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By Natalia Pshenichnaya

The role of financial services within mobile agriculture: who is going to meet smallholders’ demand for finance?

The role of financial services within mobile agriculture: who is going to meet smallholders’ demand for finance?

Let aside for a moment the opportunity for the mobile operators and service providers within Agri VAS, we need to be frank about the limitations of information services. Will a mobile information service alone ever create impact noticeable at the level of international commodity exchange? Are we oblivious enough to hope for the 20% or 50% increase in agricultural production at the national level as a result of agricultural tips broadcasted through SMS or even more user-friendly outbound voice messaging service?

Let’s put it this way: will the farmer follow the advice of planting a new variety of seeds if she doesn’t have money to buy this new variety? Will a farmer living on 1 dollar a day get a new irrigation system to secure the water supply on her farm if there is no lease available for this equipment? For the information to be actionable and actually make a difference, there needs to be a supporting environment available, including access to capital, infrastructure, inputs, services and markets. And although we can’t expect mobile technology to offset the lack of all of those important factors, we can still look at the ways it can enable access to some.

Let’s look at the opportunity for mobile financial services for farmers and possible ways to introduce them to the mobile agriculture services portfolio. A recent report from Dalberg has estimated the global demand for finance from small-holders at $450 billion, with only 2% of that demand currently met – mostly through financial products designed for farmers that are organised in groups (cooperatives and other farming organisations). The report estimates that there are 450 million small-holders globally, with majority of them working in Asia (360 million) and Africa (50 million). Considering that 90% of all small-holder farmers in the world are actually not organised in groups like cooperatives, there couldn’t be a better demonstrated need for financial products designed for individual farmers.

Two suggested pathways to unlocking the financing for agricultural sector are particularly relevant for the mobile sector and providers of mAgri services, as they can be designed and streamlined as mobile agricultural financial services. The first option is to work with existing out-grower schemes, often owned by large multi-nationals that have powerful incentives to secure the supply from farmers. These out-grower schemes could use an existing contract with the farmer as collateral, allowing to distribute risk between the farmer, the bank and the buyer (in this manner Nestle already finances their 32,000 dairy farmers).

The second promising way to enter the market is by financing directly to farmers. Challenging as it might seem from a first glance, direct financing via mobile has some significant upsides – a dramatic decrease in transaction and distribution costs, as well as a large amount of customers that allows banks to diversify the risk. Some obvious challenges for this pathway are: lack of MFI products tailored to agricultural sector with its seasonal cashflows [1], and low financial literacy of the customer base. There is however a great opportunity to analyse the data on mobile money transactions as well as usage of information services to profile the customers according to their associated risk; the latter would only be possible in the partnership between a mobile service provider that is already delivering Agri VAS and a bank.

Both pathways to introduce mobile agricultural financial services would require an existing mobile money platform and a bank, or a consortium of banks, with financial products for the agricultural sector; if agricultural extension information is provided as a supporting tool to the farmer, the risk of this financial service decreases, resulting in a lower interest rate. Financial literacy training could as well become a part of the extension information package.

The win-win outcomes of the game benefit all of the stakeholders in the chain: a farmer gets access to a package of information and financial services, with his SIM-card becoming a tool and a means to entrepreneurial success, meaning that the mobile operator fully benefits from the synergy between Agricultural VAS and mobile money platform. For the bank, agricultural mobile financial services allow to enter a new market segment, while lowering transaction costs without increasing the risks that are mitigated by collateral or careful automated profiling of the customers and supporting information services.

Starting from early 2013, we will be closely monitoring the development in this area of mobile financial services for the agricultural sector, extracting best practices and sharing the insights. Stay tuned!


[1] Examples of MFIs with products tailored to agricultural sector: Juhudi Kilimo, One Acre Fund, Opportunity International and others.


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