Rwanda's largest bank decided to disrupt things from within by launching its own Fintech start-up BK TecHouse. It wants to build transaction and services platforms in four areas: agriculture, education, real estate and health. Russell Southwood spoke to its CEO Regis Rugemanshuro about how the first platform in agriculture is working.
The idea for Bank of Kigali to launch its own disruptive Fintech start-up came out of some soul-searching discussion in 2016 around the 50th anniversary of the bank. It asked itself big questions like: who are we and where do we want to be?
According to Rugemanshuro:"Tech is disrupting every sector and banks are definitely included in that and are at biggest risk. We were looking at what the fintechs and telcos were doing with mobile money. The best way to approach this was to plan to disrupt from within. We have the skills, financial muscle and market to do it better. We can bring innovation before the innovators got scale and we needed a tech company to do it".
Rwanda's biggest bank, Bank of Kigali is not a retail bank (for individual customers) but a corporate bank with 300,000 customers including a lot of small companies. But on this basis it has a 35% market share.
The Bank of Kigali knew where it wanted to get to but decided that the important thing was the end (paying for something), not the means (technology):"The challenge is how to transform how 70% of farmers, teachers and students pay for things and we're going to focus on things like paying for food, school fees or fertilizer".
The plan is to operate in 4 key sectors: agriculture, education, real estate and health. It decided to focus on agriculture first because 70% of people live off of agriculture and it makes up 30% of GDP.
"The biggest platform (of our platforms) is in agriculture. What does the farmer need? We need to create locally relevant content and services. Rwanda has 95% 4G coverage and 76% mobile penetration but people are not using it so much. The first thing they do is meet basic needs. They pick up the phone for buying seeds, agricultural information and finance. The banks said we don't know what these people do. The teacher gets a loan easier than a farmer because they have a regular salary".
"We told the banks we're going to de-risk agriculture for you and we told the farmers we're going to give you an app to do exactly what you're already doing. You're buying seeds and getting information on paper".
The Government has a subsidy programme for 2 million that accounts for 40-75% of seeds and fertilizer sold:"We're going to digitalize that scheme. Previously there were 3-year delays on payments because Government has to check whether things have happened or not. So we said to Government, we're going to build a platform and the only requirement is that you put us directly in contact with the 2 million farmers in the subsidy scheme. We ran a pilot in December 2017 for a thousand farmers and it worked. People used it and could see the improvements".
Phase 1 is to facilitate registration and implementation and it was launched in second week in March with 140,000 farmers. Rugemanshuro believes that it will have close to 500,000 in the following 2 weeks and it wants to have 1.5 million farmers on the platform by July. Every single farmer recovering subsidy from the Government scheme will have to use the platform.
Phase 2 is the ordering and processing seeds and fertilizer by the farmer: "We know where the farmer lives so we recommend seeds and fertilizers appropriate to that location. We can see all the farmers in real time, how much land they have and how much seeds and fertilizer they order in relation to the area being farmed".
"We will be able to enforce best practice. We can SMS them to remind them to pick up their seeds and fertilizer. We have 20,000 trained agronomists and they will train them how to use the platform".
The platform will also be able to collect data:"Banks and government have never seen this kind of data. You can slice and dice data down to the village level. There are KPIs at national level and the data can be used as a way to measure these national KPIs. We can identify where farmers are poor and couldn't get loans".
So Phase 3 is the integration with the financial institutions:"We're not just working for the Bank of Kigali but building for the whole market. The more the merrier. The more in the pipeline bringing in traffic, the more transactions. We will make money on the transactions".
"How do we de-risk for the banks? The suppliers and middlemen will hardware to be part of the system. When money is put in the wallet, it can only be used to buy seeds and fertilizers. It's a tied loan. If you don't use the loan within 3 months, the money will expire".
"Rwanda is currently 20% cashless but wants to be 80% cashless by 2024. We can easily make agriculture a cashless system".
Rwanda wants to be able to increase both the quality and quantity of the harvest. Currently it's difficult for say hotels to buy produce at an agreed price. These companies will be part of the scheme. Farmers will know who will buy at an agreed price.
There's also a Yield Predictive Model that it's working with AIMS in Kigali on:"We want to be able to say to farmers, with the size of the land you've got, the seeds you bought and amount of fertilizer you used and you should be able to expect this amount of crop. Farmers are not informed enough".
"It's about the things you don't see in Africa. My dream is to see the amount loaned to agriculture in double digits in the second year. I want to see farmers able to build a credit history. The platform allows everyone to play a role to their best. The farmers don't need a bank account to get funding. They can come from different providers like mobile operators. Financial inclusion will increase. Cashless will increase. It will reduce the amount of paper being used. If we get the right seeds and fertilizers, we will know the yields".
"We're working on a micro-insurance scheme with a Moroccan partner. If I'm a farmer and I did everything right and it didn't rain, I can get insurance to cover this risk. It can cover the cost of the seed and the fertilizer".
"The system is completely exportable. Think of how many countries make financial inclusion payments? We're talking about expansion to Zimbabwe and other countries in Africa".
It wants to do the same with an education platform to make payments of school fees easier but that can also offer other helpful services to parents and school teachers. The other two platforms will be real estate (being built for tenants and lenders) and health.
With agriculture, BK TecHouse has an interesting combination of: customers that need it to get their subsidy; tied loans for specific things; and a vision of creating an ecosystem for everyone.