Digital KYC for Farmers.

Interest rates in rural areas are too high. By providing financial services digitally, we can make loans more affordable and available, thus allowing farmers to invest in their farms. To provide these services safely, organisations and companies need to be able to verify the identity of rural clients remotely.

Our solution utilises the Ugandan National ID card system to verify the identity of a farmer so that they can borrow money reliably, affordably, and instantly. Using farmers’ cooperatives as agents, we reach populations in rural areas who don’t necessarily have access to smartphones.

Our solution is made with Uganda in mind but can easily be modified to work in other countries. For our fintech Emata, this critical innovation enables us to lend to millions of farmers across Africa. Leveraging our innovation, other financial innovators can deliver a range of affordable and digital financial products to the underbanked across the globe.

The problem we are solving is regional, as Emata focuses on farmers in East Africa. However, providing digital financial services to the underbanked – a process in which identity verification is a critical step – is a global problem, making our product a global solution.

Globally, 1.7 billion people lack access to finance (World Bank, 2018).

We focus on access to finance in rural areas, because there is a limited bank presence and 60% of the population in Sub-Saharan Africa live in rural areas. (World Bank, 2019).

Due to low rural incomes, people lack money to travel to cities to access banking services. Worse still, the public transportation system is largely underdeveloped.

Notwithstanding the upward trend, Africa is still the least developed region in the world for mobile connectivity and smartphone proliferation. According to GSMA data, mobile data network connectivity (3G) in Africa covers less than 50% of the population for 3G (vs a global average of 78%). Other barriers include the high cost of data connectivity (e.g. in South Africa’s, nearly three times the relative disposable income is spent on internet than in Europe, according to a report by Deutsche Bank) and low levels of digital skills.  

A farmer’s biggest challenge is access to affordable financing. Presently, farmers cannot use loans to invest in their farms because they are charged punitively high annual interest rates of 50-100%. With Emata, we reduce the costs of interest rates to a level where farmers can use loans to make productive investments.

A key enabler for digital lending is the widespread prevalence of ID cards in East-Africa. Verification is critical to our solution as it helps us verify the identity of a potential borrower. In Uganda, over approximately 80% of the population has an ID card.  

A more productive farm has a profound impact on the livelihood of the farmer and their family, often resulting in new and better jobs, not only for them but for their many dependents and the community around them.

To break it down: If a dairy farmer has ten cows that produce 400 litres each per year, or a combined 4000 litres per year, this generates 750$/year of income. With Emata, in two years, the same farmer will have 12 cows that produce 600 ltrs/year each, or a total of 7200 ltrs/year. The farmer's income will have doubled to 1400$/year.

Although smartphones usage has sky-rocketed, there are still issues concerning connectivity and smartphone penetration in rural areas. Although this will improve with time, we use agricultural cooperatives as our agents to alleviate this problem. With our solution, one agent with a smartphone ensures that we reach hundreds, if not thousands, of farmers.

To register, the farmer visits their cooperative, where a staff member completes a short KYC process. This process consists of verifying the farmer’s national ID, phone- and mobile money number, and taking a photo. Once registered, they only need their feature phone to apply for any financial service. 

In Uganda, the ability to digitally verify IDs has recently become available. However, banks have struggled to understand the opportunities this provides. The ability to remotely check IDs in rural areas means being able to offer services to a new section of the population.

 Digital ID verification is a critical step in enabling these services, but it is not the only innovation we have made to make meaningful change for underbanked farmers.

 Emata’s model innovates in several areas:

Data collection: We collect data on farmers through digitizing cooperatives. By providing cooperatives with our free-to-use MIS (Management Information System), we help cooperative staff control, manage, and grow their business. We developed and tested this in 2018 and have since continued to develop and improve it.

 Alternative credit scoring: We perform advanced data analytics on data collected through the MIS, in addition to other data sources. In 2019, we developed an alternative credit-scoring engine that generates a credit limit and repayment schedule that is tailored to each farmer and is cognitive of seasonality patterns.

 Financial services: We put our credit scores to work by linking them with an end-to-end digital lending solution. The MVP of our loan solution is in an advanced prototype stage. It consists of a KYC capture functionality, a back-office that approves based on a set of automated checks, a loan disbursement mechanism via mobile money, and a loan application that can be accessed by the cooperative with a smartphone or by the farmer directly via USSD or WhatsApp.

