Mobile finance - next stop for agriculture

Mobile finance provides channels for credit, savings, insurance, transfers and payments. It encompasses not only mobile money and mobile banking but other alternative delivery channels such as e-vouchers, debit cards, smart cards, branchless banking, ATMs and point-of-sale devices. Indeed, mobile money has been causing a huge stir since 2009, when M-Pesa surprised the industry by announcing it had turned a profit. The level of private sector investment – indicated by more than 220 mobile money platforms worldwide – indicates that it is here to stay. 

Meanwhile, there is a growing need for more and higher quality agricultural production worldwide by more efficient and effective value chains. Sophisticated mobile financial tools that are used to facilitate more agricultural credit, savings, insurance, transfers or payments will be essential to making targeted value chains more efficient and effective. This issue of ICT Update can only cover a few of the rapidly emerging innovations in agricultural mobile finance, but these and others will pave the way for increasing financial inclusion and outreach to the previously ‘unbanked’ in a sustainable manner and help revolutionise agricultural value chain finance. 

The feature article in this issue is about an exciting model that portrays how agricultural mobile finance is the key to unlocking the potential at the economic base of the pyramid in rural areas. SmartMoney rapidly evolved from being just a payments solution for cooperative buyers making mobile payments to farmers to becoming an electronic currency for the needs of the entire village-based economy. 

There are similar initiatives by TigoCash for rice in Ghana, supported by VISA; Zoona for cotton in Zambia; Vodafone’s Connected Farmer Alliance with USAID and TechnoServe in Kenya, Mozambique and Tanzania and several others. Since local microfinance institutions have been included in the SmartMoney ecosystem, the village community at large has embraced a culture of savings.

Holistic use of mobile finance 

The holistic use of mobile finance on behalf of the transaction and savings needs of the village community represents a paradigm shift for agricultural value chain finance. This paradigm shift was highlighted at CTA’s ICT4Ag conference in Rwanda in November 2013 and is a key element of the World Bank’s Consultative Group to Assist the Poor (CGAP), whose mission is to ensure that everyone has access to the financial services they need to improve their lives. 

A key takeaway from the ICT4Ag conference was that ICT and mobile applications throughout the value chain, as well as for finance, generally have the same back end. Therefore, given that agriculture is one of the most significant economic contributors in rural areas, perhaps we should think in terms of designing agricultural ICT and mobile applications that have end-user cross-functionalities with other sectors, such as transport, health and education.

This potential for convergence echoes with CGAP’s recent initiative Digital Finance Plus. Dedicated to innovative solutions for financial inclusion, and housed at the World Bank, CGAP has been looking beyond the horizon since microfinance burst onto the scene in the early 1990s. They also see opportunities for financial inclusion at the household level, as these mobile finance solutions can cater to the many financial needs related to agriculture, energy, water, education and health. 

This type of convergence at the household level will also more explicitly ensure the financial inclusion and hence empowerment of women and youth. Moreover, the convergence of mobile finance with banking and agriculture, and within its own channels, is thought by many to be the key characteristic of the next generation of mobile finance solutions in 2014. 

Improving access, reducing risk 

Another trend for the next generation of mobile finance is big data analytics. Smallholder farmers have an extraordinary number of challenges to overcome to have a successful and profitable harvest. Exacerbating these challenges is their lack of access to a range of financial services. The human potential of farmers cannot be unleashed unless they have a unique ‘financial identity’ that financial institutions can access – and unless there is some way of quantifying the credit risk of these farmers. 

The Policy and Economic Research Council (PERC) and its partner Experian MicroAnalytics (EMA) have developed a solution called Financial Identity Risk Management (FIRM). On an opt-in basis, farmers can provide their biometric identity and authorise access to their mobile finance transactions or other aggregated data such as utility bills and phone records. PERC and EMA will then extract that data, pass it through an algorithm and deliver the resulting credit score to partner financial institutions. 

FIRM provides critical visibility into the identity of the potential borrower and a measurement of what risk there might be in providing a loan. This nascent industry of alternative credit scoring, that bodes well for farmers’ access to credit, is expanding rapidly. There are other such providers, including First Access and Cignifi. 

Finally, SlimTrader is a mobile commerce platform working in Nigeria that allows consumers (in any industry) to shop for and purchase goods and or services. The platform currently works for airlines, bus companies and other sectors and has recently moved into agriculture. Indeed, the company has introduced its platform to distributors and retailers in the input supply chain for fertilizer. The retailer does field visits with his customer base and can place orders that farmers purchase with their mobile money accounts. This reduces the distributor’s supply chain credit risk and the retailer’s transport, storage and others costs, which can reduce the fertilizer cost paid by the farmer.

The majority of the more than 220 mobile money platforms, and the many alternative delivery channels used by commercial and microfinance institutions worldwide, have generally been confined to urban city centres. But the ecosystem of private sector players (for example, mobile network operators, financial institutions and solution providers) is now expanding into rural areas in pursuit of nationwide penetration. Increasingly, agriculture – and its numerous transactions throughout the value chain – is seen as the key entry point for the rollout of mobile finance in rural areas. 

The examples in this issue portray the reduction of supply chain credit risk, the huge potential of big data analytics for the alternative credit scoring of farmers and the capacity to service not only the payments needs of farmers and buyers but other financial services needs for the entire village community, including both group and individual savings. There are many other such initiatives that are helping to expand the traditional definition of agricultural value chain finance. We believe agricultural mobile finance will do for the base of the pyramid what commercial banking did for the industrial revolution.