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Using Digital Finance in Agriculture: New Guide Launched by USAID

May 03, 2016
USAID recently launched the Guide to the Use of Digital Financial Services in Agriculture, a step-by-step guide to help our partners support access to and use of sustainable financial services in rural areas. This Guide is the result of an ongoing effort within USAID to understand how digital financial services (DFS) can support Feed the Future initiative's goals of increasing agricultural incomes and reducing malnutrition while simultaneously building out ultra-inclusive economic infrastructure. We see at least four areas where DFS is making a vital impact by overcoming many of the challenges with traditional financial services that have left many rural communities unbanked or underbanked:
  1. Reducing the cost of delivering financial services outside of bank branches and urban areas, making these services (savings, credit, insurance, etc.) accessible and relevant to rural communities.
  2. Increasing the traceability of payments to reduce loss of funds and ensure proper accounting, which can potentially increase trust between various actors within the agricultural supply chain.
  3. Improving household resistance to financial shocks through savings and on-demand receipt of funds, which evidence shows helps to smooth consumption and maintain household nutrition.
  4. Creating new business models (for example, alternative credit scoring such as M-Shwari in Kenya which is providing very small, on-demand loans to customers based on savings behavior).
The approach we document in this Guide follows three broad steps for assessment:
  1. Identifying the value-chain challenges;
  2. Assessing gaps and obstacles in existing services; and
  3. Assessing the maturity of the digital ecosystem in your area.
The Guide encourages the reader to walk through these steps without limiting his or her thinking, initially, based on gaps in the local DFS market. Rather, once the reader identifies opportunities, they can design interventions that integrate creative solutions and market facilitation to make these opportunities a reality, even in less mature markets, using the following four high-level intervention types:
  1. Utilizing digital finance along the value chain, the most immediate and direct way to use DFS in our programs;
  2. Organizing implementing partners around DFS solutions, in order to aggregate demand for services by working together with USAID and other development partners;
  3. Implementing other technology-enabled services in conjunction with DFS, which encourages the reader to look at the broader digital ecosystem and to integrate with other services that are relevant to smallholder farmers (such as mobile-enabled extension services).
  4. Market Facilitation, which recognizes the role that USAID, along with our partners, can play to stimulate the broad DFS market when key constraints, such as regulation or lack of adequate consumer protection are holding back use of services in rural areas.
One great example of the last intervention type which has seen great process over the past year comes from our Feed the Future partners in the Somali region of Ethiopia. Mobile money, although not widely available in the region, was identified as able to improve access to finance for livestock producers. Therefore, acting as a market facilitator, USAID supported Hello Cash to extend the services of Somali Microfinance Institution into hard-to-reach areas - creating the opportunity for customers to use mobile-based payments to transact, save, and increase access to loans, all of which will support the larger Feed the Future effort to build a reliable livestock market for Somalia and the bordering regions in Ethiopia. In keeping with the Principles for Digital Development, this Guide is a dynamic resource that will be updated and improved based on your input and experiences in the field. Please get in touch either through the comments section below or by sending an email to digitaldevelopment@usaid.gov. Whether it is related case studies, specific feedback, or ways that you're able to benefit from this Guide in your own work, we'd love to hear from you and to keep pushing forward our rural development goals together.

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