September 21, 2017

Lesson Learned the Hard Way #3: When Supply-Side Models Aren’t Enough, Think Bigger

Written by AGA Khan Foundation

This post originally appear on Locus. Reposted with permission.

Like so many places around the world, in Tajikistan, root causes of poverty are complex. As a post-Soviet country, decentralized public services and authority are still fairly new concepts, as is business and market development. A civil war in the 1990s left a devastating toll, and with Tajikistan’s mountainous, mostly rural landscape, remote communities have faced great challenges.

Nonetheless, Aga Khan Foundation has helped make marked progress in the 24 years we’ve worked here, in rural development, civil society, health and education. We began by filling critical gaps in infrastructure, local capacity and agricultural productivity, and establishing and strengthening community-based institutions, including village organizations, early-childhood development centers, pasture user groups, savings groups and economic associations. Our value-chain development efforts involved direct support for economic associations and micro-enterprises, namely to increase their supply through interventions such as better harvest and post-harvest storage and packaging techniques.

For years, this approach served communities well. Eventually, though, the economic potential of our community mobilization approach reached a turning point. We knew we had to make a change to realize the approach’s full economic potential. Our on-the-ground experience told us that we needed to begin working on the demand side of the equation, facilitating connections between remote smallholder farmers and larger markets. We knew this would mean more beneficiaries involved in rural economic development activities, advantages of scale for better production returns, and a move away from exclusively providing services ourselves. Instead, we envisioned AKF maintaining its supply-side efforts while also becoming a facilitator of other economic actors by connecting processors, input providers and smallholders.

We turned to something entirely new for AKF in Tajikistan: lead firms.

First tried by Action for Enterprise, which supports NGOs in value-chain development, lead firms are intermediary businesses that open up new markets to smallholder farmers. Done right, a lead-firms approach can help stabilize demand, add value through activities such as processing, and narrow the gap between previously isolated rural producers and larger markets both within a country and internationally.

We decided to work to adapt the lead firms approach to fit Tajikistan’s unique challenges and AKF’s strengths in community mobilization. We were able to expand this approach, which had been piloted previously, through a partnership with USAID on a Global Development Alliance called Economic and Social Connections: A Multi-Input Area Development Financing Facility for Tajikistan, or ESCoMIAD. The project appeared to be just the right vehicle for focusing the demand-side work needed to promote economic growth and market systems.

But working with lead firm businesses was relatively new to us, and not within our comfort zone. This market-based approach was also very foreign to a country with a history of central planning without regard for markets.

Early on, we encountered challenges.

Because it was new, stakeholders came with competing understandings of the lead firms concept, which led to confusion. On one hand, AKF had lessons from working with seven lead firms through an earlier GIZ-funded project; those lessons involved improving the application and selection process. We also quickly came to realize that because so many different groups from varied sectors and geographies were involved in ESCoMIAD – including seven Aga Khan Development Network agencies – we needed to ensure improvements to how we shared information and coordinated.

We’d reached a critical moment. We needed to take a step back, so we innovated a process for reflection and adjustment, convening in Dushanbe to recalibrate our approach. We used a learning platform known as “reflection, solutions and coordination,” which involved a full day of collective reflection sessions preceded by background research and consultations with relevant stakeholders. It was an opportunity for staff to use case studies, brainstorming and critical thinking to learn from two years of implementation. In addition, we used role playing and fictional scenarios to gain insight into businesses’ interests and factors we should take into consideration in interacting with prospective lead firms. This also allowed us to test new approaches to selecting lead firms, which we realized could be improved.

The session also provided a chance to explore our varying understandings of lead firms, as well as how to better coordinate on integrated development. We wanted to make clear to both regional and head office staff the solutions we were working to develop and integrate value chains.

Through our reflection process, we learned many valuable lessons.

We learned that lead firms often were unaware of their impacts on smallholder farmers and the role they could play in improving rural livelihoods. We realized that when we interviewed them during our selection processes, they could easily overstate the number of smallholders they would purchase from to try to increase their chances of being chosen; we decided we had to study their claims more carefully, gather references and visit smallholders they reported purchasing from.

We also learned that facilitation work connecting lead firms and smallholders requires a strong understanding of markets and market actors, so we’d need to conduct rapid market assessments and build the capacity of local staff working on economic development, particularly in key value chains – fruits and vegetables, meat, honey, dairy and handicrafts.

We also discovered that we needed to more effectively communicate the lead-firms approach to our regional staff and external partners. We found that many stakeholders thought lead firms simply meant supporting larger businesses, rather than creating income and jobs for smallholders.

Our reflection session culminated with sharing information on activities across projects and geographies and with an action plan for addressing the shortfalls we’d uncovered. We also set up follow-up sessions to review our progress and engage in real-time learning. Topics included: effectively supporting economic associations, piloting mobile financial services, strengthening village organizations to govern and work collaboratively with local authorities, and developing business skills and planning for existing and aspiring entrepreneurs.

Today, we are paying greater attention to regional staff, with ongoing coaching from our central office and improved tools and criteria for lead firm selection. We’ve also increased our focus on conducting market assessments and gathering data on key value chains.

While we are still learning and continuing to systematize our lead-firms approach, we have made significant progress, as have the communities we serve in Tajikistan.

By shifting some of our efforts away from direct support for small-scale producers in order to try something new and creative, we are indeed increasing our impact. By combining lead firms with AKF’s longstanding success in community mobilization, we are driving lasting, sustainable improvements in key value chains.