactions
• SH: short-term
loans and credit
guarantees to
store commodities
until ideal market
period
• PS: long-term
loans to
rehabilitate
warehouses and
expand capacity
• PS: deposit
insurance to
protect stored
commodities from
fire, theft, etc.
• Gov: long-term
loans to
build/refurbish
roads and other
“last mile” rural
infrastructure
• SH: long-term
credit to
purchase/
lease/rent tractors
and other
advanced
equipment/
machinery
• SH: agronomic
information
transfer from
agricultural
professionals
• SH: weather-
indexed
insurance policy
to cover drought-
related losses
• EA:
salaries/payment
receipt to fund
transmission of
agronomic
expertise and
carrying out of
experiments with
farmers
• SH: short-term
loans to purchase
seeds, fertilizer,
and agro nutrients
• SH: third-party
credit guarantees
to procure inputs
• SH: payments to
facilitate
transactions with
suppliers
• SH: weather-
indexed
insurance policy
to indicate credit-
worthiness for
input purchases
• AD: short-term
loans to maintain
inventory and
extend credit to
SH
• SH: long-term
credit to expand
plot through lease
and/or purchase of
additional land

55SOURCE: Organization websites; press search; expert interviews; team analysis
A number of players meet the sector’s financing
needs to a very limited extent
Number/reach of existing initiatives
Minimal Moderate
LimitedN/A
Minimal but efforts underway
1 432 65
Information
Short term
Long term
Product/receive-
ables finance
Credit
Value chain lending
Physical asset
collateralization
Insurance
Credit
guarantees
Savings
Payments
5.2 AGRICULTURE – FINANCIAL GAP ANALYSIS ALONG THE VALUE CHAIN

56
DF+ can address some of the financing gaps in the agriculture
value chain (1/3)
Input
provision2
1.1
Value chain
gap
DF+
so-
lutionDrivers
Finance
need Existing services Barriers
►Lack of access to short-
term credit for smallholders
to purchase inputs
• Farmers participating in
closed-loop agriculture eco-
systems (e.g., Sacau project
by Monsanto, Yara, ETG and
Barclays) receive purpose-
tied loans based on future
sale to off-takers (e.g., large
traders, agro-processors)
• Donor direct financing/credit
guarantees within specific
initiatives (e.g., AGRA in the
SACGOT program)
• Government input subsidy
program
• Banks’ reluctance to lend to
farmers in the absence of
collateral
• Harvest risk posed by crop
exposure to extreme weather
variability
• Weak market dynamics –
insufficient off-taker demand for
non-high-value food crops
2.1
Inadequate
fertilizer
application
2.2
Inadequate
use of
improved
seeds
►Dearth of third-party credit
guarantees
►Insufficient utilization of
mobile payment platforms to
facilitate transactions with
suppliers
• Widespread use of mobile
money apps like Tigo-Pesa,
M-Pesa, and AirtelMoney –
~50% of adults are currently
subscribers
• Mobile phone penetration is
relatively high (75% of the
population) – but the poorest
smallholders do not own
handsets
2.4
Inefficient
government
input
subsidies
►Non-digitization of input
vouchers and administrative
complexity of redemption
process
• Government program
disburses paper-based
vouchers to DALDOs1 for
distribution to smallholders –
the processes of application,
verification and redemption
ends with agro-dealer
payment entailing 7+
handoffs
• Agro-dealers, who rely on
subisdies for up to 20% of
total sales, are thus often
paid up to 12 months late
• Lack of adoption of digital
platforms/mobile money,
malfeasance by district-level
government officials
1 District Agriculture and Livestock Development office
DF+ solution
Add-on to core
DF+ solution)(
5.3 AGRICULTURE – BARRIERS TO PROVISION

