Access to finance is crucial for businesses to support and expand operations; otherwise, they lack the cash flow needed to make upfront investments and deliver goods and services to their consumers. Sometimes, limited access to finance is enough to stifle an entire market.
AgResults, a $152 million initiative that designs and implements Pay-for-Results prize competitions to motivate the private sector to overcome agricultural market failures, learned the importance of access to finance through its Nigeria competition (2013-2019) that encouraged uptake of AflasafeTM among smallholder maize farmers. Early on, many competing maize aggregators struggled to afford upfront purchases of AflasafeTM. Only those that managed to identify and access finance were able to deliver AflasafeTM and other inputs to smallholder farmers to produce higher-quality maize. In other words, access to finance unlocked their ability to succeed and scale.
Connecting Dairy Businesses and Banks
Thanks to the lessons from Nigeria and its other projects, AgResults has taken a proactive approach to increase access to finance with its Tanzania Dairy Productivity Challenge Project (2019-2023), which awards prizes to private sector input suppliers and dairy processors to deliver input bundles of parasite control, nutrition, vaccines, and/or AI — along with extension services — to smallholder farmers to increase the quality and quantity of milk production.
Understanding that many input businesses in Tanzania historically struggled to get credit, AgResults knew it was important to engage stakeholders along the value chain right away to create a stronger financial enabling environment. Along with government representatives, donor representatives and potential competitors, financial institutions were invited to the project’s launch in November 2019, where they learned about the project’s goal and prize structure. Formally receiving this information reassured the banks that the prize was legitimate and showed that it could be worthwhile to grant loans to those businesses that qualified.
At the event, National Microfinance Bank and CRDB Bank presented on credit facilities available to competing input providers based on their business operations and also talked one-on-one with competitors about the loan process. Empowered with this knowledge, input suppliers assessed their capacity to finance operations during the competition and conducted an inventory of their existing customer base and potential new customers to gauge the investment needed to facilitate the commitments in their loan application. The assessment results forced competitors to think more deeply about how to mobilize funds to support the commitments made when they chose to participate in the competition. The results also showed companies how to provide more targeted solutions to their customer base.
A Closer Look: How Damian Agrovet Leveraged its Access to Finance
Located in the Morogoro Region of Tanzania, Damian Agrovet has sold agricultural inputs and offered extension services to dairy farmers for 18 years. Prior to the AgResults competition, Damian could not find the right financial resources to make upfront investments in pasture, standard dairy meal, and cold chain for quality artificial insemination (AI) services.
However, thanks to the competition’s proactive approach to connect businesses with banks, Damian had all the necessary pieces to approach NMB and access a loan of TZS 17 million to support their business goals. Through the loan, Damian purchased a 35kg tank for storing liquid Nitrogen, two 3kg tanks for AI service delivery, and a motorbike to ensure that AI services could be delivered on time. This infrastructure enabled Damian to register 81 AI transactions in four months, leading to 37 reported cow pregnancies.
Damian Agrovet also used a portion of the finances to purchase hay and fodder so that its farmers could access a ‘complete’ nutrition bundle per the prize competition criteria. To help more distant farmers access hay at competitive prices, Damian diversified the loan to develop a cost-effective dairy meal that met standard requirements with support from TanFeeds International, a feed manufacturing company. With these linkages in place, Damian could promote the use of standard dairy meal to improve milk production and nutrition for cows, preparing them for AI services.
During Sales Period 1 (July 17, 2020 – April 16, 2021), Damian delivered 77,133.5 kg of standard dairy meal through 552 sales transactions. Selling more standard dairy meal also drove up how many AI services they offered: Damian sold 6,600 kg of standard dairy meal in December 2020 and 24,500 kg in January 2021, which then led to sales of 98 conventional semen straws in January and February. This trend continued through the end of the sales period.
Positioning the Dairy Sector for Success
The long-term impact of access to finance goes beyond higher input sales. By proactively addressing the challenge of access to finance early in the competition, AgResults has empowered Damian Agrovet and other input suppliers to build sustainable relationships with banks and use prizes to pay loans and further scale their operations. This same capital is helping businesses expand access to inputs among smallholder farmers, increasing productivity and strengthening the entire dairy sector in Tanzania.