We know that digital financial services (DFS) facilitate increased financial inclusion of rural communities, but what other ways can technology improve access to capital for the smallholder farmer? We asked three innovators at the ICTforAg conference to share how they understand the needs of borrowers and design products that best support them.
Ask Farmers via SMS
Marisa Bowersox explained how GeoPoll conducted a survey related to Nigeria’s Development Credit Authority (DCA) under which USAID provides partial credit guarantees to encourage banks to lend to clients that may otherwise find it difficult to obtain capital. This survey targeted the population all along the value chain based on location to determine gaps in financing.
By offering two-way communication free to participants, they were able to respond to open-ended questions, which provided detailed and specific information. They were incentivized by receiving airtime credit upon completion and in two days nearly 800 responded and revealed that demanding collateral requirements were the largest constraint to loans.
Build Financial Diaries using Mobile Data Collection Tools
To identify financial products and industry practices that could more effectively meet the needs of smallholder families, CGAP’s Innovating for Smallholders Initiative is gaining an understanding of existing behaviors and the demand. Max Mattern described how CGAP’s Financial Diaries are studies that take a closer look at the financial practices and needs of 270 smallholder families over the course of one year.
Understanding smallholder financial needs requires more than just consideration of agricultural inputs because nonagricultural sources of income also impact a family’s consumption and spending. If a loan is made for the purchase agricultural inputs but actually used for another purpose representing other pressing family needs (school fees, home improvements, wedding or funeral, etc.) both the borrower and lender are at risk.
These types of factors can affect the borrower’s ability to repay, which is why it is important to develop products with the full picture in mind. Technology has enabled data collection to answer these types of questions and better meet the needs of the farmers.
Experiment with Crowdfunding
Crowdfunding draws on contributions from a group of various donors to support an innovation, idea, product or other cause. Patty Simonton represented StartSomeGood – an online platform used in crowdfunding – and described how this non-traditional financing method can benefit the farmers. While this method is not likely to be the most effective way for an individual smallholder farmer to obtain capital, it could be leveraged for groups and value chain actors.
Crowdfunding allows people to tell their story to investors ranging from small-scale to large who want to donate to a cause they have chosen to be invested in. Implementing partners, cooperatives, aggregators or other organized groups or individuals with technological savviness could work with groups of farmers, tell their story and shop it on a crowdfunding site such as StartSomeGood.
By Erica Bustinza, Digital Financial Services Program Officer at FHI 360
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