The digitization of value chain finance—financial services that flow to or through any point in a value chain—is changing the way smallholders access the financial tools necessary to invest in their farms, manage risk, and transact with markets. CGAP explores opportunities and emerging models in digital value chain finance.
Last year, peer-to-peer (P2P) lending in China surpassed the US$100 billion threshold and confirmed China as the world’s largest P2P lending market, leaving North America a distant second. This tremendous growth was driven by a mix of circumstances.
Côte d’Ivoire is the largest producer and exporter of cocoa beans and cashew nuts, and a top exporter of coffee and palm oil. Nevertheless, Ivorian smallholder farmers who contribute the most to the agricultural sector are largely neglected by formal financial institutions.
Financial services providers for low-income customers typically believe that their business case is based on expanding the number of accounts or the number of transactions made by these customers. This is only part of the equation to business success.
Advances in digital technologies and the increased availability of data can be used to support low-income customers to do more than make payments. These advances can help them to make financial decisions and develop strategies to manage their finances.
There is not enough being done to implement minimum standards in consumer protection for digital credit, and this exposes the industry and consumers to risks such as credit bubbles and mass-blacklisting of consumers in credit bureaus for just a few dollars of debt.
Customers are turning to formal channels that use digital and mobile technologies for remittances because these are often able to offer services at lower costs. As more customers turn to formal services, remittances will have an even stronger developmental impact, notably in countries where protracted humanitarian crises affect large numbers of people.
This Working Paper explores three approaches banks in Kenya have used to respond to mobile money. While nonbank mobile financial services can fundamentally reshape the financial sector in a developing market, as they have clearly done in Kenya, mobile services need not represent an existential threat to the traditional banking industry.