Consumer insights

What we learned from providing unsecured trade credit to small rural pharmacies

March 16th, 2020

The inability of low-income households to access quality healthcare is a major challenge in dealing with unanticipated shocks. The challenge is bigger for rural households. Small rural pharmacies stock almost entirely generic medicines because these are the products that patients can afford.  Research has indicated that this demand for generic medicines has led to high levels of falsified and substandard medicines in Kenya and elsewhere, with 15-30% of medicines failing quality control tests. This is compounded by the pharmacies’ lack of working capital to access quality products.

FSD Kenya partnered with Maisha Meds over 2019 to test offering an unsecured line of trade credit for small pharmacies and clinics in Kenya, enabling them order medicines up-front and pay for them after 30 days.  Maisha Meds used cashflow data from a point of sale (POS) system that we had deployed for these small healthcare providers for credit scoring. We provided trade credit to those with the highest credit score to purchase high-quality medicines from suppliers using our digital restocking system. Over the subsequent nine months, we grew to an active use base of over 340 pharmacies and clinics, supporting nearly 150,000 patients monthly. We provided trade credit to a subset of these pharmacies in 2019, with 100% of them repaying their first round and 70% taking additional rounds of financing.

Here are some lessons we learned as we implemented both the POS system and the trade credit across our user base.

1. Listen to clients to drive early engagement

Many companies attempt to build a model that leverages sales data for credit scoring, but few have managed to gain the levels of POS engagement necessary to make this model work.  We have managed to do so by religiously listening to clients.  Conventional wisdom says that to design great products, users should bring you their problems following which you design the solutions.  In our case, users demanded very specific solutions and would refuse to use the product until their solutions were implemented. This meant that we spent valuable early technical resources building profit-and-loss functionality, patient credit tracking, as well as short message service (SMS) and paper-based receipts, all of which are essential features of a POS for a small business. Yet these may not be considered high priority by a small healthcare company looking to improve medication quality and affordability.  We spent our early days building exactly what customers required so that we could later focus on building things that could drive change in the health sector.

2. Angry customers are often the first sign that you’re onto something

In the first few months of operation, we almost scrapped the POS system entirely because we were finding it so hard to get clients; most wanted features that we had not yet built or wanted our (Android-based) software only on a desktop. Some wanted something entirely different.  As we sat through many hours of discussions on the merits of continuing with this model, our software engineer released a version of the app that inadvertently caused inventory and sales data to be incorrect for users.  The ensuing level (and speed) of rage from our 20 clients was overwhelming.  Clients started calling almost immediately to air grievances and demand fixes.  This was the point when we fully realised that these small business owners relied on us for crucial operational decision-making and did not have other options for similar software.  We had a responsibility to get it right and a tremendous market opportunity if we did.  Though we haven’t always lived up to our clients’ expectations, we are (somewhat) comforted by the knowledge that we will hear from them immediately and loudly when we get it wrong.

3. Credit scoring is less important than great product design for our clients

Credit scoring is helpful in identifying which customers are more likely to repay loans and thus offer them better terms.  However, most of our pharmacy and clinic clients have up to four loans or lines of credit to support their businesses.  They are likely to prioritise some of these loans over others. In designing our loan product, we realised that in order to get high repayment, we needed to create more than just a credit product. The products that the clients found most valuable gave them special offers or loyalty points and often combined in-person interactions (high touch) in addition to digital ones (high-tech). Our product has given them access to quality-assured medication suppliers, provided greater price transparency and secured discounts that they would otherwise not be able to access.  We are starting to test larger loan amounts to see if this can entice clients to use our restocking system. We provide forecasts and recommendations for orders that pharmacies can use to help them make better decisions on how to spend their working capital. We are also testing a partnership with the Medical Credit Fund to support lending that is secured by the client’s Safaricom Till Number cashflow.  This combination of services has helped us to achieve a repayment rate of 100% with our pilot customers.

4. Pharmacies and clinics desire high-quality generic medicines

As observed above, most rural pharmacies almost entirely stock generic medicines because these are the products that patients can afford.  While some pharmacies do not differentiate based on product quality, our experience is that healthcare providers would prefer to buy quality-assured products if the prices are equivalent. But in many cases, they do not know which medicines are substandard.  This was evident in our trade credit pilot. Over 80% of products ordered through our system in 2019 came from a supplier that uses chemical testing to verify the quality of all medicines that they sell. We were thrilled by the interest in ordering quality-assured generic medicines. If suppliers provided greater transparency or more information about the quality of the medication, it would be an important step towards ensuring that patients access quality products.

5. Connectivity is a constant challenge for products serving rural areas

3G connectivity is fantastic in Kenya – even in remote locations. In fact, it sometimes seems better than my T-Mobile coverage in San Francisco. Yet there are still dead zones and system quirks that sometimes cause countless hours of headache and pain.  We chose to build for Android instead of desktops because only 10% of pharmacies have Wi-Fi on site, yet all report having 3G connectivity.  We assumed that pharmacies would load data bundles onto their tablet device’s SIM cards and use the system primarily online (with some limited offline functionality allowed). This was a false assumption, however. Some pharmacies remove the SIM cards to use elsewhere or refuse to purchase data bundles, or the internet may be extremely slow or will stop working at certain times of day, or the site may be in an internet dead zone.

6. About 20% of our pharmacies and clinics still have no 3G connection and must take the Android tablet elsewhere to sync

We have clients in West Africa that downloaded and used the tablet offline data for months and then magically synced all of their data one day.  We have users that did not sync for a few months, only to find that once they did, the volume of data was too much to sync, effectively trapping the data on the tablets. We have spent countless hours at one particular pharmacy in Ahero, Kisumu County, trying to understand why three tablets placed right next to each other could not reconcile inventory data between them. We grapple with data that disappears from the server after syncing, with sync processes that never finish, with data that gets corrupted as it is being synced, as well as with clients who refuse to connect because they do not trust that they will access their data, and yet who love our software.

We hope that these lessons will guide others to build businesses that can support rural supply chains more effectively. The majority of fintech and digital solutions in this part of the world focus on urban centres, yet close to 60% of the population lives outside of cities. For the promise of technology to improve lives at the bottom of the pyramid to be actualised, we must build products that can achieve high adoption in the geographies where most low-income customers reside. The barriers to entry are high, but the business opportunity is massive. We are excited to work with FSD Kenya and others to deliver affordable and high-quality health products to all households on the continent no matter where they reside.

Jessica Vernon CEO & Co-founder of Maisha Meds.



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