Digital platforms are becoming increasingly central to our economies including the African economy. From the perspective of microfinance, they are particularly interesting for their potential to serve African smallholder farmers. With 20% of GDP in Africa, agriculture is a major economic sector and is receiving a lot of attention from Financial Service Providers (FSP). They are looking at innovations in digital platforms to develop new or better financial solutions for the smallholders and improve financial inclusion.
In the WSBI State of the Savings and Retail Banking Sector in Africa research series, commissioned by the Scale2Save programme and implemented by FinMark Trust, digital platforms were one of the case studies. It took a close look at some of the successful digital platforms that have been rolled out across the African continent to identify key success factors. The research is short and succinct, and available here at http://scale2save.wsbi-esbg.org.
In this session, Jaco WEIDEMAN of FinMark Trust unpacked different aspects of the success of two FSPs active with digital platforms in Africa. Despite the remoteness of many smallholder farmers, high financial illiteracy and a low level of trust in banks amongst this target group, these FSPs have been successful at sustainable low cost engagement with their customers through digital platforms. Weideman asked the two FSPs three questions: Why does the market need your intervention? How does your intervention work? What lessons can you share?
Adetunji LAMIDI presented the Easy Club platform in Nigeria, which has about 50,000 users out of about 450,000 small holder farmers who currently bank with FCMB. This platform was established in 2021 to improve the integration of smallholders into Nigeria’s financial and food production systems, strengthen the country’s food production system and make Nigeria less dependent on imports. Easy Club is a one-stop-shop concept where smallholders can access services and products from inputs from providers to markets for their outputs. It allows smallholders to open an account through the FSP, digitalises all transactions and notifies smallholders on these transactions through SMS.
One of the key success factors of Easy Club is the agency network. FCMB is the platform owner and partners with agricultural associations which play the role of master agent. These associations consist of coop groups which each have their own Easy Club agent. Through this hierarchical network, the Easy Club platform becomes accessible to even very remote customers.
Felix VENGESAI presented the Eco Farmer platform in Zimbabwe. This platform was already launched in 2014 and currently has a million registered users. Through the platform, smallholders can access a wide variety of services including financial services, input supplies, tillage services and extension services. This makes Eco Farmer a one-stop-shop where smallholders can find everything they need for their business.
Eco Farmers started as an Unstructured Supplementary Service Data (USSD) based platform to send text messages to users. This allowed every smallholder with a mobile phone to access the platform and was critical to realise the exponential growth of the platform. With the higher uptake of smartphones, Eco Farmers is currently exploring possibilities for mobile apps and web-based solutions with a visual user interface to further improve the platform.
Weideman provided additional lessons learned from the case study of the WSBI research. That research showed that successful digital platforms provide more than financial services. They function as a one-stop-shop. This requires partnerships with other service providers and use of their networks and reputation in their business communities to scale up. Scale is another success factor, as costs of development and maintenance of digital platforms must be covered by a large number of transactions to keep marginal costs for clients low.
Connectivity and service availability is another success factor. This makes digital platforms dependent on mobile services providers. Only rural areas with good connectivity will be suitable for delivery of an uninterrupted service. Other key success factors identified in the research are digitisation of the FSP, customer centricity and alignment with new regulations.
The first question from the audience was about the steps for setting up the Easy Club platform. Lamidi explained that his FSP had four milestones: building a marketplace for farmers with a focus on women and youth, digitising processes, creating a one-stop-shop and educating farmers on the opportunities through the marketplace. He emphasised the need to bring in other stakeholders to strengthen trust and engagement with smallholders. Weideman added that this value chain approach creates a win-win situation and then asked Lamidi about the role of warehousing systems in the Easy Club platform. Lamidi explained that a lot of farmers on the Easy Club platform do not have sufficient storage and that aggregators with warehouses can provide two useful services. Besides providing inputs to the farmers, these aggregators can store supplies from farmers to sell them at a later time when prices are higher.
As partnerships are key to the success of digital platforms, Weideman asked Vengesai about the partner network of Eco Farmer. Eco Farmer uses a seed to fork approach and identified strategic partners from the agriculture industry. The platform partnered with seed companies, chemical suppliers, banks, logistics partners, education providers and insurance providers. Eco Farmers benefited a lot from previous efforts of some of these organisations on financial inclusion and building trust with farmers.
Weideman pointed out that the lack of collateral is a challenge when serving smallholder farmers and asked if FSPs can use new crops as collateral and if they can use crop stability in the credit risk scores of farmers. Lamidi replied that aggregators may play a role in this. The FSP could hold the aggregator accountable for repayment by the farmers. Vengesai confirmed that aggregator models offer opportunities for using crops as collateral and de-risking financing of smallholders.
Finally, the panellists discussed the need of farmers for advice on their crops. Vengesai explained that farmers are looking for context specific advice and this requires analytical data sets. With such data, digital platforms could provide push messages with tailored advice to mobile phones of farmers to help them increase their yields.
Weideman ended the session by concluding that FSPs need to work together with other service providers to tackle constraints to integration of smallholder farmers into global supply chains.