Coffee Direct Settlement System (DSS) Qorus Reinvention Awards - MEA 2025 - Winner

Brief summary of the initiative: The coffee sub-sector in Kenya has long struggled with persistent issues such as delayed payments to growers, a lack of transparency, and inefficiencies in processing. To address these challenges and better support farmers, Co-operative Bank developed an integrated, automated solution designed to streamline and track the entire coffee sale process: from farm to auction, and the subsequent settlement of proceeds. This system automates and facilitates the clearing and payment process for coffee sales, ensuring prompt and transparent payments to farmers, their co-operative societies, and key service providers such as millers, brokers, buyers, warehousemen, and the Nairobi Coffee Exchange. Prior to this initiative, no integrated solution existed within the coffee sector, with each value chain party including service providers, operating in isolated enterprise systems. Farmers' cooperatives, which manage over 70% of Kenyan coffee produced by smallholders, faced significant technological limitations. The Coffee Direct Settlement System (DSS) is a groundbreaking technological advancement that addresses these issues while supporting regulatory reforms outlined in The Crops (Coffee) Regulations 2019 and Capital Markets (Coffee Exchange) Regulations 2020. Co-operative Bank of Kenya was selected as the Direct Settlement System (DSS) provider after the Capital Markets Authority approved its solution, which had already been piloted. The Bank’s solution was chosen over others due to its ability to offer an end-to-end automation of lending and near-real-time settlement of payments, which was exactly what the industry and the country needed. DSS supports: 1) Coffee value chain 2) Kenya’s annual export of over USD 331 M of Coffee. 3) All coffee co-operative societies in Kenya (approx. 600 supporting 1 million smallholder coffee farmers) 4) All coffee estates (approx. 5,000). 5) Five (5) million people (through forward and backward linkages) and across 33 countries Key Performance Improvements: 1) Timely Settlement: Payments to coffee growers are now processed within 5 working days after the auction, compared to the previous seasonal or year-end settlements. 2) Enhanced Transparency: The system provides full transparency and traceability throughout the coffee value chain, from farm to auction, enabling efficient tracking, monitoring, and simplified settlement processes. 3) Financial Inclusion: Smallholder farmers now have access to verifiable data, empowering lenders to make more informed financing decisions, which drives greater financial inclusion and boosts coffee production. 4) Regulatory Compliance: The system is fully aligned with The Crops (Coffee) Regulations 2019 and Capital Markets (Coffee Exchange) Regulations 2020, ensuring adherence to the latest industry standards. 5) Bank Growth: The DSS implementation led to a 246% increase in local currency deposits and a 318% growth in foreign currency deposits within the agricultural sector, further strengthening Co-operative Bank’s balance sheet. 6) Reforms in the coffee sector- DSS supported the Government’s initiatives to reform the coffee sector. As of June 2024, farmers had been paid more than Sh17 billion which was processed through DSS. This innovative solution marks a significant step forward for Kenya’s coffee industry, transforming the way transactions are conducted and ensuring a more sustainable, efficient, and transparent value chain for all involved.

Project background and rationale Agriculture is a critical pillar of Kenya’s economy, accounting for 34% of the country's GDP and providing employment to over 70% of the rural population. Within this sector, the coffee sub-sector stands out as a key driver of employment and export revenues. However, the coffee industry has faced persistent challenges that have negatively impacted farmers, such as delayed payments, lack of transparency, and inefficiencies in processing. Previously, no integrated solution existed to address these issues, creating a significant opportunity for Co-operative Bank to capitalize on its strategic position within the cooperative movement. By leveraging technology, the Bank could reach underserved and marginalized market segments, helping to address the longstanding problems in the coffee sector. This initiative presented a unique chance to enhance service delivery, improve customer experience, and set a new industry standard for transparency and efficiency in coffee transactions, ultimately benefiting farmers and the broader economy. Challenges identified and desired outcomes: 1) Complex Coffee Processing Chain: Coffee undergoes multiple transitions—Cherry to parchment, then to Clean Coffee—each with extensive bulking and stakeholder involvement at various stages. Desired Outcome: A solution that supports every step in this complex chain, integrating features that streamline tracking, settlement, and data transfer across all processing stages therefore reducing time to payments. 2) Disjointed Sector with Diverse Stakeholders: The coffee value chain includes numerous stakeholders, each with unique requirements and expectations, complicating standardization and leading to exploitation and delayed payments for farmers. Desired Outcome: A solution with tailored DSS modules to meet specific stakeholder needs, and ensure each party could leverage the system effectively 3) New, Stringent Regulations with Limited Stakeholder Support: Recent regulations set strict timelines for coffee trading and settlement yet lacked full support from critical stakeholders in the sector. Desired outcome: align DSS functionalities with regulatory requirements. 4) Rapid Political and Regulatory Changes: Frequent updates to coffee sector policies required continual adjustments to remain compliant. Desired outcome: Maintain close collaboration with regulatory bodies and allow prompt system updates in response to new guidelines. 5) Fragmented Systems Across Stakeholders: Service providers, cooperatives, and other stakeholders operated independently with limited technology, complicating integration. Desired Outcome: Provide targeted training and technical support to integrate all stakeholders into the Coffee DSS platform, fostering a unified, tech-driven ecosystem. 6) Limited Digital Capacity Among Cooperatives: Cooperatives, which handle over 70% of Kenyan coffee production, had limited digital infrastructure. Desired Outcome: Have simplified tools within DSS and ongoing training empowered cooperatives to adopt the system seamlessly and build their digital capacity 7) Ensuring Data Accuracy especially Farmer Data and Transparency: Maintaining accurate, transparent data across multiple stakeholders was essential for trust and operational efficiency. Desired Outcome: A platform that would incorporate real-time data-sharing and compliance checks, supported by regular audits to ensure data integrity across the value chain.