Introduction, Part 2: The Philosophy of One Acre Fund

 Note: these comments are just my opinions and are not official statements of One Acre Fund.

So... what does One Acre Fund actually do?

This is a deceptively difficult question to answer – I would know, I've been asking it for the last year. One Acre Fund is one of the world's largest providers of agricultural microloans with over a million clients and $100 million in annual cash-flow. If you ask leadership what OAF does, you'll get the donor-friendly answer:

“OAF puts farmers first!”

When you dig a bit deeper, you'll get the answer:

“OAF provides agricultural inputs on credit with flexible repayment”

When you dig a bit deeper than that, you'll get wildly different answers depending on the person you're talking to (“we distribute with trucks” or “we use group-based repayments” or “we have committed field teams with high-quality farmer training” or “we use human-centric design innovations”). All of these things are individually true, but they still miss the bigger picture. Every organization has committed staff members; most NGOs use some variant of human-centric design and you'll be hard-pressed to find a company that doesn't claim status as an innovator. So what is the bigger picture?

As part of transitioning into my current role, I had to spend a lot of time learning OAF's current business model. For most of my first 2 years with OAF, I actively avoided it – the terminology is confusing and the business is not easy to understand, so I focused on technical infrastructure. When my former boss was preparing to leave, focusing on just the architecture was no longer an option... so I spent several months studying the core business model of One Acre Fund. Here's what I found out are (in my personal opinion) the reasons why OAF grew while so many past attempts failed:

Starting in the Field

This is one of my favorite parts about OAF – it started in the field. Not “our researchers are in the field, but they'll be back by lunch” - OAF staff members have lived and worked in rural communities since the organization's founding. When I started at the organization in January 2017, the IT Development team worked on an outside patio and routinely had the neighbor's chickens walking through our software planning meetings. Some of the things that seemed like productivity killers at first (deafening rain on a tin roof blocking a call, intermittent cell connections and electricity, unpredictable delays in transportation) are actually beneficial because they make it obvious when you're designing a solution that won't work ("maybe requiring a 10 gigabyte download isn't the best idea here"). While it's true that we would have been able to work faster in an American or European office building, the solutions we designed wouldn't have worked nearly as well in rural East Africa. Working in an office building makes it much easier to answer the question

"What Can We Do?" 

but only working in the field makes it possible to answer the question

"What Should We Do?"

Respect Your Customer

During my onboarding week, I casually mentioned “the farmers we're helping”... and got a firm reprimand from a Kenyan colleague who was in my onboarding cohort. “We're not helping them – they're our clients!”. This is a really big mental shift from what I was accustomed to in the West, but a powerful one. When one person is the "Giver of Aid" and the other the "Receiver of Aid", all sorts of dynamics (even subconsciously ones) create an implicit power differential.With clients – even clients who sometimes don't pay back the loan – the power dynamic is reversed and equalized. We are not the bosses of farmers in East Africa - they are our bosses, if we're designing solutions that aren't accepted by farmers then we need to change our strategy. This mentality is another part of the company's DNA that made the company a success.

Work Offline

This is where I come in – One Acre Fund has by far the most sophisticated offline systems I've ever encountered. They're quite difficult to maintain (I'll write a separate post on that), but the systems grew up in East Africa alongside the company – our core data entry system could keep working even if East Africa had a total two-week-long internet shutdown. Now that the cell network architecture in East Africa is rapidly expanding, this offline capability may not be as necessary as it was in the past – but the strength of our offline systems was one of the major differentiators between OAF and all of its failed competitors.

Balance of Philosophies

In my personal opinion, the single largest factor behind One Acre Fund's growth has been its ability to balance between two incompatible worldviews and philosophies. One of the biggest misconceptions Westerners hold about Africa is thinking of it as a monolith; the real Africa is wildly variable, with different languages/crops/customs/taboos in every geographic region (Kenya alone has 70 distinct ethnic groups). African cities can be nearly indistinguishable from Western ones, while rural areas can be so variable that they defy easy classification. The view from the field tends to be highly localized and does not necessarily translate to an area even 50 kilometers away. While this is a broad generalization and individual people vary a lot, my experience has been that people living in East African rural areas have a very different worldview than people from Western countries or African cities - rural residents tend to be much more concerned with concrete, real, tangible objects than with intangibles and abstractions. In order to create real impact for our clients, we have to understand their concrete needs and adapt the business to match - but such a business will only apply to a region smaller than the average county in America.

This is where the Western philosophy comes in - abstractions, interchangeable parts and economies of scale. Western practices make it possible to run a business that works in many different areas, to bulk order vast quantities of farming inputs and distribute them at low cost. Note that "Western" business practices don't necessarily mean Western people - any business course in Nairobi or Kampala will teach essentially this same school of thought.

One Acre Fund thrives by embracing the two incompatible ideologies - bulk ordering millions of kilos of fertilizer and then selling it with business practices that vary by geographic area. Taken too far, either philosophy would destroy the company; a fully Western business would become too rigid to meet the needs of customers (scale without impact), while a fully Field-based business would be unable to work outside of a tiny geographic area (impact without scale). Only by balancing between the two worldviews can the company provide valuable services for over a million farmers in 10 countries.

