INTERVENTION PLAN TAILORED FINANCIAL SERVICE PRODUCTS FOR MICROPROCESSORS VALUE INITIATIVE PROGRAM Stage of Intervention: Entry.

INTERVENTION PLAN

TAILORED FINANCIAL SERVICE PRODUCTS

FOR MICROPROCESSORS

VALUE INITIATIVE PROGRAM

Stage of Intervention: Entry

INTERVENTION RATIONAL

The financial package for Equipments will

contribute towards increased MEs output and

sales (enterprise level change), increased ME

participation and market output (VCD change) and increased productivity and

access to local markets amongst the excluded poor

and HIV affected communities in urban areas (social change)

.

MICROPROCESSORS/VENDORS ACCESS EQUIPMENT

SOCIAL

CHANGE

ENTERPRISE LEVEL CHANGE

VCD

CHANGE

TAILORED FINANCIAL SERVICE PRODUCTS FOR MEs

INCREASE IN JUICE OUTPUT AND SALES

• Passion fruit is a very popular fruit in the domestic market either used as fresh fruit or for processing into juices.

• Demand in East African markets for fresh and processed fruit products such as passion fruit juice is growing at more than 10% per annum. In Kenya, domestic demand is increasing and current supply is unable to fill the demand.

• The leading passion fruit processors in Kenya include

Kevian Ltd, Milly processors and FIPS Ltd, Ruaraka.

MARKET ANALYSIS

• Extensive juice extraction is also carried out at household and cottage industries. Passion, orange, mango, papaya are the major processed and utilized fruit juices.

• At micro-value add level, processing is done

manually or by use of juice blenders bought from local supermarkets.

• Value addition of passion fruits through micro processing presents an excellent opportunity to create new investment and employment for the poor Ampath clients in urban and peri-urban settings

MARKET ANALYSIS

o However, inadequate access to credit for equipment is a generic constraint amongst micro value add enterprises in Kenya , contributing to low production volumes and poor juice quality

o In addition entrepreneurs may also not know where to get the processing equipment and better linkages need to be created between the technology providers and users.

o Majority of Kenyan consumers may not be aware of nutritional and health benefits of consuming passion fruit products or other natural fruit products as compared to synthetic or imitation products

o VIP Ampath through Fintrac has recently launched a detailed market research initiative on the passion fruit value addition to among others study financial markets and potential financing models. (See attached market study plan)

o Some preliminary research on financial markets reveals the following …………..

MARKET ANALYSIS

Microprocessors Financing Needs

– The Demand Side:

oTypical amounts ranges from Kes 10, 000 - 200,000oThe rationales for these financing needs are

extremely varied. They include:o purchasing equipment and licenses; o building up of working capital; and o hiring and training of personnel

MARKET ANALYSIS

Demand side constraints

o Lack of adequate information, communication and dissemination of information on availability of SMEs financing

oComplex bank procedures that require reading and writing skills

o Lack of entrepreneurial skills and management capacity to amongst SMEs

o The costs of getting a loan are high, interest rates are very high

o Lack of formal collateralo Lack of registered credit history and business records

MARKET ANALYSIS

Issues in Accessing Financing by Microprocessors

– The Supply Side

o Small and short-term loans initially required by small businesses are considered costly and of high risk by formal financial institutions

o High loan delinquency amongst SMEso Need to train most MFIs operational staff and

management to appreciate and be able to handle financial services requirements of SMES

o Policy and regulatory constraints

MARKET ANALYSIS

Issues in Accessing Financing by SMEs

– The Supply Side cont’d….o Absence of credit referencing systems in the

country/credit history. o Lack of cost-effective ways to quantify credit

risk-most banks limit their risk with the SME market either by not lending at all or by charging high interest

oMany SMEs are reluctant to seek credit/loan phobia

MARKET ANALYSIS

Sources of financing for SMEs in Kenya:

o Banks, MFIs e.g.: K-Rep Bank, Equity Bank, Family Bank, Cooperative Bank and FINA Bank

o SACCOso Rotating and Savings Credit Associations (ROSCAs)o Accumulated Savings and Credit Associations

(ASCAs)o Village Banks, friends and family, and informal

lenderso Non Governmental Organizations

MARKET ANALYSIS

Willingness and ability to pay for Credit

Are urban SMEs able and willing to pay for credit?Main categories of urban SMEs that VIP Ampath is targeting:

(1) Microprocessors who are able and willing to pay for credit:- Once exposed to suitable financial service products (e.g. equipment package) from finance institutions, they are enthusiastic about it and willing to pay.

o Their sources of repayment include:o Microenterprise income. o Sale of assets o Household members’ salaries and other earned income o Remittances or domestic money transfers

MARKET ANALYSIS

(2) Resource poor and vulnerable Ampath clients in urban settings:o These are the very poor and vulnerable of AMPATH

clients (PLWAS) without formal bank collateralo VIP Ampath will assist them to graduate to micro-

processing via a stepped –up approach [see next slide]

o VIP Ampath will negotiate with Equity bank to accept collateral substitutes such as group liability/social guarantee for the clients, household items and or their credit history/reputation with Ampath.