57
value chain (2/3)
Production3
1.1
Value chain
gap
DF+
so-
lutionDrivers
Finance
►Low levels of farmer
education on agronomic
best practices (e.g., land
preparation, input
application, disease
diagnosis)
• Smallholders have very low
levels of formal schooling and
employ age-old tactics, not
having adopted many
modern techniques
• Infrequent and poor quality
access to government
extension services
• Mobile-based applications
(e.g., TigoKilimo) are
beginning to provide
customized agronomic advice
• Lack of widespread training
programs, demonstration plots,
field trials etc.
• Remoteness and dispersion of
farmsteads
• Infrequent use of mobile
solutions even where subscribed
3.1
Farmer
information
constraints
3.2
Heavy crop
and
economic
losses to
weather
variability
►Insufficient access to
localized market information
►Crop exposure to extreme
weather conditions without
insurance protection
( )
( ) • Few widely accessible
market price indices exist
• Mobile-based applications
(e.g., TigoKilimo) are
beginning to provide localized
market data
• Farmer distance from physical
markets
• Monopoly of information by
traders
( )
( )
• Weather-indexed crop
insurance plans are bundled
with other financial products
and available to farmers
participating in closed-loop
market ecosystems with
major value chain actors
• Absence of deep microclimate
data
• High insurance plan premiums
• Exclusion of the majority of
smallholders from integrated
value chain ecosystems
DF+ solution
Add-on to core
DF+ solution)(
5.3 AGRICULTURE – BARRIERS TO PROVISION

58
value chain (3/3)
Storage
and
Distri-
bution
4
1.1
Value chain
gap
DF+
so-
lutionDrivers
Finance
►Insufficiently developed
warehouse infrastructure
• The majority of smallholders
currently sell their produce to
small-scale traders at the
farmgate immediately
following harvest
• The value of crops can be up
to 60% higher during times of
peak market prices
• Warehouse Receipt Systems
are being implemented in
certain value chains –
farmers deposit produce after
harvest and receive a
medium-term loan for a
portion of crop value until the
full balance is settled, with
the ultimate sale occurring in
more ideal market conditions
• Sparse presence of storage
facilities
• Poor management and
operations of warehouses
• Farmers’ immediate cash need
after harvest
4.1
Unavailability
of storage
warehouses
4.2
Farmers’
post-harvest
need for
liquidity
►Farmers’ inability to hold on
to crops until optimal
market conditions
DF+ solution
Add-on to core
DF+ solution)(
5.3 AGRICULTURE – BARRIERS TO PROVISION OF FINANCIAL PRODUCTS

59
Agenda
Readiness framework

60
Key takeaways: Agriculture sector Digital Finance Plus solutions
feasibility
AGRICULTURE – DIGITAL FINANCE PLUS SOLUTION FEASIBILITY
6.1 Potential applications of DF+ to address barriers
6.3 Scaling and execution capabilities
6.2 Viability of observed and potential business models
• DF+ can play a positive role in helping to address several of the financing gaps faced by smallholders in
agriculture by facilitating financial linkages between value chain actors, decreasing transaction costs, promoting
transparency in the flow of commodities and financial products, powering the aggregation and analytics of
data (behavioral, agronomic, and market), and enhancing contract enforceability
• Consequently, several value chain actors are partnering to provide innovative applications that enhance farmer
access to financing and increase farmer incomes. The most noteworthy products already in operation and/or
under development for the near term include: i) Warehouse Receipt System based post-harvest credit provision; ii)
input loans through closed-loop agriculture ecosystems; iii) information portals for agronomic, weather, and market
data; iv) e-wallets for input subsidy administration; and v) weather-indexed crop insurance to protect against extreme
weather conditions
• The current landscape of DF+ solutions is mostly driven by value chain actors, including seed and fertilizer
companies (e.g., Monsanto, Yara) and agro-processors (e.g., ETG), with the notable exception of the most
successful agronomic information portal, which is primarily driven by Tigo, a telco company
• Financial institutions lend directly to producers or producer associations in extremely rare cases –
however, banks like NMB and Barclays are extending credit with heavy collateralization/security guarantee through
value chain actors
• Scaling of DF+ solutions is hampered by several non-finance-related challenges, including
– Producer organization and entrepreneurship: many farmers are not encompassed in market-based
associations and lack the business knowledge to self-organize and form enterprising collectives
– Supply/demand market dynamics: the provision of financing is closely linked with robust markets for
particular crops, consequently favoring producers of high-value crops with market for agro-processing and
export (e.g., white maize, sunflower, coffee)

