The economic landscape of digital agri-finance

By Bob Aston

The Fin4Ag Conference: revolutionising finance for agri-value chains, which took place at the Kenya School of Monetary Studies from 14-18 July, 2014, provided participants an opportunity to deliberate on the economic landscape of digital agri-finance.

Session 45: The economic landscape of agricultural digital finance, moderated by James Wainaina, the Vice President and Area Business Head at the East Africa MasterCard, included a review of the history of mobile money and how digital finance can serve households at the base of the pyramid. The session also looked at the three approaches to agricultural digital finance: market research, strategic alliance, and horizontal integration into agri-value chain interventions.

Participants during one of the sessions

Originally referred to as mobile money, digital finance has rapidly emerged by way of joint ventures between Mobile Network Operators (MNOs) and banks. The fact that it can easily be integrated with digital technologies, such as smart cards, scratch cards, point of sale devices, biometric identity capture, ATMs and others technologies has also helped its expansion.

During the session, Michael Mbaka, Senior Project Manager, Financial Sector Deepening (FSD), Trust Kenya, addressed barriers and opportunities to digital agriculture finance in Kenya. He noted that there is low bank product usage (25%) compared to mobile money usage (58%). The high rate of mobile money usage in Kenya is even higher among farmers, where 67% of farmers own mobile phones and 60% use mobile money.

“Mobile money leads in current financial services usage. This creates a huge opportunity in increase in contract farming models as well as existence of agricultural data management entities,” said Mr. Mbaka.

He said there is better delivery of mobile money in Kenya due to higher financial access point, but added that barriers such as digitisation of data, reach of excluded farmers with traditional solutions, weak industry capacity to create innovative financial solutions and weak demand side understanding needs to be addressed.

“Building inclusive financial markets has an immense economic value due to moving to the cashless mode of payment. This will facilitate better payment systems thus stimulating growth,” said Mr. Mbaka.

Similarly, Carol Kyazze Kakooza, Program Director for Agri Fin Mobile at Mercy Corps, shared how Agri Fin Mobile has been used to provide bundled and affordable agricultural technical services and financial services. This approach has helped to build sustainable business models that enhance and stabilise incomes of smallholder farmers.

“We have been offering agriculture content, market information and financial services using our mobile platform. The platform is not only cost effective but it is also a convenient way for smallholder farmers to access financial and market services,” said Kakooza.

Participants during one of the sessions

Eddie Sam Kumakech, co-operative officer, Ministry of Trade, Uganda, reinforced the Kakooza’s point by speaking to the need for enhancing financial inclusion by co-operatives through agricultural digital financing. He gave an overview of cooperatives in Uganda and their role in agricultural digital financing.

“New market segment in the cooperative sector will encourage nationwide mobile finance penetration and financial inclusion. Cooperatives provide the demand and supply platform for mobile finance,” said Mr. Kumakech.

He noted that mobile finance service providers normally get closer to where farmers live and work, which encourages subscription.

“Cooperatives exhibit the organisational framework desirous to deliver financial inclusion through Agricultural Digital Financing,” added Mr. Kumakech.

In conclusion, this session highlighted the importance of mobile and web technologies that are increasingly becoming important for accessing new opportunities in value chain financing.