FOCUS NOTE Digitizing Value Chain Finance for Smallholder Farmers A gricultural value chains play an important role in providing financial services that help to reduce risk, improve crop yields, manage liquidity, and Still, as more and more players begin to create and adopt digital tools to facilitate access to financial services along agricultural value chains, this trend transact with markets. But for many of the world’s has the potential to overcome some key constraints smallholder farming households (smallholders), to smallholder families’ agricultural livelihoods. This value chain financing remains either inadequate or Focus Note aims to identify, analyze, and formulate entirely out of reach. In most markets, value chain potential development paths of efforts to digitize financing arrangements are typically accessible only agricultural value chain finance. to smallholders who have very tight connections to value chains, such as a contract with a buyer. And We begin with an overview of value chain finance even then, available services are often limited to one and the role of digital tools. Then we present product (credit) for one purpose (inputs). three broad use cases for digital financial services (DFS) along value chains: overcoming barriers As agriculture and financial services move into the to providing financial services, improving the digital age, new technologies are emerging with efficiency of financial transactions, and improving the potential to extend the reach and product market opportunities. The paper also highlights the diversity of value chain finance to smallholders. types of financial products and services that digital From commitment savings accounts for inputs to solutions enable and cites examples of models receivables financing and warehouse receipts, the currently being implemented. It also analyzes increasing prevalence of mobile devices is helping the costs, benefits, and opportunities of various to unlock a range of new financial products and approaches to digitization, in an effort to help services that go beyond the traditional offerings readers identify situations where digital tools can available to participants in value chains. And while help solve key pain points along the value chain. much of the innovation in this space focuses on The Focus Note concludes with a look toward smallholders with existing connections to buyers, the future of digital finance in agricultural value digital technology is increasingly enabling outreach chains, and where promising opportunities for to smallholders who have only loose connections innovation lie. to value chains and who have until recently been largely excluded from the benefits of value The Role of DFS in Value Chains chain financing. As population growth, urbanization, and rising However, the potential of technology to address incomes continue to drive increased demand financial needs along the value chain has yet to be for agricultural commodities, 1 smallholder No. 106 fully realized. In some cases, the benefits of digital agricultural production can play an important April 2017 financial solutions flow largely to actors further role in supplying the world’s food. Already, the downstream, such as traders and processors. In Food and Agriculture Organization (FAO) of the Max Mattern other cases, poor infrastructure and a nascent United Nations estimates that smallholder farmers and Rossana Ramirez digital ecosystem, among other factors, make account for at least 70 percent of global food it difficult to provide and use digital services in production (Maass Wolfenson 2012), and many rural areas. agribusinesses have turned to smallholders as 1 The Food and Agriculture Organization estimates that by 2050, the world’s population will be 9.1 billion, with almost all growth occurring in developing countries. Urbanization will increase dramatically to 70 percent of the world’s population, and income levels will be many multiples of what they are now. Feeding this population will require an estimated 70 percent increase in food production (FAO 2009). 2 suppliers in an effort to exploit newly emerging value chain finance plays an important role in market opportunities (Carroll et al. 2012). Yet, providing actors with the working capital or despite the potential of smallholder producers, investment financing necessary to improve returns pain points along the value chain remain a and enhance the growth and competitiveness of significant obstacle to smallholders who are the chain (Miller and Jones 2010). For example, working to increase the quantity and quality of savings and credit products can help smallholders their yields and to channel their production to invest in the inputs they need to improve quality markets (see Figure 1). and yields. In turn, insurance can reduce the risk of making these important investments. More To overcome some of these pain points, farmers efficient payments can also lower the costs and and other value chain actors have traditionally risks of distributing cash in rural areas. And post- looked to a category of financial services known as harvest financing can reduce side-selling and allow value chain finance. Defined as financial services smallholders to seek the best market opportunities that flow to or through any point in a value chain, available.2 Figure 1. Example of Pain Points along Agricultural Value Chains PRODUCTION POST-HARVEST Smallholders -Cannot access financing for high-quality inputs Smallholders or working capital -Lack of access to markets for crops -Risk of crop losses hinders investments in -Liquidity constraints force smallholders to sell productivity immediately after harvest when prices are -Lack market opportunities needed to generate lowest return Input suppliers -Many farmers cannot afford high-quality inputs Buyers -Unpredictable purchases by geographically -Lack funds to pay smallholders quickly, leading dispersed farmers to side-selling -Hard to finance farmers directly due to capital -High cost and risk of paying smallholders in requirements cash -High cost of transportation to reach dispersed Buyers smallholders -Struggle to ensure reliable supply of quality crops -Hard to finance farmers directly due to capital requirements, risk of side-selling Financial services providers -Lack of reliable warehouse facilities prevents use of crops as loan collateral Financial services providers -Poor record-keeping makes it difficult to offer -Hard to assess risk of financing farmers, lack invoice discounting to buyers of collateral -High cost of serving geographically dispersed -High cost of serving geographically dispersed smallholders smallholders 2 Side-selling refers to a farmer who has a contractual relationship with a buyer instead selling his or her crops to a third-party in violation of the contract agreement with the buyer. It could also refer to farmers who have received inputs like seeds or fertilizer from a buyer with the expectation that repayment would be deducted from crop deliveries to the buyer, but who instead sell to a third party. 3 Given these clear use cases, value chains represent it difficult to provide credit on a large scale (see an ideal entry point for financial services for Figure 1). Furthermore, unlike formal FSPs, value smallholders. However, financial services providers chain actors typically do not provide financial (FSPs) face constraints when attempting to engage services beyond credit, such as savings, insurance, with value chain actors. Lack of formal contracts, and payments (FAO 2016). credit histories, production records, reliable storage facilities, and weather information services make it Participating in value chains is in itself a challenge difficult to assess risk when making credit decisions. for many smallholders. Of the world’s approximately Moreover, with many smallholders geographically 500 million smallholder households, an estimated dispersed across vast rural areas, the cost of 7 percent are tightly connected to value chains, offering any financial product, including low-balance 33 percent are only loosely connected to value savings and insurance, is often simply too high. chains, and 60 percent are noncommercial (see Box 1) (Christen and Anderson 2013). Without tight In the absence of the formal financial sector, value connections to value chains, smallholders are less chain actors have emerged as important providers likely to access informal value chain finance from of informal value chain finance. These actors buyers or input suppliers. They are also less likely (e.g., off-takers, input suppliers) have an intimate to access financial services from formal financial knowledge of smallholders in their value chain, and institutions, which in many cases rely on value chain have an incentive to provide financial services that actors to reduce the risk of lending and act as enable their suppliers to deliver consistent quality aggregators and access points for products like and quantity. Therefore, they may offer short-term savings, insurance, and payments. financing for inputs, working capital, or advance payments for crop deliveries. However, these value If value chain finance is to truly make a dent in the chain actors also face constraints in providing number of smallholders without access to financial adequate financial services. The cost of capital services, it is important to explore innovations that required to issue loans, side-selling by suppliers, expand the reach of value chains themselves. This and their own inability to access financing make will require products and services that go beyond Box 1. Segmenting Smallholders: Connections to Value Chains and Financial Access Only a small minority (just 7 percent) of smallholders be subsistence farmers who are not linked to any are estimated to be engaged in what CGAP refers structured value chains. They have few financial to as “tight” value chain relationships, in which tools available to them, mostly informal mechanisms smallholders have a predetermined buyer for their such as savings groups. agricultural outputs. While commercial smallholders • Commercial smallholders in loose value chains in tight value chains are more likely to receive (~165 million). These farmers have a surplus to sell financing from buyers of their crops or leverage in informal local or regional markets. They might value chain relationships to access services from have a relationship with one or more buyers and financial institutions, noncommercial smallholders and relationships in value chains, but they are not in a smallholders in loose value chains may have little to no position to sell under contract and are more likely opportunities to access financial services. to engage in side-selling. This segment might An appreciation of how smallholders engage with have limited access to formal financial services, agricultural value chains is key to understanding their such as loans from microfinance institutions need for financial products and services in general, (MFIs). and value chain finance in particular. To that end, in • Commercial smallholders in tight value chains 2013 CGAP proposed, based on a global desk review, (~35 million). These smallholders produce that smallholders could be clustered into three broad enough quality and quantity to sell in structured segments depending on what they grow, how they value chains with clearly defined buyers. They engage with markets as buyers/sellers, and how those are likely to have access to a greater variety of markets are organized (Christen and Anderson 2013): financial tools, including formal financial services • Noncommercial smallholders (~300 million). and financing available through buyers and These smallholders are generally considered to processors. 