Mobile payments: How digital finance is transforming agriculture

It’s becoming increasingly clear that cash payment schemes are obsolete in the 21st century.

At the recent Fin4ag conference hosted by the Technical Center for Agriculture and Rural Cooperation in Nairobi, GSMA, the apex organization for over 850 mobile network operators worldwide, declared its strategic business interest in transitioning cash payments to farmers by large commodity buyers to mobile payments. East Africa’s urban centers have become — or will soon be — saturated with mobile money, so mobile money providers are now beginning to pursue strategies for rural rollouts. Mobile payments to farmers can be economically viable for value chains with predictable and high volume transactional activity. Characteristic of this next generation of mobile money in rural areas will be investment by large commodity buyers as well as a “high-touch” approach to the ecosystem creation of mobile money users and cash-in/cash-out agents.

This alignment between mobile money providers, large agriculture buyers and farmers presents a win-win scenario for everybody. Mobile money providers register new users and increase the annual revenue per user. Large commodity buyers reduce the onerous and costly security, record-keeping and administrative protocols — as well as incidences of fraud — related to making cash payments to thousands or tens of thousands of farmers. Farmers have greater safety and security because they no longer carry large amounts of cash after selling their harvest. A mobile wallet also provides many farmers with their first ever “financial identity,” thereby opening the door to future access to finance opportunities.

CTA will soon publish a landmark study about the race among large commodity buyers to have the fastest speed of payments to their smallholder farmers, profiling next generation business models in Ghana and Zambia, as well as successful systems already in place like SmartMoney in Uganda. By definition, cash payment schemes present an agriculture value chain efficiency gap. Here’s a three-step framework for inserting mobile payments into agriculture:

1. Conduct cash usage behavioral research with farmers.

This is to inform the design of the requisite ecosystem of cash-in/cash-out agents and merchants that are tightly aligned along the targeted value chain where farmers live and work. The research can also assess the financial literacy of farmers by identifying their existing savings, spending and borrowing behaviors and basic numeracy skills, as well as identify latent demand for financial products such as credit, savings and payments as well as mobile money functions like free account balance inquiry or pictogram-based menus. Finally, research will reveal the predictability and volume of cash payments that can be migrated to mobile payments.  

2. Form a strategic mobile payments alliance.

This requires an agriculture entity (private sector firm, development implementer or NGO) and a mobile payments provider looking for business opportunities in rural areas. The particular characteristics of a value chain at a regional and/or national level need a unique strategic alliance design that delivers a custom solution set of mobile/digital technologies and business model innovation. Once the partners come together and the solution set is crafted, the next challenge is how to integrate both into the value chain where the farmers live and work.

3. Overcome illiteracy — especially financial illiteracy — and lack of trust. 

Farmers are often unable to read and/or are unfamiliar with the numerous forms required to open bank accounts, not conveniently located near a branch or disenfranchised in other ways from formal economic activity. Nevertheless, research has shown a consistent pattern of interest from farmers to learn how to receive and send mobile money. The current global framework for transferring agricultural knowledge to farmers is primarily done by inviting them to workshops, trainings and trade shows to promote awareness of — and education about — ways to have better quality and quantity of production, post-harvest handling, marketing and how to form groups. These gatherings provide multiple and ongoing touch points throughout the value chain that can be leveraged to promote awareness of and education about the features and benefits of using a mobile wallet.

Done on a somewhat limited scale to date, the need and desire of farmers to learn about mobile money presents the opportunity to significantly scale up financial — and mobile financial — literacy training. The “high-touch” nature of agriculture knowledge transfer presents tremendous opportunities for agriculture developers to also transfer mobile finance knowledge, and thereby facilitate the creation of mobile money ecosystems in agricultural value chains and communities by leveraging their status as trusted intermediaries.

Meanwhile, in collaboration and coordination with the alliance partner(s) the agriculture developer can work to identify, develop, train and even finance the network of independent agents that are tightly aligned along the targeted value chain where the farmers live and work. These agents can be input suppliers, cooperatives, equipment vendors, traders, processors, warehouse operators or any other value chain stakeholder that might be ideally located and compliant with the selection criteria of the mobile financial services provider. Likewise, the same cash usage behavioral research that helps identify potential agents inside the value chain can also identify the larger network of mobile payments and acceptance merchants. These can be the same types of value chain stakeholders (in fact, an agent can also be a merchant) but can also include kiosks, schools, utilities, pharmacies, retailers and other actors in the village-based economy.

The potential of these new technologies and business models is enormous. Mobile finance can — and ultimately will — serve the entire financial needs for households at the base of the pyramid, including expenses for agriculture inputs, education, health, water, utilities, clean cookstoves, solar lanterns, solar panels and more. Given that agriculture is usually the largest employer and most significant economic contributor in rural areas, the continued alignment of mobile money providers and the agriculture sector will bode well for realizing the potential of mobile finance to do for the base of the pyramid what commercial banking did for the Industrial Revolution.

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