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How Smallholder Farmers Can Bank From the Farm With Digital Financial Services

By Guest Writer on August 8, 2016


Pioneered by mobile payment companies like Kenya’s M-PESA, digital financial services (DFS) offer banks and other financial providers the ultimate promise to reach billions of unbanked poor and rural customers. Yet pitfalls remain in the development and uptake of these services targeting smallholder farmers.

At the ICTforAg 2016 conference in Washington, DC, four experts and practitioners shared their experiences with DFS challenges, and discussed emerging lessons and tools to overcome them.


Even in early stages, DFS-for-agriculture projects show farmers involved in trainings have consistently taken greater advantage of financial opportunities, as explained by Kate McKee of CGAP, the Consultative Group to Assist the Poor.

Within a 2,800 farmer sample in Tanzania, for example, farmers who spent more time learning about DFS through a mobile application saved up to nine times more and borrowed more with the same repayment rate as their peers. Additionally, borrowers in CGAP’s program had higher loan repayment rates when they had access to more information on the lending process.

“It looks like customers with access to the mobile content, which also had some consumer protection mechanisms built in, were better able to optimize,” McKee said.

Scale-up potential of these programs is substantial, said Rewa Misra of the MasterCard Foundation:

“Even in countries like Kenya, where you’ve now had M-PESA for over a decade, more than 70% of the transactions in agricultural value chains are still happening in cash, so there is high potential for digitization of transactions.”

In countries with lower adoption rates, the percentage of cash-based transactions is even higher, showing significant room for DFS to grow.

To encourage this, DFS stakeholders have developed several large training programs. FHI 360’s Carrie Hasselbeck explained that her team coordinated with the National Association of Smallholder Farmers (NASFAM) in Malawi, to provide initial training on financial and digital literacy to 18,000 farmers, focusing on boosting mobile money enrollment and digitizing payments throughout the agricultural value chain.


Despite these positive signs, the primary stumbling block for service providers and DFS advocates is adoption of new services. Training programs have helped farmers better understand digital financial services, but they aren’t directly linked to rapid uptake of new innovations. In practice, DFS uptake depends on several outside factors, like connections to digital infrastructure, accessibility, and responsiveness to local needs.

Alongside is the significant risk of DFS misuse by service providers at the expense of customers. To make affordable services sustainable, providers could couple lending with other services, such as crop insurance. However, McKee noted, combinations of this kind could actually result in mandatory fee increases that price out farmer borrowing.

Likewise, credit scoring to determine loan availability could lead to higher interest rates that prevent borrowing altogether rather than preventing defaults. Moreover, McKee reported evidence of lenders reporting solely negative repayment records without recognizing positive records, further driving up interest rates and limiting customers’ access to alternative credit sources.

Emerging Good Practices

Underlying DFS is the close relationship between financial literacy and savings. Farmers with improved understanding of available services have increased their savings, while service providers have responded by providing greater access to financial services.

To identify strategies for integrating DFS into value chains, USAID’s Nikki Brand presented the Agency’s recent How to Use Digital Financial Services in Agriculture Guidebook, which offers a step-by-step approach for assessing value chain challenges, the presence of existing financial services, and the feasibility of digital solutions.

For farmers, effective DFS depends on how well they integrate into the larger digital ecosystem. To ensure that customers benefit from savings and loans, DFS should be integrated with existing services and linked to training on best practices, unlocking long-term value for farmers. As DFS matures, a major message from USAID’s guide is worth remembering: Financial inclusion can provide benefits to farmers that stretch far beyond the banking sector.

Daniel Robinson is an agriculture and food security intern at Abt Associates.

Filed Under: Agriculture
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