4 just finance to address the obstacles that prevent smallholders who have thus far been slow to smallholders from accessing value chains in the first adopt DFS. Furthermore, it represents a sizeable place, such as inconsistent quality and yields, poor business opportunity for providers who wish to storage infrastructure, inadequate transportation, expand into new markets. Not only can digital tools and more. help to deliver financial services more efficiently to smallholders already engaged in value chains, but Digital innovations offer an unprecedented they also have the potential to expand the reach opportunity to address many of the pain points of value chains themselves, and by extension the faced by value chain actors and FSPs by reducing impact of value chain finance. information asymmetries and transaction costs. For example, aggregation and analysis of digital Recognizing this opportunity, this Focus Note seeks data related to sales, payments, and seasonality to identify digital innovations in value chain finance of cash flows among value chain actors promise to that provide the speed, security, transparency, overcome barriers to providing credit not only to and cost efficiency needed to promote financial smallholders, but also to traders, processors, and inclusion of smallholders at scale. The focal point is retailers. Additionally, branchless banking and the on disruptive technology that is changing or has the rise of mobile devices are making payments to and potential to significantly change the availability and from smallholders more efficient, while reducing accessibility of financial services for smallholder barriers to collecting deposits and offering farmers. affordable insurance products. Finally, connecting isolated smallholders to markets is becoming Emerging Approaches in increasingly possible through new technologies Digital Value Chain Finance that help them to aggregate their production and to develop commercial relationships with With the advent of new technological innovations, distant buyers. a growing number of initiatives are changing how value chain finance can reach smallholders. While DFS include a broader set of technologies Although digital value chain finance (DVCF) is still than just mobile phones, a rise in mobile in its infancy, valuable insights are nonetheless connectivity among smallholders points to the emerging from this constantly evolving space.3 increasing feasibility of digital approaches to Moreover, there are clear patterns in how digital value chain finance. For example, the 2016 CGAP tools are being integrated into value chain finance. National Survey and Segmentation of Smallholder In particular, there are three broad use cases for Households in Tanzania found that 80 percent of digital tools in value chain finance for smallholders: smallholders in the country owned a mobile phone, and 49 percent had a mobile money account • Improving the efficiency of financial transactions. (Anderson et al. 2016). GSMA (2016) also notes • Overcoming barriers to providing financial services. that out of more than 750 million farmers in 69 • Improving market opportunities. selected countries, an estimated 295 million have a mobile phone and around 13 million have a For each use case, the following sections look at phone and mobile money account. Interestingly, the financial products and services being digitized each study finds that, despite high rates of phone and provide examples of emerging models for ownership, a much smaller share actually use DFS implementing DVCF solutions. Each model is, in such as mobile money. turn, analyzed with an eye toward the benefits, challenges, and opportunities they present for Digitizing value chain finance, when properly driving financial inclusion of smallholder farmers executed, could offer a compelling use case for (see Table 1). 3 The analysis of the examples in DVCF included in this Focus Note comes primarily from a literature review and phone and in-person interviews. 5 Table 1. Overview of Approaches to Digitizing Value Chain Finance Use Case Product Type Key Pain Points Addressed Role of Digital Improving the Efficiency Digital Bulk Post-harvest: Buyers face high Reduces need for buyers to of Transactions Payments cost and risk when paying deliver and disburse cash in rural smallholders in cash areas Digital Loan Production and post-harvest: Reduces need to establish Disbursements High cost to FSPs of serving branches or send loan officers to and Repayments geographically dispersed remote areas to disburse funds or smallholders collect repayments Overcoming Barriers Digital Savings Production: Smallholders • Reduces need for branches or to Providing Financial for Inputs cannot access financing for staff in remote areas to collect Services high-quality inputs savings •  Allows for flexible payments •  Aggregates demand for inputs Digital Production: Risk of crop losses Digital premium payments, Agricultural hinders smallholder investments automated monitoring of losses Insurance in productivity and payouts to mobile wallet reduce cost of providing insurance Digital Credit Production: Smallholders Reduces need to establish •  cannot access financing for branches or send loan officers high-quality inputs or working to rural areas capital Uses data to make lending •  decisions for smallholders lacking credit history Speeds up decisions and •  disbursement Improving Market Digital Trading Post-harvest: Smallholders lack Connects buyers and farmers •  Opportunities Platforms access to markets for crops to offer new, more transparent market opportunities Aggregates farmer production •  to reduce procurement cost, maximize sale price Digital Invoice Post-harvest: Buyers lack funds Uses data on production •  Discounting to pay smallholders quickly, records to secure receivables leading to side-selling financing for farmers Allows payment to be made •  to farmer wallet/account upon delivery Digital Post-harvest: Liquidity Digitized information on •  Warehouse constraints force smallholders quantity/quality of stored crops Receipts to sell immediately after harvest used to determine value when prices are lowest Digital receipts representing •  value of stored crops used to secure financing Improving the efficiency of to reduce the costs and risks involved in cash-based financial transactions transactions, while also generating a data trail on cash flows that can be used to assess credit risk. Financial transactions flowing through agricultural Approaches to digitizing payments along value value chains, such as payments to and from farmers, chains include two prevailing product applications: traders, processors, or exporters for goods and digital bulk payments to suppliers, and digital loan services or loan disbursements and repayments, disbursements and repayments (see Table 2). remain overwhelmingly cash-based. The process of handling, delivering, and collecting cash in rural Digital bulk payments areas is both slow and expensive; it is also subject Bulk cash payments to a large number of farmers to risks such as theft and loss. Digital payments spread across remote, hard-to-reach areas is that leverage services like mobile money promise challenging. Because of this, many initiatives see 6 Table 2. Improving the Efficiency of Financial Transactions Product Type Key Pain Points Addressed Role of Digital Digital Bulk Payments Post-harvest: Buyers face high cost and Reduces need for buyers to deliver risk when paying smallholders in cash and disburse cash in rural areas Digital Loan Disbursements Production and post-harvest: High Reduces need to establish branches or and Repayments cost to FSPs of serving geographically send loan officers to remote areas to dispersed smallholders disburse funds or collect repayments digitizing payments from buyers to smallholder getting paid. Additionally, when farmers receive suppliers within value chains as a good starting payments digitally, they have the option to safely point (see Box 2). According to GSMA, in 2016 set aside some of those funds as a balance in their there was an estimated US$316 billion in cash mobile wallet or linked savings account. payments from agricultural buyers that could have been shifted to digital channels—mobile money in Still, without an adequate infrastructure and an particular. By 2020 this amount is expected to grow extensive agent network, shifting from cash to to US$394 billion (GSMA 2016). digital payments requires a substantial upfront investment and can result in an additional burden Mobile payments represent a compelling value on smallholders (see Box 2). If there are no agents proposition to buyers of agricultural commodities, nearby or agents do not have the liquidity to who can shift the burden of payouts and cash-in- conduct cash-in/cash-out transactions, farmers transit—which represent an important share of their might not be able to get their payments on a operation costs—to mobile money services. This is timely basis. This issue was highlighted in a CGAP- the case for the Ghana Agricultural Development supported pilot in Uganda, where sugar and coffee Company (GADCO), which determined that mobile farmers who were receiving mobile payments said payments were a financially efficient approach that they had to wait an uncertain amount of time that could be integrated into its operations. to receive their payments if agents did not have Financial institutions, mobile network operators adequate liquidity. The pilot experience also (MNOs), and others that provide digital payment highlighted that farmer profits are compromised if services also have an interest in channeling the transaction fee they have to pay to cash out is these payments through their networks because more than the direct and indirect costs of receiving of the fee revenue they generate from cash-out cash payments (Lonie and Makin 2016). transactions. Furthermore, smallholder farmers are a mostly untapped market for banks and Farmers often have limited mobile literacy and are MNOs, and mobile payments have the potential not familiar with mobile money services. These to increase access and use of their services in this challenges could dissuade them from taking up DFS large market segment.4 Digitizing bulk payments unless appropriate training is provided. In addition, provides significant benefits to smallholders as well farmers might not trust receiving or sending money by allowing them to receive their funds faster and through an agent or they might not believe they more securely. Farmers often have to wait weeks for can safely keep their cash in a mobile wallet. These their payments or they have to travel far to receive factors could lead to side-selling by farmers who them, contributing significantly to the transaction prefer cash payments, even if it means that they costs they face. With digital payment services, will not make as much money for their crops if they farmers can decide when and where to cash out sell to informal traders who pay cash at the farm their funds; this prevents the potential risk of theft gate. For example, UNCDF explored a partnership from people who might find out when farmers are around digitizing payments with a Ugandan tea 4 GSMA (2016) estimates that mobile operators could leverage bulk payments to open 357 million new mobile money accounts by 2020. 7 Box 2. Reaching Rural Areas with Digital Bulk Payments: UNCDF’s Experience in Uganda In Uganda, UNCDF’s Mobile Money for the Poor Even after all of this work, the results were somewhat Program partnered with Kyagalani Coffee Limited (KCL), disappointing. Farmers were initially given the choice a major coffee aggregator, to deliver mobile payments of cash or digital payments, with the stipulation that to over 10,000 of its coffee growers (UNCDF 2016). cash payments would not be disbursed until the Besides finding that cash payments were costly and evening, whereas digital payments would be delivered inefficient, UNCDF also quickly realized that shifting in just one hour. However, only 10 out of the 1,380 from cash to digital carried its own costs and challenges. transactions processed to farmers were digital. One To prepare for the switch in payment delivery, UNCDF significant obstacle UNCDF identified was farmer first needed to ensure that the necessary infrastructure capacity. Approximately 80 percent of smallholders was in place in Kapchorwa and Manafwa, rural areas simply were not comfortable enough with their phones where smallholders were to receive their payments. to use mobile money. This highlighted a need to train Because the regions had no mobile network coverage, smallholders on how to navigate complex USSD UNCDF partnered with MNO MTN to install a mobile menus and use financial products and services like base transceiver station. But even then, only four in mobile money. 