MARKET ANALYSIS

juice processing technology,

hygiene/quality, Biz

Management

FACILITATIONKBS

certification, municipal biz

permit, credit & savings, public

health certification

OUTPUT

1 glass ready to drink is KES 40 (200ml) or KES 200/liter; aim for

revenue of KES 4, 000 /day.

Approximately KES 2, 000 /day.

Experienced, rents a room or buys cool

box,

savings requirement

.

Increased production capacity,

Increased income

Graduation to a microprocessor and

business service markets

.

Stage 1Very poor and

Vulnerable

TRAINING

GraduationStage 2

Vulnerable

Sequencing for Graduation to Micro-processing for the Poor Ampath Clients in Urban and Peri-urban Areas

General Strategy

Working with financial institutions to develop suitable

financial packages/products and stimulating demand in the value

chain.

INTERVENTION

KIRDI-TECHNOLOGY

DEVELOPER

& TRAINER

MICROPROCESSORS

FINANCIAL INSTITUTIONS: ROOT SOURCES OF FIINANCE

Financial institution provides Equipment loans to microprocessors via the technology developer. Microprocessors repay the loan directly to the bank Financial institution provides Equipment loans to microprocessors via the technology distributor Microprocessors repay the loan directly to the bank

SUPERMARKET

(TECHNOLOGY

DISTRIBUTER)

Equipment- Such as blenders

1

2

BUSINESS MODELS FOR FINANCIAL SERVICE PRODUCTS

2

Equipment and Training

Microprocessors

Financial

Package

Microprocessors

Financial

Package1

Loan

rep

aym

ent

Loan

rep

aym

ent

Equipment

Increase ME participation & Increase market output

Increase income for Juice vendors/MPs; increase supply of passion juice

Vendors/MPs access and use equipments

% increase in # of MEs participating in value chain;% increase in market output

% increase in monthly sales volume/value per vendor/MP

# of vendors/MPs accessing and using equipment

INDICATORS

MFI provides equipment loans to

microprocessors/juice vendors via a

technology developer/ training provider.

Microprocessors repay the loans directly to

the MFI

CAUSAL CHAIN FOR TAILORED FINANCIAL SERVICE PRODUCTS FOR MICROPROCESSORS/VENDORS – PILOT PHASE

% increase in monthly output of quality Juice

BUSINESS MODEL # 1

Microprocessors/Vendors

Technology developer MFI

Equipment LoanEquipment and training

Loan repayment







INDICATORS



technology developer/ training provider

Microprocessors repay the loans directly to

the MFI

CAUSAL CHAIN FOR TAILORED FINANCIAL SERVICE PRODUCTS FOR MICROPROCESSORS/VENDORS – MARKET UPTAKE PHASE


BUSINESS MODEL # 1

Many microprocessors /Vendors

Technology developer Many MFIs


Loan repayment







INDICATORS



technology distributer. Microprocessors repay

the loans directly to the MFI

CAUSAL CHAIN FOR TAILORED FINANCIAL SERVICE PRODUCTS FOR MICROPROCESSORS/VENDORS – PILOT PHASE


BUSINESS MODEL # 2

Microprocessors/Vendors

Technology Distributer MFI

Equipment LoanEquipment

Loan repayment







INDICATORS



technology distributor. Microprocessors repay

the loans directly to the MFI

CAUSAL CHAIN FOR TAILORED FINANCIAL SERVICE PRODUCTS FOR MICROPROCESSORS/VENDORS - MARKET UPTAKE


BUSINESS MODEL # 2

Many microprocessors /Vendors

Technology distributor Many MFIs


Loan repayment

MARKET ENTRY

• Pinpoint geographic area for the pilot• Assess demand and supply of

equipment loans• Conduct stakeholder sensitization

workshops• Identify and assess participants-

Technology developer and distributers , microprocessors /vendors and MFIs

• Monitoring and Evaluation

INITIAL OUTREACH STEPS

MARKET ENTRY- PROGRESS

• 5 pilot areas i.e. Eldoret, Mosoriot, Chulaimbo, Kitale and Webuye have been identified

• Negotiations with Equity bank on suitable financial products on-going

• Baseline survey conducted in 14 target sites

INITIAL OUTREACH STEPS

What is the messages?