Our solution is not a new technology but rather a combination of several existing technologies combined to solve a problem faced by most of the financial service providers. This is the concept behind the solution:

• Information capture: We capture information off a national ID card using a smartphone in an automated way to avoid data capture errors. We scan the PDF417 barcode at the back of the ID card which has all the necessary information about a customer, including a fingerprint.
• On-the-spot validation: The real owner of the card is validated by matching the embedded fingerprint on the card with the one captured through a smartphone attached fingerprint device. This can be done via Bluetooth/USB, which allows us to do this process offline when faced with low or no data connectivity.

The steps defined above are enough to fulfil the KYC requirements of most small financial service providers. In case you need to validate this information with the government’s central registry, we set up a check that submits the information captured to the government registry API for verification.

We have already deployed the solution to the 2nd largest bank in Uganda: dfcu Bank.

Most recently, we have also been hired by the Central Bank of Uganda to roll out a system to all supervised financial institutions in the country. Over 5,000,000 customers will be verified through this platform which will support financial institutions in onboarding new customers

Within an inclusive financial systems, a farmer will be able to access affordable loans and other digital financial products when they need them. They will be able to use the power of loans to invest in the productivity of their farms thereby improving and transforming their lives and the communities around them.

By simplifying the ID verification process, we ensure that farmers get immediate access to services such as loans and savings products. Quick turn-around because of the existing authentication means that they get access to services when they need them, not days, weeks or months later.

Investment in a farm’s productivity can have an immense impact on the individual farmer. If a dairy farmer has ten cows that produce 400 litres each per year, or a combined 4000 litres per year, this generates 750$/year of income. With Emata, in two years, the same farmer will have 12 cows that produce 600 ltrs/year each, or a total of 7200 ltrs/year. The farmer's income will have doubled to 1400$/year.

This will significantly improve their ability to pay school fees and invest in their communities. Studies by FAOSTAT show that farmers primarily use their money on food, medical expenses and education. A study by University of Vermont suggest that informal credit, often the only form of credit available to farmers, is usually used to cover these same expenses, while formal credit is used to invest in agriculture/livestock inputs. By offering access to formal credit, Emata encourages long-term investments that enables a farmer to pay for expected and unexpected costs without resorting to informal and often expensive loans.

The long-term result is that farmers, and their dependents, will be more financially secure and less exposed to risks and ruin. Their dependents will be able to attend school without resorting to payday loans, a sudden illness can be healed without medical expenses ruining the family economy, and the positive impact of participating in the formal economy might give access to new services for the farmer.

Our solution can easily be incorporated into existing systems. For Emata, our solution would be incorporated like this:

A farmer can request a loan after visiting their cooperative to ensure that the KYC process is done. The staff member completes an easy KYC process. This process consists of verifying national ID, taking a photo of the farmer, and verifying their phone and mobile money number.

Through this simple KYC process, we validate that the farmer is the rightful owner of the ID card and the mobile money account through which we disburse loans.

Once the KYC process is completed, the farmer can request a loan within a loan limit. Loan limits are set by our alternative credit scoring algorithm.

A farmer can request a loan either directly from the cooperative, via WhatsApp or USSD. The loan application process offers loan and repayment options, clearly indicating weekly debt service levels.

Our simple mobile application will be used by the cooperatives to identify the farmers. This process takes less than two minutes and will only have to be executed once. Once the farmer has been validated in the system, they can use their simple feature phone to access financial services. As explained in previous sections, the app utilises existing technologies (like the card’s bar code) and connects to the National registry’s API.

The solution is easily scalable to other countries because many of them have the same basic structure. Countries like Tanzania and Kenya, for example, both have National ID card-systems and agricultural ecosystems in which cooperatives play a key role.

Our solution is completely interoperable with international tech standards. The system is built on the Android OS which is open source. Our APIs are based on REST over HTTPS for APIs. We use OAuth for authentication which is also an open standard.

Lastly, the data capture from the ID card scans a PDF417 barcode to read information. The scanning technology can read other common barcodes like the 2D barcode, QR code and many more. This means that it will be easy for us to adapt our platform to read information from other ID cards with different information encoding.

