Piloting Digital Financial Services for Smallholder Farmers with Good Nature Agro and FINCA Zambia
Impact investing should be more than just writing a check. At FINCA Ventures, we provide ongoing assistance to entrepreneurs and their companies’ operations. One of the most significant ways that our team can add unique value is by leveraging a global microfinance network, known as FINCA Impact Finance (FIF), to catalyze financial inclusion alongside the productivity that our investees seek to engender. Over the past year, we’ve been building a bridge between one of our agricultural-focused portfolio companies and a FIF subsidiary in Zambia to pilot digital financial services for smallholder farmers.
Facilitating the Investee-FSP Partnership
Across Africa, just 31 percent of adults have an account with a financial institution. Smallholder farmers are among the most financially excluded. Their rural location leaves them geographically distant from financial services access points which are often situated in towns, making access to formal savings difficult. The seasonal, informal nature of farming often fails to meet the qualifications of a “business” in the eyes of a financial services provider (FSP), denying smallholders access to credit. Today, however, the dual rise of agency banking and mobile money in the region (the share of mobile money accounts doubled from 2014 to 2017) offers fresh opportunities to improve access. But how do you successfully link a smallholder network to an FSP, and vice versa?
Good Nature Agro (GNA), our Zambian-based investee, works to bring smallholder farmers firmly into the middle class with a model proven to enhance productivity and incomes. With more money in their pockets, GNA farmers are looking for safe, reliable forms of saving and to invest in life-enhancing, productive use assets — assets that not only help to grow farming capacities and incomes, but also may be collateralized when seeking financial products to achieve short- and long-term goals. Unfortunately, the farmers are unbanked.
FINCA Zambia, a local microfinance deposit taking institution, has been operating in the country since 2001 and serves nearly 16,000 clients. Its Chipata Branch is just minutes from GNA’s HQ office. Since initial conversations with GNA’s team, we saw an opportunity to connect their farmer network to financial services.
Networking Together a Network
The partnership between GNA and FINCA Zambia leverages three distinct networks: private extension agents (PEAs), banking agents and mobile network operators (MNOs).
PEAs are specially trained farmers who function as GNA grower managers in the field. Each PEA overseas and equips 40 farmers in best agronomic practices. GNA wants to pay PEAs their monthly salaries digitally because cash payments are insecure, inconvenient and they perpetuate the cycle of farmers being unbanked.
To address this, PEAs are enrolled to open FINCA Zambia savings accounts into which GNA digitally deposits their monthly salaries. PEAs access the funds by visiting banking or mobile money agents in their local communities. Banking agents process clients’ financial transactions on behalf of an FSP, like FINCA Zambia, using a point-of-sales (POS) device. The POS machine connects to the FSP’s banking system over-the-air using SIM cards from local MNOs. This technical feat not only enables GNA to perform salary payments digitally, but also it begins the path toward financial inclusion for GNA’s farmers, giving them an account at an FSP for the first time.
Initial cashless payments were made to PEAs in June. The next step is to learn from this pilot with PEAs to roll this out to GNA’s wider farmer network of 5,000+ smallholders, with a goal of making digital payments to all growers every season.
Helping Smallholder Farmers Build Assets and Extend Financial Inclusion
Being banked comes with great benefits to farmers. It means they can securely save toward their one, three and five-year goals without amassing a large pile of cash at home. Also, it may allow them to access an array of financial services in the future. And it means farmers can enjoy entrepreneurial independence, becoming more equipped to grow for multiple buyers — not just GNA. Botany Hang’ombe, Training Manager for GNA, explains:
“Farmers will be able to get the agricultural inputs they need using savings. Coupled with financial literacy, this increases farmers’ attractiveness to off-takers. For Good Nature Agro, having both seed multipliers and those that sell to other off-takers is a win-win.”
GNA benefits in another important way: secure and convenient payments. Historically, the company had to bring enormous sums of cash to remote rural areas to pay its farmers, which was risky and slow. Now, thanks to the collaboration, GNA can pay its farmers electronically, a safer and faster option.
For FINCA Zambia, the partnership offers an opportunity to grow its client base and catchment area to a critical customer segment — smallholder farmers — while remaining true to its financial inclusion mission. These are the first clients for FINCA Zambia in the Eastern Province districts of Kasanengwa and Vubwi. While the pilot begins with savings accounts, FINCA Zambia is already looking at the next product iteration, according to Chipata Branch Manager, Machila Ngoma:
“Our hope is to design a new product to accommodate people in farming and to pilot this with Good Nature Agro. The partnership will allow us to improve financial inclusion through access to savings and access to technology.”
Tackling Connectivity, Literacy and Liquidity Challenges
Of course, the partnership isn’t without its challenges. Weak cellular networks in rural areas can impact the effectiveness of agency banking and mobile money transfers. Low levels of financial literacy coupled with a lack of trust in digital money can have a similar effect. And banking agents, who are few to begin with in rural areas, can run into liquidity problems when farmers seek cash payments at common times during the growing season.
The FINCA Ventures team is working closely with GNA and FINCA Zambia to find creative solutions. FINCA Zambia is procuring new POS devices better suited to handle connectivity issues; for example, they have three SIM card slots that can save transactions when there is no connection and sync as soon as the connection returns. The devices will also have biometric fingerprint scanning for those who are less literate and cannot sign. Additionally, FINCA Zambia is collaborating with GNA to produce financial literacy training materials tailored to farmers, which will be rolled-out prior to registering new growers with savings accounts. And, through an existing partnership between FINCA Zambia, Comic Relief and Jersey Overseas Aid, the area is poised to see an influx of banking agents equipped to process mobile money transactions and impart financial education.
It’s still early in the going, but we’re optimistic that the partnership between GNA and FINCA Zambia will bear impactful fruit (or legumes, if you ask GNA!) for both parties. We’re also hopeful that it will provide a model for other social enterprises seeking value-added connections with a financial institution to grow resilience for their customer base.