Embracing failure is such a deeply held tenant of tech culture it’s become almost cliche for tech leaders to talk about it. As Steve Jobs famously said:
“You’ve got to be willing to fail, and crash and burn … if you’re afraid of failing, you won’t get very far.”
But when it comes to the social impact space and organizations trying to take on some of the biggest challenges underserved communities face, crashing and burning can have very real consequences for clients, communities and funding sources.
Kiva Labs was created to help support and encourage work that is pushing boundaries in financial inclusion. One critical area of that work is better serving rural and agricultural borrowers around the world. Innovation and scaling impact is work that always carries risk, but in this sector, acknowledgements of failed initiatives are underrepresented and often not widely distributed.
Publishing a case study about an organization’s failings carries real risk of reputational damage that could jeopardize future funding. As a result, there is a pattern of trying to minimize failures because of the industry’s reliance on outside funding for continued sustainability, even though we know players in the sector could learn a lot from each other’s mistakes.
If we believe that innovation will help close the smallholder finance gap, we should be prepared for failure and help prepare funders for it as well, as a vital part of the process. We should also be open to high failure rates as long as informed discussions of shared failures and lessons learned can help the entire sector grow and improve.
Getting honest about some #fails
The Kiva Labs initiative, in partnership with the Mastercard Foundation, recently hosted a conference to share lessons learned in scaling impact to rural and agricultural borrowers in Africa. During the three-day gathering that brought together leaders in the sector from more than 25 countries in Africa, Kiva held workshops on a variety of topics including human-centered design, Kiva’s lenders, and its evolving technologies.
Our “Fail Fest” session was designed to facilitate conversations around different approaches Kiva’s partners took to mitigate risk, improve their financial viability, and sustain their business models as they attempted to scale innovative financial products.
Fail lesson #1:Clients who seem similar on the surface may carry very different risk. Dig deeper.
Fail Fest example:
A Kiva Field Partner developed an institutional loan product to install safe water systems in Ugandan schools. After implementing a successful pilot program in 75 schools with a repayment rate of 95%, the organization scaled to 200 schools over the course of a year, and 900 schools during the subsequent year. The clean water product has provided clean drinking water to 922,000 schoolchildren, and been installed in more than 1,000 schools.
Challenge:
At scale, it quickly became apparent that repayment rates for this Field Partner’s portfolio of schools did not match the repayment rate recorded during the initial pilot. In fact, the repayment rate at scale was abysmally low. This was due, in part, to the organization being unable to properly identify client risk, leading to widespread delinquency. They assumed every school was as credit-worthy as the last, and soon wound up with many schools that were not.
Lesson learned:
To overcome this challenge, the Field Partner gathered data to redesign their risk assessment process. By conducting in-depth surveys of schools, the organization found that the highest repayment rates were correlated with high rates of school fee payment by parents. There were other metrics correlated with a high repayment rate, such as whether a school had installed a certain kind of advanced stove.
Where are they now? The organization is now better able to target credit- worthy segments of their client base and better assess client repayment ability, making their product and organization more sustainable and able to continue reaching the most underserved members of their target population.
Fail lesson #2: Non-financial support can help organizations mitigate some risk, but not all
Fail Fest example:
A Field Partner launched a carefully designed agricultural loan product to improve livelihoods for rural citrus farmers in Ghana. The product provided working capital for harvesting, fertilizer, and farm maintenance, and was intended to reach 1,200 farmers at scale. By coordinating stakeholders across the industry’s value chain — including global buyers and trainers — the organization allocated considerable resources toward mitigating market risks for farmers during the product’s initial implementation.
Challenge:
Sometimes, even well-designed financial products are no match for the varied factors farmers are up against. In Ghana, severe weather conditions including both drought at the beginning of the growing season and flooding in the middle of the growing season, as well as the subsequent financial collapse of multiple citrus fruit buyers, left most of the farmers involved in this initiative with no market on which to sell their fruit. As a result, the initiative was cancelled after reaching only 200 farmers of its planned 1,200.
Lesson learned:
In hindsight, the organization identified a need to develop more varied mitigation strategies for managing inclement weather on farms, such as providing farmers more training and support or intercropping. This would have enabled weather-affected farmers to generate a small cash flow and reduce their debt compared to farmers who did not diversify their crops.
Still, diversification may not have rendered the initiative a success, and this case study exemplified some of the intractable challenges faced by rural farmers, which together the Rural and Agriculture Finance community hopes to collectively overcome with innovative products, such as portfolio-level insurance.
Where are they now?
The organization remains committed to increasing farmer livelihoods through supporting the value chain linkages for higher-value crops like citrus. They are now working more closely with all actors along the chain to ensure a market-viable solution.
Fail lesson #3: New products and services demand new staff with new skills
Situation:
A Kiva partner that traditionally provides agricultural training and technical extension services for small-scale farm operators in Mozambique developed a new credit program for subsistence farmers.
Challenge:
This Field Partner was not a micro-finance institution when it sought Kiva’s help to develop a credit program. As such, the partner initially struggled to set up the proper internal systems necessary to vet potential clients for the credit program and perform good due diligence.
During the initial stages of implementation, the organization’s field staff, with no microfinance experience, often undertook the processes with their “hearts as opposed to their heads,” according to the organization — — giving some loans to clients that were not able to provide sufficient guarantees to secure investments.
Lesson learned:
After seeing the delinquency rate for their loan product rise to more than 20%, the Field Partner knew something had to change. They made key staff hires, notably two credit officers with banking experience, and were then able to leverage their new knowledge base to completely revise their internal systems and process of assessing potential clients.
Where are they now?
While they also implemented other changes to their initial product to better suit the needs of their client base, the credit staff hires made a huge difference in delinquency rates, freeing up staff resources that were being inefficiently used to keep tabs on clients, and enabling the organization to better better serve its mission.
We loved that Fail Fest helped open intra-organizational dialogue between partners. After each of the 3 presenters shared their case studies and participated in a question and answer session, multiple members of the audience, themselves leaders of Kiva Field Partners, stood up and told their own stories of failed initiatives at their organizations.
We heard stories of failed asset repossession, organizations mired in costly and unsuccessful court cases with borrowers, unsuccessful attempts to develop clean energy products, and a failed product to finance livestock husbandry.
Although the Fail Fest was designed to facilitate this type of sharing, we were unprepared for how many leaders would feel compelled to share, and to what extent they would be willing to speak candidly about their missteps. Attendees continued this open sharing with each other beyond the Fail Fest and into other subsequent portions of the conference. Some partners have also reached out to Kiva to facilitate further conversation between partners to discuss common challenges.
Although Kiva is most known for providing flexible and inexpensive capital to our partners, the Fail Fest illuminated an additional role as a facilitator of open conversations across our portfolio.
Funders have an opportunity to enable these conversations while protecting the interests of stakeholders involved, acknowledging the reputational risk that comes with sharing failure.