61
The in-country interviews have generated new insights into the
agriculture sector (1/4)
“For all the efforts to make farmers
entrepreneurs and link them to
markets and such – we should
keep in mind that many
smallholders are simply not
attractive/eligible for such
enablement”
– Seed company executive
“Simply providing credit does not
address more fundamental
questions – is there a sustainable
growing demand for the crop being
grown by the farmer? And does the
farmer think, act, and manage his
farm like a business?”
Key insights Indicative quotesInterviews conducted
• Bill and Melinda Gates
Foundation (BMGF)
• East Africa Seed Co.
Ltd
• Faida Market Link
(Faida MaLi)
• Ministry of Agriculture
• Monsanto
• President’s Delivery
Bureau
• Syngenta
• Seed Co Tanzania
• Tujijenge
• Tanzanian
Horticultural
Association (TAHA)
• Tigo
• USAID
1. Supply/demand dynamics in the market, as well as the
entrepreneurial profile of farmers, are the fundamental
drivers of commercial viability of credit provision and
other financing support
• Credit is best targeted at particular types of farmers, with
characteristics including
– Entrepreneurial saavy and commitment: young, early
adopters who have already demonstrated a desire for
business improvement through installation of irrigation
systems, crop rotation, hybrid seed usage, etc.
– Ideal farm size/crop profile: farm sizes of 5-50ha, (not
too small, but not so big that they are commercial size
with access to “regular” credit from VC actors
and/financial institutions); produce horticultural, dairy,
white maize, etc.
– Demand-driven need for loan capital: Year-over-year
on demand growth for a crop that is not imported,
providing an impetus for farmers to grow their
businesses, for which they will need investment
2. Many of the new financial products being offered are only
available to a small niche of farmers relative to the wider
smallholder base
• Farmers who are eligible for input credit, crop insurance,
warehouse receipts, etc., usually: a) belong to a strong
producer collective; b) grow horticultural or other types of
cash crops; and c) have a strong relationship with a
monopsonic value chain actor (e.g., outgrower schemes to
supply a brewery with barley)
6.1 AGRICULTURE – POTENTIAL APPLICATIONS OF DF+ TO ADDRESS BARRIERS

62
“We have had 40 years of
socialism in this country – we have
to teach farmers fundamental
things before we erase the
everything-is-for-free attitude and
the fundamental ignorance about a
capitalistic market system”
– Producer association
executive
“We can show great results for our
work – farmers whom we have
helped are demonstrably better off
- but we have barely scratched the
surface and expanding our efforts
requires donor financing”
– Producer association
executive
3. Organization, farmer education, and aggregation are
major prerequisites to providing input financing, linking
to markets, etc. The following interventions are generally
required
• Association: organizing farmers into formal associations with
a collective mission, constitution, negotiation power etc.
• Training: farmer education on use of inputs and collective
marketing; business and technical skills training including
“farming as business”
• Aggregation and storage: building/renovating storage
facilities and mobilized associations to implement WRS;
achieving certification by Tanzania Warehouse Licensing
Board
• Mindsets and behaviors: make farmers more entrepreneurial.
“We have had 40 years of socialism in this country, so many
still have some version of everything-is-for-free and the state-
takes-care-of-all attitudes”
4. Donor support is still key to enabling producer
supporting organizations
• Successful NGOs helping farmers to organize have
succeeded in achieving significant results in enhancing
farmer incomes – one succeeded in increasing farmer
income from for paddy from Tsh 200/kg to 450/kg by
facilitating building and management of warehouses
• However, donors heavily subsidize renovation of warehouses
and introduction of improved storage and management
practices – the NGO still relies on funds for financing its own
operational needs
• Bill and Melinda
Gates Foundation
(BMGF)
Ltd
(Faida MaLi)
• Ministry of
Agriculture
• Monsanto
Bureau
• Syngenta
• Tujijenge
• Tanzanian
Horticultural
Association (TAHA)
• Tigo
• USAID

