Financial inclusion should do more to include smallholder families

During the week of October 30 to November 3, Uganda joined the rest of the world to celebrate the Financial Inclusion week - whose conversation focussed on how technology, products and partnership can advance inclusion of nearly two billion people globally that are still excluded.

Uganda has made significant strides in advancing the agenda broadly, specifically through two most recent initiatives:
The amendments to Financial Institutions Act to allow for agency banking – a channel that enables financial institutions to increase service points low- cost and scale in areas without physical bank branch; and the launch of the financial inclusion strategy - a blue print that will create a framework within which different actors will converge to create an eco-system that advance inclusion.

These two very important, but long-overdue initiatives, will go a long way in catalysing inclusion. For smallholder families, however, majority of whom are farmers, access to financial services is still a challenge yet an important input to enable them increase production and productivity.

At the Consultative Group to Assist the Poor (CGAP), a part of the World Bank Group, we conducted a national household and segmentation survey for Uganda in 2016 – the results indicate that only a paltry 10 per cent of smallholder farmers in Uganda have a bank account. The results also show that only 30 per cent have been inside a bank branch. The findings further indicate that farmers’ awareness about mobile money is at 87 per cent, but only 21 per cent have a mobile money account.

Insurance penetration is also low at less than 2 per cent while payments among smallholder farmers are generally done in cash with only 5 per cent of the farmers interviewed indicating that they ever received payments digitally.

These access and usage challenges are largely driven by three major factors - lack of proper identification documents, high transaction fees and limited suitable product options that target smallholder families. In fact, our research shows that only 61 per cent of smallholders have a national ID - an important document needed to open an account or register for mobile money.

Similarly, the product offerings across the financial services landscape are not tailored to smallholder families – farmers also decry high transaction costs – with mobile money cash out fees as high as 15 per cent of the transacted amount and distance to service points as other major barriers.

There is great opportunity, however, to tap into smallholder families, who constitute nearly a majority of the population and actively engage in commercial agriculture. For this to happen, financial service providers will require a shift in business models, products, services and channel offerings.

For starters; providers will have to leverage the only, but most important tool available to smallholders – the mobile phone. And 73 per cent of smallholders report to have used a phone and 69 per cent own a feature or basic phone.

Products and services that target this group must leverage this channel to lower costs normally associated with visiting bank branches.
Secondly, financial institutions must re-think products and processes. For products, financial institutions must empathise with the smallholder farmers and design offerings that bring them closer to achieving their aspirations.

Farmers are looking for savings products, for example, that enable them save for a goal – school fees, future inputs or even emergencies.
They are also looking for bundled products, for example, a savings product that comes with a life insurance offering, a pre-paid card for payments or a payment plan for inputs.

Finally, processes have got to be user-friendly. Low digital literacy pre-supposes that products and services targeting farmers will have to be accompanied by capability support and easy to use interfaces in a language that farmers understand.

We can continue to lament about the limited access to financial services to smallholders farmers, but as long as financial services providers do not re-think their products, services and channels, farmers will remain outside of the formal financial service system.

They need more than just loans, but a holistic suite of financial products and services tailored to their capabilities given their diverse livelihoods.

Mr Were works to advance financial inclusion
in Africa. [email protected]