Africa is home to a quarter of the world’s farmland, yet it generates only 10 percent of all crops produced globally. Opportunity International’s (“Opportunity”) own experience in Africa indicates that most farmers are operating at just 40 percent of their potential capacity. Crop production remains low in Africa because the majority of food producers are smallholder farmers who lack access to financial services, farming inputs (including improved seeds and fertilizers), agricultural training and fair crop markets to optimize their productivity and increase their earnings. Low crop yields keep farmers’ incomes small, preventing them from providing collateral to a financial institution so they can receive a loan, purchase inputs and transition from subsistence farming to economically and commercially active farming. Without financial access and sufficient yearly earnings, many farmers also lose up to 50 percent of their annual potential income because they must gain quick access to cash to cover household expenses all year.
Access to financial services is important to provide funds for farm investments, in productivity, improve post harvest practices, smooth household cash flow, enable better access to markets and promote better management of risks (IFC, 2011). Access to finance can also play an important role in climate adaptation and increase the resilience of agriculture to climate change, thus contributing to longer term food security.
Many farmers cite a lack of financial capital as a major reason for not adopting beneficial technologies. Research has also suggested that farmers with less access to credit plant fewer high yielding crop varieties. In many developing countries, and particularly in rural areas, access to financial services, including credit and formal saving mechanisms, is limited. Even where financial services are available, they are often highly disadvantageous to smallholder farmers. For example, within a single market, interest rates often vary according to the characteristics of the borrower and the activity being financed.
Since commercial banks are reluctant to invest in rural areas, the Digital financial services (DFS) can expand the delivery of basic financial services to the smallholder farmers through new technologies like mobile phones, electronic money and new channels such as retail agents. These channels can drastically drive down costs for customers and service providers, opening the door to remote and under-served populations.
The Digital financial services program will cooperate with commercial banks and micro finance institutions to works together with smallholder farmers in Tanzania.