While Nigeria’s agriculture sector contributes about 23percent to the country’s Gross Domestic Product (GDP) and employs over 50 percent of the country’s working population only about 2 percent of the farmers receive payment through a formal bank account.
This lack of access to formal financial services has severe financial implications for Nigerian farmers. Limited access to financial services makes it more difficult for them to take advantage of business opportunities, invest and save for the future, and insure against risks.
To analyze this issue, the World Bank recently released the report ‘Digitization of Agribusiness Payments in Africa: Building a Ramp for Farmers’ Financial Inclusion and Participation in a Digital Economy. The report argues that digitization of agribusiness payments can help advance financial inclusion of farmers.
“When faced with a bad harvest or significant livestock loss, farmers bear the entire financial risk of such a loss since they lack access to financial tools that could help them manage these risks,” the report explained, adding that reliance on informal providers can be quite costly and risky, “not only putting the safety of savings at risk but also limiting access to credit and insurance.”
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According to the Washingtonbased institution digitization of payments by agribusinesses to farmers can act as the ramp to broader financial inclusion and better use of these accounts.
It defined digitization of payments to mean a payment being made electronically into a “transaction account.”
Access to mobile money accounts seems to be a key driver of the levels of digitization of agricultural payments. Data by the World Bank shows that among the countries with the largest share of adults receiving agricultural payments into an account, most receive the payment into a mobile money account.
In Kenya and Ghana, 37 percent of agricultural-payment recipients receive payments into a mobile money account. In Uganda and Zambia, 28 percent and 27 percent, respectively, receive such payments into a mobile money account.
These countries are also among those with the highest uptake of mobile money: the share of adults with a mobile money account is 73 percent in Kenya, 51 percent in Uganda, 39 percent in Ghana, and 28 percent in Zambia.
Meanwhile, a national survey of smallholder households in Mozambique, Uganda, Tanzania, Côte d’ivoire, Nigeria, and Bangladesh by the Consultative Group to Assist the Poor (CGAP) find that the proportion receiving payment into an account is less than 2 percent, study shows that there is a consensus on the linkages between financial inclusion, inclusive growth, and poverty reduction and thus financial inclusion of farmers is critical for agriculture-sector growth but most farmers in a country like Nigeria still do not have access to formal financial services.
Lack of trust, high cost of account maintenance, distance to the access point are some of the barriers to financial inclusion of farmers in Africa. Most rely on saving in kind or cash at home or depending on family and friends or informal service providers such as savings groups, savings collectors, and money lenders.
On how a country like Nigeria can include more of its farmers into the formal financial sector, the World Bank said: “Governments should strengthen the foundations of their national digital economy and the enabling environments for agritech, fintech, and e-commerce.”
The World Bank also added that the actions are critical since improvements in these areas make it more feasible for agribusinesses to digitize their payments to farmers and increase farmers’ ability to use digital payments.
Speaking to the importance of financial inclusion for farmers, the report by the World Bank explained that the transaction history that farmers accumulate can provide a basis for formal financial service providers to assess creditworthiness, opening an avenue to formal credit, insurance, and savings products that equip them to deal with income shocks and smooth consumption, thus improving overall well-being.
According to 2017 Global Findex, 13 percent of account owners globally reported having opened their first account to receive private-sector wages, government payments, or payments for the sale of agricultural goods. About 20 percent farmers in sub-saharan Africa reported having opened their first account to receive an agricultural payment.
Administered to 45 firms, and 29 agribusiness respondents the survey by the World Bank included 16 firms that operate globally or regionally and have operations in several African countries and 13 firms that operate at a national level, the result of the survey by the World Bank recommends key actions that can help accelerate digitization.
The report also recommended that governments should take targeted actions to strengthen the rural DFS ecosystem: Targeted actions are needed to strengthen the rural DFS ecosystem since rural areas face specific challenges related to their geography. “These include actions to increase the density of CICO (cash-in-cash-out) agents in rural areas and increase the opportunity for rural residents to use e-money.
