Last month GSMA mAgri joined the debate at the first G20 round table on innovations in agricultural finance, held in Antalya, Turkey. The event, which is part of the G20 Global Partnership for Financial Inclusion platform (GPFI), brought together policymakers, service providers and researchers for an evidence-based discussion on smallholder demand for financial services, value chain finance, agricultural insurance, and financing for women in agriculture. With approximately 2 billion people globally living in smallholder settlements, and with mobile representing the most ubiquitous ICT platform, there was consensus that success of financial inclusion initiatives will be largely measured by the uptake of agri MFS (Mobile Financial Services). After mobile agriculture information services (Agri VAS) the next phase of innovation will be most likely with services that enable key transactions (e.g. buying agri inputs, selling produce) as well as derivative financial services (insurance, credit, saving) specifically targeted at smallholder farmers.
Figure 1. Mobile agriculture services (B2C and B2B), GSMA mAgri
To capture the full potential of agri MFS, significant work needs to be done both on the supply and demand side. On the supply side, industry practitioners need to figure out partnership models between different ecosystem players and effective mechanisms to sign up users and deliver services. On the demand side, more efforts must be put in understanding the financial needs and priorities of smallholder farmers.
Agri MFS at experimental stage
A keynote panel at the GPFI roundtable highlighted that financial inclusion for smallholder farmers has hitherto been largely supply-driven. A few pioneering NGOs and social enterprises, such as Virtual City and e-Warehouse by Farm Concern International have worked with agribusinesses to digitize value chain payments and enable smallholder financing. These services use mobile technology to help agribusinesses improve traceability, compliance and to standardize processes that involve smallholder producers, offering in turn access to formal markets and financial services to unbanked farmers.
Insurance is an emerging area in agri MFS. Although still limited in scale, in Sub-Saharan Africa weather index micro insurance products that compensates smallholder farmers for lack of rainfall have been offered through the mobile channel by Syngenta Foundation in Kenya, in partnership with Safaricom under the Kilimo Salama (now ACRE) initiative, but also directly by the mobile operator as in the case of Econet Wireless in Zimbabwe with the EcoFarmer service. In spite of these developments, we are still at experimental stage. There is plenty of work to be done in order to convey the value of agri MFS to agribusinesses and smallholder farmers. With some notable exceptions, very few services have scaled up.
The need to understand smallholder demand
A key overarching theme at the GPFI roundtable was the need to conduct user research to fully understand the financial needs of smallholder farmers and design products around them. Important work is currently being conducted by CGAP, which at the Antalya event presented some early insights from their research on financial innovation for smallholder families in Pakistan, Tanzania and Mozambique. Their smallholder diaries describe the financial lives of rural people, highlighting some key aspects to consider when designing agri MFS products.
Early results of the CGAP research outline the complexity of rural financing, of which agricultural financing is only one part. This research suggests that education and health financing are primary financial needs for farmers’ families. This is something that we have also seen at GSMA mAgri. For example, Virtual City’s G-Soko platform is already enabling farmers integrated in agri value chains to use e-vouchers as payment at certified suppliers including schools. Other early insights from this research show the prominent role of women in the smallholder household when it comes to financial decision making. Having a deep understanding of the financial lives of women in smallholder households is therefore a prerequisite in designing credit and saving products. Overall, early insights from the lives of smallholder men and women suggest that credit may be less of a priority for then some initial assumptions may suggest. This is an interesting finding calling mobile operators and ecosystem partners to put more focus on micro saving products enabled by mobile money.
A keynote panel at the GPFI roundtable highlighted some of the specificities of smallholder agriculture that must be considered for product design in agriculture financing. The seasonality of agriculture payments is perhaps the most obvious, but it is also a problematic issue, particularly in relation to the transaction limits for mobile money payments that are imposed by regulators in many markets. It is also clear that there are different financial needs for growers of different crops – staple and cash crops, high and low rotation crops – and that a one-solution-fits-all approach will not work. Evidence from some successful value chain (B2B and B2B2C) implementations shows that producers of high rotation staples, such as dairy farmers, can be more easily integrated in value chain platforms. For example, Umati Capital in Kenya has worked with high rotation producers (dairy farmers) since 2012 addressing their cash flow by offering loans on the basis of daily digital records of milk delivery transmitted via SMS. Still, this does not mean that agri MFS will not work with low rotation crops. Rather, it will be key for agri MFS providers to fully understand user needs to drive active engagement and usage.
Ecosystem partnering and “liberal” regulation
Some of the questions posed at the GPFI roundtable concerned ways for different players in the ecosystem (banks, insurers, agribusinesses, mobile operators, NGOs, technology solution providers) to come together and form viable partnerships. A limit of the debate is that mobile operators are often seen as peripheral actors (delivery channels) rather than central players capable of gathering the ecosystem around their mobile money platforms. One interesting operator-led partnership is the Connected Farmer Alliance (CFA) formed by Vodafone with Technoserve and USAID in Kenya, Tanzania and Mozambique. In these countries Vodafone has made strides in integrating agriculture value chains with smallholder farmers by enabling agribusinesses to transact with farmers (payments and loans) via mobile money.
More than a glimpse of hope for agri MFS practitioners is coming from the advancement in many countries (e.g. Tanzania) of liberal regulation that is reducing requirements for financial service providers when subscribing new users. Several panelists at the event outlined how more flexible know your customer regulation and anti-money laundering requirements are enabling service providers to develop new concepts. Important opportunities in agriculture financing are the use of collaterals (mobile money transaction history, digital receipts attesting production levels and quality) for credit worthiness, and the possibility to introduce more flexible ways to subscribe to agri MFS users without formal identification.
Industry considerations and a policy recommendation
All in all, the focus on the demand side was a major merit of the GPFI roundtable. In the new mAgri Design Toolkit, GSMA mAgri and its mNutrition partner, frog design, highlight the central role of user-centric design for mobile agriculture information services. Moving forward, demand research and user-centric design will be even more important as operators look to extend their value proposition to complex products such as agri MFS.
From an industry viewpoint, delegates at the GPFI roundtable agreed on two key aspects. The first was that a good place to start for operators, banks and agribusinesses is by working in partnership to enable digital payments and financing for those farmers that are integrated in structured value chains. Once service concepts are proved, agri MFS will stand a better chance to also generate positive impact for the majority of farmers that are loosely integrated in formal value chains.
The second point of agreement was that no single player in the ecosystem will be able to offer all answers to the financial needs of smallholders. Partnerships will be fundamental. Although this was not highlighted in the conclusive remarks of the roundtable, we believe that MNOs are best placed to take the lead in these partnerships and scale up agri MFS. Perhaps more work needs to be done by the mobile industry to convey the message that mobile money is both essential and instrumental to agri MFS uptake.
From a policy standpoint, in light of the the work of the GPFI in helping countries put into practice the G20 Principles for Innovative Financial Inclusion, there was unanimous consensus on the fact that wherever regulators have taken a liberal and enabling approach not only in mobile money regulation, but also in the realm of derivative financial services (credit, savings and insurance) and in customer due diligence, this approach has boosted the financial inclusion of smallholder families. It must be therefore a priority for governments, and all industry stakeholders, to continue fostering these enabling regulatory environments.