• VIP, objectives, approaches, facilitative role

• Passion fruit value chain, constraints and sustainable solutions

• ‘Why value addition -market opportunities, high urban demand, income generation opportunity for the micro value add enterprises

• The existing demand for credits and equipments:- business opportunity

What forums/media?

• Workshops, Stakeholder meetings

• Agricultural exhibitions

• Informal discussions• VIP fliers

What’s on offer?

•MFIs: expanded client base• Vendors/MPs : improved access to equipment, increased sales and income• Technology provider and distributors : increased sales and profits

Marketing Strategy

PILOT PHASE

Business Models to be tested

1. Financial institutions provide Equipment loans to microprocessors via the technology developer. Microprocessors repay the loan directly to the bank

2. Financial institutions provide Equipment loans to microprocessors via the technology distributor. Microprocessors repay the loan directly to the bank

Who will be involved?

Core partners: VIP consortium, microprocessors/vendors, technology developer (KIRDI) and distributors (supermarkets) and MFIs.

Other development agencies in the piloting areas (e.g. HCDA, FPEAK, KEPHIS, KARI, MOA, NGOs) will be involved in supporting the initiative.

KENYA INSTITUTE OF RESEARCH AND DEVELOPMENT (KIRDI)

KIRDI is a parastatal established under the Science and Technology Act, Cap 250, 1979 of the laws of Kenya.

o Its mandate is to undertake research and development in industrial and allied technologies.

oAmong its institutional objective is to contribute to the creation of national wealth through development of technologies that are appropriate and accessible to micro and small enterprises in Kenya

KIRDI’s has been instrumental in :

oDevelopment/reverse engineering of agro-processing machinery and equipment and disseminating the same to small and medium scale food processors in accordance with vision 2030. Examples of equipment already developed and being piloted by KIRDI include: Fruit pulper, Pasteurizer, Blender and Electric drier

o Process and product developmento Establishment of pilot plantso Training, capacity building and consultancy serviceso Business incubation service

KIRDI Roles with VIP Ampath

1. To develop and provide micro-processing equipment directly to the SMES or via existing supermarket chains

2. Training and capacity development of SMEs.3. Future promotion of the business models

NB: KIRDI has well established to undertake the above roles now and in future.

Ampath is set to initiate dialogue with KIRDI

PILOT PHASE: Developing the Serviceo Ampath is working with Equity Bank to develop model

financial products for its clients

o Existing Equity financial products include Fanikisha Imara and Fanikisha Shaba. Aspects that will need to be reviewed are:

o Interest rates and transaction feesoCollateral typesoRepayment and grace periodsoDisbursement/maturity periodsoTarget clients

o Ampath will facilitate business linkages:-Equity-KIRDI -Supermarkets

PILOT PHASE: Stimulating DemandDemand for services during the pilot will be stimulated as

follows:• Direct intervention by VIP partners:

oFPI/ AMPATH will document the business modelsoEPC will disseminate the models in workshops,

seminars, trade shows and mediaoFintrac will establish market linkages:-

microprocessors/vendors – MFIs - Technology developers – Distributors

• Service providers (MFIs, Technology developers and distributors) marketing own services

PILOT PHASE: Stimulating Demand

• VIP will support technology provider, distributors and MFI to market the business models during the pilot stage. NB: KIRDI is already piloting micro processing technologies in some parts of Kenya.

• During the piloting phase KIRDI will test the ability of

microprocessors/vendors to pay for training. VIP Ampath will support KIRDI in this endeavor

• KIRDI training package will include micro processing, entrepreneurship skills and credit management

PILOT PHASE: Target Outreach

• Service Providers

o Technology developer : 1 ( VIP will work with KIRDI which already involved in developing appropriate technology in micro-processing

o Technology distributor: 5 supermarketso MFI:-1 [Equity bank]

• SEs (Microprocessors/vendors): 30 per pilot region x 5 regions = 150• Pilot regions: Eldoret, Mosoriot, Chulaimbo, Kitale and Webuye

