The Mobile Financial Service industry has made financial inclusion possible for millions in developing nations. Today, there is an opportunity to integrate mobile money into agriculture development with the potential to benefit farmers, buyers and mobile money providers. Below is a series of articles by Lee Babcock, digital finance thought leader, suggesting the best way to jumpstart mobile payments in the agriculture sector.
Three Steps to Jumpstart Agriculture Mobile Payments by Lee Babcock on Next Billion
Research to be published by The Technical Centre for Agriculture and Rural Cooperation (CTA) reveals that large commodity buyers are competing to provide the fastest speed of payments to their smallholder farmers. Farmer’s transition from cash to mobile payments is a huge opportunity for mobile financial service providers. Cash payment schemes present a value chain efficiency gap that calls for an intervention that will transition payments to mobile. Becoming cashless has multiple benefits for farmers, buyers and mobile finance service providers:
- Farmers obtain a financial identity while becoming more productive by spending less time traveling to and from cash transactions.
- Large commodity buyers can provide instant payment to farmers, while significantly reducing administrative costs associated with distributing cash to thousands of farmers.
- Mobile financial service providers register new users, while promoting loyalty and reducing churn among existing customers.
Considering the interest by and benefits for all stakeholders in agriculture, how might we help the sector transition to mobile payments?
Step 1 – Researching smallholders’ financial behavior to help them transition to mobile payments
The first step in helping the sector transition to mobile payments is to conduct cash usage behavioral research with farmers, to inform the design of the ecosystem of cash-in/cash-out agents and merchants that are tightly aligned along the targeted value chain. This research can also assess the financial literacy of farmers and identify the latent demand for financial products. As either a stand-alone exercise or integrated into a pre-project analysis effort for an agricultural development intervention, this market research will provide visibility into details of cash transactions. With new insight into farmer’s behaviors and because agriculture is often the only source of income for households at the base of the pyramid, mobile financial service providers will welcome partnerships with agriculture entities.
Step 2 – Forming strategic alliances
The mobile money industry has rapidly saturated large urban areas in Africa and the rest of the developing world. The next challenge for the industry will be to penetrate rural areas while beginning to generate a return on investment. Strategic alliances with large commodity buyers that source from smallholder farms may be the way to achieve this. The commodity buyer benefits from an efficient, low-cost digital payment mechanism, the mobile payments provider benefits from a regular payment stream flowing into mobile wallets that generate transaction fees and farmers benefit from convenient and safe receipt and storage of crop payments plus the convenience of making their own mobile payments for personal expenditures.
An upcoming report by the CTA explores three strategic alliances that leverage the procurement policies of large buyers of commodities that source from smallholder farmers. Each has the common mission to replace cash payments to farmers with mobile payments.
Step 3 – Overcoming farmers’ illiteracy, financial illiteracy and lack of trust
The third and final step to jumpstarting mobile payments in agriculture will be to overcome illiteracy, financial illiteracy and lack of trust by embedding the use of mobile payments into agricultural value chains. Farmers are often unable to read the forms required to open bank accounts and/or live nowhere near a financial institution. Meanwhile, research has shown a consistent pattern of interest on the part of farmers to learn how to receive and send mobile money. Subsequently, there lies an opportunity for the agricultural partner in a strategic alliance to leverage its status as a trusted intermediary to promote education about the features and benefits of mobile finance.
Babcock states, “As mobile money providers and the agriculture sector continue to align, we will realize the potential of mobile finance to do for the base of the pyramid what commercial banking did for the industrial revolution.”
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