Where agriculture development projects find access to financial services a key constraint to success, m-money and m-banking services are potentially important tools to leverage. Such services can:
- Make it cheaper and easier for smallholder farmers to save; receive loans and make loan payments;
- Make it easier for input suppliers to collect and manage payments from smallholder farmers—and small-holder farmers, in turn, can use m-money and other ICT tools to aggregate their demand for inputs and pay for them;
- Make it easier and safer for traders to manage transactions and make deposits into their bank accounts;
- Make it easier for large buyers to pay thousands of producers faster (and reduce side selling) and manage any credit they offer such producers. For example, Dunavant is using m-money services provided by MTZL in Zambia for this as well as MTZL services to manage these producers and track and reward the best producers;
- Make payments for micro-insurance and receive any pay outs from such insurance;
- Increase the efficiency and reliability of any voucher services for fertilizer or other inputs provided by a government, an NGO or a donor project; and
- Perhaps an important indirect benefit of m-money is to enable producers and others in the value chain to more easily and cheaply receive remittances domestically and internationally—critical assets to help with cash flow.
So far, m-money and m-banking initiatives have not scaled widely in most countries, and there are few actual examples of agriculture development projects using them to improve success. There are notable exceptions though. In Kenya, M-PESA is being used in many ways by smallholder farmers and others in the agriculture sector.
The USAID PROFIT project in Zambia also has used m-money services (from MTZL) to improve access to financial services and inputs for smallholder farmers, and the USAID MABS Project in the Philippines has been a global leader in demonstrating how m-money and m-banking services can improve access to financial services for the rural poor.
So far, most bank-led m-banking services have not provided benefits to smallholder farmers or the rural unbanked, but as more banks that focus on this market segment implement m-banking services, this will change.
Given the scant number of examples of using m-money to enhance agriculture development, there are few lessons to be shared related to m-money and agriculture development. Below are a few, plus several questions to ask before deciding to tap m-money or m-banking services as part of an agriculture development project.
- Be cautious not to be attracted to using m-money because of the hype that surrounds it. Ask if it really has potential to solve a key constraint related to payments or access to financial services for a project’s target beneficiaries — or if it offers a significant opportunity to increase success.
- Can the relevant financial services institutions — ones willing to offer products to meet the needs of farmers — offer m-money services? For example, m-banking looked like it had great potential for a set of smallholder farmers in one African country until it was determined that the key lender to these farmers was the state-owned agriculture bank (due to subsidized interest rates and loan terms tailored well to crop cycles), but this bank could not take part in any m-banking services be-cause it did not yet have the requisite ICT-enabled back-office systems.
- Is it likely that the relevant m-money/m-banking service will be sustainable and scale? Do not assume that an initial roll-out of a promising m-money service that might help a development problem will scale to reach target agriculture users. Most have not done so yet.
- M-money and m-banking are “hot” services with significant competition between providers. Projects need to use a competitive process to take advantage of this competition, and not to be lured into a partnership with just one provider, even if that provider offers a “public-private partnership”. A tender can be used to compare alternative public-private partnerships.
- If m-money/m-banking does have great potential to help an agriculture project, how best might donors be involved? Donors can and have had important catalytic roles in launching successful m-money and m-banking services (i.e., DFID’s assistance with M-PESA; USAID’s support of G-Cash via the MABS and support to MTZL via PROFIT), but a project’s potential role needs to be carefully designed and honed to leverage the significant private sector investments needed. USAID’s role may likely be best focused on the enabling regulatory environment for m-money or a role that is now being rolled out with USAID’s HIFIVE Project and the Bill and Melinda Gates Foundation in Haiti where an incentive fund (a competition between service providers with a substantial cash re-wards) and on-demand technical assistance is being used to provide strong incentives for rapid scaling of such services.
As in Haiti, a USAID project should leverage the strong commercial incentives providers have for rolling out m-money/m-banking service and perhaps provide incentives to a provider to ex-tend or tailor a service to rural clients. Unless the provider already is planning to rollout the service commercially, it is very unlikely that a project can (or should) contribute enough to the significant start-up costs.
Using Mobile Money, Mobile Banking to Enhance Agriculture in Africa is one of a series of briefing papers produced by the FACET project to help USAID missions and their implementing partners in sub-Saharan Africa use information and communications technology (ICT) more successfully — via sustainable and scalable approaches — to improve the impact of their agriculture related development projects including Feed the Future projects.