AgriFin Accelerate Program Data Analytics: FinScope 2017

1. AgriFin Accelerate Program Data Analytics: FinScope 2017

2. Executive Summary (1) • Agriculture as main income source to define smallholder farmers: • Income from agricultural as a proportion of total income is a key factor in our definition of smallholder farmers. • We find that while 80% of the Tanzanian population is involved in agriculture, agriculture contributes significantly (>40%) to overall income for only 30%. • The analysis focuses primarily on this sub-set of SHFs. • Youth • The average SHF is older than the average Tanzanian. A higher percentage of SHFs (58%) are in age groups above 35 than is the case for the population as a whole. Similarly, only 42% of SHFs fall into youth age brackets (<35), less than the wider population. • Gender • Female SHFs earn on average significantly less than male SHFs (achieving 54% of the total income achieved by males). • The gender gap remains pronounced for uptake of mobile money and banking products. Savings groups however are dominated by females. • Income levels • SHFs have very low incomes with 82% earning less than $2/day and 64% earning less than $1/day. SHFs are also worse off compared to the average Tanzanian with 75% in the two lowest PPI quintiles (compared to 58%Tanzanians as a whole). • Livelihoods • Tanzanian SHFs engage in a range of value chains and combine crops and livestock - few focus on one crop or livelihood only. • 32% are involved in cash crops, and these SHFs tend to have the highest average incomes.

3. Executive Summary (2) • Mobile money uptake and usage • Uptake of mobile money is high for SHFs and is on par with the average Tanzanian. • Usage, however, remains low with 67% of SHFs using services less than once a month. • Savings & borrowing behaviour • Mobile money is a strong savings channel for SHFs (35% of SHFs who save do so using mobile money). • Opportunity for FSPs: of those using other savings channels most already use mobile money. • Despite the extensive uptake of mobile money, barely any SHFs use mobile money for credit. • Mobile Money Readiness Index • A subset of SHFs with high mobile money readiness have not yet taken-up mobile money. • Income levels and mobile phone ownership are potential key barriers. • Commercial SHFs or Lead Farmers • We segment SHFs by land size, cash crops, additional labour on farm and value chain involvement. • More commercial, or lead farmers, work more land, have higher incomes and a greater uptake of mobile money and banking products than those who are less ‘commercial’. • Agricultural shocks and resilience • About half of all SHFs experience unexpected agricultural events. • For 75% of those, the event has a significant effect on household income driving farmers to use-up savings, reduce consumption or do additional work to make-up for the loss. • No insurance is used and only a few SHFs access cash savings.

4. 1 Research framework and methodology 2 Segmentation of FinScope 2017 data 3 Research findings • 3.1: Profile of Smallholder Farmers • 3.2: Financial Inclusion: uptake, usage and challenges • 3.3: Digital financial services: readiness, uptake, usage and challenges • 3.4: Information gaps • 3.5: Growth and resilience Contents 4 Discussion points & research outlook 5 Annex

5. 1 Research framework and methodology This research framework is designed to generate deeper insights on smallholder farmers in Tanzania using data mainly from the recent FinScope 2017 Survey. Building on Mercy Corps’ suggested learning questions, we structure the analysis around 5 thematic areas: RQ1 SHF’s profile in terms of demographic and socio-economic variables. 1. Profiles of SHFs 2. Uptake and usage of financial services What is the need for financial services? RQ2 How do SHFs access financial services? RQ3 RQ4 What is the current usage of financial services? What challenges are there in the uptake of financial and information services? RQ5 RQ6 What is the current level of uptake and usage of digital financial services? 3. Digital Services RQ7 What are the challenges in accessing and using digital services?

