Smallholder farmers have the potential to play an ever-increasing role in feeding the world through sustainable supply of key agricultural commodities. However, most smallholders lack their own funds to invest in their farms to improve productivity and connect to markets.
Without inclusive market systems, smallholders must rely on their own limited savings to invest in their farm, education, and other household needs, which contributes to lower productivity, persistent income inequality, and slower economic growth.
The nature and scale of these challenges are familiar to those of you who are driving the progress of the U.S. Government’s Feed the Future initiative, which, over the past few years, has been addressing many of these challenges in order to unlock the potential of agriculture to reduce hunger, extreme poverty, and malnutrition.
This Guide to the Use of Digital Finance in Agriculture aims to provide a quick and easy-to-use tool to understand how one new technology platform, digital finance, can help address some of the challenges that smallholder farmers are experiencing today – mainly, lack of access to financial services and convenient payment systems.
Why DFS Matters for Smallholder Farmers
Digital financial services (DFS) can help to address specific chronic challenges in the value chain – especially those challenges that need financial services solutions, and where the traditional finance sector is not fully addressing the demands in rural markets.
This is often due to high infrastructure costs and a lack of incentives to adapt products to the unique needs of farmers. Digital finance offers a way to expand access to the formal financial system (through a basic transaction account supervised by the banking regulator), taking advantage of the rapid growth of digital and mobile telephone infrastructure and the advent of branchless banking (which offers the ability to transact outside of a traditional bank branch). These factors have a direct link to increasing farmer income and decreasing malnutrition.
Digital financial services (DFS) are fundamentally about saving money, accessing credit and insurance, and performing transactions via digital channels – mobile phones, cards, computers, tablets, and so on. We often talk about “mobile money” because in developing countries mobile phones are the most widely distributed and most functionally adaptable means for accessing digital financial services.
The goal of the Guide to the Use of Digital Finance in Agriculture is to identify specific challenges in value chains that can be addressed by improved payments or financial services, and then to identify corresponding DFS solutions to these specific challenges, with the aim of improving the ability of value chains to increase farmer incomes.
In doing so, it is possible to increase farmer household access to a transaction account that builds household resiliency and offers access to payments and financial services long after an aid project or intervention is complete. Ultimately, this will move us closer to Feed the Future’s joint high-level objectives of inclusive agricultural sector growth and improved nutritional status.