Revolutionizing agricultural value chain finance: a digital perspective
For many developing countries, agriculture plays a major role in the economy with numerous cash transactions taking place throughout the farm-to-fork agriculture value chain. This paper proposes a three-step approach for replacing the cash payments made by large buyers (e.g. lead firms, cooperatives) to smallholder farmers with digital payments. By helping to transition these aggregated cash payments to digital payments, agriculture developers are well positioned to leverage digital finance on behalf of the agricultural base of pyramid.
A major issue for agricultural finance is how to cost effectively and securely provide financing to rural smallholder farmers in such manner that fraud is minimized and accountability and transparency is promoted. Digital finance is an efficient electronic payment mechanism that can work across a value chain. It is simple, convenient, affordable – and disruptively innovative. According to the GSMA there are 219+ mobile money platforms. With only a few exceptions these are primarily in developing countries and have been largely confined to the urban city centers. The ecosystem of private sector players in this space (e.g. mobile network operators, third party providers, financial institutions) is now looking to expand into rural areas in pursuit of nationwide penetration and new market segments that will actively transact over the mobile channel.