Lee Babcock: "Making the most of mobile money”

This insightful report looks at the role that digital finance can play in providing a more cost-effective and secure method for financial transactions in the agricultural sector, particularly for rural smallholders.

As managing director at LHB Associates - a consulting firm bringing mobile finance and other ICT business models to rural areas – Lee Babcock has wide experience in digital finance, particularly in Africa. After conducting research for CTA, his results were published in “Mobile Payments: How Digital Finance is Transforming Agriculture.

Agriculture provides the highest number of individual cash payments in ACP rural areas that could be paid onto farmers’ mobile phones. But rural areas are largely under or un-served by urban-centric mobile money platforms. Lee Babcock, author of “Mobile Payments: How Digital Finance is Transforming Agriculture” highlights how this digital divide for mobile payments in rural areas can be closed.

In your opinion what are some of the barriers to farmers using mobile money and does this differ across ACP regions?

For all ACP farmers, the barriers are the same: illiteracy, financial and digital illiteracy, and lack of trust. However, from CTA’s research, we believe that these barriers can be overcome by making use of the transfer of agriculture extension knowledge that occurs in almost every value chain. This can be done by designing and delivering content specific to the features and benefits of mobile money, which is just as important as other agricultural production and marketing information for farmers.

But are farmers in rural areas able to access the same benefits from mobile money?

To open a bank account anywhere in the world requires bankers to collect know-your-customer (KYC) information in order to create a ‘financial identity’ for that customer.  Most farmers are ‘unbanked’ but to register for a mobile wallet a farmer must provide the same KYC information, which creates their first ever ‘financial identity’ and can later be used for mobile banking products and services.  But farmers will not register for mobile wallets and benefit from having this ‘financial identity’ until we figure out how to bridge the mobile money ‘digital divide’ in rural areas. However, CTA’s research leadership of agriculture mobile money cases in Ghana, Uganda and Zambia has revealed some interesting initial lessons and best practices for closing the gap. 

After your research for “Mobile Payments: How Digital Finance is Transforming Agriculture”, which case study example has the most potential to make the biggest impact?

The SmartMoney-Uganda case is particularly interesting: launched in August 2013, they have negotiated service fee agreements with coffee and cotton buyers in western Uganda. SmartMoney works with them to change their cash payments to farmers into mobile payments. SmartMoney also registers farmers for free mobile wallets and sets up agents to exchange electronic money for cash, and vice versa, where farmers actually live and work, as well as merchants who receive electronic money for goods and services.     

How do you feel donors can best support development of this rapidly evolving sector?

The highest impact way that donors can support digital finance development is to support research that analyses cash payment inflows and outflows of farming households, as well as their levels of literacy in selected value chains, such as coffee or cocoa.  This type of research can then inform the optimal locations for agents and merchants, as well as the design of educational content about the features and benefits of mobile money.  In addition, this research will also – very importantly – show the number of cash payments that could potentially be made as mobile payments, which is important because mobile financial service providers rely on a transactional fee business model. 

What key steps do you see governments taking to regulate the private sector involved in digital finance for agriculture?

Governments and central banks are pursuing regulatory reforms in many areas including easing rules for opening basic accounts to accommodate lack of identification documents and physical addresses, and they are also placing more emphasis on financial education. These and other regulatory reforms to embrace mobile money, as well as the UN’s recently approved Sustainable Development Goals, open the door for strategic alliances - between farmers, large commodity buyers, mobile financial service providers and financial institutions - in agriculture digital payments that can bridge the mobile money ‘digital divide’. 

Susanna Cartmell-Thorp

The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.