10 farmers actually owned phones, and those who did Moving forward, UNCDF intends to continue to struggled to obtain electricity to charge them. This led improve its offering to KCL farmers. It is working on UNCDF to partner with solar energy provider Fenix building a network of merchants, including schools, International, which offered a pay-as-you-go product that accept mobile money payments. UNCDF also for smallholders where they could pay for phones and supported MTN in rolling out its new MoCash product, solar energy kits in small installments. which offers customers the option to deposit money With the base station and phones in place, UNCDF in an interest-bearing savings account and access brought in payments aggregator Yo! Uganda, which small loans using their mobile phones. The MoCash helped KCL redesign its internal systems to allow for service will be available to all KCL farmers with an bulk payments to be sent from KCL to farmers via MTN mobile wallet. MTN’s mobile money network. Because the regions Overall, the UNCDF experience in Uganda had no MTN agents where customers could cash in demonstrates the complexity of shifting from cash and out, Yo! Uganda also acted as a master agent for to digital bulk payments from agricultural buyers to MTN, recruiting, training, and servicing local agents. smallholder farmers. The upfront investment cost Other key issues faced by UNCDF included high can be high, and successful deployments require transaction costs and a low maximum transaction size coordination among several disparate partners. It allowed by MTN, which meant that farmers would remains to be seen whether such an approach can need to pay high fees and receive their payments in be sustainable over the long term, but one notable tranches. Following negotiations with MTN, person-to success stands out: MTN was able to earn a profit on person transactions costs were discounted, and the its base station within the first month of operation, maximum transaction size was increased to facilitate as farmers in the area began using voice and data on bulk payments to farmers. their new phones. Sources: Interviews with Joanne Oparo, knowledge management associate, UNCDF (April 2016); Amani Mbale, country technical specialist, UNCDF; and David Darkwa, consultant, Vital Wave (July 2016). processor that distributed cash to its tea estate mobile payments, these middlemen and other by airdropping the cash every two weeks from an intermediate actors need to have the capacity and airplane. Despite the considerable costs involved, systems in place. Without these two components, the tea processor turned down the opportunity to payments must be made in cash. For example, pilot mobile payments. The processor explained in Uganda, Kyagalani Coffee sources half of its that the savings projected if it participated in the coffee supply from traders. Farmers who supply pilot would be small compared to its current system. these traders end up getting paid in cash because It also felt that it risked losing its good reputation traders do not have a way to offer digital payments. among smallholders by digitizing payments, because smallholders preferred cash (Oparo 2016). Another challenge with this digital approach is that the sustainability of mobile payments might be Another concern is that bulk digital payments limited to value chains where there are frequent may not be an option for the many smallholders payments, as is the case with dairy, which features who sell their harvests to middlemen. To process small, frequent payments throughout the year. 8 Box 3. Covering Cash-Out Fees to Spur Adoption of Digital Bulk Payments In Ghana, there has been a significant increase in realized that the cost of these fees would be more mobile penetration in recent years. A 2014 Financial than offset by savings from no longer needing to Inclusion Insights (FII) survey found that 90 percent distribute cash in rural areas. This was seen as an of adults owned a mobile phone, and 17 percent important factor in motivating rice farmers to accept had a mobile money account in 2014, pointing to mobile payments. an emerging readiness to leverage mobile money to Between September 2013 and June 2014, 722 rice deliver bulk payments to smallholder farmers. In light farmers received US$264,367 in mobile payments, of this trend, the Ghana Agricultural Development and GADCO indicated a desire to eventually scale Corporation (GADCO) partnered with Tigo Cash to 5,000 farmers. Although farmers noted a few to pilot mobile payments to rice farmers, with the difficulties using the system, including a need for expectation that digitized payments would be less Tigo to improve its network coverage, they were costly than cash payments. generally very positive about the new method for But while Tigo Cash generally charges a 0.5 percent getting paid. Overall, this model offers an example fee to clients cashing out from their mobile money of how reducing the financial burden of digital wallets, GADCO decided to cover this as part of the payments on smallholders can make these services 1 percent commission it paid to Tigo. The off-taker more sustainable. Source: Babcock (2015). Because financial institutions and MNOs need to Some efforts, such as a mobile payment scheme led generate a steady stream of revenue to justify by MFI Advans in Côte d’Ivoire (see Box 4), offer building and maintaining a network and agent farmers the option to receive blended payments, infrastructure, value chains where payments are with a portion in cash and the rest as mobile money. made seasonally during the harvest (e.g., grains) Using this approach, farmers receive cash that they may not be attractive. Moreover, because most can readily use and can keep some of their money financial institutions and MNOs automatically safely set aside in their mobile wallets. close accounts after a period of inactivity, the rules need to be adapted to account for customers This process eases farmers into using mobile who use their wallets only during the short period money, while a broader digital ecosystem develops around harvest. where clients can use their funds more extensively. In the Côte d’Ivoire case, the involvement of To address some of these challenges, value chain Advans as an MFI offers smallholders access to actors and FSPs can adopt a strategy that gradually an interest-bearing savings account linked to their transitions smallholders to using digital services. mobile wallet. This type of linkage could have Box 4. Easing Smallholders into Digital Payments When MFI Advans first approached cocoa traders When farmers receive payment for their harvests, and cooperatives in Côte d’Ivoire with a proposal they have the option to choose a partial payment to channel their payments through the MTN mobile via mobile money and the rest in cash. This flexibility money network and into mobile wallet-linked savings gives farmers an opportunity to try out the system accounts, the number of cash-out points and merchants first, without committing their entire payment to a that accepted mobile payments were limited. Although digital system. the scheme offered many smallholders the opportunity As of August 2016, more than 7,000 cocoa farmers to be linked to a formal financial institution for the from 58 cooperatives have subscribed to the service first time, limits on their ability to access their funds and now have a savings account with a formal and pay for goods and services meant that cash financial institution. Among those, 2,700 accounts remained the preferred form of payment. were active during the small cocoa harvest in April To address these limitations, Advans used a phased and May 2016. approach to digitizing payments to smallholders. Source: Riquet (2016). 9 positive implications for farmers, as there is some float or liquidity can hinder farmers’ ability to evidence that payments that are deposited directly make repayments or withdraw disbursements, into a bank account have resulted in an increased which in turn could result in delinquency or a use of agricultural inputs (Brune et al. 2011). delay in accessing their loan funds. Also, farmers who, in the past, were visited by loan officers for Digital loan disbursements and repayments disbursements and collections might now have to Just as in bulk payments, digital disbursement travel to find a mobile money agent. Farmers may and repayment of loans can result in cost savings also incur costs to cash out their loan amounts, and expedited processes for both the FSP and the further adding to burdensome interest and fees. client. In recognition of these advantages, FSPs Faced with the choice between an FSP that offers are increasingly relying on digital tools for loan- disbursements and payments in cash and one that related transactions. For instance, One Acre Fund, transacts only digitally, some farmers may decide a nonprofit social enterprise in Kenya that provides to use the former over the latter if it is the cheaper inputs on credit, achieves significant savings by option. collecting repayments through mobile money, because field staff spend less time traveling to rural Overcoming Barriers to areas to collect cash payments from farmers. One Providing Financial Services Acre Fund staff can then spend more time training and educating farmers (see Box 5). All smallholder farmers, regardless of how they might engage with value chains, require relevant As with other mobile money transactions, farmers financial services to make investments in their can benefit from the safety and convenience of agricultural activities. For commercial smallholder digital payments. For example, for loan customers farmers, improved inputs—such as quality seeds who would otherwise have to travel to a branch, and fertilizer—increase yields and crop quality, making or receiving payments via mobile money resulting in a greater amount sold to buyers, fewer saves them time and money. rejected crops, and potential access to competitive but highly profitable agricultural markets. Even But digital disbursement and repayment of noncommercial farmers, who often consume much loans also faces many of the same issues as bulk of what they produce, can benefit greatly from payments via mobile money. An inadequate improved inputs that help them to generate the agent network and insufficient available agent surplus required to begin selling into value chains. Box 5. The Transition to Mobile Loan Repayments: One Acre Fund in Kenya Although M-Pesa is now ubiquitous in Kenya, the One Acre Fund thus decided to introduce M-Pesa decision by lender One Acre Fund to use the mobile as a pilot. Over time, many of the initial barriers money service to facilitate client repayments was began to ease. Mobile phone access increased, approached with caution in years following M-Pesa’s as did the availability of solar chargers, which One launch in 2007. In fact, it took five years before One Acre Fund sold on credit to its customers. M-Pesa’s Acre Fund would begin to explore the use of digital agent network was also expanded in the areas where loan repayments. One Acre Fund operates, with 72 percent of One When One Acre Fund looked into the possibility of Acre Fund sites found to have three or more agents. having smallholder clients repay their input loans M-Pesa also introduced a system that did not impose through M-Pesa, it found that many farmers did fees on customers for repayments, but rather charged not own mobile phones, and that for those who One Acre Fund for use of the service. As a result, did own a phone, they could not always charge One Acre Fund began piloting mobile repayment them because of the poor electricity grid. Also, the with about 1,000 farmers in one district in mid-2013. agent network was insufficient, and transaction fees Following its success, the pilot was scaled, and digital were high. repayments are now used nationwide. Source: Hanson (2014). 