6. 1 Research framework and methodology RQ8 How do farmers currently access information on agriculture and finance? 4. Information, advisory services and training RQ9 What are the potential information gaps? 5. Growth and resilience RQ10 What are the opportunities for increasing SHFs income through provision of information? RQ11 Segmentation of SHFs by commercialisation* index RQ12 What do farmers perceive as the largest threat or constraint to their livelihoods? How do unexpected events affect income and what are the coping strategies? * We are using the term ‘commercialised farmers’ to describe a sub-group of smallholder farmers that are more commercial in their farming activities. These farmers access and till more larger land plots, focus more on cash crops, are more downstream (not selling produce to neighbours or villagers but to wholesalers), and employ additional labour on the farm. Alternatively, these farmers could be consider as, and/or include ‘lead farmers’.

7. 1 Research framework and methodology Analytical methods applied • Segmentation and Indices • Segmentation approaches identify clusters of households with similar characteristics. • One way to segment the sample is to develop an index to rank households from high to low index values. • We develop a commercialisation index for RQ11 and a mobile money readiness index for RQ6. • Summary Statistics Analysis • Summary statistics are used to make comparisons in all research questions. We provide statistical measures such as: • Mean and median; • Maximum, and minimum; and • Frequency analysis and cross-tabulation analysis to highlight importance of factors such as age and gender. • Graphical Analysis • Graphical analysis visualises differences in data groups. All research questions make use of this method. • Multiple Regression Analysis • Regression analysis is used to identify any relationship between a dependant variable and one or more independent variables. • We use this technique for RQ11 to identify the factors driving household income such as age, gender, education, financial uptake and usage, etc.

8. 1 Research framework and methodology Financial Inclusion Uptake and usage Uptake of financial services Uptake of financial services is defined as either having a registered account in your name or accessing an account that is not in your name through friends or family. • Banked • Access to following products and services: • Commercial banks; or • Post bank • Non-bank formal • Access to following products and services: • Insurance; • SACCOs; • MFIs • Remittances company; or • Mobile Money Formal Financial Inclusion Usage of financial services Active users are defined as making use of a financial service in the last 90 days. This includes both registered and un-registered users (see chart below). Frequent users are defined as making use of a financial service either ‘daily’, ‘once a week’ or ‘several times per month’. • Informal only • Making use of: • money lender; • savings group; or • Shops / supply chain credit Informal inclusion • Financially excluded • Individuals that save or borrow only from: • Friends / family; or • Save at home / in-kind. Excluded *Base: SHFs that use mobile money

9. 1 Research framework and methodology 2 Segmentation of FinScope 2017 data 3 Research findings • 3.1: Profile of Smallholder Farmers • 3.2: Financial Inclusion: uptake, usage and challenges • 3.3: Digital financial services: readiness, uptake, usage and challenges • 3.4: Information gaps • 3.5: Growth and resilience Contents 4 Discussion points & research outlook 5 Annex

10. 2 Segmentation of FinScope Tanzania 2017 data Defining the target segment for analysis 2) Our analysis focusses on smallholder farmers (SHFs). 1) Finscope 2017 for Tanzania contains nationally representative data. Total sample size: 9,459 ~80% involved in agriculture ~30% agriculture significantly contributes to total income* 3) We define SHFs based on how much of their total income comes from agriculture (>40%). ~50% agriculture complements income 4) For other respondents agriculture is not the main income source. A portion of agri-produce may be sold but more often it is consumed. ~20% not involved in agriculture * These are households for which income from selling their agricultural produce (crops or livestock) contributes more than 40% to overall household income.

