Tech Innovation- Enabling financial inclusion in Africa’s agricultural industry : Presenting the impact of mobile money in Kenya

By 2050 around 2.2 billion people could be added to the global population, and according to the UN population report, Africa will account for the highest population spurt with an additional 1.3 billion people. Rapid population growth coupled with a growing middle class and growing urban centers means that the agriculture sector needs to keep up an increasing demand for food, particularly more varied and nutritious food. M-Pesa mobile money in Kenya

However, there are a number of challenges facing the agriculture sector and its value chain actors, including the inadequate access to financial services for smallholder farmers. The lack of access to finance means that smallholder farmers cannot purchase or invest in much needed inputs or agricultural machinery that would help them to boost productivity, as well as add value to their harvest.

The use of technology is at the heart of ambitions to transform Africa’s food system, to boost productivity, profitability and efficiency in African agriculture. Hence as technologies are starting to make a difference, one particular digital service is helping to make smallholder farmers lives easier and is already having a significant impact across the continent: mobile money. Using mobile phones, farmers have been able to gain better access to financial and payment services, in the form of mobile money transactions.

Mobile money is the term used for using a mobile phone to make payments to others, where value can be stored in an “m-wallet” before and after the transaction.  The sender can load money on a m-wallet by going to a registered “agent”, where funds can be transferred to the recipient’s m-wallet. Once the recipient receives the funds they can either be stored or transferred to an agent to convert the mobile money to cash.

Popular for domestic transfers, person to person, mobile money is also used for bill payments, business to business (B2B) transactions and government to citizen (G2C) transfers. For the latter, this method of transaction can be used for “m-vouchers”, used to purchase fertilizer, seeds or other inputs. In this way, mobile money has the potential to facilitate the faster and more secure flow of money among millions of customers, including smallholder farmers in the most remote areas. Mobile money offers an unprecedented opportunity to significantly increase access to financial services and ease the flows of financial transactions within agriculture value chains.

One of the most successful examples of mobile money transfers in Kenya is M-Pesa. The mobile money company was founded by Vodafone for Safaricom in 2007, allowing people from around the country, even in the most remote areas, to transfer money directly, saving considerable amounts of time and money. Overtime the company has exceeded the reach of any other financial service in the country, with forty percent of all adults using the service by 2009, and as of today is being used by 96% of Kenyans.

Furthermore, a study done by the University of Bonn in Germany, found that 52% of farmers in Kenya were found to be users of M-Pesa. The study found that the largest proportion of money received  - 32% - via  overall mobile money transfers was used on agriculture-related purposes, such as the purchase of seeds, fertilizer and topdressing, farm equipment and implements, leasing of land for farming, and paying farm workers. Moreover, the study found that the use of mobile money services significantly increased annual input use by US$42, agricultural commercialization by 37% and annual farm incomes by US$224.

M-Pesa also established a software on their network called M-FARM - a SMS service that serves as a transparency tool for Kenyan farmers. It directly connects farmers with buyers and enables those registered farmers to access markets and find the best prices for their goods. This shortens the supply chain, cuts out the middlemen and allows farmers to earn more from their produce.

The rapid development of mobile money services across Africa has created new opportunities for the digital market and has inspired the creation of other digital tools and services to take off, indeed helping smallholder farmers to tackle other constraints facing the agricultural sector.

*The Malabo Montpellier Panel will be launching its 4th report on June 25th, 2019 on policy innovation for transforming Africa’s food system with digital technologies.