10 But farmers are hard pressed to invest in quality The level of exposure to production risks related to inputs if they run out of money by the time the weather, such as drought and flooding, also affects planting season starts. While some commercial the extent to which farmers choose to invest in smallholders can obtain input loans from off-takers their agricultural production. If farmers perceive to meet these needs, this is not always the case that any additional expenditure in their farms— for farmers in loose value chains. Many traders and whether quality inputs or other assets—could be processors are wary of financing farmers because lost, they might decide to forego the investment, of the upfront cost of procuring inputs and the risk especially if the investment requires going into that farmers might side-sell their crops, thereby debt. Formal risk management strategies, such reducing the chance of repayment. as agricultural insurance products, can greatly mitigate agricultural risks and induce agricultural Moreover, smallholder famers without strong links investments, but these are often unavailable or to buyers have few financing options for purchasing unaffordable to smallholders. inputs. Without credit histories or formal contracts that they can leverage as collateral for a loan, these The lack of proper and diversified financial products smallholders may be limited to borrowing from not only negatively affects the investment in farm middlemen, who can offer unfavorable loan terms. A production, it also affects the extent to which recent CGAP study of the financial lives of smallholder farmers can maximize the income they derive from farmers found that for 94 Pakistani farmers whose their harvests. And without investments in their financial transactions were tracked over the course farms that can increase the yields and quality of of a year, the only viable option to finance their their crops, smallholders will not be seen as valuable agricultural inputs was through middlemen, who commercial partners by value chain actors. By helping need to be repaid immediately after harvest when to overcome barriers, such as cost and information prices were at the lowest (Anderson and Ahmed asymmetries, DFS can provide access to savings, 2016).5 Other farmers may attempt to borrow from insurance, and credit products that was previously savings and loan groups, but these loans tend to be unavailable to many smallholders (see Table 3). small, too short-term relative to their crop cycles, and dependent on the group’s available funds. The Digital Savings for Inputs cost of these inputs can also be quite high, because Savings products offer an attractive means to smallholders purchasing small amounts of seeds and acquire inputs because smallholders who do not fertilizers are unable to take advantage of the high- have good options for credit (or who prefer not volume discounts available to large agribusinesses. to become indebted) can plan ahead for input Table 3. Overcoming Barriers to Providing Financial Services Product Type Key Pain Points Addressed Role of Digital Digital Savings for Inputs Production: Smallholders cannot •  Reduces need for branches or staff in remote access financing for high-quality areas to collect savings inputs •  Allows for flexible payments •  Aggregates demand for inputs Digital Agricultural Production: Risk of crop losses Digital premium payments, automated Insurance hinders smallholder investments monitoring of losses, and payouts to mobile in productivity wallets reduce cost of providing insurance Digital Credit Production: Smallholders cannot •  Reduces need to establish branches or send access financing for high-quality loan officers to rural areas inputs or working capital • Data used to make lending decisions for smallholders lacking credit history •  Speeds up decisions and disbursement 5 da Silva (2005) also acknowledges that farmers who borrow from buyers in exchange for a promise of future crop deliveries face potential drawbacks. He writes that the relationship between farmers and buyers is often uneven, with the buyer able to dictate the terms of the relationship. 11 purchases by setting aside small amounts of money ahead for input purchases, which has the added over time. But because smallholder cash flows are benefit of aggregating demand and reducing the cost unpredictable, they typically can save only in small of seeds and fertilizers. For example, organizations amounts and at irregular times. For deposit-taking like myAgro, which operates in Mali and Senegal, financial institutions, the small individual savings allow smallholders to make small, flexible payments volume and the geographic dispersion of farmers over time; these payments are credited toward a may mean that traditional delivery channels, for package of inputs. myAgro uses a system of scratch example physical branches or field staff who travel cards that can be purchased from local myAgro to clients to collect savings, are unsustainable. vendors and credited to the smallholder’s layaway balance by sending a secret code via SMS. The At the same time, supplying inputs to geographically myAgro approach is particularly useful for consumers dispersed, low-income smallholders is difficult who are unfamiliar with mobile money, but who are and costly. For input providers, the challenge of used to the process of topping up airtime using the selling small units of fertilizer per client to a large ubiquitous airtime scratch cards.6 aggregate number of smallholders dispersed in vast areas is a logistical challenge for managing In addition to myAgro, other organizations are inventories and stocking rural distribution centers. beginning to test the viability of savings products As a result, smallholders rarely are able access for inputs. One prominent example is Esoko, which the same bulk discounts that large buyers like began as a digital agricultural information service cooperatives and large-scale farms enjoy. provider and launched an input savings product in Ghana in late 2016 (see Box 6). Unlike myAgro, Digital platforms are increasingly addressing many Esoko leverages mobile money networks to allow of these challenges by allowing smallholders to save customers to contribute to a dedicated input Box 6. Integrated Approach to Facilitating Access to Inputs Esoko is one of a growing number of FinTech agricultural tips and weather information to customers organizations that are using mobile wallets to give looking for guidance on how to best use their inputs. farmers a flexible way to save for input purchases. By integrating multiple complementary services, Esoko’s model, named Fasiba, was launched as a Esoko’s platform can address a variety of inefficiencies pilot in Ghana in late 2016, with hopes of reaching in agricultural value chains. By working with importers 80,000 farmers in the first three years. In this model, and distributors of inputs and aggregating demand on farmers identify the package of inputs they would its platform, Esoko is able to offer inputs at a discount to like to acquire, and the amount required to buy the farmers. For buyers and processors, the layaway scheme package is set as the savings goal. Farmers can then spares them from having to finance inputs to their contribute small amounts to their input wallet over suppliers. Input retailers might also benefit because the time, with Esoko also offering rewards like airtime platform effectively connects them with new customers, top-ups and souvenirs to help farmers achieve their which can increase the volume, stability, and predictability goal. Upon reaching their savings goal, farmers of sales. By aggregating demand from large numbers authorize Esoko to remit payment from their input of farmers, the platform has the potential to enable wallet to the input supplier, and farmers receive a participating input dealers to estimate the quantities voucher that allows them to redeem their inputs at they need to supply and lock in prices with greater a designated input vendor or aggregation point in precision, thereby avoiding spikes from limited supply or their community. opportunistic margins during the planting season. Esoko also offers smallholders an integrated package Because Fasiba is at a very early stage, it is hard to of services. First, Esoko is helping to aggregate draw any conclusions as to its impact or sustainability. demand for inputs, which allows it to negotiate However, it demonstrates a new interest in exploring discounts for farmers. It complements this platform the potential of savings to finance input purchases with its existing information services, which provide among smallholders. Source: Interview with Axel Stelk, vice president of Finance and Operations, Esoko (July 2016). 6 For more information on myAgro, see Mattern and Tarazi (2015). 12 layaway wallet, without the need to visit a bank is no available access point for making deposits branch or wait for a collector to come around (they when farmers have cash, the farmers may use the do, however, need to add value to their mobile cash to pay for other expenses instead.7 To address wallet via an agent or other channel). this issue, myAgro in Mali and Senegal allows customers to adjust their chosen input package size Commitment savings for things like inputs can at the end of the savings period if their goal has not effectively drive good savings behavior by restricting been met. Esoko is also exploring this option, as access to funds, thereby mitigating the temptation well as the potential addition of a top-up loan that to spend the money on many other needs (Ashraf, can cover the outstanding savings balance. Karlan, and Yin 2004). This mechanism also benefits smallholders who may not qualify for loan funds or Finally, there is the issue of scale. Input discounts for whom loans may not be an appropriate option can be offered only when there is a critical mass because of the cost or existing debt burden. By of customers. This means that organizations that growing their savings and limiting indebtedness, want to implement such digital input savings farmers improve their capacity to invest in their schemes will need to plan their outreach strategies farms through quality inputs. carefully. Flexible savings for inputs also benefit other value Digital Agricultural Insurance chain actors. Collecting savings digitally is more Agricultural insurance products are largely cost effective for FSPs, and input providers benefit unavailable to smallholder farmers because of the by generating additional sales. For buyers and high costs of verifying loss claims in geographically processors, the savings mechanism helps to ensure dispersed areas, the relatively small size of that their suppliers have access to inputs without individual policies that smallholders require, and needing to provide financing themselves, and the limited understanding of agricultural risks on their funds can be used for their core agribusiness. the part of insurance providers.8 As a result, few Finally, MNOs can maintain their customer base providers have been willing to offer agricultural in rural areas and increase use of mobile money insurance policies that meet the needs of services. smallholders. Yet, even with the flexibility offered by digital Digital technology can address some of the distinct savings, smallholders are not always able to challenges of offering agricultural insurance to reach their savings goals before planting season smallholders by enhancing actuarial estimations arrives. Faced with multiple competing financial and reducing the cost of delivering and monitoring needs, farmers can struggle to make even small insurance products. In the case of weather-index deposits, and sometimes they may need access to insurance, for example, registration by mobile these funds to deal with an unexpected expense phone allows customers to be geotagged, or an emergency. Another important challenge which when combined with automated weather is ensuring that access points for depositing stations and satellite imaging means that insurance savings are available when smallholders have cash providers do not have to conduct in-field loss available. For example, myAgro in Senegal found assessments nor collect premiums or make payouts that smallholders face numerous temptations to in person. The information captured can also spend money on urgent, short-term needs. If there reduce the risk of developing an index that does 7 CGAP found that with so many priorities competing for these customers’ limited cash inflows, even a few hours’ delay can mean the difference between making a deposit and “eating” the money—a term Senegalese smallholders use to describe their tendency to spend cash as soon as they received it (Mattern and Tarazi 2015). 8 About 198 million smallholders have some form of agricultural insurance policy. However, these are significantly concentrated in China, which has 160 million smallholder policies. In the rest of the developing world, smallholder agricultural insurance is less widespread, but growing (Hess and Hazel 2016). Of those policies, a very small share are digital. According to GSMA (2015), only 10 percent of mobile insurance products available so far are intended for agriculture. 