Editor’s note: This is the second post in our series on Digital Finance Plus. Published in collaboration with CGAP, the series explores the ways that digital finance is being utilized to help provide basic, essential services to the BoP. Discover more in part one, part three, part four and part five of this week-long series.
Think about the five sectors covered in CGAP’s Digital Finance Plus project: agriculture, utilities, water, health and education. Each of these sectors is crucially important, and each is being impacted in different ways by innovative uses of digital finance.
But in most of these sectors, mobile money products are facilitating payments from, not to, BoP customers. Of the five sectors, agriculture is the only one that provides household income to a significant number of BoP families. This could give agriculture-focused payment solutions a unique role in the growth of digital finance, since their ability to facilitate income streams to low-income families provides a powerful incentive for their adoption.
So why aren’t more mobile money platforms tapping this potential? I had the honor of being in Brussels in March to talk about agricultural mobile finance with an audience of European Union international development and policy makers as well as African ambassadors (see the video below). It was a short trip, but well worthwhile, given the interest these audiences exhibited in the topic. In our discussions, one item that seemed to have resonance was the need to overcome the inherent lack of trust from smallholder farmers. These farmers have been disenfranchised from formal economic activity for generations. Their lack of trust, as well as illiteracy and financial illiteracy, helps explain why most of the 219+ mobile money platforms in developing countries have been largely confined to urban centers. Any uptake of mobile finance in rural areas to date has been more opportunistic than strategic in nature.
This represents a missed opportunity, and there’s a growing realization in development circles that digital finance can and should better serve the needs of households for which agriculture is the only source of income. What’s more, a strategic approach to mobile finance rollouts in rural areas should consider the agriculture sector as a gateway to rural customers. Agriculture involves cash transactional activity throughout the value chain amongst all the stakeholders. This high volume of transactional activity provides a value proposition that should be of interest to mobile network operators and/or financial institutions. Meanwhile, agriculture development implementers are well-positioned to leverage their status as trusted intermediaries to promote mobile finance to farmers. This is because the core of agriculture development is transferring knowledge about good practices by convening farmers by the dozens, hundreds or thousands on demonstration farms, conferences, seminars, workshops and other fora. Adding education about mobile finance to the usual menu of agricultural value chain interventions will promote mobile finance demand. Meanwhile, the agri-development implementer, in close collaboration with partners, can also help identify, develop, train and even finance cash-in/cash-out agents and merchants (e.g. input suppliers, cooperatives, buyers, traders, etc.) in order to promote mobile finance supply. This kind of approach will be more strategic in nature and will create an ecosystem of mobile finance subscribers, agents and merchants that are tightly aligned along high volume, targeted value chains where farmers live and work.
This type of strategic approach accommodates the challenges related to lack of trust, and will establish a mobile finance channel directly into households at the base of the pyramid. Its effectiveness in building a mobile money ecosystem has already been demonstrated by SmartMoney, as described in the Technical Centre for Agricultural and Rural Cooperation (CTA)’s February publication. SmartMoney is a third-party mobile finance platform in Tanzania and Uganda that transitions large agri buyers’ payments to farmers from cash to mobile. Its initial scope was limited to rural smallholder farmers and the agricultural organizations that buy their crops. However, after discovering that farmers would not accept digital payment for their crops unless they could use it to make purchases in their community, SmartMoney expanded its scope to include the shopkeepers that service these farmers. After shopkeepers proved reluctant to accept farmers’ digital money unless they could use it to make purchases or easily convert it to cash, the company expanded its scope again to include local wholesalers, suppliers and banks. As Chris Statham and I wrote for CTA, SmartMoney’s experience was that they “rapidly evolved from being just a payments solution … to becoming an electronic currency for the needs of the entire village-based economy.”
This dovetails with World Bank/CGAP’s latest thinking about Digital Finance Plus, in which digital finance makes basic, essential services and utilities more accessible not as an end itself, but as “a means to help solve significant development challenges in order to improve the lives of the poor.” As development professionals, our leadership in strategically approaching agriculture mobile finance, in collaboration with our private sector mobile money partners, is essential for not only making our value chains more efficient and effective but also for maximizing the potential of digital finance to service financial needs at the household level.
And when it comes to giving farmers the tools to better manage their finances alongside their crops, it’s exciting to see the seeds of these technologies taking root.
Editor’s note: This is the second post in our series on Digital Finance Plus. Published in collaboration with CGAP, the series explores the ways that digital finance is being utilized to help provide basic, essential services to the BoP. You can read the first post here.