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Peasant farmers lag as Kenya’s financial inclusion gathers pace

Small-scale farmers
Small-scale farmers in Kakamega County. FILE PHOTO | NMG 

Despite the strong presence of mobile money in rural areas, most farmers remain financially excluded and are often at the bottom of the economic pyramid.

Despite the fact that they are the ones most likely to need financing for their core economic activities and earn a living, they are perceived as high risk and prone to loan defaults as they lack financial history, fresh GSMA agri-tech study shows.

According to the 2019 FinAccess Household Survey, access to formal financial services has grown alongside the rise in mobile money use in rural Kenya, yet most unbankable peasant farmers have not benefited.

“Barriers to further adoption persist, such as gaps in rural mobile coverage, availability and liquidity of mobile money agents to support cash-outs, and a lack of formal identification documents to meet rigorous know-your-customer (KYC) requirements.”

According to the 2017 Global Findex database, 81.6 per cent of the 29.6 million Kenyans aged 15 and older have an account with a financial institution or mobile money provider. In rural areas, this figure is slightly lower at 81.2 per cent.

In the same year, it indicates that over 73 per cent of adults in rural areas had access to a mobile money account, while 37 per cent received money from the sale of agricultural products through a mobile phone, compared to around 30 per cent in 201.

Financial inclusion in Kenya is the result of high rates of mobile money adoption and use: 72.9 per cent of Kenyans aged 15 and older have a mobile money account and rural figures are similarly high at 72.6 per cent, the study shows.

Since the launch of Safaricom’s M-Pesa in 2007, Kenya has experienced rapid uptake of mobile money accounts. M-Pesa currently dominates market share with around 81 per cent of active subscriptions.

According to the World Bank, nearly 80 per cent of the Kenyan population made or received a digital payment in 2017 — an increase of 10 percentage points from 2014.

The GSMA study recognises that in Africa, Kenya stands out as a digital finance pioneer, with mobile money payments used for remittances, bill payments, utilities, salaries and even government payments when its eCitizen platform led to over 90 per cent of digital payments through mobile money.

The Communications Authority of Kenya’s 2018 data show that M-Pesa dominates uptake of mobile money use in Kenya at 80.85 and 77.83 as percentage of share of active subscribers and share of transaction value respectively against Airtel money’s 11.93 per cent and 0.04 percent, Equitel money’s 6.56 per cent and 22.04 per cent and others at 0.66 per cent and 0.08 per cent.

Agriculture has been the backbone of Kenya’s economy for many years, accounting for 31.5 per cent of the country’s GDP and employing 38 per cent of the population. Over 70 per cent of rural residents rely on farming as their main source of income and form of employment.

Kenya’s agricultural sector output is diverse, comprising cereals (maize, wheat), livestock and dairy products (meat, milk), horticulture (cut flowers, vegetables and fruits), and cash crops (coffee, tea). Horticulture and cash crops dominate Kenya’s agricultural exports. The industry accounts for around 50 per cent of Kenya’s exports and nearly 65 per cent of the country’s export earnings.

Agriculture is also a significant driver of the non-agricultural economy, providing inputs and markets for other industries such as building and construction, transportation, tourism, education and other social services. For instance, 75 per cent of manufacturing sector employees are in agro-based industries.

Since 2015, Kenya’s agricultural performance has been sluggish. This can be attributed to several factors such as persistent droughts, a surge in pests (such as Fall Army worm) and chronic underinvestment that has undermined crop and livestock production.

“A drop in the production of food crops such as maize and sugarcane, led to a steep rise in imports to bridge the production deficit, which in turn translated into higher purchase prices for consumers.

Traditional cash crops for export, such as tea and coffee also suffered a decline in production, hindering domestic growth, the GSMA report says, fuelling the perceived inconsistency in the sector that makes many financial institutions deny farmers access to credit.

To address the issue agritech startups and MNOs in Kenya have developed and introduced digital, mobile-based solutions to address some of the challenges experienced by crop producers, agribusinesses, crop aggregators (such as cooperatives) and crop buyers.

Kits such as Last mile digital tools, market linkages, and direct to farmers such as Virtual City Agrimanager, DigitalFarm for enterprise, Twiga Foods, agri-tech start-up Tulaa and Masoko have been introduced in the market to help create economic identity for farmers.

To improve financial inclusion is a multi-step process that includes digitisisng procument transactions and payments, share information with partners who can provide loans, or underwrite loans to farmers and translate digital behaviour into credit scores.

In Kenya, a number of agribusinesses, agritech companies and MNOs are sharing data with a range of organisations, which in turn are offering targeted products and services to farmers. For example, Tulaa shares data with Syngenta, an input supplier, so that farmers can purchase inputs with credit from the former. “Not all data owners currently share. In most cases, agribusinesses are likely to have an incentive to share to enable farmers to benefit from additional services. But data-sharing depends on a farmer’s consent.

“For example, agribusinesses using Virtual City’s Agrimanagr solution seek consent from farmers before sharing their data with the banks they have partnered with to disburse loans.”

The digitisation of value chains, the study shows, has increased financial inclusion for produce buyers through some of the digital tools. For example, Virtual City’s agribusiness clients have seen buyers, typically small-scale sellers and street vendors, pay them via mobile money for produce supplied by smallholder farmers. Further, DigiFarm for Consumer relies on produce- buyers paying farmers directly with mobile money, using new digital agricultural and remote-sensing data, and also enabling credit scoring for unbanked farmers.