13 not correlate well with actual losses incurred by measure rainfall. In each case, smallholders buy smallholders—known as basis risk. a specific brand of seed that contains a code smallholders can use to register for the service If the index defined in the policy—like rainfall, using their mobile phone. pasture coverage, or sea surface temperature correlated with smallholders’ losses—falls below However, the two services differ in terms of their or above a certain threshold, the agreed insurance coverage and the cost of premiums. Whereas payout is automatically issued to a customer’s Econet’s EcoFarmer product requires customers mobile wallet, without farmers needing to submit to pay a premium to obtain coverage, the ACRE an official claim or visit a branch. For insurance Africa model in Kenya offers a limited amount providers, the digital monitoring of weather of coverage that is included with the purchase information prevents fraudulent claims, while also of a bag of seed from its partner seed company. reducing adverse selection and moral hazard. The distinction is important, because even when the price of agricultural insurance is affordable, Insurance products offered by Econet Wireless smallholders may not see or understand the value and ACRE Africa are based on similar, yet distinct of these products, and as result they might be models for offering mobile-enabled weather-index reluctant to take up insurance offers. According to insurance to insure inputs bought or yield losses IFAD (2011), weather-index insurance in particular incurred due to weather events (see Box 7). Both may be seen as an unnecessary cost, especially services use mobile phones to process registrations given the fact that smallholders face a number of and payouts to customers, and rely on remote risks and productivity constraints that go beyond monitoring via weather stations and satellites to just weather events. Box 7. Two Approaches to Digitally Insuring Farmers against Weather Risks ACRE Africa in Kenya and Econet’s EcoFarmer to insurance coverage. Even as it offers the subsidized product in Zimbabwe are both tackling the challenge coverage along with bags of seed, the company has of insuring smallholders against weather-related begun to offer a range of additional paid insurance risks by offering insurance products tied to a rainfall products for a number of crops, including coverage index. However, each company has taken a distinct for yield losses, machinery, and livestock. By allowing approach to marketing and selling its insurance smallholders to first build trust in the service, ACRE products. Africa hopes that its customers will begin to enroll in In ACRE Africa’s case, the seed company, Seed Co, these other types of insurance coverage. pays the premium on behalf of farmers out of its In Econet’s case, the insurance provider does not marketing budget, which is included in the cost of absorb the cost of the insurance. It instead relies on a bag of seeds. This approach benefits both ACRE farmers to pay for the premium directly from their Africa and Seed Co, which offers coverage as a mobile wallet (either $2.50 for $25 in coverage or marketing tool to increase the attractiveness of its $10 for $100 in coverage). This coverage is more seeds in the competitive input market. Inside the extensive than ACRE Africa’s subsidized coverage, bag of seeds is a code that farmers enter into their because the payout can be triggered at any time mobile phone to register their insurance policy. In during the growing season, and smallholders can this case, while farmers do not have a direct cost choose to pay more for higher-level protection that for the insurance, the coverage is limited to the cost goes beyond just the cost of the seeds. But uptake has of the seeds (approximately US$5 for a 2 kilo bag, so far been a challenge, because some smallholders with smallholders typically buying one to two bags) are not confident that the insurance will pay out and within a short window of time (maximum 21 days are hesitant to pay even a small premium. However, after the first day of planting). While the coverage Econet’s financial arm, Steward Bank, is now exploiting is limited, the subsidy allows skeptical smallholders its position as a full-fledge bank and complementing who may not trust or understand insurance coverage the EcoFarmer strategy by linking the insurance to try the product with little risk. Seed Co recognizes product more systematically with other savings, smallholders as critical to expanding its input sales. In payments, and credit products to better respond to turn, ACRE Africa has taken a “freemium” approach the many financial needs smallholders face. Sources: Interview with Wairimu Muthike, head of Business Development, ACRE Africa, July 2016; Econet (2016). 14 The fact that farmers face risks beyond weather Moving forward, there is some evidence that is one of the fundamental shortcomings of bundling digital insurance with a range of other strategies that offer only weather-index insurance products represents an important opportunity for to smallholders. Without more comprehensive FSPs.10 For example, rather than being sold as a coverage and access to other types of financial standalone service, weather-index insurance could and nonfinancial services, smallholders are exposed also be bundled with digital input savings to reduce to production risks (e.g., pests and spoilage) and exposure to weather events, and could also help market-related risks (e.g., price fluctuations) that to convince financial institutions to offer credit can affect their bottom line. Additionally, the to top-up farmer balances by helping to de-risk number of crops covered by such products remains lending.11 limited to those for which quality historical rainfall and yield data are available.9 Digital Credit Traditionally, FSPs have struggled to offer credit Finally, while the technology behind index insurance products to smallholders because of the cost of is fairly reliable, it is not error-proof. Satellites serving remote areas and the lack of credit histories and weather stations are limited in their ability to or collateral. But advances in data analytics and predict precise rainfall levels at the individual farm mobile technology are producing hopeful signs level. And even when rainfall measurements are that FSPs may soon be able to overcome these accurate, the models used by insurance companies barriers. to estimate losses at various rainfall levels may themselves be flawed. Therefore, basis risk is a A recent study by the Rural & Agricultural distinct possibility. This means that some farmers Finance Learning Lab (2016) found that customer who experience loss due to drought or flooding registration and application procedures are two conditions may not receive a payout because of the most common forms of credit digitization the rainfall data were not accurately captured by among surveyed FSPs. For example, Kenyan weather stations or satellites. The opposite could MFI Musoni’s loan officers use smartphones and also take place, where a payout is triggered in tablets to take digital photos of their clients situations where farmers do not experience any and their identification documents, which are in yield loss (IFAD 2011). turn uploaded to headquarters along with other application information. This process reduces costs Malawi’s recent experience with national index and expedites credit decisions, thereby boosting insurance purchased through the African Union’s Musoni’s capacity to issue a greater number of loans African Risk Capacity initiative provides a in a shorter amount of time. Farmers also benefit cautionary example of how basis risk can affect from quicker loan decisions and disbursements payouts. Following a severe drought in 2016, (made via M-Pesa), all without having to visit a ARC’s software estimated that only 21,000 branch or obtain documents such as a photo and people were at risk—far below the threshold of copy of their identification. 1.39 million required for a payout. However, a joint assessment by the Malawian government and However, digitization of the application process— international agencies put the number in need of while beneficial to creditworthy smallholders— assistance at 6.5 million. Such experiences can have does not address obstacles in the analysis used a devastating effect on customer trust in insurance by the FSP to determine creditworthiness, which products, and may affect future enrollments (The determines whether the client qualifies for credit Economist 2016). in the first place. Moreover, in an era of products 9 The Global Index Insurance Facility (n.d.) notes that for ACRE Africa’s weather-index insurance products to be affordable and accurate, 10–20 years of historical rainfall or yield data are required. 10 Bundling index insurance with a range of other risk-reducing interventions was a central recommendation in Hazel et al. (2010). 11 Weather-index insurance can be a key factor in helping farmers secure credit from financial institutions. For example, 177,782 farmers have received $8.4 million in financing in part due to ACRE’s index insurance products (GIIF 2012). 15 like Kenya’s M-Shwari, 12 there is an increasing for a loan for the first time. So far, the coffee recognition of the potential of fully digital credit cooperative has been cautious in applying the tool, products.13 While CGAP’s landscaping review did preferring to use the scores as a complement to not find any existing credit deployments that have its manual underwriting process. However, ARET achieved full digitization, several organizations are may eventually allow for instant, automated credit working toward this vision. decisions for coffee farmers for whom data on these handful of variables are available (Tobias 2016). In Colombia, Grameen Foundation partnered with the Andes Coffee Cooperative to build an A similar effort is underway in Kenya, where innovative Agricultural Risk Evaluation Tool (ARET) technology start-up FarmDrive is partnering with that uses farm-level, nonfinancial data to build financial institutions to offer smallholders tailored credit scores for coffee farmers. By analyzing the digital credit products (see Box 8). But like ARET farm characteristics and repayment histories of a in Colombia, it will take time before lenders agree group of coffee farmers who had previously taken to automate their decisions completely. While the loans from the cooperative, Grameen was able to application process, credit analysis, disbursement, identify a handful of variables out of a total of 150 and repayment are all conducted remotely, the that predict the likelihood of a farmer defaulting on partner financial institution still has the final say on his or her loan. In turn, the cooperative was able to whether to approve the loan. produce credit scores for member farmers who had no history of borrowing, thereby improving their Despite the promise of digital credit for smallholders, ability to analyze the credit risk of farmers applying there are also several challenges. These include Box 8. FarmDrive in Kenya: Building toward Digital Credit for Smallholders In Kenya, technology start-up FarmDrive has set out Kenya. The partnership has grown its loan portfolio to to overcome barriers to smallholder credit access by over US$130,000 and has allowed smallholders, some using data to develop credit profiles on smallholders of whom did not previously have access to credit, to and connect them to financial institutions. To access financing in as little as 30 minutes. access the service, smallholders can use either an Although this process can lead to rapid credit Android application or SMS, which in turn prompts decisions, it also depends on risk-averse partner them to enter a range of agronomic, behavioral, financial institutions to approve and disburse loan and demographic information. Each farmer is also funds. But as FarmDrive continues to collect data geotagged, and his or her personal information is on repayments and improve its algorithm, it might matched against information such as soil data, become easier to convince partners to increase weather data, historical crop production data, and lending based only on the credit profiles and loan more. Once farmers have entered their information recommendations it produces. While acknowledging into the system, an algorithm produces a credit score this risk, FarmDrive describes its strategy as targeting and provides loan recommendations to financial financial institutions that are comfortable with institutions. To lower the risk of lending, FarmDrive is technology and that have already committed to also developing a hybrid index insurance that will be increasing their agriculture portfolios. It hopes that it bundled with the credit. can leverage initial successes to prove the bankability Recently, FarmDrive partnered with MFI Musoni of smallholder farmers and drive engagement with a to pilot its credit-scoring algorithm with farmers in broader range of financial institutions. Sources: Interviews with Alfred Iwasaki, COO, FarmDrive (July 2016); James Onyutta, CEO, Musoni (July 2016); and Mary Joseph, director of Partnerships and External Relations, FarmDrive (January 2017). Engineers Without Borders Canada (2016) 12 M-Shwari is a digital credit product offered by Kenyan MNO Safaricom and Commercial Bank of Africa. 