We design our solution with our users to make it user-friendly. Through a Human-Centric Design approach, we get to understand the needs of our end-users and develop a product that suits their needs.

 Although self-identification technologies have advanced, they are not suitable for low data connectivity environments and the need for smartphones would exclude many farmers. Additionally, the insufficient digital skills of farmers make self-assisted KYC process by trusted cooperative staff the preferred route based on our experience.

 In low connectivity areas where WhatsApp isn’t feasible, farmers use USSD request for loans. USSD is currently the leading choice for farmers, primarily because you only need a feature phone to access this service. As of today, mobile data network connectivity (3G) in Africa covers less than 50% of the population for 3G (vs a global average of 78%) (GSMA, 2019).

 However, given the limitations of USSD and the trends we see in terms of connectivity and smartphone proliferation, WhatsApp is the future.

 WhatsApp is an excellent platform for multiple reasons. It is always available, allows for the farmer to have a history of the conversation, it allows for farmers to ask questions to our team, and can even be used to give farmers financial literacy classes.

 To make payments easily understandable for farmers, we express our loans in terms of weekly payments rather than percentages.

Emata is currently deployed at two dairy cooperatives in the central region of Uganda and is beta testing with over 600 farmers. Within the coming 12 months, we will scale up to 200 cooperatives to reach about 60,000 dairy farmers – for which plans, and partnerships are already in place. Given the size of agriculture and the persistence of the high interest rates, we have bold ambitions to expand across East-Africa the coming 5 years and reach at least half a million farmers. 

Apart from dairy, our focus is on two crops that are core to this region: coffee and oilseeds. Based on official production figures and farm gate prices, these crops collectively generate USD 5 billion for farmers in East Africa.

We are already training our credit scoring algorithms for oil seed and coffee crops and in talks with partners to prepare for expansion into neighbouring Rwanda and Tanzania as well as Zambia. These three countries together with Uganda have over five million farmers that engage in dairy, oilseeds and coffee. Based on conservative estimates, we believe we can easily help over half a million farmers to improve their lives; the majority of which are in our home market Uganda (300,000), followed by Tanzania (120,000), Rwanda (70,000) and Zambia (50,000). 

Emata will be rolled out to up to 200 cooperatives during the entire project period, thereby reaching up to 60,000 farmers.

Next year, we project to achieve the following results:

• Allow for self-onboarding of our farmers due to smartphone proliferation. We will combine our solution with facial recognition technology. Such technologies have been developed rapidly in recent years and are ready out of the box.
• Roll out Emata to dairy cooperatives across Uganda
• Beta test Emata to farmers in additional value chains, starting with oilseeds and coffee
• Provide additional financial products to farmers such as input based loans and savings products
• Prepare for our first international expansion, starting with expansion into Rwanda

Five years

• In the coming five years, we expect that the growing smartphone proliferation will also open up additional opportunities with farmers in rural areas. We can give farmers with a smartphone insight into farm activities and data-driven agronomical advice. By combining data on which inputs work, when and how to use them and loans to finance such inputs, we believe we have a very powerful combination to improve lives of countless farmers.
• Apart from further developing our products and services, our five-year plans centers around expansion across East African. Preparations are already underway to expand into Rwanda after which we plan to support the lives of farmers in Tanzania and Zambia. These are all countries with an agricultural industry that has a suitable structure for Emata as well as players that we are already discussing partnerships with.     

Next year we hope to accomplish the following goals:

• Financial: In many ways it is difficult to attract substantial funding as an African startup. Additionally, the costs of doing business are very high (i.e. taxes, internet, and staff costs).
• Talent: The education system in Uganda is inadequate to provide the necessary skills required for the job market. We therefore have to offer additional training to staff although this is difficult for new disciplines such as data science and UX which are still very rare skill sets in the region.

In five years our goals are:

• Regulatory: The process involved in acquiring a license for deposit taking is very lengthy and bureaucratic. We foresee this as a possible challenge in the next five years.

