Broadening the appeal of mobile money

Agriculture is the backbone of most ACP economies, which means the sector often results in the most prominent stream of payments. Within that, a substantial proportion is accounted for by payments relating to farmers – from buyers for crop sales, to input vendors, or to retail, education, healthcare or telecommunications organisations in the local community. Anyone able to commercialise that flow of money therefore faces a huge market opportunity.

Lee Babcock, global director for agriculture at the Grameen Foundation therefore argues that the definition of agricultural finance needs to be expanded from a historical focus on credit-based products to embrace straightforward digital payments from processors or traders to farmers.

Most smallholders cannot afford to pay for the development and use of finance applications, but this is not the case for mobile operators or large companies like Mars, Cargill and Monsanto, Babcock notes. “We need to climb higher up the value chain and figure out how to create an agriculture value proposition for somebody else that can pay for it, like an agribusiness,” he says. “The huge costs of paying farmers in cash mean it is clearly in buyers’ interests to digitise producer payments.”

Mobile money of course is not without its security challenges states Babock. The loss, theft or fraudulent use of phones, for example, can have devastating consequences for a smallholder farmer or rural villager. With cash, however, each time a payment is due, big buyers must hire armed security guards to accompany staff into the fields with a cash box. On top of this, in most emerging markets they also pay a fee each time they withdraw cash from their own corporate bank account.

Cargill understands this and through a partnership with E-Zwich, MTN Mobile Money and Tigo Mobile Money, rolled out an initiative in early 2017 to electronically pay 30,000 registered cocoa farmers in Ghana direct to their phone or e-wallet and aims to expand this to 100,000.

However, Michael Spencer, CEO of SmartMoney, a mobile money provider in Tanzania and Uganda, is unconvinced that big agribusiness appreciates the benefits of digitising payments. Although SmartMoney has targeted offtakers for the past 7 years, uptake has been disappointing. Buyers depend heavily on farmer loyalty and invest years in building their trust and are therefore nervous of introducing any change that might threaten that, fearing farmers will blame them, rather than the payments provider, if an initiative fails, states Spencer. He continues that, even if senior management buy into the idea of digitising payments and field operations staff, who know first-hand the danger of travelling in rural areas with cash, “The last thing those guys in the middle want is a transparent, electronic payment system that reveals where all the money goes.”

Commercial opportunities for mobile network providers

Despite these challenges, mobile network providers are continuing to eye up new opportunities. When farmers are paid for crops into a digital wallet, that payment stream continues season after season, offering regular, reliable income. “That’s what gets MTN, Tigo and Airtel excited,” enthuses Babcock. “That represents to them the greatest opportunity to increase their bottom line. And this is what we need to capture.”

One of the core offerings of the Connected Farmer Alliance (CFA) – a public-private partnership between the United States Agency for International Development, Vodafone and TechnoServe aimed at increasing the productivity and incomes of smallholders in Kenya, Mozambique and Tanzania (see, Mobile based payment solution for smallholder farmers) – is its facilitation of digital payments from processors to farmers via Vodafone’s M-Pesa mobile money solution.

In Kenya, this is handled by Vodafone subsidiary Safaricom, which has just signed up Unilever and Diageo to the initiative, with formal roll out due to start imminently, according to Frederick Kiio, head of Safaricom enterprise commercial operations. This is on top of the roughly 19 agribusinesses including Kenya Nut Company, Sirikwa Dairies, Tarakwa Dairies and Meru Greens that are already using CFA to pay 69,000 active farmers in Kenya, as well as register and communicate with them via SMS. Brookside Dairy, which controls nearly 70% of Kenya’s milk processing industry, is not itself a member but encourages all its suppliers to join, states Kiio

The CFA initiative gives agri-buyers – which pay for the service – more visibility over how much produce they are collecting each day, allowing them to plan accordingly, and earns them more loyalty and trust from farmers, explains Kiio. Processors like dairies can also use the product to determine the creditworthiness of a farmer and extend input loans based on the volume of milk they produce. Mobile network operators can be a ‘critical channel’ between farmers, offtakers and financiers, concludes Kiio, whilst acknowledging that network coverage can fluctuate in rural areas and that Safaricom must work to ensure rural collection centres have at least stable 3G coverage.

Building trust with farmers

However, the benefits for farmers of being paid electronically continue to be debated, unless, as with SmartMoney, a savings function is a core part of the offering. Creating a broader eco-system within which digital money has real-life utility for them can also take time.

One recent start-up whose tech solution is designed to help farmers get paid more quickly for their produce is Denver-based Bext Holdings, which in April 2017 raised €1.07 million in venture funding. Its debut product, bext360, comprises a kiosk-like mobile robot that uses optical sorting to grade coffee cherries at point of sale and a mobile app through which farmers can then negotiate a fair price, after which payment is made directly to their phone. As well as enabling farmers to be paid more quickly, the technology could help them command a higher price for their harvest, according to CEO Daniel Jones. For buyers, blockchain (digital ledger) technology creates a record of where beans came from and who paid for them, providing more transparency and traceability.

Bext has so far tested the technology at coffee plantations in Mexico and plans a bigger pilot in California later in 2017. The company has already formed relationships with financial institutions in the Republic of Congo and Rwanda and is in talks with investors interested in deploying the system in Colombia.

Convincing farmers of the benefits of digital payments is however more complex than creating a product, and can require a huge amount of marketing, education and trust-building. Giving farmers access to workable digital payment solutions would remove a major obstacle to integrating them into structured finance systems like warehouse receipt finance, says Kristian Schach Møller, CEO of Agricultural Commodity Exchange for Africa in Malawi.