13 Digital credit is differentiated from conventional credit based on three key attributes: it is instant (decisions made in as little as seconds after application), automated (decisions on credit limits, customer management, and collections based on preset parameters), and remote (application, disbursement, repayment, and communications all conducted remotely, with no need to visit a branch or wait for a loan officer to arrive) (Chen and Mazer 2016). 16 Table 4. Improving Market Opportunities Product Type Key Pain Points Addressed Role of Digital Digital Trading Platforms Post-harvest: Smallholders lack Connects buyers and farmers to offer •  access to markets for crops new, transparent market opportunities Aggregates farmer production to reduce •  procurement cost, maximize sale price Digital Invoice Discounting Post-harvest: Buyers lack funds to Data on production records used to •  pay smallholders quickly, leading to secure receivables financing for farmers side-selling Allows payment to be made to farmer •  wallet/account upon delivery Digital Warehouse Receipts Post-harvest: Liquidity constraints Digitized information on quantity/quality •  force smallholders to sell of stored crops used to determine value immediately after harvest when Digital receipts representing value of •  prices are lowest stored crops used to secure financing the high initial investment required to develop and can get a better price for their crops by waiting test algorithms, especially in light of providers’ to sell until commodity prices rise post-harvest, a hesitance to serve a new client segment such as need for liquidity forces many to sell immediately smallholders (RAFLL 2016). Industry players are also even though prices are at their lowest. Liquidity raising concerns about the ownership and privacy constraints also affect smallholders who participate of customer data. In many countries, regulatory in tight value chains; these smallholders sometimes frameworks have not caught up with innovations in side-sell to middlemen if an off-taker does not have the digital space. For example, some digital lenders enough capital to pay its farmers upon delivery. The in Kenya are operating outside of the regulation of availability of market opportunities is an important any financial sector authority, and it can be difficult factor in smallholders’ decision to invest in their to hold them to account for misuse of customer agricultural activities. Without a clear outlet for their data (Ombija and Chege 2016). Who owns the data production, smallholders are less likely to make is another important consideration. Data originators expensive investments in increasing production. like MNOs are reluctant to share valuable data with partners, and some financial institutions do DFS can help to overcome these challenges in not trust the quality of data generated by third several ways (See Table 4). First, digital tools can parties. Finally, it is important to note that existing 14 be used to aggregate smallholder production digital credit deployments such as M-Shwari and and connect smallholders to buyers who offer M-Pawa are focused on short-term, high-cost better prices than those available in local markets. consumer loans. Any attempts to develop digital Second, digitized warehouse receipt systems can credit products for investments in inputs or working allow smallholders in loose value chains to safely capital need to be tailored to the agricultural cycle. store their crops and use them as loan collateral while waiting for market prices to rise. And third, Improving market opportunities the digitization of production and crop delivery records by aggregators and off-takers can help Smallholder farmers often face difficult choices smallholders access financial services, such as when seeking the best market price for their harvest. receivables financing, that allow them to borrow For smallholders with only loose connections to based on payments owed to them by buyers further value chains, local traders and middlemen may offer up the value chain, thereby providing the liquidity lower prices than off-takers further up the value necessary to pay their suppliers on delivery. chain. Yet, these smallholders’ low productivity and production volume and geographic isolation mean Digital Trading Platforms that connecting with better market opportunities Market failures negatively impact players all along is often out of reach. Even when smallholders the value chain. Smallholders, who are typically 14 In conversations with providers, data quality and trust in algorithms to accurately predict repayment repeatedly emerged as a concern. 17 Box 9. TruTrade Africa Connects Smallholders to Agribusinesses Despite a rising demand for agricultural commodities (10 percent across the whole network) is based on among agribusinesses and a ready supply available the price paid to farmers, rather than what is paid by from smallholder farmers, connecting the two sides the end buyer. Farmers are able to see how much the has always been a challenge. Local traders can end buyer is paid, the costs involved in intermediation sometimes play the role of intermediary, but even they (transport, storage, etc.), and the total commission face significant challenges in ensuring that they can paid to TruTrade. Deals that include value-added affordably deliver high-quality produce to their buyers. processing help TruTrade to fetch a higher price Recognizing an opportunity to make markets from buyers, which is passed along to the farmer. more efficient for everyone along the value chain, Furthermore, if the deal is completed successfully and TruTrade Africa negotiates deals with buyers and the total profits exceed initial estimates, any additional procures supplies from a network of traders acting profits are paid to the farmer. as franchisees. In this model, TruTrade identifies a Beyond helping smallholders get the best price for their buyer and negotiates a price for a specified quantity crops, TruTrade also offers benefits for traders and of a given commodity. The system then notifies its buyers. Traders benefit from access to the financing franchise network of local traders or farmer groups required to pay farmers on delivery and do not need who are able to see the offered price and commission, to negotiate deals and coordinate transportation. and can then choose to accept the deal and collect Buyers benefit from a more transparent supply chain crops from smallholders. in which they are able to trace commodities all the way When procuring crops, TruTrade obtains financing to to their origin, thereby facilitating certifications such ensure that its franchisees can pay smallholders “cash as organic, fair trade, and more. on the bag.” Each farmer is offered a fixed price and In the 2016 trading year in Uganda and Kenya, given the choice to receive payment through mobile TruTrade traded 665 metric tonnes of produce across a money, in which case TruTrade pays “cash-out” fees, variety of crops, with a total value nearing US$500,000. or in cash. Unlike most middlemen, TruTrade and its Overall, the prices that smallholders obtain for their franchisees have an incentive to offer smallholders crops through the TruTrade system was on average the best price possible because their commission 17 percent higher than the prevailing market rate. Sources: TruTrade 2015, Self Help Africa 2016. Interview with Jenny Rafanomezana, CEO, TruTrade (January 2017) far from markets, are often unaware of the prices middlemen have an incentive to minimize the price being paid by agribusinesses, and the high cost they pay smallholders and maximize the price of transportation makes it difficult to deliver they get from buyers. With few options for selling their crops to these buyers in the first place. For their harvests and a pressing need for liquidity, agribusinesses, a lack of information on their smallholders are often forced to accept whatever suppliers and the high cost of aggregating produce price a middleman may offer at the farm gate. of unknown quality from a large number of small Buyers are also disadvantaged by this arrangement, producers makes connecting with these farmers because there is little transparency in terms of the difficult. origin of their supplies or the margin being charged by the middleman. These information asymmetries and logistical constraints mean that both agribusinesses and Digital trading platforms can help to address these smallholders often rely on local small-scale traders, market failures by connecting smallholders to a or middlemen, to act as intermediaries. In this wider range of value chain actors seeking their arrangement, the middleman is responsible for product, contributing to more competitive rural quality control, aggregation, and transportation markets, building transparency into the value to the buyer, thereby providing smallholders with chains, and adjusting the incentives for middlemen. access to markets and agribusinesses with a steady One example is TruTrade Africa—a social enterprise supply of crops. operating in Uganda and Kenya—that uses a cloud-based digital platform to negotiate deals However, using intermediaries can be far from with buyers and procure crops from smallholders efficient. Given the high costs of intermediation, through a network of local traders (see Box 9). 18 The risks inherent in a digital trading platform Digital production records that include, for like TruTrade are clear. First and foremost, example, quantity and quality of crops procured, commodities cannot be digitized, which means sales to buyers, and information on smallholder that even digital trading platforms need to rely on suppliers, are bridging the information gap that complex logistics required to transport crops from made it difficult for SMEs and farmers groups to the point of sale to the ultimate buyer. This implies obtain financing from FSPs. For instance, Agrilife, that middlemen are still likely to play a key role a cloud-based technology platform owned by in last-mile sourcing of crops from smallholders, MobiPay Kenya Limited, allows dairy processors and any attempts to squeeze their margins may to digitize their records and use these records to result in procurement issues. Moreover, the secure invoice discounting services from financial quality of crops procured by local traders is not institutions on behalf of their suppliers. 16 Once guaranteed, and poor quality produce might not loans are approved, funds are sent directly to the be accepted by the end buyer. Spoilage and other farmer’s M-Pesa or bank account and are secured losses incurred between procurement and delivery by the payment the processor owes the farmer (see to the buyer can also lead to lower revenues. Box 10). The service helps to address smallholders’ Additionally, there is always the risk that a deal urgent need for liquidity. Although side-selling is will fall through because franchisees are unable to relatively rare in dairy value chains (because of a source a sufficient volume from their smallholder paucity of processors), such a scheme could help suppliers. to reduce the possibility that farmers will engage in side-selling in looser value chains. As such, Agrilife Digital Invoice Discounting is exploring ways to move into other value chains Side-selling is one of the biggest challenges facing such as sorghum, maize, millet, and bananas. aggregators and processors like farmers groups and small and medium enterprises (SMEs) that procure However, uptake of digital platforms like Agrilife from smallholders. Given logistical challenges and can be slow given the expense associated with liquidity constraints, traders and processors sometimes acquiring the systems and a lack of capacity take weeks to make payments to smallholders needed to manage them. Additionally, while data for their produce or to pay service suppliers like may give greater insight into the creditworthiness transporters or middlemen. This delay in payment of informal processors and aggregators, partner can prompt smallholders to sell their produce to other FSPs might not trust these data fully and may buyers that may be able to offer immediate payment, insist on a formal contractual relationship between even at the expense of a lower price. producers and buyers as a prerequisite to lending. Finally, because no data trails are generated for Invoice discounting is one way aggregators and individual farmers, the data are of limited utility as processors can ensure their suppliers are paid an entry point for providing direct financial services on time and reduce side-selling. 