How Farmers Can Be Financially Included Using Digital Technologies

How Farmers Can Be Financially Included Using Digital Technologies

Financial inclusion or making formal financial services available, accessible and affordable to all segments of the population is important for economic growth. People become financially included when they’re given access to savings accounts, loans, insurance, and other financial services.

Kenya has been experiencing growth in financial inclusion, with Kenyans excluded from any form of financial service dropping from over 40% of adults to 17% between 2006 and 2016. This can be attributed to the increasing adoption of mobile money accounts as almost a third of Kenyans already have a mobile money account in their name by the time they are 18 years old. It is estimated that M-PESA has lifted 194,000 households, or 2% of Kenyan households, out of poverty.

Despite this growth, smallholder farmers still face a myriad of problems when it comes to securing capital to finance their farming operations. According to the Worldbank, loans reach fewer than 10 % of smallholder farmers. This leaves a whopping 90 % relying on expensive and unreliable means such as borrowing from families and friends, saving under the mattress or through rotating savings clubs.

Why many traditional financial institutions shy away from financing smallholder farmers is due the risky nature of farming.

Risks that farmers face on a daily basis encompass the following:

  • Weather conditions may change, impacting farmers, especially since a lot of them rely on rain for irrigation.
  • Prices at the time of harvest could drop
  • Costs of hired labor could go up during peak times of farming
  • Machines and equipment could break down when most needed due to infrastructural problems in rural areas
  • Unknown crop diseases could wipe out their entire produce
  • Government policies impacting agriculture could change overnight

This makes banks very reluctant about giving smallholder farmers loans. Also, many of them do not have assets to borrow against.

To understand Kuza’s growth and trajectory within this space, imagine a young man who lived close to a pond, and only knew how to fish. Kuza began with micro-learning programs to upskill that person and learn what they need to learn about fishing at their own pace.

Noticing that the young man does not live in isolation, the micro-distribution element came to play, where the young person connected to other members of the community so they can all learn together and grow.

Then the issue became that they had to do something with all the fish they caught. So in order to turn this person into an economic unit and integrate them within the value chain, they needed to be given access to micro-finance and link to a market where they are able to sell the fish.

By building a comprehensive program, Kuza enables the empowerment of an Agri-Entrepreneur to service up to 200 farmers in their vicinity by providing Agri-related knowledge and Agri-extension services such as micro-financing.

Another example of an agricultural specific financial product is Agriwallet — which was featured during Worldbank’s Disruptive Agricultural Technology Challenge and Conference, co-organized by a consortium of partners, the conference that aims to positively impact One Million Farmers through the launch of a digital platform that brings together the top disruptive innovative agricultural technological (agtech) solutions.

The product is an integrated one that financially connects the farmer to market and supplier. For example, Agri-wallet saves automatically for farm inputs, and it allows for the pre-payment of the farmer as well as provides access to an overdraft credit.

The ultimate aim is to onboard similar financial providers onto the Kuza platform to facilitate finance for the smallholder farmers so it would be easier for them to do the following:

  • Purchase quality inputs to improve farm yields
  • Reduce the risk of external shocks
  • Smoothen cyclical cash flows of farms
  • Invest in post-harvesting storage facilities for their crops

The successful implementation of this would give farmers enough financial leeway to treat their farms as a sustainable business, thus continuously increasing their incomes.