Agriculture is essential for Africa, especially for generating income at the grassroots level. However, in Nigeria, farmers face challenges in accessing credit and insurance, which are necessary for their success.
One major reason for this difficulty is that banks and lenders question whether they can make a good profit quickly. They prefer to invest in ventures like crude oil because they offer fast returns and big profits. Additionally, farmers in remote areas often struggle to reach banks and insurance companies.
Agricultural Fintech is an emerging industry that leverages digital technology to provide financial services to clients via mobile phones or computers, using the internet or cards linked to secure digital payment systems. This approach has the potential to address the challenges faced by farmers in accessing financial resources.
Two Ways Agricultural Fintech Can Address Constraints Faced by Farmers
As the global population continues to grow and the demand for food increases, the agricultural sector remains financially underserved, particularly in Africa, where commercial banks lending to the agricultural sector fall below an average of 10%. This gap creates an opportunity for fintech intervention.
Fintech companies possess the technological advantage necessary to revolutionise agriculture in two main ways:
1. Access to Credit
Farmers often encounter difficulties when attempting to secure loans from banks due to strict requirements and lengthy processing times. Banks typically require extensive paperwork and proof of stable income, which can be challenging for farmers since their income heavily depends on uncontrollable factors such as weather conditions and fluctuating crop prices. This makes it difficult for farmers to meet the banks’ criteria and obtain the financial support they need. AgriFintech solutions can help alleviate these challenges in a variety of ways.
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A. Digital Lending Platforms
A digital lending app is a mobile and/or web-based application that enables consumers to borrow funds from digital lenders. These platforms are characterised by their seamless operation, minimal paperwork, and lack of cumbersome bureaucratic processes. They usually do not require collateral and can make lending decisions in just a few minutes.
How It Works: These platforms use technology to simplify lending and make it more accessible. Fintech companies can analyse various types of data, including information about agricultural production or market trends, to better understand a farmer’s situation. This approach allows farmers to secure loans based on a comprehensive picture of their farming operations rather than just traditional financial records. Fintech solutions can streamline the loan process, making it faster, easier, and more tailored to the unique needs of farmers.
Example: ThriveAgric is an example of a company providing various fintech solutions under its ‘Agricultural Operating System’ to help smallholder farmers boost their productivity. One key solution is input financing, which offers farmers the necessary resources. During onboarding, ThriveAgric collects data from farmers and maps their farms. This data helps the company assess the farmers’ creditworthiness and determine the amount of credit they can receive. Farmers then receive inputs, such as seeds, fertilisers, and crop protection products, equivalent to the loan amount.
B. Crowdfunding Platforms:
Access to credit for small-scale farmers and agribusiness practitioners can be significantly improved through crowdfunding.
How It Works: Crowdfunding is a financial mechanism that allows individuals to raise funds from a large group of investors through online platforms. These platforms connect farmers with individual investors or groups. Investors can use their smartphones to select agricultural products to invest in from a wide range of offerings.
Example: In Congo, AgriZoom is an Android app-powered crowdfunding platform promoting entrepreneurship and helping farmers, fishing communities, and agro-processors raise funds and access markets. Crowdfunding has also shown positive results in countries such as Nigeria, South Africa, Kenya, and Mali, where agribusiness SMEs and small-scale farmers have successfully financed their ventures.
C. Mobile Money and Mobile Banking:
Many transactions across agricultural value chains in rural areas occur through informal channels that are typically slow, risky, and unreliable. Smallholder farmers and rural communities account for over 33 million farms in Africa, contributing to more than 70% of the continent’s food supply, according to the International Fund for Agricultural Development (IFAD). By providing mobile money and mobile banking services to these marginalised populations, farmers can receive payments and money transfers quicker, cheaper, and simpler.
How It Works: Mobile money services are available in many countries, allowing users to store, send, and receive money using their mobile phones. With safe and easy electronic payments, mobile money has become a popular alternative to traditional bank accounts. It can be used on both smartphones and basic feature phones.
Example: Platforms like M-Pesa in Kenya have spearheaded the exponential growth of mobile money across Sub-Saharan Africa, with millions of registered and active users. Farmers can receive loans directly into their mobile money wallets and repay them through mobile transfers.