15 Under this to smallholders. arrangement, the aggregator or processor helps farmers to access a loan from a financial institution Digital Warehouse Receipts based on the money owed to them for their crop At harvest time, when prices are at their lowest, deliveries, as per an existing contract. But because many smallholders are forced to sell their crops to many farmers groups and SMEs do not have formal meet urgent household expenses. This urgent need records that financial institutions would typically for liquidity at the end of the growing season often use to analyze their creditworthiness, obtaining prevents smallholder farmers from maximizing financing can be difficult. their profits. 15 Invoice discounting is the practice of using accounts receivable as collateral for a loan. 16 This financing mechanism is known as supply chain finance, a type of product-linked financing where farmers are the ones who borrow the funds, but the loan is initiated and guaranteed by the buyer or processor. 19 Box 10. Agrilife in Kenya Digitizes Production Records to Pay Dairy Producers on Delivery A major challenge many processors face in highly the system’s database and collects contractual and competitive markets is securing a reliable supply production-level data. Using these digital data, NKCC of crops or raw materials to meet the needs of end sends a loan request to partner FSPs on behalf of buyers. This is certainly the case in Kenya, where the farmer groups. Farmers, in turn, receive the loan dairy is a fast-growing sector that is facing fierce amount through M-Pesa or a bank account. Ownership competition. Dairy processors in Kenya have a difficult of the farmers’ accounts receivable for milk delivered is time securing adequate supplies of raw milk because in turn transferred to the financial institution, and NKCC they typically pay their suppliers at the end of the pays the financial institution once it has sold the milk to month, whereas the informal market can pay cash on its end buyers (supermarkets or government agencies). the spot. As a result, many dairy producers choose to This system allows NKCC to maintain the loyalty side-sell to obtain payment on delivery. of dairy producers and ensure a more reliable milk Agrilife recognized that DFS could play a role in supply. At the same time, Agrilife generates a profit reducing side-selling in the dairy value chain. To through a shared-revenue agreement with its partner test this approach, it partnered with the New Kenya financial institutions. Cooperative Creameries LTD (NKCC), which sources After nearly three years of operations, Agrilife is milk from over 150 dairy farmer groups totaling more contemplating moving into other countries and value than 50,000 smallholder farmers. With Agrilife’s chains, including sorghum, bananas, and horticulture digital platform, NKCC registers farmer groups into in Kenya, and maize and millet in Uganda. Source: Interview with Charles Kiinde, director, AgriLife Limited (July 2016) Digitized warehouse receipt systems are one way (see Box 11). In this pilot, Grameen Foundation smallholders can access the post-harvest financing allowed smallholders to store their crops at home they need to smooth consumption, while also safely or in a central location in the village, with data on storing their crops for sale at a higher price later crop quantity and quality collected by local agents in the season. Warehouse receipts, also called equipped with tablets known as Village Knowledge warrants, are documents that prove the ownership Workers. Each farmer participating in the scheme of a specific amount and quality of a given was provided with a digital warehouse receipt, commodity that is safely stored in a warehouse for which he or she could use to obtain financing worth a fee. A warehouse receipt system can help farmers up to 50 percent of the stored commodity. secure financing from an FSP using the value of their stored crops as collateral, which in turn frees Warehouse receipt systems can be difficult to them to seek the best market opportunity for their manage and operate, even when integrated harvest (Varangis and Larson 1996). with appropriate technology. As the Grameen case highlights, inadequate storage methods Yet, warehouse receipt systems typically require and inaccurate data can lead to questions about high-quality storage facilities and verifiable data the crops used to secure loans from financial on the quality and quantity of crops being stored— institutions. Furthermore, any warehouse receipt both of which are rarely available for smallholders system, digital or otherwise, is subject to market in developing countries. But with the help of risks such as commodity price fluctuations. The digital technology, innovative warehouse receipt business model depends on crop prices rising systems are testing ways to make it possible for over time, but given the volatility of commodity smallholders using more rudimentary storage markets, there is always the possibility that prices facilities closer to home to obtain a digital receipt could drop, reducing the value of farmers’ crops that allows them to access a post-harvest loan from and leaving financial institutions exposed (Bass a financial institution. and Henderson 2000). In more developed markets, financial institutions have a range of tools, including Grameen Foundation attempted such an approach forward contracts, to protect against this risk. when it piloted its e-Warehouse project in Kenya But where commodity exchanges and legal and 20 Box 11. Digital Collection of Crop Data Enables e-Warehouse in Kenya Grameen Foundation turned to technology to provide collected through the TaroWorks program also smallholders with access to post-harvest financing allowed e-Warehouse to aggregate the stored crops even though they had no access to formal warehouse and negotiate bulk deals with buyers. During the facilities. By leveraging Farm Concern International’s course of the pilot, 167 farmers applied for the loan, network of Village Knowledge Workers (VKWs), each of and 33 were approved to receive financing. Farmers whom was equipped with a tablet running TaroWorks, participating in the pilot who waited 2–3 months to Grameen Foundation was able to allow smallholders sell their crops saw on average an over 50 percent to store crops locally while also generating a digital increase in the price they received. receipt that could be used as collateral for a loan from Despite some promising results, bringing the a financial institution. pilot to scale proved difficult, and the pilot was VKWs used TaroWorks to collect information on the discontinued in 2014. One of the key challenges location, quantity, and quality of crops without the faced by Grameen and its partners was ensuring need for a fixed storage facility or a visit from field that village-level data were accurate and up to date. staff. It also provided extension services focused on Cost and time constraints meant VKWs could visit good crop storage practices to smallholders. The villages to check on stored crops only periodically, data and extension services were intended to give and local village groups were tasked with keeping financial institutions confidence in the value of the records themselves. During loan monitoring visits stored commodities, which in turn allowed farmers to the villages, the participating financial institution to access loans worth up to 50 percent of the value found that local records did not match what had of their crop. been entered in the system. Furthermore, there During the storage period, farmers were provided were cases when some stored crops had been sold, with market information on their mobile phones to but it was unclear which farmers owned the missing help them decide when to sell their crops. The data crops. Sources: Interview with Juan Guardado, country director, Tanzania and Kenya (July 2016). Ballard (2015). regulatory frameworks are underdeveloped, volatile the potential to break down barriers to entry in commodity prices can undermine warehouse value chain finance by dong the following: receipt schemes. Financial institutions that have successfully developed nondigital warehouse • Allowing FSPs to eschew brick-and-mortar receipts systems in developing countries, like branches and full-time staff in favor of mobile Tanzania or Niger, base their success on a deep phones and agent networks. knowledge of and capacity to monitor agricultural • Using digital technology to reduce the cost of markets and price fluctuations (Coulter 2014). serving smallholder farmers and bolster the business case for providers. Looking Ahead to the • Digitizing information on farmers and other actors Future of Digital Value Chain to enhance providers’ understanding of risk in Finance for Smallholders agricultural value chains. Research and analysis show the evolution and growth Overall, the promise of digital tools in agricultural of DVCF. In some ways, this evolution is closely value chain finance is apparent in the range of new linked to developments in the broader DFS space. savings, credit, insurance, and payment products But digitizing financial services for agricultural value being rolled out by organizations that previously chains presents its own set of unique challenges and had little to no involvement in agricultural finance, opportunities, especially in terms of their ability to including commercial banks, MFIs, MNOs, and overcome pain points along the value chain. FinTechs. Many existing deployments are in the early stages, and the experiences documented in Looking across the various models highlighted in this analysis point to a number of obstacles that this study, it becomes clear that digital tools have providers will need to overcome. 21 One key consideration moving forward will be the In the long run, there is likely to be a shift in how quality of mobile networks and agent infrastructures smallholders gain access to DFS that can boost in rural areas. Because many new offerings rely on their incomes and make value chains more efficient mobile network infrastructure, MNOs will need to and inclusive. While many early digital offerings make significant investments to extend network tend to favor farmers who already have strong coverage to remote areas. At the same time, connections to value chain actors, a number of because these services often incorporate mobile digital initiatives are targeting farmers with loose payments, payment providers will need to recruit connections to value chains in an effort to increase a greater number agents and manage them more their capacity and productivity. Digital credit and efficiently to ensure that customers in rural areas savings products that help smallholders who have can cash in/out on demand. only loose connections to value chains to access improved inputs can boost yields and overall crop Because investments in agent and network quality, thereby allowing these farmers to sell more infrastructure cannot be made without a of what they produce at a higher price. Low-cost compelling business case, actors along the value digital insurance, perhaps bundled with or tied to chain will need to drive an increasing volume of the purchase of inputs, can reduce the risk of making digital transactions that helps to justify costly such a significant investment. With new digital investments in infrastructure. One way to achieve services emerging that offer smallholders access to this goal is to enhance the value proposition post-harvest financing and the ability to shop around of digital payments by developing the broader for the best price for their crops, DVCF holds the ecosystem surrounding mobile payments, promise to tightly integrate millions of smallholders including the availability of merchants and other into value chains. service providers (e.g., agridealers, energy companies, schools, etc.) that accept mobile The potential role DFS can play in boosting payments. Moreover, payments providers should productivity and tightening value chains is a key revisit their fee structures so as to encourage motivation behind investments in DVCF. With regular use of digital payments. In some cases, a growing recognition of the importance of they may consider passing along fees to off-takers agricultural development to economic growth, and or agridealers, for which cost savings or increased the emergence of new threats posed by climate sales might justify the expense. change, leveraging financial services to strengthen value chains and boost smallholder production Partnerships with value chain actors like farmer is increasingly a national priority for developing groups, traders, off-takers, processors, and countries. While DVCF offers just one approach agridealers can help FSPs to more easily reach the to achieving these goals, the potential impact of scale and volumes necessary to drive returns on DVCF means that CGAP and its partners will be their investments in rural infrastructure. Indeed, watching developments in the space closely in the these actors can act as an entry point for the years to come. integration of digital finance into value chains, which can stimulate acceptance and uptake References by farmers and other market actors. However, partnerships themselves can create headaches Anderson, Jamie, Collins Marita, and David for FSPs, especially in a complex sector such as Musiime. 