Following up on our previous blog about the economic ID opportunity for farmers in Ghana, in this blog, we introduce Kojo. Kojo is an archetypal smallholder cocoa farmer in Ghana, representing well over 800,000 cocoa farming families in the country. The average age of cocoa farmers is 48 years, who farm anywhere from three to six acres of land, on average. Many farmers like Kojo have fluctuating seasonal incomes, while financial demands remain consistent throughout the year. These demands are some of the drivers of borrowing culture amongst cocoa farmers. In a typical year (generally around January and February), Kojo will take a loan from his purchasing clerk whom he has a personal relationship with, on the promise that Kojo will sell his cocoa produce to the purchasing clerk once it is harvesting season. This loan will cater for school fees in January, as well as inputs and labour in the first three months of the year. After this period, there is a ‘light cocoa season’ from March to roughly June. At this time, Kojo will harvest some cocoa, but also harvest some cassava and plantain that generates supplementary income.
In August, just before the main cocoa season, Kojo will borrow some more money to complement the income he’s made so far that year (from the light season and other crops) in order to buy pesticides and more fertiliser in anticipation of the main cocoa season. He may also use this loan to pay the fees for his children’s third term in school. His only income at this point is the proceeds he gains from selling small amounts of plantain and cassava. Finally, between October and December is the main cocoa harvest, where Kojo makes the bulk of his annual income. Kojo then sells his crop to the purchasing clerk, who deducts any outstanding loans to him, just in time for the festive season spending. Moreover, in January the predictable borrowing cycle begins.
Due to the seasonality of cocoa harvests, farmers like Kojo have to find ways of supplementing their income throughout the year. From a recent study conducted by the GSMA, over 75 per cent of cocoa farmers generated additional income from agriculture related activities, whether it is offering agricultural labour to others, or growing other crops for income. Furthermore, about 14 per cent had ventured into non-agricultural income sources, such as opening small retail shops or earning money from skilled labour (like carpentry).
Despite Kojo having a diversified income, Financial Service Providers (FSP) consider smallholder farmers as unattractive and inherently risky clients. Kojo’s income is not well documented, and as he mainly operates cash, he is unable to document or demonstrate his financial capabilities, which deepens his financial exclusion, as FSP’s cannot reliably gauge his risk profile. However, this is where mobile technology can play a role through the provision of mobile-enabled economic identities, the development of which the GSMA’s Digital Identity, Mobile Money and mAgri programmes has been investigating.
Over 50 per cent of Ghana’s adult population have a mobile phone, and well over 42 per cent of mobile owners have a mobile money account. The economic identity concept seeks to leverage existing and new efforts in formal agricultural value chain digitisation, and couple this with digitised and documented income, payment, transactional and mobile usage data to provide FSPs with a more robust picture of a client’s economic behaviour (or identity), in turn, empowering smallholder farmers to access formalised financial services they would otherwise be excluded from. At the most basic level, digitising farmer registration processes creates a digital profile of the farmer, enabling them to demonstrate their capacity (total acreage vs acreage under cultivation), crop variety, and production levels and so on. The farming organisation (or agribusiness) that the farmer belongs to / sells to often hold this data about the farmer, although levels of digitisation of this data vary. Digital payments to farmers create an opportunity for a farmer to document their income, while mobile payments for agricultural inputs demonstrate spending power. The provision of basic digital financial services such as savings accounts also enable a wider financial / economic foot print for the farmer.
When these numerous data points are combined, it is possible to generate an economic identity that would empower the farmer to present a digital record of their economic ability to a formal financial services provider. The power of a mobile is that this information can be consolidated on one safe, secure platform that adheres to the strictest data protection and privacy standards, and this platform can be developed in a format which is acceptable and provides utility to FSPs. Today, if a farmer were to try to access financial services, they would have to consolidate manual / non-digitised data from varied sources, in diverse formats (old receipts, invoices, hand written notes, and verbal assurances) which would lengthen the process and there would likely be gaps where records have been misplaced. With a mobile-enabled digital economic ID, a farmer can digitally present non-transactional data such us their location, acreage and crop information, total income from previous the year, as well as a numeric indicator such as a credit score, which would be derived from a back-end algorithm that analyses a range of transactional and behavioural data (mobile usage, mobile money transactions). The key here is to build economic ID platforms that put the power of data in the farmer’s hands, as GSMA research shows that farmers are willing to share their information, as long as it assists them in getting the services they need.
For more on the concept of economic identity in the context of Ghana’s smallholder farming sector, please read our newest report – Mobile-enabled Economic Identities for Smallholder Farmers in Ghana, which goes in to more detail on the learnings gained from cross-programme field research and farmer interviews in Ghana’s Western and Ashanti regions.