By Emmanuel Murai
NAIROBI, Kenya, Dec 6 – The digital sector delivers a significant potential for growth, particularly for agribusinesses in Africa. The true potential for scale among small and medium-sized businesses (SMBs) lies in the nexus between agribusinesses and digitalization.
Digital solutions allow agri-SMBs to deliver value, improve productivity, access financing and provide inclusive and sustainable solutions.
In Sub-Saharan Africa (SSA), most of the agriculture ecosystem receives and makes payments in cash.
The World Bank Global Findex Database indicates that fewer than one in six individuals who receive agricultural payments in SSA receive those payments through an account (at a bank, non-bank financial institution, or a mobile money account).
Moreover, among the farmers in SSA who sell a portion of their produce in the market, only 17 per cent save in a formal financial institution and around 10 per cent borrow from one.
Making payments for supplies and produce, in a timely and cost-effective manner, is a challenge that agribusinesses are constantly trying to navigate and that financial technology can address. According to the International Financial Corporation (IFC), the significant time and cost required to price the risk and collateral for agribusinesses to access affordable financial products as well as the difficulty of serving farmers in rural and remote areas can be addressed by digitalization.
Digitalization of agribusiness payments is a pathway to broader financial inclusion. It contributes to making Africa’s agricultural supply chains more efficient and resilient by reducing the cost of payments and bringing better visibility to how and when agribusinesses are paid. In addition, digitalization plays a vital role in easing agri-SMB transactions and facilitating the extension of financial products to more businesses across counties, while better managing their vulnerability to shocks.
Digitalization of agribusinesses also benefits the rural economy by strengthening the rural Digital Financial Services (DFS) ecosystem. Improving the digital viability of agribusinesses, through widespread accessibility of DFS agents, encourages the acceptance of electronic payments by rural merchants, and enables more e-money usage for local payments among agribusinesses.
Through digitalization, DFSs are able to access the data they need in order to provide credit and insurance to agribusinesses that wish to expand their operations. By adopting a digital financial toolkit, agribusinesses can easily access the money they need to purchase inputs and produce on a recurring basis, pay multiple vendors in bulk, and create and send digital invoices to customers.
As Africa’s fintech space continues to grow, it is clear that all stakeholders understand the immense potential of digitalization. But the complexity of Africa’s agricultural supply chain requires innovative industry-specific solutions.
The companies that are able to meet the needs of the agriculture industry will also be those that define the standard of digital financial services and create the digital economy for Africa’s 2.5 million agribusinesses.
The writer is Avenews Country Manager