2016. “National Survey and Segmentation agriculture. From challenges in mobilizing and of Smallholder Households in Tanzania: sensitizing farmers, to questions around the quality Understanding Their Demand for Financial, and reliability of data, several examples cited in Agricultural, and Digital Solutions.” Working Paper. this analysis point to both the promise and perils of Washington, D.C.: CGAP. https://www.cgap.org/ partnering to deliver complicated financial services sites/default/files/Working-Paper-Smallholder- to smallholders in value chains. Survey-Tanzania-May-2016.pdf 22 Anderson, Jamie, and Wajiha Ahmed. 2015. Coulter, J. 2014. “Study on Appropriate “Smallholder Diaries: Building the Evidence Base Warehousing and Collateral Management Systems with Farming Families in Mozambique, Tanzania, in Sub-Saharan Africa and Madagascar.” Report and Pakistan.” Perspectives 2. Washington, D.C: prepared for Agence Agence Française de CGAP, February. http://www.cgap.org/sites/ Développement, Technical Centre for Agricultural default/files/CGAP_Persp2_full.pdf and Rural Cooperation ACP-EU, and the International Fund for Agricultural Development. Ashraf, Nava, Dean Karlan, and Wesley Yin. 2006. “Tying Odysseus to the Mast: Evidence from a Cuevas, Carlos, and Maria Pagura. 2016. Commitment Savings Product in the Philippines.” “Agricultural Value Chain Finance: A Guide for The Quarterly Journal of Economics, pp. 635–72. Bankers.” Washington, D.C.: World Bank. http:// www.fgda.org/dati/ContentManager/files/ Babcock, Lee H. 2015. “Mobile Payments: How Documenti_microfinanza/AVCF-Guide.pdf Digital Finance Is Transforming Agriculture.” Wageningen: Technical Centre for Agricultural Carroll, Tom, Andrew Stern, Dan Zook, Rocio and Rural Cooperation. http://publications.cta.int/ Funes, Angela Rastegar, and Yuting Lien. 2012. media/publications/downloads/1849_PDF.pdf “Catalyzing Smallholder Agricultural Finance.” Dalberg Global Development Advisors http:// Ballard, Frank. 2015. “e-Warehouse: A Case Study dalberg.com/documents/Catalyzing_Smallholder_ on the Use of TaroWorks and the Progress out Ag_Finance.pdf of Poverty Index.” Blog post, 11 February. http:// www.progressoutofpoverty.org/blog/e-warehouse- Da Silva, Carlos Arthur B. 2005. “The Growing case-study-use-taroworks-and-progress-out- Role of Contract Farming in Agri-Food Systems poverty-index®-ppi® Development: Drivers, Theory and Practice.” Rome: Food and Agriculture Organization. http:// Bass, Jacqueline, and Katrena Henderson. 2000. www.ruralfinanceandinvestment.org/sites/default/ “Warehouse Receipts: Financing Agricultural files/1134644816985_The_growing_role_of_ Producers.” Technical Note No. 5. Washington, contract_farming_in_-421410788.pdf D.C.: USAID. Econet. n.d. “Ecofarmer FAQs.” https://www. Brune, Lasse, Xavier Giné, Jessica Goldberg, and econet.co.zw/ecofarmer-faqs Dean Yang. 2011. “Commitments to Save: A Field Experiment in Rural Malawi.” Policy Research The Economist. 2016. “ARC’s Covenant: A Worthy Working Paper Series. Washington, D.C.: World Insurance Scheme Goes Awry.” The Economist , Bank. https://www.moodys.com/microsites/ 27 August. http://www.economist.com/news/ miic2010/presentationfiles/Yang.pdf finance-and-economics/21705856-worthy- insurance-scheme-goes-awry-arcs-covenant Chen, Greg, and Rafe Mazer. 2016. “Instant, Automated, Remote: The Key Attributes of Digital Engineers Without Borders Canada. 2016. “Venture Credit.” Blog post, 8 February. http://www.cgap.org/ Profile: FarmDrive.” http://ewb.ca/ventures/ blog/instant-automated-remote-key-attributes- farmdrive digital-credit FAO (Food and Agriculture Organization). 2009. Christen, Robert Peck, and Jamie Anderson. “How to Feed the World in 2050.” Rome: FAO. 2013. “Segmentation of Smallholder Households: http://www.fao.org/fileadmin/templates/wsfs/docs/ Meeting the Range of Financial Needs in expert_paper/How_to_Feed_the_World_in_2050.pdf Agricultural Families.” Focus Note 85. Washington, D.C.: CGAP, April. http://www.cgap.org/sites/ ———. 2012. State of Food and Agriculture: Investing default/files/Focus-Note-Segmentation-of- in Agriculture for a Better Future. Rome: FAO. http:// Smallholder-Households-April-2013.pdf www.fao.org/docrep/017/i3028e/i3028e.pdf 23 ———. 2013. “Contract Farming for Inclusive IFAD (International Fund for Agriculture). 2011. Market Access.” Rome: FAO. http://www.fao.org/ “Weather Index-Based Insurance in Agricultural 3/a-i3526e.pdf Development: A Technical Guide.” Rome: IFAD. https://www.ifad.org/documents/10180/2a2cf0b9- ———. 2016. « Estrategias innovadoras de 3ff9-4875-90ab-3f37c2218a90 gestión de riesgos en mercados financieros rurales y agropecuarios: Experiencias en Jack, William, and Tavneet Suri. 2011. “Mobile Lationamérica. » Rome: FAO. http://www.fao.org/3/ Money: The Economics of M-PESA.” Working Paper a-i5503s.pdf 16721. Cambridge: National Bureau of Economics Research, January. http://www.nber.org/papers Global Index Insurance Facility. 2015. “ACRE/ /w16721 Syngenta Foundation for Sustainable Agriculture— Kenya, Rwanda, Tanzania.” Index Insurance Forum. Karlan, Dean, Margaret McConnell, Sendhil https://www.indexinsuranceforum.org/project/ Mullainathan, and Jonathan Zinman. 2010. “Getting acresyngenta-foundation-sustainable-agriculture- to the Top of Mind: How Reminders Increase kenya-rwanda-tanzania Saving.” Working paper 16205. Cambridge: National Bureau of Economics Research, July. GSMA (GSM Association). 2010. “Increasing http://www.nber.org/papers/w16205 Rural Mobile Connectivity.” http://www.gsma. com/mobilefordevelopment/wp-content/ Lonie, Susie, and Paul Makin. 2016. “Digitizing uploads/2012/06/gsma_rural.pdf Agriculture Value Chains: Building Value for Farmers.” Blog post, 22 January. https://www ———. 2016. “Market Size and Opportunity in .cgap.org/blog/digitizing-agriculture-value-chains- Digitising Payments in Agricultural Value Chains.” building-value-farmers https://www.gsmaintelligence.com/research/?file=2 9e480e55371305d7b37fe48efb10cd6&download Maass Wolfenson, Karla D. 2012. “Coping with the Food and Agriculture Challenge: Smallholders’ Hanson, Stephanie. 2014. “Can Mobile Money Agenda.” Rome: FAO. http://www.fao.org/ Extend Financial Services to Smallholder Farmers?” fileadmin/templates/nr/sustainability_pathways/ Blog post, 26 June. https://www.oneacrefund.org/ docs/Coping_with_food_and_agriculture_ blogs/tag/m-pesa/197 challenge__Smallholder_s_agenda_Final.pdf Hazell, P., J. Anderson, N. Balzer, A. Hastrup Mattern, Max, and Michael Tarazi. 2015. Clemmensen, U. Hess, and F. Rispol. 2010. “Potential “Designing Financial Services for Smallholder for Scale and Sustainability in Weather Index Insurance Families.” Perspective 1. Washington, D.C.: CGAP. for Agriculture and Rural Livelihoods.” Rome: IFAD. October. https://www.cgap.org/sites/default/files/ https://www.ifad.org/documents/10180/32647150- Perspectives-Designing-Digital-Financial-Services- 6e8a-41f3-8642-404768cfc99f for-Smallholder-Families-Oct-2015.pdf Hess, U., and Hazel, P. 2016. “Innovations and McKay, Claudia. 2015. “New Data Finds Mobile Emerging Trends in Agricultural Insurance.” Money ‘On the Cusp’ in Rwanda and Ghana.” Blog Eschborn: GIZ. post, 15 December. Washington, D.C.: CGAP. https://www.cgap.org/blog/new-data-finds- ISF (Initiative for Smallholder Finance). 2016. mobile-money-cusp-rwanda-and-ghana “Inflection Point: Unlocking Growth in the Era of Farmer Finance.” Washington, D.C.: Rural & Miller, Calvin, and Linda Jones. 2010. “Agricultural Agricultural Finance Learning Lab. https://www Value Chain Finance: Tools and Lessons.” Rome: .raflearning.org/post/inflection-point-unlocking- FAO. http://www.fao.org/docrep/017/i0846e/ growth-era-farmer-finance i0846e.pdf 24 Ogwal, Isaac Holly, and David Lubwama Mugabi. TruTrade. 2015. “Annual Review.” Nairobi: 2015. “Digital Financial Services for Agricultural Value TruTrade. http://trutrade.net/news/44-how-are-we- Chains: An Integration Guide for Rural Areas.” New doing York: UNCDF. http://www.uncdf.org/sites/default/ files/Documents/uganda_fn1_agrovaluechains.pdf UNCDF (UN Capital Development Fund). 2016. “When Stakeholders Work Together, We Make Progress.” Ombija, Sarah, and Patrick Chege. 2016. “Time to Take UNCDF News, 9 September. http://www.uncdf.org/en Data Privacy Concerns Seriously in Digital Lending.” /when-stakeholders-work-together-we-make- Blog post, 24 October. http://www.cgap.org/blog/time- progress-0 take-data-privacy-concerns-seriously-digital-lending USAID (U.S. Agency for International Development). Riquet, Corinne. 2016. “Digital Financial Services n.d. “Value Chain Development Wiki.” Microlinks. for Cocoa Farmers in Côte d’Ivoire.” Blog post, https://www.microlinks.org/good-practice-center/ 15 August. http://www.cgap.org/blog/digital- value-chain-wiki financial-services-cocoa-farmers-côte-d’ivoire Varangis, Panos, and Don Larson. 1996. “How RAFLL (Rural & Agricultural Finance Learning Lab). 2016. Warehouse Receipts Help Commodity Trading “The Business Case for Digitally-Enabled Smallholder and Financing.” DECnotes, no. 21. Washington, Finance.” Nairobi Workshop, 9 September. https:// D.C.: World Bank. http://documents.worldbank. www.raflearning.org/sites/default/files/2016_sep_9_ org/curated/en/237851468776694375/How- workshop_business_case_digitally-enabled_shf_ warehouse-receipts-help-commodity-trading-and- finance_0.pdf?token=M7amRRST financing Reardon, T., and P. Timmer 2012. “The Economics World Bank, Better Than Cash, and Bill & Melinda of the Food System Revolution.” Annual Review of Gates Foundation. 2014. “The Opportunities of Resource Economics, 4:14.1–14.40 Digitizing Payments: How Digitization of Payments, Transfers, and Remittances Contributes to the G20 Self Help Africa. 2016. “TruTrade: Unlocking the Goals of Broad-Based Economic Growth, Financial Value Chain.” Selfhelpafrica.org News, 3 March. Inclusion, and Women’s Economic Empowerment.” https://selfhelpafrica.org/us/trutrade-unlocking- http://siteresources.worldbank.org/EXTGLOBALFIN/ the-value-chain/ Resources/8519638-1332259343991/G20_Report_ Final_Digital_payments.pdf Tobias, Leo. 2016. “A Different Approach to Crediting Smallholder Farmers.” Blog post, 15 April. Washington, DC: FOMIN. April. http:// www.fomin.org/en-us/Home/News/PressReleases/ ArtMID/3819/ArticleID/5964/A-different- approach-to-crediting-smallholder-farmers.aspx No. 106 April 2017 Please share this Focus Note with your colleagues or request extra copies of this paper or others in this series. CGAP welcomes your comments on this paper. All CGAP publications are available on the CGAP Web site at www.cgap.org. CGAP 1818 H Street, NW MSN P3-300 Washington, DC 20433 USA Tel: 202-473-9594 Fax: 202-522-3744 Email: cgap@worldbank.org © CGAP, 2017 The authors of this paper are Max Mattern, CGAP financial paper: Carlos Cuevas (University of Washington), Rachel Sberro sector analyst, and Rossana Ramirez, CGAP Consultant. The (World Bank), and Lessa Shrader (Mercy Corps). authors would like to thank the external reviewers of this Suggested citation: Mattern, Max, and Rossana Ramierez. 2017. “Digitizing Value Chain Finance for Smallholder Farmers.” Focus Note 106. Washington, D.C.: CGAP, April. ISBN 978-62696-078-7