Specific Business Practices

This combination of offline systems, field-led systems design and farmers-first mentality led to a set of business practices that is... nonstandard. To be blunt, they make very little business sense from a Western perspective. However, in local context these practices actually fit in really well with East African communities.

Clients Can Cancel on Us, We Can't Cancel on Them

All throughout our systems, the term “contract” is repeatedly referenced. This causes a lot of confusion for our software developers, because we don't actually use contracts. Clients sign up for orders that are vague “intent to buy” agreements. We send out a truck with the farm inputs available; if a client doesn't show up that day, then they don't pick up their inputs and we don't charge them. However, if the client shows up and we don't have their items available, we'll send a follow-up truck to get them their stuff. This puts us in a very one-sided relationship with our clients, but for good reasons. Life in the villages is much less predictable than life in the West – transportation is unreliable, agriculture depends on factors outside anyone's control and peoples' complex web of social bonds can cause all sorts of unforeseen delays. Charging clients for items they haven't received is not a good way to ingratiate yourself into a community; neither is failing to deliver on a promise.

Years are Meaningless, Seasons are Life-or-Death

Almost all banking and logistics software originates from the Global North; all the Banking systems in the Global North were originally built around Northern agriculture. In the Global North, winter matters; in the Global South, rains matter. Unfortunately for the banking software, rainy seasons do not follow the same patterns as snowy seasons. The reliance on yearly budgets, yearly payment terms and yearly interest is so hard-wired into Western thought that we can't imagine anything else. However, our clients don't think this way. Our clients grow food during the rainy season, sell food after it's harvested and may have some money to pay back their loans at unpredictable times depending on factors beyond anyone's control. One of the business adaptations of OAF was to allow farmers to pay back their loan for a season, connecting loan payment to agricultural cycles rather than forcing farmers to adapt to Northern banking practices.

Declining-Balance Interest is Deceitful

Standard practice in the microloan field is declining-balance interest (interest is included in the loan, the faster you pay back the less you owe). However, many of OAF's clients have only a basic education; complex formulas and hidden charges are not a good way to build client trust. OAF charges fixed fees for all goods and services, no hidden charges. We do still want to encourage fast repayment though, so we offer a wide variety of incentive items (T-Shirts, Machetes, Boots, fixed-fee rate reductions, etc.) to those clients who pay us back quickly. This combination of fixed fees and free stuff has been very popular and goes a long way towards building client trust.

Standard Economic Models Don't Apply

I have my own theories about a more accurate economic model in rural East Africa than “Every man for himself”. I call my theory “Minimal Liquidity” - I don't think anyone at OAF intended to find this effect, but it's pretty well baked into the OAF model now because it seems to work in the field. The theory is that:

1. Many East African communities have essentially socialist economies (at least within tribes)

2. Economic pressure is intense, so people are constantly helping their neighbors at the expense of being able to hold on to income-generating capital

3. The end result is that the community as a whole survives, but individual members can't make the necessary investments to break the cycle of poverty.

While it's not written into OAF's policies, this “Minimal Liquidity” theory informs a lot of key decisions. The biggest decision is when to ship agricultural items – by the theory, if you ship an item too early then it will likely be sold rather than being used as an agricultural input. If your neighbor's kid is sick and you have a bag of fertilizer sitting in your living room that can't be used for 3 months... what kind of neighbor would you be to keep the fertilizer instead of helping?

Client Simplicity is everything – even if that creates operational complexity

OAF does offer agricultural loans, but not in the normal sense. While this varies country by country, one of the factors that helped OAF scale so large in Kenya was “bundling” - what I call “Easy Agriculture Kits”. Green Revolution techniques for getting high yields out of Maize require two types of fertilizer, applied several months apart. The wildly successful “Core Product Line” of OAF in Kenya is an “Easy Agriculture Kit” comprised of:

1. The first type of fertilizer (planting fertilizer), delivered just before the rainy season
2. The second type of fertilizer (top dressing), delivered about two months later
3. A fertilizer scoop to measure both types of fertilizer
4. Maize Seeds
5. Training on how to use the fertilizer properly delivered in person in the local language (Kenya alone has 68 local languages and most people are at least tri-lingual)
6. Scale the kit to the acre of land the client has, rather than the exact weights/amounts (clients order the “2 Acre Easy Maize Kit”, we handle the exact amounts needed for 2 acres)

Easy enough, right? However, some complications with that kit come up – what if you need 10 kilos of fertilizer for 1 acre of maize and our supplier can only give 6 kilo bags? In the states you would just find a different supplier, but in East Africa the supply chains are much harder to stitch together. Similarly, what if you want to convince clients to take a slightly larger loan by giving price breaks (making it slightly cheaper per unit to buy 3 acres than 2.5 acres)? In an area where most clients have two SIM cards and use one phone number for texting but another for calls to save money, these price breaks can influence a lot of decision making. Nonlinear pricing, nonlinear sizes and generally complex backend processing (what if you only need 8 Kilos per Acre for fertilizer type A, but 10 Kilos for type B?) create frustrating complexity for our software developers... but make total sense at the field level.

Putting it all Together

The technology of One Acre Fund is my main area of expertise - the next post talks about what this mixture of offline capability, farmers-first innovation and operational complexity looks like at the systems level.