Determining Pilot Success

Key determinants of pilot success will include:

oAbility to graduate the very poor urban dwellers and vulnerable from dependency to self reliance

oPotential for high adoption/market uptake

• If the outcomes of the pilot tests on future training of microprocessors by KIRDI will be positive, VIP Ampath will conduct market research and/or stakeholder dialogue to develop detailed market uptake strategy.

o VIP Ampath will strike a deal with KIRDI to continue providing the business development functions (Developing and providing value adding equipment to microprocessors and training them) on wide scale commercial basis)

o VIP Ampath will document the business models for promotion by KIRDI

MARKET UPTAKE – Stimulating Demand

Continued………

o VIP will/might provide initial subsidy to KIRDI to market the business development services to other microprocessors/vendors, banks and supermarkets through media campaigns, seminars and marketing materials

o VIP will phase out any direct subsidies to enable the partner to operate commercially.


Continued………..

2. Ampath will facilitate microprocessors/Vendors to establish networks through which information/knowledge would be transferred.

3. The technology developer and distributors will market themselves to microprocessors/vendors

4. Ampath will collaborate with Equity bank, Government supported agencies and not-for profit organizations to spread awareness on the business modelso For example :- KARI-Agriculture information Centre,

Export Promotion Council, NGOs


• High target outreach due to successful pilot and effective uptake strategies:

o Micro-processors/vendors (including graduated Ampath clients = 100 per district x 14 districts = 1400

o Distributors = 2 per district x 8 districts = 80o Employees = 500o Sensitized community members = 1000

• TOTAL = 2,980 households equivalent to about 14,900 individuals

MARKET UPTAKE – Target Outreach

EXIT PHASE

• Since the intervention will have been geared towards sustainably, the only remaining functions of VIP at exit will be:

oMonitoring of marketoEstimating the impact of the interventionoEvaluating the intervention to gather

lessons learned relevant to the next program intervention.

INTERACTION WITH OTHER INTERVENTIONS

• Successful financial service products will be dependent on microprocessors/vendors having adequate business management and technical skills in juice production and quality control. Hence….

* Quality control system, Technical and Business Training provider; and Tailored Financial Service

products interventions will be delivered in parallel or as a package

DRAFT WORKPLANSTEP/ACTIVITY TIMEFRAME LEAD PARTNER-SHADOW PARTNERS

A. ENTRY1. Pinpoint geographic area for the pilot2. Assess demand and supply of financial products services/equipment loans3. Conduct stakeholder workshops4. Identify and assess pilot partners- MFI, equipment developer/provider and

distributors5. M & E

Y2 Q1-Yr2Q2

1. AMPATH-Fintrac/EPC2. FINTRAC-AMPATH/EPC3. AMPATH-Fintrac 4. FINTRAC-AMPATH/EPC5. AMPATH-Fintrac/EPC

B. PILOT1. Establish partnerships with service providers- MFI, equipment developer/provider

and distributors2. Establish baseline3. Strengthen the service providers/pilot partners:-, mentoring, advising, and

troubleshooting4. Work with equity bank to develop financial products 5. Document business models6. Disseminate the models 7. Facilitate market linkages 8. Test market uptake strategies-e.g. MPs/vendors ability to pay for training by

KIRDI9. M & Impact assessment

Y2Q3-Y2Q4

1. AMPATH-Fintrac/EPC2. AMPATH-Fintrac/EPC3. FINTRAC-AMPATH/EPC4. AMPATH-Fintrac/EPC5. AMPATH-Fintrac/EPC6. EPC-AMPATH/Fintrac7. FINTRAC-AMPATH/EPC8. FINTRAC-AMPATH/EPC9. AMPATH-Fintrac/EPC

C. MARKET UPTAKE1. Identify and engage a commercial TA Root Source-KIRDI2. Facilitate microprocessors/vendors to establish networks3. M & E Y3 Q1-Y3Q2

1. AMPATH -Fintrac/EPC2. AMPATH/EPC-Fintrac 3. AMPATH -Fintrac/EPC

D. EXIT1. Follow up with service providers MFI, KIRDI, Supermarkets, assess market

sustainability 2. M & E Y3Q2

1. AMPATH -Fintrac/EPC2. AMPATH -Fintrac/EPC

INTERVENTION PLAN TAILORED FINANCIAL SERVICE PRODUCTS FOR MICROPROCESSORS VALUE INITIATIVE PROGRAM Stage of Intervention: Entry.

Documents

smes o

o hiring

licenses o

passion fruit juice

market study plan o

o purchasing equipment

passion fruit value

processed fruit products