63
“We provide loans to farmers – but
our conditions are often highly
prohibitive, and our rates are
fundamentally unattractive”
– MFI executive
“It is ultimately good business for
us to enable farmers to buy higher
quality inputs – but we can’t go at it
alone”
“We have big plans for the future,
but first we have to get farmers
comfortable with us”
– Telco executive
5. Most farmers have some access to credit – but it is often
through informal networks and entails extremely
burdensome terms
• Several actors lend money to farmers – local moneylenders,
who charge exorbitant rates (up to 300%) and MFIs whose
rates are also high (50-200%). A few banks (NMB, Stanbic)
also do extremely selective lending at reasonable rates (e.g.,
25%) but in highly controlled circumstances (e.g., with WRS
deposits as collateral and guaranteed off-takers)
6. Seedcos and other major input suppliers are willing to
participate in closed-loop marketing ecosystems in which
they contribute to farmer financing
• Syngenta, Yara, and other input suppliers have collaborated
with FIs like Barclays to launch pilot initiatives to help
“emerging farmers” secure comprehensive financing for
procuring inputs and selling produce directly to agro-
processors
• The objective is to ultimately create wider demand for their
own goods, as farmers who experience commercial success
buy hybrid seeds and fertilizer more frequently
7. Building farmer trust and fidelity is an essential
prerequisite to commercializing mobile solutions like agro
information apps
• Tigo enables farmers who sign on to its TigoKilimo to use
highly discounted services to prove its efficacy and build trust
before eventually moving onto higher profit generating
features
• Bill and Melinda
Gates Foundation
(BMGF)
Ltd
(Faida MaLi)
• Ministry of
Agriculture
• Monsanto
Bureau
• Syngenta
• Tujijenge
• Tanzanian
Horticultural
Association (TAHA)
• Tigo
• USAID

64
“We have nearly $100,000 in
unpaid vouchers from the
government from last year’s
harvest season”
– Agro-dealer executive
• Bill and Melinda Gates
Foundation (BMGF)
Ltd
(Faida MaLi)
• Ministry of Agriculture
• Monsanto
Bureau
• Syngenta
• Tujijenge
• Tanzanian
Horticultural
Association (TAHA)
• Tigo
• USAID
8. An E-wallet in which all of farmers’ financial transactions
are put in a virtual bank account and are facilitated by a
payment platform could have a tremendous impact on
making financial flows transparent and efficient
• SeedCos report that up to 20% of all revenue is driven by
government input subsidy schemes
• High degree of inefficiency in the issuing, circulation, and
processing of vouchers; a single batch of vouchers can pass
through 7 steps from issuance to redemption
• This leads to frequent cases of system corruption and
frequently late payments to agro suppliers

65
DF+ can help in addressing some of the gaps
in the Agriculture value chain
Detail
follows
Value chain segment Challenges
Product
evaluation
Finance
as barrier
DF+
potential
No other
barriers
Assessment of applicability of DF+ solution
1.1 Small arable land utilization
1.2 Limited average plot size
2.1 Inadequate fertilizer application
2.2 Weak demand for improved seeds
2.3 Underdeveloped capacity of agro-dealers
2.4 Inefficient government input subsidies
3.1 Farmer information constraints
3.2 Weak extension services
3.3 Low levels of mechanization
3.4 Heavy exposure to weather variability
4.1 Unavailability of storage warehouses
4.2 Post-harvest need for liquidity
4.3 Underdeveloped rural infrastructure
5.1 Low levels of commercialization
5.2 Non-consolidated aggregation/off-take
5.3 Poor access to market information
5.4 Weak market linkages
6.1 Low level of private investment
Land
Input provision
Production
Storage & Distribution
Marketing
Processing
high low

66
Based on the analysis of the current state and barriers to scale,
we suggest 5 DF+ applications for your further consideration
Top challengesDescriptionDF+ product
Unavailability of storage
warehouses
4.1 1. Product financing
2. Storage facilities
3. Qualities and standards
4. Market price information availability
• Inventory-based credit
provision to farmers for
certified commodities held in
storage at warehouses
• Digital Warehouse
Receipt System-
based medium-term
loans
Addressed Agriculture sector
challenge
A
Post-harvest need for
liquidity
4.2
Inadequate fertilizer
application
2.1 1. Product financing
2. Farmer eligibility
3. Value chain actor coordination
4. Side-selling risk
• Post-harvest, off-take-linked
input loan for farmers in
agriculture value chain
ecosystems
• Input credit for small-
holders in closed-
loop ecosystem of
integrated value
chain actors
B
Inadequate usage of
improved seeds
2.2
Inefficient government input
subsidy program
2.4 1. Farmer education
2. Mobile phone penetration
3. Privacy
4. Product financing
• Mobile phone platform for
digital issuance, verification,
and redemption of input
vouchers
• E-wallet for
government input
subsidy
disbursement
C
D Heavy crop losses to
extreme weather
3.4• Insurance product to mitigate
the risk of extreme weather
events with digital purchase,
claims filing, resolution, and
payout
• Weather-indexed
crop insurance
enabled by digital
platform
1. Product financing
2. Weather condition and crop yield
correlation modeling
3. Depth of historical weather data
Farmer information
constraints
3.1• Digital portal for collection
and dissemination of
agronomic, weather and
market data, with extension
of financial products based
on detailed consumer profile
• Mobile system for
agriculture informa-
tion dissemination
and collection of
smallholder data
E 1. Primary information access
2. Usability of collected data
3. Marketing
4. Distribution