• Financial: The Mission Billion challenge prize will help us attain additional funding and give us exposure that facilitates traction with commercial investors, thus securing long-term investment in our solution as well.
• Talent: Together with Clarke International University and Fontes Foundation, we launched a tech program called Refactory in 2019. The program trains software developers at scale through a combination of classroom teaching, 6-month projects with guidance from senior staff at tech companies, and paid internships with advanced ICT companies.
• Regulatory: We started by obtaining a money lending license that is easier to obtain and then we shall gradually scale-up to obtain the deposit taking license.

Laboremus Uganda Ltd is part of the Laboremus Group founded in 1996, that is specialized in providing financial technology solutions to financial institutions across Europe and East Africa. 

In 2013, we opened our Kampala office as part of our African expansion strategy. We serve banking clients in Europe and in East Africa.

Emata started from a dissatisfaction with the lack of ambition of incumbent financial institutions to leverage the potential of technology to bring financial services to the unbanked. Emata started as a project under Laboremus in 2017, but became a separate legal entity in 2020.

We have a dedicated and comprehensive team of 30 full time staff comprising of banking and finance consultants, solution architects,software developers, product managers and data scientists. This team is complemented with renowned expertise from our group companies in Europe.

Our team also utilize external consultants, e.g. in the areas of Human-Centric Design and Data Science, to leverage their experience and accelerate the building of such capabilities in-house. These experts bring a wealth of experience and learnings from their respective fields to our team. 

We have four dedicated project teams to successfully develop and implement this solution:

The Business Team works on strategy, fundraising and partnerships. The team is led by Bram van den Bosch, Managing Director of Laboremus Uganda and co-founder of Emata. Bram has over 7 years’ experience in various roles in investment banking, asset management, and agricultural finance, which has given him a deep understanding of banking, financing agriculture as well as equity and debt funding. The team also consist of a business consultant and a communications officer.

The Technical Team works on developing Emata's different digital products and features. The team is led by Timothy Musoke, co-founder and Head of Technology at Laboremus and co-founder of Emata. Timothy has worked as a CTO for more than 10 years and brings extensive knowledge of financial technology. The team also consist of senior developers and junior developers.

The Product Management Team is responsible for the day-day smooth running of the project, managing the product roadmap, planning of new releases, activity and resource planning, coordinating the activities with the impact team, and monitoring progress of the entire project. The team is led Amanda Tukwasiibwe, senior product manager at Laboremus. Amanda has years of experience working as a lead project manager on projects for banks and financial institutions in Europe through the Laboremus Group. 

Emata is the brainchild of Laboremus. Our aim is to leverage our expertise in financial technology to create sustainable change in the livelihoods for farmers. Given the importance and size of agriculture in Uganda and East-Africa combined with the farmers’ need for financial services, we also see a strong business case that’s worth pursuing. We have invested substantial amounts to-date, more than half of this comes from the Laboremus Group’s resources, with the other part coming from a consortium of grant partners.

We have pursued a partnership-driven model from the onset. Not only to share the investment, but also to combine the knowledge and experience of our partners.

UNCDF was one of the first partners to provide funding, a vast network of contacts, and knowledge on digitizing rural populations. This was later complemented by Rabobank Foundation, which has vast experience with farmer financing, and Financial Sector Deepening Uganda who are experts on financial inclusion. Lastly, we use a group of institutions to gain knowledge of and access to dairy cooperatives in Uganda working with the likes of SNV, Agriterra, Heifer International and local dairy companies such as Jesa and Brookside.

Our business model is a so-called B2B2C model, meaning we combine B2B and B2C components.

B2B: The Coop MIS is our B2B-leg which integrates cooperatives into the Emata ecosystem. This is key as cooperatives provide a stream of validated data, in addition to performing the role of agent by taking care of KYC and other activities. Cooperatives use the Coop MIS because they value the way the system gives them insight into their cooperative, facilitates their payment process and sends free SMS’ to their farmers. We remove hurdles for using the Coop MIS by providing the solution free of charge. The idea is to roll out Emata to as many cooperatives as possible to generate data for our credit scoring engine and grow our farmer base, both with the goal of providing more loans to qualified farmers.