2. Access to Insurance
Agricultural incomes are often subject to significant shocks, especially when farming relies on rain-fed systems. This makes issues of risk and insurance crucial for farmers. Many farmers face challenges in obtaining insurance because traditional insurance companies may not fully understand the unique risks inherent in agriculture. Factors such as unpredictable weather, crop diseases, and fluctuating market prices add to the risks of farming. As a result, traditional insurance options may be too expensive or fail to meet the specific needs of farmers.
How It Works
Agricultural Fintech solutions can address these challenges by providing tailored insurance options. These fintech companies utilise technology to analyse data on weather patterns, soil health, and crop growth. By doing so, they can offer insurance that is more suited to the specific circumstances of each farmer. For example, some Agricultural Fintech solutions provide insurance that adjusts automatically based on real-time weather conditions, ensuring that farmers have better protection while only paying for what they truly need. This makes agricultural insurance more accessible, affordable, and relevant for farmers.
Agricultural Fintech Companies That Offer Insurance Solutions
I. Pula Advisors (Kenya)
– Founders: Rose Goslinga and Thomas Njeru
– Year Founded: 2014
Pula is an African InsureTech provider that offers innovative agricultural insurance and digital products to support smallholder farmers. Their solutions help farmers manage yield risks, improve farming practices, and increase their incomes. To refine its insurance products and enhance efficiency, Pula utilises remote sensing data, drones, and adaptive learning. Additionally, the company provides inputs, farm monitoring, data analytics, and advisory services to help farmers boost their yields and build climate resilience. Pula operates in Africa and Asia, having insured over 8 million farmers. Through their services, they have significantly improved farming practices and income levels for these farmers.
ii. OKO Finance (Mali)
– Founders: Simon Schwall (French national) and Shehzad Lokhandwall (Indian national)
– Year Founded: 2017
OKO Finance is a specialised insurance company that offers crop-specific insurance products to farmers across Sub-Saharan Africa. OKO’s insurance reduces risk for micro-credit providers and helps farmers prepare for future planting seasons in ways they previously could not afford. The company aims to reach one million farmers by the end of 2025 and plans to expand operations to Ghana, Côte d’Ivoire, Cameroon, and Nigeria to further extend its impact across the continent.
Challenges and Solutions of Adopting Fintech In Agriculture
Fintech has great potential in agriculture, but there are several challenges to overcome. Here are six important challenges and their solutions:
1. Digital Literacy
Many farmers, especially in developing regions, do not have the digital skills needed to use fintech solutions. This gap can limit the use of these technologies. To address this, we need training programs that improve digital skills. These programs should teach farmers how to use mobile devices and understand the benefits of fintech. Equipping farmers with these skills makes fintech more accessible and useful.
2. Infrastructure
Farmers need reliable internet and access to smartphones or computers to use fintech services. However, many rural areas still struggle with poor infrastructure. Investing in rural telecommunications, like mobile networks and broadband internet, is essential for farmers to access these services.
3. Policies and Regulations
Clear rules are necessary to support fintech while protecting farmers. Governments should work with fintech companies to create policies that encourage growth and inclusion. These rules should focus on data privacy, digital payments, and financial inclusion to ensure a safe environment for users. Governments should also consider creating test areas (regulatory sandboxes) where fintech startups can try their ideas while following existing laws.
4. Financial Inclusion
Fintech can help more farmers access banking services, but barriers still exist. Many farmers do not have access to formal banking, making it hard to connect with digital financial tools. Agricultural Fintech solutions should be simple and easy to use for those with limited financial knowledge.
Partnerships between fintech companies and traditional banks can help close this gap. For example, mobile banking can work with existing banks to create a smoother user experience.
5. Trust and Security
Farmers need to trust fintech solutions to use them. They worry about data privacy and the security of their financial information. Concerns like these can prevent the adoption of these technologies.
Agricultural Fintech companies should focus on building trust by using strong security measures and being transparent about data use. Providing clear information on data handling can help ease concerns and build confidence.
6. Scalability
Fintech solutions need to grow and change alongside the agricultural sector. They should be built to handle more users without losing performance. This scalability is key to their effectiveness and long-term success.
Wrapping up
Agricultural Fintech companies are playing a crucial role in improving financial access for smallholder farmers, but their work is far from complete. By incorporating advanced digital solutions such as data analytics, artificial intelligence (AI), the Internet of Things (IoT), and blockchain the Agricultural Fintech industry can provide their farmer clients with more tailored, efficient, and secure services.
With the ongoing digital transformation in the agricultural sector, companies that prioritise investment in innovative technologies will play a pivotal role in empowering smallholder farmers throughout Africa.