11. 2 Segmentation of FinScope Tanzania 2017 data Smallholder farmer definition* For the purpose of this analysis we categorise smallholder farmers based on three main criteria: Condition 1: Income from agriculture makes up a significant proportion of overall income (>40%). • This definition follows that of AFA’s benchmark studies to ensure consistency with a comparative cross-country analysis being prepared at the same time. • We use income from the sale of agricultural products over total income of the respondent. • We have arrived at a cut-off point to define ‘significant proportion’ by analysing the income distribution suggesting that respondents for which at least 40% of total income come from agriculture should be selected in the SHF group. Condition 2:Pure traders and retailers of agri-products are excluded • To define SHFs we exclude agricultural retailers to focus the analysis on farmers [we only use responses 1, 2, 3 and 4 to question D4 to define agricultural income] Condition 3: The HH does not own a large farm (land size <10 acres) • This is following the definition of SHFs in AFA’s benchmark studies which we have applied for consistency with our comparative cross-country analysis. * Note that we are following the structure of Mercy Corps’ AgriFin Accelerate definition of SHFs by using land size and the relative importance of agriculture in income as identifiers (which is also similar to CGAP’s paper on it’s national surveys in Tanzania (https://www.cgap.org/sites/default/files/Working-Paper-Smallholder-Survey-Tanzania-May-2016.pdf).

12. 2 Segmentation of FinScope Tanzania 2017 data Segmentation approach: • Based on the criteria presented above, 3,384 respondents (or 32% of the overall sample) are identified as SHFs. • This corresponds to a population of 9,025,880 Tanzanians. • Next we segment the remaining sample into two further groups: Off-farm laborers and Diversified entrepreneurs and formal employees • For the purpose of this analysis however, we focus only on the Smallholder Farmer. FinScope 2017 Tanzania sample (9,459) Research framework Profile of SHFs Uptake and usage of financial services Digital services Information gaps Growth and resilience

13. 3.5 Growth and resilience Off-farm laborers (26%) Diversified entrepreneurs and formal employees (42%) Smallholder farmers (32%) • Live predominately in rural areas. • Selling agricultural produce is not the main income source. • Some produce might be sold to complement income but more often it is consumed by the HH. • Often income is complemented through casual labor. • Incomes are often low. • Uptake of financial services is slightly higher compared to SHFs. • Almost all live in rural areas. • Selling agricultural produce is the main income source. • Incomes are often low although there is a segment that more successful and regards farming as their business. • SHFs have the lowest levels of formal financial service uptake. • SHFs save more often than small scale farmers. Description • More often live in urban or peri-urban areas. • More often have a full-employment contract or are self-employed traders or service providers. • About half are not involved in agriculture at all but some of those who are own large farms. • Financial inclusion and income levels are high for this segment. Definition Condition 1: Household is involved in agriculture Condition 2: Agriculture does not contribute a significant amount to overall income Condition 3: The HH is not fully employed and the farm is not large Condition 1: Agriculture contributes a significant amount to overall income (>40%) Condition 2: HH sells predominantly what it grows. Condition 3: The HH does not own large farm (<10 acres) Condition 1: Does not have to be involved in agriculture Condition 2: Can be involved in regular employment Condition 3: Can own large farm

14. 2 Segmentation of FinScope Tanzania 2017 data Diversified entrepreneurs and formal employees Off-farm laborers Smallholder farmers % that are formally financially included* % that live in urban areas Average and median monthly income** * Formal financial inclusion is defined as having access to an account with a commercial bank, a post bank, or with an insurance provider; a SACCO; MFI; Remittances company; or a Mobile Money provider. ** 1 USD=2226.79 TZS (as of December 8, 2017)

15. 2 Segmentation of FinScope Tanzania 2017 data Methodological notes and caveats Comparing smallholder farmers with the overall population • Our analysis will focus on the smallholder farmer segment and, where appropriate, compare smallholder farmers to the overall population. • The overall population is defined as all Tanzanians (including smallholder farmers). • This means that comparing the smallholder farmer segment to the average or median Tanzanian has the benefit of using a more consistent standard. For example, it is more straightforward to compare results with other studies when using an average across the overall population as opposed to using an average across the ‘other respondents’ (those that are not SHFs). ‘Other respondents’ will by definition vary more across studies. • However, as a result the overall population is skewed by the smallholder farmer segment as it is included in the total population. This should be kept in mind when reviewing findings. Segmentation into ‘Off-farm laborers’ and ‘Diversified entrepreneurs and formal employees’ • Note that since the focus of the analysis lies on smallholder farmers, the segmentation between ‘Off-farm laborers’ and ‘Diversified entrepreneurs and formal employees’ can be further refined. Note regarding income: • The FinScope Tanzania survey is interviewing individual respondents. Information on income refers to the income of the individual respondent, not the overall household. • We will use PPI scores to proxy the poverty level of the overall household.

