Digitizing value chain finance for smallholder farmers
This focus note (PDF) by the Consultative Group to Assist the Poor (CGAP) explores opportunities and emerging models in digital value chain finance. Particularly it looks at new technologies that can break down barriers to delivering financial services to a greater number of smallholder farmers. The authors identify three use cases for digitizing financial services in agricultural value chains: 1) Improving the efficiency of financial transactions. From bulk payments between buyers of agricultural commodities and their suppliers to digitized loan disbursements and repayments, digital payments offer some advantages over cash, while also posing new challenges of their own; 2) Overcoming barriers to providing financial services. Branchless banking and new data on customers allow for digitizing savings, credit, and insurance products—making them more affordable and accessible to a greater number of smallholders; 3) Improving market opportunities. Digital trading platforms, digital warehouse receipts, and digital invoice discounting help smallholders to maximize the price they get for their crops. Several barriers to digitization remain, including poor mobile network and agent infrastructure in rural areas, and uncertainty surrounding the cost of services and the quality of data collected on smallholder customers. But, according to the authors, the potential is also clear: digital value chain finance holds the promise to tightly integrate millions of smallholders into value chains.
More about this publication and the benefits of digital finance for smallholder farmers can be found in this blog by CGAP.