Digitizing payments within the agricultural sector presents enormous potential to promote broader financial inclusion in rural areas. The estimated $2.2 billion in annual payments from businesses and governments to rural individuals engaged in agricultural value chains are an attractive entry point for many digital financial services (DFS) beyond payments. Yet cash still dominates all rural money transactions. CGAP’s nationally representative surveys show that while an average of 59 percent of smallholders across the six surveyed countries own a mobile phone, just 17 percent have a mobile money account – and only 4 percent have received digital payments for their crops.
DFS providers are learning how important and challenging it can be to expand their rural service delivery points, where most people in developing countries still reside. Fortunately for them, this is a challenge that agribusinesses have been working on for ages. DFS providers should strive to better understand how the agricultural sector has been expanding its distribution channels and get more creative about how to partner with and leverage agribusinesses.
There is a fundamental problem with the value proposition offered by DFS in rural areas that expanding delivery points could help solve. Despite the upside of DFS (speed, safety, transparency, etc.), cash transactions are still better given limited DFS products and delivery models in many rural areas. Most merchants still do not accept e-money, so smallholder farmers and others who receive income digitally need to convert it into cash before they can use it. Yet often there are few, if any, mobile money agents in their communities to cash them out, as the traditional mobile money agent business model does not work in areas with low population densities. Furthermore, those who do manage to connect with a mobile money agent often find that they cannot withdraw the desired amount, either because the agent does not have enough liquidity or because there are binding limits to the maximum amount one can have in mobile wallets. Even if they are able to withdraw cash, they often have to pay a fee that they may consider too high.
Where do we start looking for ways to develop more rural service delivery points? Historically, the agriculture, finance and telecom sectors in developing countries have worked in silos as they have served different types of clients. Even when their interests in serving rural areas begin to overlap, they retain a limited understanding of the business models in each other’s industries. As a result, they have likely missed collaboration opportunities worth exploring to create new rural service delivery models.
The agriculture sector has a natural edge in developing such models for its many types of clients: not only producers – including smallholders – and buyers, but a universe of small and medium enterprises in transport, storage, packaging, input provision, processing and trading. The sector represents a large and complex network of service providers of all sizes whose core business relies on developing distribution channels in some of the most remote areas in the world. The finance and telecom sectors may be able to partner with this wider array of agricultural players to expand the digital ecosystem and improve the value proposition of DFS.
A growing number of efforts are being made to explore the possibilities. One example is the collaboration that CGAP, with support from PHB Development, recently launched in Cote d’Ivoire and Ghana with OLAM, one of the world's largest agribusinesses. OLAM knows well the wide array of actors in these countries’ agricultural value chains, as finding sustainable ways to work with them is at the core of its operations. With OLAM, CGAP will be mapping these enterprises' and end-users' profiles in several agricultural value chains. We will use this information to facilitate dialogue with partners in the finance and telecom sectors to propose new business model concepts that could deliver greater service value to smallholder families and rural businesses.
Despite their potential for building out service points, rural enterprises like these are unknown to the telecom and finance sectors because they are concentrated in rural areas that have long been financially underserved or excluded. They represent a potential new profile type of mobile money agent or merchant that can make DFS more valuable. They may have the incentive to support DFS not only because they can help them diversify their income sources (i.e., by receiving transaction fees), but more importantly, because DFS complement and reinforce their core businesses by facilitating commercial transactions and helping them to scale at lower cost. With distinct cash-flow dynamics and business incentives relative to the traditional mobile money agent, they could make rural agents and merchants feasible. To help providers understand the role agribusinesses can play in expanding the rural digital ecosystem, CGAP will be sharing results from our work with OLAM later this year on our blog. Stay tuned!