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Technology advance de-risks agriculture for banking sector

Despite the obvious business potential and economic contribution, Ugandan banks are still reluctant to finance agriculture, citing unpredictable risks of weather and disease attacks - with only 13 per cent of the total credit advanced to the sector.

But going by the discussions at the recent 2019 annual Uganda Bankers Association (UBA) conference at Serena hotel, from blockchain, mobile money and agent banking, technology is helping de-risk agriculture for banks by creating data-driven individual farmer profiles, a digital track record for farmers and de-cashing agricultural transactions as FRANK KISAKYE writes.

Keynote speaker at the conference, Marianne Schoemaker from Rabo bank in the Netherlands, the world’s second biggest exporter of agricultural products, said unlike Uganda where over 70 per cent of the labour force is involved in agriculture, only 10 per cent of the labour force in the Netherlands is involved in the sector with amazing yields thanks to technology and innovation.

Technology, she said, has made the young people in the Netherlands interested in agriculture because they know they can earn a decent living and the sector is also very attractive to the banks. 

By 2050, Shoemaker said, it is projected that there will be one billion people in the Americas and Europe apiece, two billion in Africa and five billion in Asia - 1125. And in 2100, there will be one billion people in Europe, one billion in Americas, four billion in Africa and five billion in Asia. This, she said, will create a massive demand for food both in quantity and diversity.

To avoid a food crisis, agribusiness and production needs to get up and face the challenge because countries like India and China are not able to be self-sufficient, resulting in increased food trade.

But as Samuel Kirubi, CEO Equity bank, pointed out, it may not be obvious to the naked eye, but Ugandan banks have now also moved into financing agriculture value chains thanks to technology. He said cashless transactions for farmers may actually mean more profits for them as it eliminates fraud by the middlemen and clearly identifies and records the existing value chains thus helping banks effectively profile potential agricultural firms and individual farmers eligible for credit facilities.

In Kasese and Fort Portal, for example, Kirubi said, payment for the over 10,000 cotton farmers has been digitized by Equity bank and now farmers can purchase merchandise for as low as half a kilo of sugar using swipe cards from the partnering local shops because transactions have been completely de-cashed.

Likewise, some 70,000 sugarcane farmers in Kakira, tea farmers in Rwenzori and coffee farmers in Masaka and Mbale as well as beef farmers in Masindi have all been digitized. They now receive their payments digitally through Mastercard.

Kirubi said at least Shs 250bn has been turned into e-cash, and that Equity bank has demonstrated that transactions can happen without cash by investing $2m in digitising infrastructure. From last year when Equity bank launched agent banking, they have been able to register over 2,500 mobile banking agents - small shops doing financial transactions in rural areas and towns.

Those agents carry out 20,000 transactions in a day and are able to transact at least Shs 250bn in a month (volume of money moving within the agency network). Before agency banking, Equity bank used to do just 11,000 transactions as a bank at 35 branches with 400 staff in a day.

Right now there are 40 branches, 2,500 agents and they are doing over 100,000 transactions in a day – with most of the transactions involving farmers. In Kenya, according to Esther Muirui, associate director in charge of Agribusiness, Equity Bank Group, Kenyan banks are now deliberately recruiting farmers into banks so as to better understand the sector.

“The knowledge for farmers and banks is extremely crucial because  - from a bank’s perspective,” she said, “we realized that it was easier to train agriculturalists in banking than training bankers in agriculture. When you start with somebody already involved in agriculture, let them be trained in banking.”

With this, the trained farmers-turned-bankers are able to advise the financial institutions on where best to invest and the risks involved in the sector.

Esther Muirui (L) makes her submissions

Rashmi Pillai, executive director, Financial Sector Deepening Uganda (FSDU), said technology and business payment trails can help provide and identify risks accurately and help financial providers create financing instruments that are responsive to the seasonal nature of the agricultural value chain.

She cited the Amata App which helps record digitally the farmers’ yields and now farmers in Mubende can use this to get goods on credit. Pillai said Standard bank’s statistics indicate that out of all the credit advanced to all sectors (every $1m), agriculture was creating the majority of jobs; so, focus for government and the private sector should change if the issue of unemployment is to be addressed.

The Hello Tractor App in Nigeria uses the Internet of things (IoT) connectivity and is some kind of Uber of tractors to help with the mechanization of agriculture. Farmers can rent a tractor at the request of an SMS. The farmers are connected to the nearest available tractor which is 40 per cent more efficient and affordable than the ordinary tractors and the farmers are able to develop their land.


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