However, although there is no doubt that mobile money is the future for payment digitisation to truly transform agriculture, grass-roots infrastructure also needs to be put in place. An insufficient number of mobile money agents in many rural parts of Africa means it remains difficult – plus expensive – for farmers who receive payment digitally to ‘cash out’, while in Malawi it is nearly impossible, states Schach Møller. The ultimate goal is that mobile money remains just that, meaning that rather than cashing out, it is re-used by farmers to pay digitally for goods in shops or invested into savings products. However, for this to happen, “It’s not only infrastructure you need to build – it’s a whole mindset change,” he adds.

Another challenge that SmartMoney’s Spencer says traditional mobile money operators have failed to resolve is that, “The whole solution depends on the trust of the farmers themselves.” Spencer adds that to gain trust, “You have to provide a service to farmers that actually works and that they can understand.” Most farmers have little use for traditional money transfer services, do not want to pay high withdrawal fees and do not want to break away from work to hunt down agents with cash, he argues. “All of this is a huge inconvenience and cost for them.”

This is why SmartMoney evolved from starting out as an agricultural value chain payment solution into a broader eco-system model that enables farmers and other rural people in Tanzania and Uganda to build savings and use digital money for a range of goods and services including food shopping, buying inputs, paying for their children’s school tuition and even making offerings at church. “We found that until you get merchants to accept e-money as a form of payment, and accept it for withdrawals and deposits, and until you get a sufficient number of merchants so that this becomes more of a credit card system than a money transfer system, you won’t persuade farmers that this is useful,” Spencer explains.

SmartMoney has spent the past 7 years developing a formula for winning over communities, district by district, using trial and error to find the best way for everything from transporting five-member teams and their equipment deep into rural areas to holding marketing roadshows to overcoming highly localised language barriers. For each district the company targets, the first year is focused on building a service layer that is not just the technology. Spencer says, “It’s about having sufficient numbers of merchants who are accepting our e-money as a form of payment for goods and services and who are also acting as cash points where people can make deposits and withdrawals.”

SmartMoney is now able to open around 700 new accounts per district in a single day and believes it should be able to replicate that in other districts once new teams are recruited and trained. Year two is focused on revenue, which SmartMoney mostly seeks to generate from bigger institutional customers like schools, churches, agribusinesses and NGOs, which pay a fee to either receive or make payments.

Although payment streams from farmers to individual churches and schools are nowhere near as big as those from agricultural offtakers to farmers, the large numbers of such institutions in rural locations mean that, in aggregate, they represent a bigger volume of payments for SmartMoney to tap. Tuition fees are among rural people’s biggest costs yet getting payments to schools is a big challenge, with many relying on children to carry cash, which is as at risk of being stolen or spent, Spencer notes. For schools, being paid digitally can therefore greatly increase revenue.

Another major benefit of targeting such institutions is that their leaders act as filters or gatekeepers in a community, with rural people often looking to teachers in particular for their approval before they accept anything new. “When we target a school or a church as a revenue-paying customer, we’re also targeting them as a trust-builder,” Spencer explains. After this comes a process of education, explaining to communities how saving works, its benefits compared with borrowing, and how it can be possible even for those who do not believe their income is big enough.

Most rural Africans can name a person in their family or community for whom borrowing has proved catastrophic, for example losing their farm or being jailed because of non-repayment, states Spencer. This has created some scepticism around any form of mobile money with a loan component and is a hurdle SmartMoney must overcome before it starts explaining how its offering is different – and how savings can be an empowering tool for wealth creation. “If any of these other players are serious about this, they’re going to have to understand what we now understand, which is that financial inclusion is an education business,” he says.

Once that groundwork is complete and a channel for the transfer of value has been opened up, there are huge opportunities for wider use of digital payments, argues Babcock. Microfinance institutions, for example, can use the digital payments to disburse input, equipment or livestock loans and to receive payments, while farmers can use the same mobile wallet for crucial purchases such as pay-as-you-go solar power. “Once the channel is there, it’s amazing what you can do with it,” he concludes.

Embedding digital payments in a wider eco-system

Digitising buyer payments to farmers can work – but only if a wider eco-system is also created to ensure it benefits farmers, states Buddy Buruku of the Inclusive Markets Team at the Consultative Group to Assist the Poor (CGAP). “For a digitisation project to add value for producers and win their buy-in, it must first identify the pain points they experience in terms of not just mobile money but their finances in general, and then pull in additional financial services providers to ensure these are addressed and that farmers have an incentive to transact digitally,” emphasises Buruku. Paying producers digitally is clearly compelling for agri-processors, who anticipate big cost savings from the switch, notes Buruku. However, “Why farmers would want to take it up is another issue,” she adds.

CGAP is working to address that in a current project with global agri-business Olam, which is looking to digitise payments to farmers in Ghana, and possibly to markets such as Côte d’Ivoire, Mozambique and Uganda, and Tanzania and Mozambique in due course. Still in the very early stages, CGAP’s work with Olam involves conducting a cost-of-cash study to demonstrate the value of digitising payments to smallholders; its immediate aim is to identify locations where farmers spend money (e.g. with input providers, schools, hospitals and supermarkets) and look at how these transactions could be digitised. The study will also try and identify what additional financial service requirements, such as for savings or credit, Olam’s farmers have so that it can bring in partners able to meet these needs. Olam already has a large number of farmers registered on its system, along with related data – for example around transactions with producers – that can be leveraged, notes Buruku.