NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Easy, convenient, digital access to finance.

As aspiring homeowners in the United States use online services like Rocket Mortgage to “make getting a home loan easy,” an ocean away in places like Kenya and Zambia, rural smallholder farmers are using similar digital technologies to access the finance they need to improve their farms and businesses.

These farmers – who typically farm fewer than 5 acres of land, roughly the size of five football fields  – play a critical role in feeding the world’s growing population (set to hit 9 billion people by 2050). But with a whopping US $200 billion gap in smallholder financing, many cannot access the financing they need to invest in things like seeds, fertilizers and irrigation technologies to increase production and improve their livelihoods.

There’s good news though: Across the world, innovative fintechs – companies using technology to enable financial services like virtual currency and mobile banking – are making it easier for farmers to access finance. Take East Africa, for instance, where fintechs are booming. If scaled, these companies could play an important role in empowering smallholders to improve their livelihoods while delivering a food secure future.

From our experience at the Rural and Agricultural Finance Learning Lab, a research firm that advises agricultural fintechs to better serve farmers, we’re seeing several innovative fintech companies starting to address some of the most challenging barriers to financing smallholders:

First Access and FarmDrive are using alternative data to help banks lend to rural and smallholder clients: In the U.S., banks and other lenders use credit histories and FICO scores to assess creditworthiness when people apply for car loans, home mortgages and more. In countries like Ghana and Rwanda, however, most smallholders use cash only, have no bank accounts and don’t own property – leaving them without a credit history for banks to use in evaluating risk and justifying loans.

First Access is addressing this challenge by developing a technology platform and algorithm through which banks can create credit profiles for smallholders. By combining First Access’ own customer data with “hidden” points – such as consumers’ prepaid mobile money history or utility bills – financial institutions can assess smallholders’ creditworthiness and extend loans to individuals previously unreached.

FarmDrive takes a different approach, allowing farmers to upload information about their expenses, revenues and yields through a mobile app on their phone. FarmDrive combines this information with data from other sources like social media, weather stations and market prices to build personal credit scores and enable farmers to request loans via mobile phone.

Musoni is making traditional banking more accessible to rural customers: Most of us could walk or drive a short distance to a local bank if we wanted to set up a new account. But in many rural communities in Africa, banks don’t have branches outside major cities and ATM networks are scarce. As a result, many farmers are not familiar with how banks work and therefore don’t benefit from traditional banking services such as savings accounts or loans.

Musoni is addressing this challenge by bringing the bank to the farmer. It sends field officers with tablets to register new farmers and educate them about the process. Then, with Musoni’s digital platform, farmers use mobile phones to manage their accounts, receive loan disbursements and make payments.

Tulaa, the mobile agent banking arm of Esoko, is connecting banks and suppliers/buyers to smallholders for information sharing: Many of us are used to having information at our fingertips – if we want to know how to grow rosemary in our backyard, for example, we can watch a YouTube video or ask Siri. However, in countries such as Kenya, Ghana and Rwanda, most farmers don’t yet have high-speed data or smartphones. As a result, farmers cannot access critical information needed to manage their farms, including good farming practices, weather patterns and market prices for their products.

Tulaa connects farmers with organizations such as financial institutions, agribusiness buyers, input suppliers and NGOs, all through mobile phone technologies such as SMS texting. Its communications platform delivers critical information – like tailored agriculture and market advice – to improve farmers’ production and businesses. And now, Esoko also helps fintechs develop new products that benefit farmers and enable them to borrow cash for discounted farming supplies.

Fintech solutions are unlocking new ways to reach the farmers who will play a critical role in feeding the world’s 9 billion people. Although you’re unlikely to hear about a Silicon Valley-type IPO from fintechs across countries in Africa – these innovations are ripe and have significant potential to scale and make impact if they receive the necessary investments.

Ultimately, closing the gap in smallholder financing to help address food security is a daunting task. Even with the proper access to finance, ongoing droughts and famines (such as those in Nigeria, South Sudan, Somalia, and Yemen) remind us of the challenges farmers face on a daily basis. But we believe a food secure world is within our reach, and fintech solutions for farmers are an important step in the right direction.

Mikael L. Clason Höök is the manager and Malia Bachesta is communications lead of the RAF Learning Lab.

The authors would like to thank Jason Wendle, director of the RAF Learning Lab and Sara Wallace Beatty, senior communications associate at GDI, for their advisory and editorial support.

Photo by Jason Wendle