The data revolution wave seems to be catching on. In June this year, global ministers of agriculture meeting in Nairobi for the Global Open Data for Agriculture and Nutrition (GODAN) called for data revolution to grow Africa’s agriculture. Accessible, credible and usable agricultural data, the ministers heard, promises a step change in GDP for countries that invest in ICT for agriculture.
Now, over 800 delegates from around the world met in Accra, Ghana, last week for the 2017 Africa Open Data Conference. The event aimed to advance the leadership role of the private sector in supplying, using, and demanding open data; brought together brilliant innovators and visionaries to grow their networks; and introduced investors to an expanding sector that seeks and supplies open data to achieve development goals in Africa and across the globe.
These developments notwithstanding, data paucity remains a major challenge in development decision making. Nowhere else is that gap more glaring than in Africa’s agriculture financing.
Take Kenya as an example. Although many commercial and microfinance institutions have established agribusiness units or departments, the share of agriculture finance as a percentage of outstanding national credit remains below 5 per cent and has shown little signs of improvement.
Consequently, the investment and input financing needs of many smallholder farmers are unmet resulting in low productivity that impacts the country’s ability to attain food security, improve the lives of its citizens and spur inclusive economic growth and employment creation.
Some of the data related factors cited by the financial institutions for their reluctance to support smallholders include:
These were the findings of an AGRA-commissioned study, Bridging the Gap: The Role of Data in Deepening Smallholder Farmer Financing. The study examined the data points held by five Farmer Management Systems (FMS) in Kenya that could, potentially, give agricultural lenders a 360-degree view of a smallholder farmer.
The study examined the readiness of the value chain actors in sharing data with lenders and the willingness of the lenders to use the alternative data generated in making lending decisions. It also identified gaps in the FMS systems, potential for scaling up these systems and explore the business viability of the data generation by the FMS.
This, it is hoped, will give lenders comfort while dealing with the smallholder farmers. It will also reduce the financial institutions cost of credit assessment and customer acquisition by transferring the risk to the FMS. In return, the FMS would create a new revenue stream by becoming data resellers to financial services providers.
The seven financial institutions interviewed for the study confirmed that they would be willing to utilize data from FMS in their agricultural credit scoring but insisted that they would still need to verify the integrity of the data with the source.
According to the study, emerging financial technologies (Fintechs) have also transformed the agricultural financing landscape. They have made it easier to do business and have significantly lowered the transactions costs.
With at least 80 per cent of Kenyans having access to a mobile phone and 55 per cent with access to the Internet, the use of digitally driven financial services is expected to grow. The attendant proliferation of the financial technologies services has resulted in dramatic increases in the integration of many Kenyans into the formal financial system.
For example, in 2006, only 15 per cent of Kenyans had an account with a formal financial institution; over 30% of adults were using informal financial services; and more than 40 per cent of adults were entirely excluded from any form of financial services. Fast forward to 2015, and because of the development of mobile money, 71 per cent of adults were using mobile money services. The number of adult Kenyans with formal bank accounts has also increased to approximately 70 per cent.
As a result, the country has witnessed an impressive adoption of digital financial services delivery models by commercial banks. Equity Bank, for example, has built a digital platform that includes mobile money, interoperable debit and credit card, internet and agency banking. The bank has built a national network of over 25,000 agents who now mobilize 20 percent of the bank’s total deposits. As of October 2015, Equity Bank reported that it had processed 74 per cent of the loans disbursed that year through its mobile phone platform Equitel. Other commercial banks have similar products.
The confluence of reliable data and financial technologies presents a huge opportunity for a phenomenal agriculture and economic transformation.