Agricultural Mobile Finance: Understanding patterns of daily life at the BoP to leverage market solutions
Mobile phone subscriptions will outnumber the global population this year—that’s more than 7 billion subscriptions. The rapid reach of mobiles presents potential for disruptive business model innovations in many sectors at the base of the pyramid – and finance is no exception.
One such innovation is agricultural mobile finance that can benefit farmers, processors, cooperatives, buyers and traders—all the participants in the field-to-fork value chain. However, connecting farmers to formal banking on their mobile phones will require multi-stakeholder alliances of telco firms, financial institutions, value chain participants and development implementers. Together, using market research and taking an end-user design approach, these partners can overcome the barriers of illiteracy, financial illiteracy and lack of trust that constrain technology initiatives at the BoP.
Using mobile phones to bridge the gap between farmers and formal banking services
At ACDI/VOCA many of our projects connect smallholder farmers, first to one another to attain economies of scale and then, as a group, to markets. For our Cocoa Innovations Project (CIP), which is developing the Indonesian cocoa sector by aiding smallholder cocoa farmers, we crafted an input supply finance mechanism in conjunction with a commercial bank and an international cocoa buyer. The mechanism allows farmers contracted to grow for the buyer to access credit—often for the first time.
We elected to use mobile phones—a cost-effective and convenient way to distribute and repay loans. This is how it works: the bank disburses the loan, on behalf of the farmer, directly to the input supplier’s mobile bank account. The farmer can then pick up his or her seeds and fertilizer from the input supplier for the next season. Upon harvest the farmer sells his or her cocoa to the international buyer. Accounts are settled electronically, the farmer receives the profit via mobile phone, and the bank loan is paid off. Agricultural finance schemes like these are not novel, but using mobiles as the channel for disbursements and repayments is.
Identifying farmers’ needs
However, we confronted many outstanding questions about the mobile financial features farmers needed. Would they need savings? What are the farmers’ borrowing and spending habits? Unfortunately, we lacked in-depth demographic and market knowledge about these BoP cocoa farmers that could inform our design of a successful mobile money ecosystem.
So ACDI/VOCA, in collaboration with USAID, NetHope and the research firm MicroSave conducted granular market research with 549 farmers, using a mobile survey tool known as Magpi. We looked at Indonesian smallholders’ use of cash and their levels of savings, spending, borrowing and financial literacy. Our research indicated, by extrapolation, that the 600,000 cocoa farmers on the island of Sulawesi received 7.8 to 14.4 million cash payments for their cocoa that we conservatively estimated totaled $450 million. This was a hugely important quantification of the market opportunity in mobile finance, useful beyond our CIP pilot for current and future private sector partners.
A bigger opportunity than we knew
We also learned that 67 percent of our farmers were interested in using mobile money and that 46 percent of them actually save money. Thirty-six percent borrow money, and women farmers most often borrow from a particular government community program.
Finally, the insight we gained about precisely where and how they spend their money is helping us identify, develop and train the network of agents and merchants who are tightly aligned along the cocoa value chain—that essential space where our farmers live and work. All of these details inform the design of the program to meet our farmers’ needs and help ensure project sustainability.
The market research we mounted has rapidly emerged as a best practice for any agriculture mobile finance initiative, and we hope it will be replicated in various contexts since, from value chain to value chain and country to country, such findings will foster project success.