Digital payments helping reduce poverty among small farmers, shows study

A new case study by the United Nations (UN) shows that digitisation of agricultural input payments is helping in tackling poverty among small-scale farmers in Kenya.

A report released last week by UN’s Better Than Cash Alliance showed how agriculture non-profit organisation One Acre Fund (OAF), in partnership with Citi Inclusive Finance, successfully digitised loan repayments for farmers in Kenya.

The move significantly boosted transparency and efficiency, opening up economic opportunities and driving financial inclusion for thousands of small-scale farmers and their families.

The report said One Acre Fund, supported by Citi enabled farmers to easily make loan repayments via mobile money instead of cash, reducing the uncertainty, inefficiency, insecurity and high costs previously caused by cash transactions.

“Mobile repayments have allowed us to increase our efficiency and provide better service to farmers. We’re excited to be working at the forefront of this technology in the smallholder agriculture lending sector,” said Mike Warmington, director of microfinance partnerships at One Acre Fund (OAF).

“In our experience, farmers were empowered to thrive in these communities. Clients received immediate confirmation of payments as they happen, enabling them to better manage their businesses and family finances,” said Mr Warmington.

Information and Communication Technology (ICT) has become a crucial enabler of socio-economic development mainly through reduced transaction costs and enhanced efficiency in connectivity.

Besides being pivotal in sectors such as telecommunications and financial intermediation, ICT is increasingly being applied across all the economic activities most notably health, education and agriculture.

The case study found that farmers preferred digital payments.

From the findings, in 2015 survey of 250 farmers, 100 per cent preferred mobile repayment to cash, citing convenience and transparency.

As one farmer explained, in the old system, “you didn’t know if the money had arrived, and you used to get confirmation after a week. Now, the very day (after I make a payment) I get an SMS with my name on it, and balance has reduced,” the case study report quoted.

Similarly, instances of repayment fraud fell by 85 per cent after digitisation and anecdotal reports show that farmers (particularly female) and staff feel safer because the risks of holding cash are minimised.

Farmers no longer have to wait for two weeks to have payments registered. Total processing time for each repayment fell from 16 days to between two to four days.

“Farmers now know immediately when their payment is received-they do not have to worry about whether it arrived,” the study showed.

The case study also revealed that total repayment collection costs for OAF fell by 80 per cent, as manpower-intensive cash and paper reconciliations were reduced.

Time spent by OAF field officers on collection activities was cut almost in half, enabling them to spend more time working with farmers to increase their incomes from agriculture.

The number of people employed in repayment processing fell to four, from 56 prior to digitisation, with four out of five of these being reemployed in more productive parts of the organisation.

Equally, initial problems with reconciling payments from multiple phone numbers for one account were managed by OAF and Citi Kenya.

“OAF is trialing a unique ID number for farmers, which will increase digital payment efficiency,” OAF said.

Africa Regional Lead at the Better Than Cash Alliance Oswell Kahonde said digital payments are essential to building sustainable businesses models and creating long-term impact.

“By enabling smallholders’ farmers to make and receive payments digitally, we are creating transparency and accountability which translates to numerous benefits and empowers people to take control of their finances,” said Kahonde.

Official data shows that the penetration rate for mobile subscriptions improved to 85.9 per cent in 2016 from 85.4 per cent in 2015.

The value of money transacted through mobile phones increased from Sh2.8 trillion in 2015 to Sh3.4 trillion in 2016.