67
Digital Warehouse Receipt System-based medium term-loans
(1/3)
Financial
instrument
Credit provision based on
warehouse crop deposits
Target
audience
Smallholders participating
in WRS
Product
provider
Financial institutions +
agro-processors
Value propositionProduct details
Overall value proposition
• Providing farmers access to credit
based on deposited collateral
• Improving farmer income by allowing
choice on when to sell in the pricing
cycle
• Reducing post-harvest losses due to
poor storage conditions
• Smoothing the supply of produce and
price volatility in the market
• Helping to create commodity markets
that promote aggregation, competition,
and trade
Core product features
• Mechanism to mobilize credit to farmers by creating secure collateral for processors and
traders
• After harvest, the farmer deposits crop in a licensed warehouse and receives a certificate
verifying the quantity and quality grade of the commodities
• Based on the certified amount, the bank extends a short-term loan to the farmer for a
certain portion of the crops’ value (percentage of total commodity X average price of
commodity over benchmark period)
• Before the loan matures (6-to 9-month period), the farmer sells his crop to an agro-
processor or trader who pays the entire value of the crops into the WRS bank account
• The bank deducts the principal and interest owed, then deposits the balance into the
farmer’s mobile money account
Potential extensions
• Purpose-tied savings accounts: farmers may elect to leave a portion of post-harvest sales
in the mobile account for an interest-bearing savings account, which they can use to
procure inputs at the beginning of the next planting season
• Futures contracting: farmers and agro-processors can enter into agreements to produce
and trade commodities of a specified quantity, quality, price, and timing; the agreements
are considered completed once commodities are deposited into warehouse
DF+ specific value proposition
• Digital issuance of warehouse deposit
certificate
• Mobile money transfer by bank into
farmer account for interim credit and
final sale amount
Product summary
• Inventory-based credit provision to farmers for certified commodities held
in storage at warehouses
Financial needs addressed
• Farmers’ need for liquidity in the immediate aftermath of harvest
• Farmers’ option to sell produce at time of peak prices
A

68
Digital Warehouse Receipt System-based medium term loans
(2/3)
Low High
Detailed impactFeasibility assessment: business model
Feasibility assessment: enabling
environment
Feasibility
• Moderately feasible: successful WRS
schemes have been implemented in
Tanzania, but widespread scaling is
hampered by the lack of a few key
enablers, including storage infrastructure
and quality and grading standards
Potential impact
• High impact: farmers net significantly
higher incomes (up to 65% for some
crops) when given access to
adequate storage facilities and short-
term liquidity to meet their immediate
cash needs
Government regulation
• GoT has developed
Warehouse Receipt Act laws
and a Warehouse Licensing
Board to facilitate WRSs
Telco
• Integrating new farmer WRS
accounts with a mobile money
platform is relatively easy
Product financing
• The upfront cost of renovating
and operationalizing warehouses
is high and may require donor
financing; in steady state, WRSs
can become commercially
viable/self-financing
• Net earnings per
kilogram through WRS
are 20-65% higher than
non-WRS subscribers –
e.g., for cashew, prices
through middlemen were
1,000 TShs/kg, whereas
prices through WRS
were1,300 TShs/kg; for
sunflower, prices were
450 TShs/kg through
middlemen and 650
TShs/kg through WRS
Storage facilities
• Famers who are members of producer associations or
cooperatives often have access to physical storage
infrastructure, although best-practice fumigation and
packaging, as well as professional management, are a
challenge
A
Qualities and standards
• Quality standards need to be specific enough to give
clear definitions of quality grades – Tanzania Bureau of
Standards currently has moderate capability in this area
Market price fluctuation and information availability
• General price increase in the harvest season is
essential enabler and present in Tanzania; however,
tracking prices for certain commodities can be a
challenge in the absence of location-specific indices

