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How digital payments simplify cash-flow for African rural economies
With a poverty headcount ratio of ~44%, Northern Ghana is one of the poorest regions in the country, with low levels of private sector development and bank branch presence.
However, an initiative between ASI, a Ghanaian NGO, and AGRA’s Financial Inclusion for Smallholder Farmers in Africa Program (FISFAP), to experiment on the use of digital wallets in this part of Ghana has proven that use of mobile money can make delivery of financial services to farmers much cheaper and less risky.
At the start of the project, ASI set out to work with a range of agribusinesses – seed suppliers, produce buyers and input-output traders to address the risks associated with agriculture payments.
The core issues faced by smallholder farmers were delayed payments, costs and risks associated with carrying cash and high administrative costs of cash management at the agribusiness level.
Tanager launched an ambitious partnership with two major service providers, Vodaphone and Bharti Airtel. The two partners addressed these key issues by developing the capacity of agribusinesses in integrating with and managing digital payments solutions, introducing farmers to mobile wallets, and facilitating an ecosystem of agents for cash in and cash out.
The development of the model used by ASI continued with the engagement of Farmerline, a local partner and third-party mobile platform provider assisting agribusinesses to process and track payments through their mobile phone wallets.
As a result, smallholder farmers see clear value in the product with payment lags of three months getting substantially reduced to a matter of days if not hours.
This work was initially operationalized with the Global Agricultural Development Company (GADCO) in the rice value chain. With proof of concept, the technology now extends to three different crops (paddy rice, maize, soya beans) and seeds such as maize, millets, groundnut and cowpeas among five agribusiness partners.
By the end of the pilot period, ASI facilitated mobile payments for approximately 800 smallholder farmers with a total value of US$900,000. However, among the lessons that emerged are the need for continuous training on basic cellphone functionalities, such as SMS messaging, pin codes and how to initiate a balance inquiry, as well as basic financial literacy such as the concept of savings as new subscribers are enrolled.
Additionally, although the project identified and actively managed 12 agents, liquidity was an ongoing concern and required on the ground coordination.
Building on these lessons in 2016, AGRA funded the expansion of this initiative to Northern Ghana. As a result, the expanded project had six agribusiness partners that are largely out-grower schemes. They reached approximately 10,640 smallholders as of September, 2018.
The breakdown of farmers trained and enrolled on mobile payment comprises 1,072 for Agriaccess, 2,506 for Agritrade, 923 for Masara, 4,681 for Savanna, 503 for Shinkaafa and 955 for Heritage Seeds.
ASI identified Farmerline Ghana, a third-party mobile money platform provider to assist agribusinesses to process and track payments to farmers irrespective of the network.
At the farmer level, interoperability could have been an issue. In the previous pilot Tigo Cash had provided an interoperable voucher code functionality that could accommodate farmers with non-Tigo Cash wallets. In May 2018, the Bank of Ghana launched the Mobile Money Interoperability System, enabling farmers to transact across networks.
More importantly, the presence of established buyers in the region meant that farmers had a strong incentive to sign on and test mobile payments. Similarly, agribusinesses are starting to see the benefits of digitizing payments.
Digitizing value chain payments provides significant benefits for farmers and agribusinesses. These benefits include registration of farmers for mobile money services, improved business to person payments and access to mobile money-based savings accounts.