16. 1 Research framework and methodology 2 Segmentation of FinScope 2017 data 3 Research findings • 3.1: Profile of Smallholder Farmers • 3.2: Financial Inclusion: uptake, usage and challenges • 3.3: Digital financial services: readiness, uptake, usage and challenges • 3.4: Information gaps • 3.5: Growth and resilience Contents 4 Discussion points & research outlook 5 Annex

17. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables.

18. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Demographic Profile: Gender The survey was largely neutral with respect to gender Demographic Profile: Education SHFs are less likely to have attended secondary education. Demographic Profile: Location Most SHFs live in rural areas (88%).

19. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Demographic Profile: Age • SHFs are on average a little older than the wider population. • A higher percentage of SHFs (58%) are in age groups above 35, with only 42% falling into the youth categories (below 35). • The average SHF is about 40 years old

20. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Economic Profile: Income in USD per day Most SHFs earn very low incomes with 64% earning less than $1/day. Economic Profile: Poverty Probability Index (PPI) SHFs are considerably poorer than the average population (75% in two lowest quintiles). 82% SHFs below $2/day 64% SHFs below $1/day Income in USD refers to the income of the individual respondent, not overall household income.

21. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Gender-Income Gap: • Male SHFs earn higher incomes than females, though the effect is muted when looking at median income. • For the overall population, the trend reverses when looking at median income, with women earning slightly more than men. ** 1 USD=2226.79 TZS (as of December 8, 2017)

22. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Primary Source of Income: • While SHFs engage in several income generating activities, 93% of SHF’s household income comes from selling their crops or livestock products. • This highlights how highly dependent SHFs in Tanzania are on agriculture. Base for chart 2: SHFs’ who save

23. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Engagement in Value Chains: • Among the various value chains analysed, most SHFs are involved in cultivating food crops and livestock. • Given the seasonal nature of agriculture, most SHFs engage in livestock rearing throughout the year. Base: SHFs who engage in farming activities.

24. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Engagement in Value Chains: The SHFs involved in cash crops earn more than twice as much as the average SHF. Base: All SHFs. Note that the categories are overlapping, e.g. the 92.7% of SHFs farming food crops includes farmers engaging in other value chains, such as cattle or cash crops, as well. ** 1 USD=2226.79 TZS (as of December 8, 2017)

25. 3.1 Profile of Smallholder Farmers Research Question 1: SHF’s profile in terms of demographic and socio-economic variables. Inputs: SHFs mainly finance farming inputs, such as seeds, fertilisers, pesticides or other farming equipment by selling some of their crops or livestock. Very few use separate savings or take out a loan. Base for chart 1: SHFs that are buying farming inputs, N= [2677]. Base for chart 2: All SHFs.

26. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 2: What is the need for financial services? Research Question 3: What is the current level of uptake and usage of digital financial services? Research Question 4: What is the current usage of financial services? Research Question 5: What challenges are there in accessing financial and information services?

27. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 2: What is the need for financial services? Saving and borrowing needs (2) • Median savings amount are slightly lower than borrowing amounts. • Median levels for borrowing - and to a lesser extent saving – are roughly in line with median monthly SHF HH income. Saving and borrowing needs (1) • Nearly half of all SHF HHs engage either in borrowings or savings. • There are distinct groups of SHFs that either only save or only borrow. Base: for chart 1: All SHFs Important to note that numbers refer to monetary savings or borrowings. SHFs savings in the form of crops or livelihood (as assets) are not counted and might increase figures if taken into account. This might explain how the group labelled as ‘neither’ manages risk, saves or invests. For chart 1 , N = [2235]

28. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 2: What is the need for financial services? Saving and borrowing behaviour by education Saving behaviour increases with education while the proportion of borrowers peaks for secondary levels. Median saving and borrowing amount in USD by age groups Older SHFs borrow and save higher amounts, but borrowing exceeds savings across the population. Base: For both charts the base is SHFs’ median savings and borrowings in USD. For chart 2: N = [3391] ** 1 USD=2226.79 TZS (as of December 8, 2017)

29. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 2: What is the need for financial services? Research Question 3: What is the current level of uptake and use of digital financial services? Research Question 4: What is the current usage of financial services? Research Question 5: What challenges are there in access to financial and information services?

30. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 3: What is the current level of uptake and usage of digital financial services? Status of Financial Inclusion: • 34% of the surveyed SHFs are financially excluded compared to 28% of respondents at the overall level. • Amongst financially included SHFs, 57.4% rely on formal financial institutions for their needs while 8.6% rely only on informal sources of finance. • Just under 9% use banks.

31. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 3: What is the current level of uptake and usage of digital financial services? Nature of Financial Uptake: SHFs are catching-up with the wider population in terms of access to mobile money: the majority (51%) of financially included SHFs use mobile money followed by insurance products (15%). In the informal sector, SHFs largely use savings groups.

32. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 3: What is the current level of uptake and usage of digital financial services? Gender gap: Males access mobile money, banking products and insurance products more often than females. Conversely, females are more often engaged in savings groups. *Base: Only SHFs

33. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 3: What is the current level of uptake and usage of digital financial services? Financial uptake based on Age Group: • For mobile money and savings groups the age distribution is bell-shaped, implying SHFs aged 35-54 have the highest uptake while older SHFs and those below 25 have lower uptake. • Insurance products are accessed more often by older SHFs (35+). *Base: Only SHFs

34. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 3: What is the current level of uptake and usage of digital financial services? Financial uptake based on location: • Living in urban areas strongly predicts access to mobile money services – also for SHFs. • To achieve additionality, financial inclusion interventions should therefore be made specific to location (rural) when working with partner organisations. Base: SHFs only.

35. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 2: What is the need for financial services? Research Question 3: What is the current level of uptake and use of digital financial services? Research Question 4: What is the current usage of financial services? Research Question 5: What challenges are there in access to financial and information services?

36. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 4: What is the current usage of financial services? Saving behaviour: • Not much variation is observed across SHFs and the overall sample with respect to saving and borrowing behaviour. • Saving through mobile money has surpassed the use of banks. • There are however still large segments of SHFs who prefer informal savings methods or saving at home, despite high mobile money penetration. Base for chart 2: SHFs’ who save, N = [1562]

37. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 4: What is the current usage of financial services? Borrowing behaviour: Here again, despite high mobile money penetration borrowing from family and friends or savings groups remain the primary method for accessing loans. Base for chart 2: SHFs’ who borrow, N = [1470]

38. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 4: What is the current usage of financial services? Usage of Banking Services: Relative to the overall sample, SHFs show a lower usage of banking services. Only 4% SHFs are active bank users, while only 2% use banking services frequently. % of active bank users % that take-up banking services % of frequent bank users % that has a registered bank account Smallholder farmers Overall population

39. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 4: What is the current usage of financial services? Frequency of usage of financial services: • 67% of SHFs who take-up mobile money state that they use services less than once a month. • No SHF uses mobile money daily. T • The overall population shows slightly more frequent usage however the overall picture is similar: most respondents use mobile money less than once a month. Base: SHF’s accessing financial services

40. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 2: What is the need for financial services? Research Question 3: What is the current level of uptake and use of digital financial services? Research Question 4: What is the current usage of financial services? Research Question 5: What challenges are there in access to financial and information services?

41. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 5: What challenges are there in access to financial and information services? Challenges to uptake of Financial Products: Distance does not seem to be the main barrier. Of the 12% financially excluded who claim a financial access point is too far away, 53% live within 5 KM of one. 2) Un-banked (91.2% of SHF sample) What is the main reason why you do not use a bank? 1) Financially excluded SHFs (34% of SHF sample) Apart from family and friends, why don’t you use any institution or organization to help you manage your money? Base for chart 1: SHFs that are financially excluded, N = [1296] Base for chart 2: SHFs that are unbanked, N = [3222]

42. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 5: What challenges are there in access to financial and information services? Challenges to uptake and usage of Financial Products: We are looking at challenges to accessing and using different financial services for different sub-groups of SHFs. 2) Mobile money non-users (49% of SHF sample) What is the main reason why you do not use mobile money? 3) Insurance non-users (85% of SHF sample) What is the main reason you don’t have health insurance? Base: For chart 1, base comprises SHF’s who do not have health insurance, N = [2865] For chart 2, base comprises SHF’s who do not use mobile money, N = [1763]

43. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 5: What challenges are there in access to financial and information services? Finding 1: Most SHFs who borrow use savings groups or family and friends to do so. Mobile money is barely used (1%), although 57% of SHFs borrowing from family and friends and 75% of SHFs borrowing from SGs have access to a mobile money account. % that use mobile money Base: For chart 1, base comprises SHF’s who borrow. For chart 2, base comprises SHF’s accessing mobile money by borrowing channel used. For chart 3, base comprises SHF’s income by borrowing channel used. ** 1 USD=2226.79 TZS (as of December 8, 2017)

44. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 5: What challenges are there in access to financial and information services? Finding 2: Thereis considerable uptake of using mobile money for savings amongst SHF. Most do however save by keeping their cash at home, through a family or a friend, or through money guards although between 53-64% of these SHFs do have access to mobile money. % of SHFs accessing mobile money by financial service used for saving Base: For chart 1, base comprises SHF’s who save. For chart 2, base comprises SHF’s accessing mobile money by saving channel used.

45. 3.2 Financial Inclusion: uptake, usage and challenges Research Question 5: What challenges are there in access to financial and information services? Finding 2 – continued: • SHFs prefer saving cash at home or through savings groups albeit the uptake of mobile money. • Mobile money savings products have however build more traction in the overall population. For Smallholder population : N = [1562]

46. 3.3 Digital financial services: readiness, uptake, usage and challenges Research Question 6: What is the current level of uptake and use of digital financial services? Research Question 7: What are the challenges in accessing and using digital services?

47. 3.3 Digital financial services: readiness, uptake, usage and challenges Research Question 6: What is the current level of uptake and use of digital financial services? Access to Technology: Most respondents have access to a mobile phone however only 56% do actually own one. More than 1 in 10 SHFs has access to the internet (15%) Base: SHFs accessing technology.

48. 3.3 Digital financial services: readiness, uptake, usage and challenges Research Question 6: What is the current level of uptake and use of digital financial services? Mobile money uptake and usage: There is a gap of roughly 21% of SHFs who live within 5KM of a financial access point but still do not take-up mobile money. % that lives within 5KM of a financial access point % of active mobile money users % of respondents who borrow using mobile money % that has a registered mobile money account % that accesses mobile money services SHFs Overall population

49. Research Question 6: What is the current level of uptake and use of digital financial services? 3.3 Digital financial services: readiness, uptake, usage and challenges Usage of Mobile Money: Mobile money is the most commonly used financial channel. Its usage is most common among SHFs in the age group of 35 to 54 years. Mobile money uptake is observed to increase with higher education. Base: For both charts, base comprises SHFs who use mobile money.

50. 3.3 Digital financial services: readiness, uptake, usage and challenges Research Question 6: What is the current level of uptake and use of digital financial services? Usage of Mobile Money:Activity levels do not vary much across gender, education, or age. Active users do however have considerably higher incomes. Base: SHFs only ** 1 USD=2226.79 TZS (as of December 8, 2017)