69
Digital Warehouse Receipt System-based medium-term loans
(3/3)
Case examplesGo-to-market model
NMB Warehouse Receipt System
• NMB has implemented a WRS financing
system in Tanzania
• ~30 warehouses have been licensed, with
ownership by farmer associations as well as
private operators
• About 7 crops are covered under the scheme
(coffee, pigeon peas, cashew, paddy,
sunflower and sesame)
• Initiatives are underway to establish a
Commodity Exchange for efficient marketing
• In 2011, NMB conducted $73 million of
business through the WRS schemes
A
• Agro-processors and banks
consult with producer
organizations to develop
WRS based on buyer and
seller needs
• Banks and agro-processors
receive support from
development institution to
upskill and license existing
warehouses
• Operation and
management of
warehouses is conducted
by farmer organizations or
subcontracted to private-
sector players

70
Input credit product for smallholders in closed-loop ecosystem of
integrated value chain actors (1/3)
Financial
instrument
Input loan by repayment
linked to harvest
Target
audience
Smallholders in integrated
market ecosystems
Product
provider
Input companies + off-
taker + warehouse
• Provides farmers with access to
purpose-tied credit to purchase the
most critical production factors
• Improves yield (quality, consistency,
and volume output) of crops and
secures higher prices for farmer
produce
• Enhances sales of input suppliers –
virtuous cycle of farmers investing in
improved inputs
• Guarantees off-takers quality supply of
produce at a specified time and scale,
with pre-agreed price/pricing formula
• A contract farming arrangement integrating smallholders with major value-chain market
actors to link them with financing, provide them with comprehensive agronomic support
and guarantee off-take at the end of harvest
• Highly organized, entrepreneurial group of “emerging farmers” (e.g., an “apex” comprising
200 farmsteads, each with minimum 5 ha and growing a horticultural crop) are included in
a closed-loop system of seed and fertilizer suppliers (e.g., Monsanto), a warehouse, an
off-taker (e.g., sunflower processor), and a financial institution
• Farmers receive SMS-based vouchers from FI for acquisition of fertilizer, seed etc., with
the primary risk born by the off-taker and secondary guarantee by input companies
• Post-harvest, farmer delivers harvest to off-taker on pre-agreed quantity, quality, and price
basis
• Off-taker deducts cost of input before depositing balance of payment to farmers’ mobile
account
• Crop insurance: weather protection insurance could potentially be bundled with input, with
portion of premiums paid by input companies to incent farmer seed purchases
• Convenient payment platform
eliminates need for paper vouchers
and cash
• VC actors can track the flow of funds
and better enforce repayment
Product summary
• Post-harvest, off-take-linked input loan for farmers in closed-loop
agriculture value chain ecosystems
• Smallholder access to credit for input purchase
• Convenient tracking and facilitation of financial flows between VC actors
B

71
Low High
environment
Feasibility
• Moderately feasible: successful cases of
integrated ecosystems have been
implemented, proving concept feasibility.
However, scaling to wider smallholder
base is inhibited by supply/demand
dynamics and farmer characteristics
Potential impact
• High impact: farmers with improved
access to inputs, complemented with
on-farm support, have grown yields of
major crops by up to 3 times
• No known government
policy constraints
Telco
• Widespread adoption of M-
Pesa, Tigo-Pesa, and other
mobile money providers;
building the user interface will
be the only additional effort
required
Product financing
• Value chain actors like input
companies and agro-
processors are willing to take
risk for FI credit provision, in
controlled circumstances as
outlined
• Improved access to
hybrid seeds in closed-
loop systems have led to
dramatic improvements
in yield – in white maize,
for example, yield has
jumped from 1-1.5
tons/ha, to 4 tons/ha
Value chain actor coordination
• Successful closed-loop system requires presence and
coordination of all major VC chain actors
• Pilot projects have proven coordination capability successful,
although only on a small scale so far
B
Side-selling risk
• Due to lack of legal enforcement mechanisms and the
volatility of prices on the open market, only monopsonic
off-takers are relatively protected from side-selling by
farmers
Farmer eligibility
• Smallholders have to be organized into associations, adopt
an enterprise mindset, have reasonably large landholdings,
and grow crops that off-takers desire (e.g., white maize,
sunflower) for value addition, among other requirements
• Currently, a relatively small share of farmers fulfill most of the
requirements above – the majority of farmers grow food
crops, have small plots, and are not effectively organized

