Can Agro-Dealers Be the Last-Mile Rails for Digital Finance?

Of the many findings to emerge from CGAP’s national smallholder household surveys, this is one of the most striking: While the average percentage of smallholders who own a mobile phone across the six surveyed countries is 59 percent, only 17 percent had a mobile money account, and just 8 percent had used mobile money in the past 30 days. These numbers put a broader truth into sharp focus. Despite having technology that could make financial services available at their fingertips, most low-income people in rural areas are simply not using digital financial services (DFS). Why?

As argued in a previous blog post, “Building Rural Digital Ecosystems: A New Role for Agribusinesses?” low-income people in rural areas do not use DFS mainly because providers have too few service delivery points in rural areas. Research — most notably a 2016 study looking at the impact M-PESA has had on financial inclusion in Kenya — has shown that client proximity to the nearest service point is key to whether a client will use DFS. Service points make for smoother marketing and client onboarding and support. Crucially, from the customer standpoint, a nearby service point also makes it convenient to cash in and out. This conversion of e-money into cash is key to enticing smallholders and others in rural areas to use DFS given that, for now, most merchants in rural areas do not accept digital payments for general goods and services.

Traditionally, DFS providers have expanded their service delivery points by making significant investments to develop exclusive agent networks. These networks are usually composed of entrepreneurs whose core business is to generate revenue from DFS transactions. In some regions, such as in Sub-Saharan Africa, this service delivery strategy has been successful in urban areas but not in rural ones, where population density is low. (In other contexts, such as in Asia or Latin America, the cash in and out functions performed by agents are not as relevant. Wider access to DFS riding on internet platforms in these countries means that a greater share of the population can use e-money.)

CGAP and its partners are exploring whether DFS providers can work with other actors, such as agribusinesses, to leverage their growing digital and physical service delivery platforms in rural areas. In a previous blog post, we mentioned our partnership with Olam, which — being one of the world’s largest agribusinesses — has a large rural partner network. Another example is our partnership with Syngenta, a research and development agribusiness that develops agricultural input solutions for large- and small-scale farmers worldwide. Syngenta has developed several long-term strategies to help inclusive businesses across Africa solve barriers to smallholders’ growth, such as access to more profitable markets, input affordability and availability and product aggregation. CGAP’s partnership with Syngenta strives to enhance this strategy with a focus on digital financial solutions for smallholder farmers.

Syngenta is the type of organization that DFS providers often overlook because it isn’t a producer or buyer. But with its network of service points reaching an estimated 13 million smallholders worldwide, Syngenta has a lot of potential to help bring financial services to its customers. It already offers agricultural credit solutions for certain actors in various agricultural value chains to buy inputs. Beyond this, Syngenta could potentially leverage its service delivery platforms to offer a wider suite of financial services that more adequately serve smallholder families. We will be collaborating with Syngenta in Tanzania to explore how the digital agricultural extension system it has developed — named eShamba — could provide useful data on smallholders’ financial needs and be opened up to DFS providers. This digital extension system currently reaches over 230,000 farmers in Kenya and Tanzania. We will also explore how Syngenta’s last-mile community agro-dealer network in remote areas could be shared to enable DFS providers to have service points closer to rural clients.

What would be the right business model for partnerships between Syngenta and financial services providers? There are many possibilities, including Syngenta or its local partners playing an intermediation role for the financial service portfolio developed by DFS providers. Another option is for Syngenta and its partners to act as third-party aggregators of shared agent networks, where different services are delivered together at a lower cost. Or they could provide important information and data that help DFS providers tailor financial products to rural clients’ farm and nonfarm needs. We will be exploring these questions in the coming months, and we invite your thoughts on where you see the most potential for such partnerships. (Please use the comments section below.)

Whatever the set-up, a feasible business model will need to provide a substantial benefit to all stakeholders involved, especially the end-client. For agribusinesses, the value of offering DFS can go beyond the additional revenue that DFS transactions may bring. DFS delivered to more vulnerable players in agricultural value chains, including smallholders and small- and medium-sized enterprises, can allow these players to stabilize their businesses and make investments. In turn, this makes them better commercial partners in value chains that need them to grow. For DFS providers, partnerships with agribusinesses may offer access to large client segments known to be financially underserved or excluded. These clients represent a huge business opportunity for agribusinesses and DFS providers alike, and this opportunity may make collaborating worthwhile.