Written by: Anne Agbakoba, Chief Research Officer, NUMERIS
In Bill and Melinda Gates’ annual letter for 2015 titled “Our bet for the future”, Mr. Gates says: “once [mobile money] gets going, then there will be competitive innovation in offerings like special savings or credit plans related to farming.”
Mr. Gates is on the money. Agriculture and provides livelihood for 70% of the world’s poor, and for many developing countries, it is the most significant sector in rural areas. However, while agriculture plays a major role in Africa’s economies, a longtime, nagging question has been how best to deal with the numerous cash transactions that take place throughout the farm-to-fork value chain. Simply put: ‘how do large agriculture buyers and rural smallholder farmers transact with each other in such a way that dealings between both parties are cost-effective, transparent, and fraud-free?”
The answer lies in mobile money.Simple, convenient, affordable – and disarmingly disruptive - mobile phone technologies are presenting smallholder farmers in Africa with unprecedented opportunities to run their operations more productively. Originally referred to as mobile money, this extremely young and fast moving industry is most recently being tagged as digital finance.
Digital finance in the agriculture value chainA practical example would be the FADAMA (Hausa tribe name for ‘irrigable land’) project in Nigeria. Supported by the World Bank, the objective of FADAMA is to move rice farmers from subsistence farming into a profitable business venture.
The 2015 project focuses on support to value chains of cassava, rice, sorghum and horticulture in six states (Kogi, Niger, Kano, Lagos, Anambra and Enugu), which will become hubs of Staple Crops Processing Zones (SCPZs). States surrounding these six locations have been designed to serve as catchment areas to feed the processing zones.
Here’s the big deal: an alignment between smallholder farmers in the mentioned states, large agriculture buyers, and mobile money service providers presents a winning business model. Putting a mobile finance structure in place will easily (and profitably) serve the financial needs of all three parties, and it plays out like this:
- Smallholder farmers will be able to sell their harvest without any cash exchanging hands, thanks to using a mobile wallet. The old-fashioned option of hauling around large amounts of cash will be erased, and farmers begin to enjoy greater security and the reduced cost of cash handling. A mobile wallet would also serve the secondary purpose of providing the farmers with a piece of formal identification, paving way for further financial inclusion.
- For large commodity buyers, mobile money would instantly cut-away the huge cost of administering cash payments to hundreds and/ or thousands of farmers. Benefits and savings would be achieved across board with regards to record-keeping, incidences of fraud, security of personnel, and transaction fees.
- Last but not least, mobile money service providers will have keyed into a new (and predictably loyal) target market. The result is the registration of new users, and an increase the annual revenue per user (ARPU). A first-mover advantage is there for the taking!
Numeris Media are an official media partner of East AfricaCom which will be taking place in Nairobi, Kenya this 6-7th May. For more information, or to register, visit: http://eaafrica.comworldseries.com/