72
Case examplesGo-to-market model
Sacau project (Monsanto, Yara, Barclays, ETG)
• Monsanto partnered with other input suppliers
and a financial institution to provide farmers
with financing and agronomic support
• Closed-loop system with a contract-farming-
type arrangement in which the off-taker is
guaranteed purchase at a certain price after
harvest
• Identified about 200 “emerging farmers”
producing white maize, with landholdings of 5-
10ha; bank provided 100% input financing
based on a 75% credit guarantee provided by
value chain actors
• Resulting improvements of up 30% in yields,
with commensurate increases in farmer
incomes
C
• Input suppliers,
mechanization service, off-
taker, and financial
institution form a
partnership to target a
specific segment of
producers (based on crop,
geography, entrepreneurial
characteristics, etc.)
• Farmers are provided with
integrated, end-to-end
financial products, as well
as farm management
support and business
training

73
E-wallet for input subsidy disbursement and integrated hosting of
all farmer financial flows (1/3)
Financial
instrument
Digital wallet for input
subsidy voucher disbursal
Target
audience
Smallholders eligible for
input subsidies
Product
provider
Government + input
supplier + telco
• Subsidies are used for their intended
purpose – minimal opportunity for
intermediate actors to misappropriate
• Reduces transaction cost: the current
process requires 7-different handoffs
between various government officials,
private sector actors, and farmers
• Encourages agro-dealers to meet seed
and fertilizer demand as they can
easily redeem vouchers
• Value chain actors have transparency
into the flow of inputs and funds in the
system
• Eligible farmers receive a defined percentage government subsidy on a specific number of
bags of fertilizers and seeds on unique mobile accounts
• Electronic vouchers with unique PINs for the subsidy amounts are issued by Ministry of
Agriculture to farmers on SMS, which they receive based on their digital identity card
• At the agro-dealer site, the farmer presents voucher PIN and pays for the balance using
mobile money
• If the farmer is a participant in a Warehouse Receipt System (WRS) scheme, digital
account is used for payment upon deposit of harvest
• Participating agro actors are able to trace aggregated and sanitized data on flow of inputs
and funds in value chain
• Post-harvest payments: WRS-linked farmers can conduct all financial transactions using
the same mobile money account
• Loan extension: over time, data collected on farmer usage of inputs and harvest
output/sale at the end of the agro cycle can be used to assess need and worthiness for
purpose-tied loans by financial institutions
• Convenient payment platform
eliminates need for paper vouchers
and cash
• Unique digital tag identifies individual
farmers
Product summary
• Mobile phones platform to enable farmers to conduct basic
transactions and make payments for direct input access
• High administrative expense of running input subsidy programs
• Frequent issues faced by agro-dealers in redeeming vouchers
• Misuse/misappropriation of government subsidies
C

74
E-wallet for input subsidy disbursement and integrated hosting of
all farmer financial flows (2/3)
Low High
environment
Feasibility
• Highly feasible: widespread
mobile phone ownership and
mobile money usage make
voucher system addition
relatively easy
Potential impact
• High impact: Smallholders will be able to
improve crop yields by having easier access
to improved seeds and fertilizer. Agro-
dealers will be able to redeem value of
government vouchers, and therefore
become more willing to meet farmer demand
• No known government policy
constraints
Telco
• Widespread adoption of M-
Pesa, Tigo-Pesa, and other
mobile money providers;
building the user interface will
be the only additional effort
required
Product financing
• The Government of Tanzania,
backed by the World Bank,
already runs a large input
subsidy program; funding
development of e-wallet
system easily paid for through
subsequent savings realized
• Agro-dealers estimate
that up to 20% of their
entire business is funded
through government
input subsidies; frequent
delays and the several
hand-offs required for
redemptions drastically
erode profit margins
• In the Nigerian pilot
program, a 2-year
program has reached 5
million farmers and is
estimated to have
enhanced the food
security of 25 million
people in rural farm
households
Mobile phone reach
• E-wallets require access to mobile technology by
smallholders; currently, Tanzania has a very high
penetration of mobile access, with ~60% of the
population having access, including the rural farmer
base
Farmer education
• Extension workers, NGOs, and other agriculture
actors will need to train farmers on usage of virtual
system, but this is a relatively easy task given high
levels of literacy and mobile phone usage
Privacy
• Collection of metadata may be non-objectionable,
but farmer-specific information has the potential for
misappropriation
C

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