B2C: The part of our business model that drives revenues is the financial services that we provide based on the date collected by the Coop MIS. We made this decision because we believe that the market for (agricultural) financing on the African continent is many times bigger and more attractive than the market for software. As explained previously, we aim to provide a suite of financial services. For all these services we earn money while charging farmers a competitive interest rate. This interest rate depends on the product and we currently price our products well below prevailing interest rates that can be up to 10%/month.

Emata is at the heart of a long-term strategy and ambition to leverage the Laboremus Group’s expertise in financial technology to develop a solution that has meaningful impact on people’s lives. Given the importance and size of agriculture in Uganda and East-Africa and the vast needs of farmers for financial services, we see a business case that we are committed to pursuing. Given its potential for impact, we have already invested substantial funds,

Long-term, we believe that Emata has a profile that allows us to attract equity financing on commercial terms. We already have traction with several professional investors. However, their feedback is that an investment is only realistic once we have progressed above a certain scale and revenue base. With this prize, we are confident that we will reach that level and as such can secure a sustainable and long-term future for Emata.

To enhance our chances of success, we pursued a partnership-driven model from the onset. Not only to share the investment, but also to combine the knowledge and experience of our partners. We work with a range of partners. 

UNCDF was one of earlier partners in 2018 to provide grant funding, a vast network of contacts, and knowledge on digitizing rural populations. This was later complemented by Rabobank Foundation in 2019 that has specific knowledge on farmer financing and also provided us with grant funding.Financial Sector Deepening Uganda came on board in 2019, provided us with grant funding in 2019 and equipped us with their knowledge on financial inclusion.

Lastly, we use a group of institutions to gain knowledge of and access to dairy cooperatives in Uganda; working with the likes of SNV, Agriterra, Heifer International and local dairy companies such as Jesa and Brookside.

Presently, we are predominately grant-funded but our ambition is to have a balanced mix of grants, debt and equity funding to secure the sustainability of Emata.

We have signed an MoU to attract the first debt financing. This debt is earmarked for on-lending to our farmers and will be combined with funding provided by our own shareholders. We aim to start with a debt fund of USD 250,000 and then gradually scale this up in the coming years.

We also aim to attract our first external equity funding. Based on our talks with investors, we are cognisant of the fact that substantial funding amounts can best be raised once we have progressed to a certain scale and revenue base. We aim to raise USD 500,000 of equity in the coming 12-18 months, which will be followed by (a) bigger round(s) to finance our five-year expansion plans. 

In 2020, our expenses are around USD 350,000. Most of our costs are salaries for our technical and business team, followed by costs of rolling out and supporting our solution and costs associated to lending such as funding and loan losses.

The World Bank’s mission billion challenge objectives are very much in line with our vision of financial inclusion. 

We seek exposure to the World Bank’s partners and team of experts who we hope will equip us with knowledge and guide us further on how to digitize rural populations. 

More specifically, we believe that the mission billion challenge prize will help us with the rollout of our solution to i) more farmers, ii) pilot test Emata in the additional value chains i.e. coffee and oilseed value chain.

First, we want to reach more farmers by expanding across Uganda. With the Mission Billion Challenge, we will be able to set up regional offices which will have dedicated impact teams, and which will support our roll-out in the regions. Despite our Human-Centric Design approach, which will alleviate many digital literacy issues, farmers benefit from substantial training and support when using our solution. The prize would make a huge difference in strengthening our ability to provide such training and develop training materials, in addition to investing in training our impact team.

Second, we want to further develop our solution to fit with two new value chains. Given the World Bank’s contacts in the agricultural industry, we anticipate that this would help us partner with the right value chain players. Additionally, financial support will be crucial for us to invest in researching how we should adjust our technologies, as well as extensive user testing, and running pilots with coffee and oilseed farmers.

• Financial: In many ways it is difficult to attract substantial funding as an African startup. Additionally, the costs of doing business are very high (i.e. taxes, internet, and staff costs). We therefore seek commercial partners.

Impact investors who would like to invest in debt for on-lending to farmers.

• Equity investors for growth capital and also their experiences with helping fintechs scale up internationally.
• Actors in the agricultural value chain that we can partner with to further the growth and knowledge-base of Emata.
• Organisations that can provide us with (temporary) access to talent and expertise, especially in skills that are still scarce in East-Africa such as data science and human-centric design.