A “digital wallet” is transforming Kenyan farmers’ finances

Microfinancing for farm supplies

The Agri-wallet, a digital payment system funded by loans from Rabo Foundation, was created to help African farmers increase their output. By keeping funds within the agricultural supply chain, the system creates “a secure form of microfinancing.”

A version of this article was previously posted on Rabobank.com on July 18, 2019.

Although the Agri-wallet was launched only two years ago, Ad Rietberg, one of the driving forces behind the digital payment system for smallholder farmers, has set a clear goal for himself for the next decade: increasing the system’s user base from 20,000 smallholder farmers in Kenya to 10 million users in 25 countries across Africa and Asia. Through earmarked loans provided by Rabo Foundation, transferred to a digital account, farmers can use their Agri-wallet to purchase seeds and fertilizer from participating stores and will also receive their income through their digital wallet. Rietberg: “This enables farmers to purchase higher-quality products and raise their income.”

In this conversation, Rietberg explains how Agri-wallet is already making finance more inclusive for smallholders in Kenya – even for ones who don’t have internet or smartphones.

What is the greatest benefit of the Agri-wallet?

The Agri-wallet provides financing to smallholder farmers who are of no commercial interest to major banks. Besides the amounts involved being too small, these farmers also tend to live in remote areas. The earnings from these loans are simply too insubstantial to justify the amount of time the banks need to invest in these customers. There’s a glaring shortage of loans for this group, involving a staggering amount of 400 billion dollars worldwide. In Africa and Asia, in particular, 50 to 60 percent of farmers lack the funds to purchase seeds, fertilizer, pesticides or crop insurance.

For this reason, they use seeds they produce themselves. These seeds are of an inferior quality, which leads to lower efficiency. Farmers also need to use the right fertilizer for each crop, but they often also lack the resources to purchase these. It is therefore preferable if farmers can buy high-quality products, not just because this will boost their income but also because it’s absolutely essential: the African population is set to double over the next three decades. This means farmers need to double their output on the same amount of land to prevent further degradation of forests.

So the Agri-wallet also serves as a piggy bank for farmers?

That’s correct. Farmers can configure their Agri-wallets in such a way that a portion of their income is banked as savings. If they want to be eligible for larger loans – involving amounts of 50 euros and higher – saving their earnings is actually a requirement. Around 35 percent of participants are currently saving their funds.

This form of lending is called “supply chain finance.” What does that mean?

The funds farmers receive in their Agri-wallets can only be spent in the agricultural supply chain – in this case, stores selling seeds and fertilizer. The owners of these stores have their own Agri-wallets, which they can use to source products from wholesalers. You can’t use the Agri-wallet to pay for your children’s school fees or a wedding; the funds actually remain in the agricultural supply chain.

This makes it similar to a retirement account – those are also funds you can only use for one purpose, namely your retirement.

Is the Agri-wallet a form of mobile banking?

Yes, but a very stripped-down form: you don’t need a smartphone, since many Africans don’t have one; instead, users send text messages on old-school cellular phones. The payment system couldn’t be too complicated, as many users are illiterate. The Agri-wallet is based on blockchain technology: it’s a cryptocurrency, a type of Monopoly money, which has no value except in the agricultural supply chain.

“The funds have no value except in the agricultural supply chain"

- Ad Rietberg, Agri-wallet

What is Rabobank’s role in this project?

Rabobank is currently the only financial services provider involved in the Agri-wallet. The bank has provided a total of €300,000 in loans to date. The bank was an obvious choice of partner due to its close involvement in food and agricultural industry. It also has the resources to continue supporting us once Agri-wallet starts expanding its user base. If we are to accommodate serious growth, we’ll be needing several tens of millions more in funds.

Our partnership with Rabobank couldn’t be better; the bank has been very good about contributing ideas and solutions. The data specialists involved in the Data for Food program, for example, are exploring how we might be able to improve effectiveness and efficiency. We hope that Rabobank’s involvement will encourage other financial services providers to get on board. For instance, we’re currently in talks with crowdfunding platform Lendahand, so that private individuals can also start investing in the Agri-wallet. Returns on investment are estimated to be between 3 and 5 percent.

How does Rabobank benefit from the Agri-wallet?

It’s in any bank’s interest to ensure that the money it lends people is repaid. Farmers who make their loan payments don’t have to pay anything to use the Agri-wallet. If their account is overdrawn, they pay a monthly interest rate of 1 percent. Farmers generally go into overdraft several times a year: after making purchases and before they have sold their harvest. Retailers and buyers by and large find themselves in the same situation: there is a specific period between the time of purchase and the time of sale in which no income is generated. When they receive payment through their Agri-wallets, the loan is repaid first, after which a percentage is saved up and the remaining profit is disbursed to the farmer. While one percent of €300,000 may “only” lead to a profit of €3,000 for Rabobank, that one percent adds up to a lot when there are millions of loans outstanding.

We gather that the project has already won several awards?

In April of this year we received an Innovation Award from the World Bank, and late last year we won the Innovator’s Challenge of the Netherlands Microfinancing Platform (NPM). We will also be receiving an as-yet-undisclosed amount of money from the World Bank to further grow the Agri-wallet, plus €125,000 from the NPM to use satellite images in order to give advice to smallholder farmers in Kenya. This will allow them to more effectively adapt their pesticides and seeds to climate conditions.

So what is the next step?

This year, we will be launching the Agri-wallet in Rwanda, Benin, Nigeria, Uganda, Ethiopia and Tanzania to test the waters in those countries. The fact that 100 percent of users in Kenya are satisfied fills us with hope. Other than that, growth is the name of the game. We are backed by several partners, including SNV, a development organization in the Netherlands, and Wageningen University. They’re expected to lead the way and inspire others to get involved. You see, there are other financial services providers that are interested in the Agri-wallet, but only if they can provide the funds through a similar platform. I would be delighted if the Agri-wallet could turn into a large-scale, home-grown Dutch project.

On November 28, Agri-wallet received the Innovation Prize at the 2019 Supply Chain Finance Forum & Awards in Amsterdam.