Fellows’ big plan to make digital finance work for all actors across the value chain

By Richard Midikira, Lilian Wangui and Janet Ngombalu

Blog 1: It’s estimated that 75% of Kenyans make a living through agriculture and generate 24% of the country’s GDP, yet only 4% of the total credit in the banking sector goes to agriculture

We have a big vision and dream. We want to mobilise the entire agri-finance community and digital stakeholders in Kenya to re-imagine, re-structure, and transform Kenya’s food system. We see the potential of this united force to propel Kenya towards a viable national digital and agri-finance policy framework. Our dream is symbolised by a three-legged Africa stool that was carved out of a single log and meticulously chiselled to completion, without joints, or nails. If one leg breaks, the balance is lost and the stool loses its core value. The same holds true for the triumvirate in the food system: If one leg breaks, the entire food system collapses with it.

Farmers and traders need an enabling environment and access to credit and market for optimal returns.

Agriculture is the most important economic activity in Kenya. Yet the sector has in recent years only experienced marginal growth, both in primary farm produce volumes and in value addition. These low productivity levels have pushed smallholder farmers, and small and growing agribusinesses to rely on other sources of income for survival. To address their needs, service providers have invested in over 100 agri-specific financial and non-financial products. The most common financial products include working capital loans, asset financing, and season-based lending. Non-financial products include platforms for agronomic information, supplier management tools, and trading platforms. Despite these investments, many products have yet to reach significant scales.

The Kenya Government has sought to regulate the digital finance sector to protect consumers, most recently through the Central Bank of Kenya (Amendment) Bill, 2020, that’s pending in Parliament. Despite this, the sector remains largely unregulated, robbing stakeholders across the value chain of the opportunity to cash in on the dividends of technology.

This is the same story across Africa, where stakeholders face harsh operating environment and weak, or non-existent, linkages among actors within the agri-food value chains, and insufficient investment. A recent World Bank study says smallholder farmers and other agri-value chain actors lack access to financial products – savings, insurance, and payments – that are tailored to their needs. For example, in Kenya, 75% of the population makes a living through agriculture and generate 24 percent of the country’s GDP, yet only 4% of the total credit in the banking sector goes to agriculture.

However, all is not lost. We have recently seen increased investments in the sector, with new channels of service delivery and new products changing the agri-business model. Financial institutions now have the opportunity to re-examine this sector with the advantages that such digital tools and channels bring.

We believe that we have a stake in improving the digital and agri-finance space to make it more sustainable. With a combined experience of close to three decades working in the digital agri- finance ecosystem, we propose creating a body of evidence to develop a policy framework for the sector. This will provide pathways for bridging the knowledge and information gap between smallholders and service providers as well as incentivise actors across the value chain to work together.

We are inspired by our sages and the analogy of the broken stool to forge synergies between all stakeholders in agri-business. Collaboration between financial institutions, policy makers and smallholders is an existential imperative, and not an option. For example, lack of a conducive digital and agri-finance environment exposes smallholders to exploitation and slows uptake of digital services while creating a legal vacuum that hinder full rollout of services to farmers. Financial institutions cannot win if 75% of the population cannot access finance. Similarly, agricultural actors will not work optimally if they do not have finances and inputs to increase production and hence earnings. Such discord in the value chain only serves to cripple the food system, making it unfit for purpose.

We call on all actors – digital experts, financial institutions, Africa Food Fellowship Fellows, development partners, farming communities, private sector, ICT regulatory bodies, and the Central Bank of Kenya, among others – to join us to mend our broken stool. It’s time to revitalise the food sector through a cohesive network and a digital agri-finance framework.

The writers are Digital and Agri-Finance Experts, and Fellows at the Africa Food Fellowship