Can digitizing agribusiness payments in Africa build a ramp for financial inclusion of farmers?

If you are farmer in Sub-Saharan Africa (SSA), chances are that the payments you receive for your produce would involve bundles of cash being transported in armored vehicles and held in plastic bags, and many hours spent travelling and waiting in line. Paying farmers in a timely and cost-effective manner for their produce is a challenge that both agribusinesses and farmers are constantly trying to navigate since most agribusiness payments are made in cash. As per the 2017 Global Findex, among those who receive agricultural payments in SSA, fewer than one in six individuals receive those payments through an account (at a bank, non-bank financial institution or a mobile money account). 

Financial inclusion, defined as access to safe and affordable financial services payments, savings, credit, and insurance, is critical to help farmers smooth consumption, make productivity-enhancing investments, and better manage their vulnerability to shocks. Yet, even among farmers in SSA who sell some portion of their produce in the market, only 17% save at a formal financial institution and around 10% borrow from one. 

In a recently published report, we focus on digitization of agribusiness payments as a pathway to broader financial inclusion of farmers.  We present findings from an analysis of data using the Global Findex, a triennial global financial inclusion survey data undertaken by the World Bank, and the Africa Agribusiness Payments Survey, a survey of 29 national, regional and global agribusinesses active across 17 countries in SSA.  

Here’s what the findings reveal.

Widespread access to mobile money accounts is a key driver of digitization of agricultural payments. In Ghana and Kenya, 37% of agricultural-payment recipients receive payments into a mobile money account; in Uganda and Zambia, this share was 28% and 27%, respectively.  These countries are among those in SSA with the highest uptake of mobile money: the share of adults with a mobile money account is 73% in Kenya, 51% in Uganda, 39% in Ghana, and 28% in Zambia. 

Most surveyed agribusiness make some payments digitally and a handful have achieved full or almost complete digitization. Two firms – TruTrade and VegPro reported paying only digitally, and Kenya Tea Development Authority, pays over 90% of its supplier farmers digitally. TruTrade is an agriculture trade facilitation platform that operates in Kenya and Uganda, Vegpro is a fresh vegetable exporter that operates in Kenya, and KTDA procures tea from over 600,000 smallholder tea producers in Kenya.  Vegpro makes its digital payments primarily through banks, TruTrade does this through mobile money accounts and KTDA through banks and credit cooperatives.   

Some agribusinesses are using innovative approaches to digitize farmer payments and building on digital payments to provide other financial services and non-financial services. ABInBev, the largest brewer in the world, is partnering with BanQu, a blockchain-based platform, to make digital payments to farmers in Uganda and Zambia.  It is also piloting the delivery of weather-based crop insurance through the platform. Vegpro has facilitated access to credit at preferred interest rates for around a quarter of their clients.   

There is a huge untapped potential to digitize agribusiness payments to farmers – even just among the supply chains of firms who responded to the survey, the digitization potential is worth more than $6 billion and could benefit nearly 18 million farmers. Since the survey is not exhaustive, the full potential is much higher.

There are, however, several challenges that need to be addressed to accelerate digitization of agribusiness payments to farmers. In many countries, these include foundational challenges, such as limited connectivity, poor digital literacy, and a weak regulatory environment for digital payments, and proximate challenges, such as limited availability of cash-in, cash-out points and opportunities to use e-money. We identify actions that governments, agribusinesses and development partners can take.  The figure below presents a schematic on the challenges that need to be addressed but also the benefits that can flow to farmers from digitization of agribusiness payments to farmers.
 

Digitization of agribusiness payments to farmers offers broader benefits beyond financial inclusion of farmers. Digital payments can contribute to making agricultural supply chains more transparent and resilient by reducing the cost of payments and bringing better visibility to how and when farmers are paid. And, regular digital payments from agribusinesses can benefit the rural economy by strengthening the rural Digital Financial Services (DFS) ecosystem by improving the business viability of DFS agents, encouraging acceptance of electronic payments by rural merchants, and enabling more e-money usage for local payments.  

The COVID-19 pandemic has reinforced the urgency of digitizing payments to avoid disruptions to the supply chain and maintain economic activity. The ongoing crisis provides additional impetus to accelerate the pace of digitization of agribusiness payments to allow firms and farmers to stay resilient, maintain the supply of food and other agricultural commodities, and combat the negative shocks to income caused by the pandemic.