Reducing Risks in the Coffee Value Chain for all Actors via SMS Bookkeeping

2014

Reducing Risks in the Coffee Value Chain for all Actors via SMS Bookkeeping

Risks in producing coffee

Business Solutions to Poverty TechnoServe | 2

3

IMAGINE A FARMER OWNED WET-MILL IN EAST AFRICA


COFFEE WET-MILLS FACE SERIOUS PROBLEMS IN OBTAINING WORKING CAPITAL – RELUCTANCE OF BANKS IS OFTEN LOGICAL

SITUATION FOR WET-MILLS…

§  Heavy working capital requirements – due to high expenses pre- and during coffee harvest season

§  Businesses with little or no credit history

§  Little or no collateral (especially true for cooperative structures)

… IS REINFORCED BY RISKS

Wet-mills are subject to many substantial risks §  World market price

risk §  Operational risk §  Quality risk §  Mismanagement

Banks are often highly unwilling to lend to coffee wet-mills


NOW IMAGINE A BANK LENDING TO COFFEE FARMERS IN EAST AFRICA


SITUATION FOR LENDERS …

LENDERS FACE SERIOUS PROBLEMS IN RISK MANAGEMENT WHEN LENDING TO COFFEE WET-MILLS

… WITH ASSOCIATED PROBLEMS

At times lenders are forced to lend to cooperatives (e.g. national policy) or lend for legacy/ historic reasons (cooperative banks) §  High working capital

exposure for exporters/ banks

§  Need to monitor wet-mill performance and stocks closely

•  High costs and much time needed to monitor working capital due to remoteness of many wet-mills

•  Paper based bookkeeping can not be shared and continuously controlled

•  A number of other risks such as world market prices affect the wet-mill, making working capital lending even riskier

•  Mismanagement at wet-mill often happens unnoticed

SMS Bookkeeping – an instrument to minimize risks for all actors in the market



SMS BOOKKEEPING BY TNS PROVIDES AN EASY AND ESTABLISHED SOLUTION FOR THE MONITORING PROBLEMS OF LENDERS

IT WORKS …

§  Key financial and stock info SMS sent in via wet-mill accountants

§  Data is confirmed through feedback loop and uploaded to platform

§  Data is analyzed and made accessible to

lenders via cloud-based website coffeetransparency.com

… IS PROVEN WITH 100+ WET-MILLS …

… AND MAKES LIFE EASIER

ü Easy solution to monitor working capital and operational performance of inaccessible wet-mills

ü Daily updates – no time delay

ü Automatic analysis of key metrics

ü Continuous monitoring prevents

mismanagement and flags wet-mills inefficiencies

§  Ethiopia §  Rwanda §  Tanzania

§  Guatemala


SMS BOOKKEEPING IS EASY TO IMPLEMENT AND IS A LOW-COST SOLUTION FOR WORKING CAPITAL LENDERS

EASY TO IMPLEMENT… … AT LOW COST

§  Provisions of trainings to working capital lenders, including proficiency test – focus on key metrics and analysis of data

§  Provisions of trainings to wet-mill accountants, including proficiency test – focus on data compliance

§  Troubleshooting and support

§  Ongoing development and improvement of system at no additional cost

§  Low service-fee for harvest season calculated based on working capital disbursed

§  Service fee potentially be matched by donor – and thus initial operating costs are decreased

Example: Rwanda – Service Fee Model

Working capital Service fee

1 000 USD ≈ 100 000 USD

1 %


Process overview


Paper-based bookkeeping SMS bookkeeping

§  Easy to share

§  Information updated daily

§  System analyzes performance metrics

§  System allows benchmarking

§  Historical data stored for review

§  Difficult to share

§  Information delay

§  No analytics

§  Easy to falsify data at end of season

TECHNOSERVE’S SOLUTION SMS BOOKKEEPING HAS VAST ADVANTAGES OVER PAPER-BASED BOOKKEEPING

SMS BOOKKEPING IS TAILORED TO EACH TARGET GROUP’S NEEDS


§  SMS interface §  Confirmation, edit/ undo

functions for accountant §  Reports shared with wet-mill

observers

SIMPLE TO USE FOR FARMERS KEY FEATURES

SOPHISTICATED INFOS FOR LENDERS

§  Cloud-based online interface §  Compliance data and editing

functions §  Portfolio and Individual wet-mill

view §  Performance Metrics Analyses

!

KEY FEATURES


Results


CASE STUDY (1) – SMS BOOKKEEPING HAD PHENOMENAL IMPACT FOR RWANDAN PARTICIPATING WET-MILLS

OVERVIEW

§  System used by two largest exporters/ working capital lenders in country

§  51 Participating wet-mills §  Very high data compliance

and quality EFFECTS §  +100% working capital

received - also in time §  Lower operational

expenses §  No non-performing loans §  All coffees hedged and all

wet-mills turning a profit

NEXT STEPS 2015

§  Include two banks as working capital lenders

§  Have 75 participating wet-mills

§  Keep up high data quality and compliance

§  Update system with feedback from lenders and farmers

EFFECTS §  Increase profits for farmers §  Increase transparency and

efficiency of supply chain

§  Hedge earned approx. 232 RWF/kilo or

16 cents/lb §  Without hedge, some cooperatives

would have made a loss


§  Rwanda Trading Company is a CSP and also financing around 40 wet mills p.a.

§  Closely monitor the wet mills to obtain up-to-date stock and cash movement information

§  Put up a hedge for all wet-mills and is able to turn a profit in volatile market

USE OF SMS BOOKKEEPING

EFFECTS

Rwanda Trading Company Type - Exporter Location - Rwanda, Kigali

CASE STUDY (2) – SMS BOOKKEEPING HELPED THE LENDER PUT UP A HEDGE AND ENSURE A PROFIT FOR SMALLHOLDERS


SMS BOOKKEEPING IS TECHNOLOGY WITH LARGE POTENTIAL IN SCALE AND SCOPE

AFRICA

CENTRAL AMERICA

Ethiopia

Tanzania

Rwanda

Implemented

Guatemala Implemented

POTENTIAL FUTURE DEVELOPMENTS

A.  Increase coverage in countries, where SMS bookkeeping has already been implemented – e.g. in collaboration with partners

B.  Include new TNS countries in SMS bookkeeping

C. Develop innovative transparency modules complementary to SMS bookkeeping – such as QR enabled traceability, or the “cash-less cooperative”

Thank you. Any additional questions? Please get in touch. Moritz Waldstein (Transparency Innovations Manager) [email protected]


Presentations & Public Speaking

Reducing Risks in the Coffee Value Chain for all Actors via SMS Bookkeeping