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Mobile based payment solution for smallholder farmers

Finance

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Connected Farmer Alliance, a mobile-based payment solution developed by a public-private partnership, is transforming agri-finance for value chains such as nuts and milk in Kenya, Tanzania and Mozambique, as well as helping farmers to access credit.

Kenya Nut Company – one of the leading macadamia processors in Africa, purchasing on average 6,800 t estimated at €6.4 million each year – has grappled with the communication and logistical challenges of managing over 100,000 farmers supplying its 154 buying centres. In the past, Kenya Nut would dispatch more than 182 field staff to weigh supplies and pay farmers.

“Sometimes our staff had to walk long distances carrying large sums of money, and payments were usually done in the open, meaning people could see how much staff were carrying. During peak buying periods, this could amount to over €120,000 per day. The possibility of robbery was high, as were instances of staff misappropriating the money. As a business, we also had to shoulder too many operational costs, including bank charges on withdrawals,” says Wangai Gatawa, Kenya Nut’s field procurement manager.

A win-win model

However, the Connected Farmer Alliance (CFA) mobile payment system1 has heralded a faster and more convenient way of working with over 20,000 Kenya Nut farmers. The system records the payment details of farmers registered on the platform. When a farmer makes a delivery to the collection centre, the Kenya Nut staff check the nuts for quality before weighing them on a digital scale. The scale is connected to a web and mobile-based application, which sends the weight to both the weighing staff’s and farmer’s phone, and payment is automatically triggered to the farmer using the mobile money platform, M-Pesa.

In central Kenya, where over 6,000 farmers are registered with the system, Anthony Thuku, Kenya Nut regional branch manager says, “It is a win-win model. It is not easy trying to deal with over 500 farmers in one collection centre. Trying to reconcile records, then dispatching payments would previously take a long time and discourage farmers. But, interestingly, we have noticed reduced cases of side selling to other brokers because farmers were in urgent need of money. Mobile-based payment means farmers can concentrate on growing and selling to us quality nuts and earn good money for it.”

Better-connected farmers

The mobile payment system has opened a world of opportunities for many smallholder farmers excluded from mainstream financial services like banking and insurance. David Irungu, CFA regional monitoring and evaluation administrator says, “Farmers often have to grapple with access to agricultural inputs, how to get credit in case of emergencies and even unpredictable payment periods, which means they cannot focus on farming quality produce. But a farmer who knows he will be paid immediately delivers his produce, and can go to a shop to access inputs on credit after showing his payment history, and then you have addressed a very vital stumbling block in the value chain.”

Richard Gathogo, a 65 year-old farmer who has been growing macadamia for 25 years has a litany of woes about his previous experience with buyers. From middlemen buying his nuts too cheaply to payments that would take up to 3 months, Gathogo had almost given up on his business. However, on being introduced to CFA, he felt he had nothing to lose. “It has changed my farming and given me impetus to farm more. In all my years, I have never been paid the same day for my deliveries,” he enthuses.

Gathogo, whose income has since quadrupled, states that he is now able to better plan his household expenses. Using the mobile payment system has also boosted his creditworthiness, especially with mobile money lending platforms like Safaricom’s M-Shwari, as his ability to pay on time has increased his loan limit by 10 times.

Challenges on the ground

Nevertheless, whilst the CFA initiative is continuing to expand, the project has not been without its challenges. Since inception there has been some resistance to mobile payment from farmers who are attached to receiving cash. Although the problem has been addressed with training to heighten awareness of the benefits of the technology, some farmers are still apprehensive. “At the coastal area of Kenya where we source cashew nuts, we were forced to suspend the system and resort to cash because farmers would not accept to be paid through their phones and were hesitant to give out their details. They threatened to stop selling to us and we had to suspend it,” states Gatawa.

Limited mobile networks in some rural areas, coupled with a sizeable number of farmers who do not own mobile phones, has also slowed uptake. In some instances, buyers have to walk long distances from the collection centres to get network coverage to trigger payments. And, while the system has proved successful with commodities such as milk and nuts, which are delivered daily, it had to be dropped for seasonal crops like mangoes and sugarcane because by the time the next season of produce was ready for harvesting, farmers had forgotten about the mobile technology and resorted to using cash.

However, Ndumberi Dairy Farmers' Cooperative Society, an association of milk farmers in Kenya has also successfully adopted the payment system, allowing its members to keep track of the milk they produce and sell, while reducing cases of milk theft with the cash system as unscrupulous traders often exploit farmers. The system also delivers timely information on good agricultural activities to boost milk quantity, quality and market prices direct to farmers’ mobile phones, while allowing farmers to access inputs on credit in local agricultural shops by using their payment history from the cooperative as collateral.

“The success of the mobile payment system is, to a large extent, championed by the businesses dealing with smallholder farmers. If they do not see value or business sense to their operations, they won’t pursue it, which explains why most of them failed. The case of Kenya Nut and Ndumberi milk processors is classic because it simplified their operations and enhanced relationships between them and the farmers they were working with,” concludes Irungu.

1 CFA is a public-private partnership between the United States Agency for International Development, Vodafone and TechnoServe that seeks to promote commercially sustainable mobile agriculture solutions and increase productivity and revenues for 500,000 smallholder farmers across Kenya, Mozambique and Tanzania.

Bob Koigi

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