Mobile Money's Contribution to Agribusinesses in Africa

Article written by the Sustainable Consumption and Food Production team at ThirdWay Partners.

In recent years, mobile money – a digital payment system that allows users to perform various financial transactions such as store, send and receive and money using a mobile phone – has emerged as a game-changer in Africa's agricultural landscape, offering a beacon of hope for smallholder farmers and rural communities grappling with financial exclusion. Revolutionising traditional business models and addressing deep-rooted challenges, mobile money has become synonymous with efficiency and inclusivity in the continent's agribusiness sector. This article delves into the transformative impact of mobile money on African agriculture, exploring its multifaceted implications.

The agricultural sector stands as a cornerstone of Africa's economy, contributing an average of 17% of the continent’s GDP (World Bank, 2022) and employing a substantial portion - approximately 52% - of the workforce in Sub-Saharan Africa (World Bank, 2022). Despite its pivotal role, access to formal financial services remains a persistent challenge for many within the sector. Smallholder farmers and rural communities, comprising a sizable segment with over 33 million smallholder farms in Africa contributing to over 70% of the food supply, according to the International Fund for Agricultural Development (IFAD). This segment finds themselves excluded from traditional banking systems due to the lack of infrastructure, distance, costliness of access, among other factors. This financial exclusion stifles economic development, perpetuating cycles of poverty and hampering the sector's potential for growth and resilience.

Moreover, it fosters a reliance on cash transactions within the agriculture sector, presenting a dual challenge. On the one hand, cash transactions pose significant security risks, leaving farmers vulnerable to theft and loss. On the other, they introduce inefficiencies throughout the agricultural value chain, such as often requiring physical presence to make a transaction. This may lead to delays, which disrupt the flow of transactions, ultimately hampering overall productivity. The lack of access to credit exacerbates the situation, depriving farmers of necessary investments in their businesses from purchasing inputs to investing in irrigation, mechanization or storage, thus keeping them in a cycle of lower yields and incomes.

Since its inception in 2007, mobile money has offered a transformative solution to Africa's financial inclusion woes. Spearheaded by platforms such as M-Pesa in Kenya, mobile money has witnessed exponential growth across Sub-Saharan Africa, with millions of registered and active users. According to the Global System for Mobile Money Association's "2023 State of the Mobile Money Industry" report, there were over 763 million registered accounts and 218 million active monthly accounts in Sub-Saharan Africa in 2022.

Leveraging their mobile phones, farmers can now conduct financial transactions with ease, without the need for traditional bank accounts.

Mobile money has not only promoted financial inclusion but has also streamlined transactions within the agricultural value chain. Farmers can now receive payments directly to their mobile phones, eliminating the risks associated with cash transactions. This has led to cost savings, improved liquidity, and enhanced efficiency throughout, benefiting both farmers and consumer alike.

Furthermore, mobile money has unlocked access to credit and other financial services, empowering farmers to invest in inputs, adopt modern technologies, expand their operations and building resilience in adapting to climate change. A randomized evaluation conducted in Mozambique revealed a significant increase in savings and investment among farmers who were provided access to mobile money savings accounts.

In conclusion, mobile money has come forth as a powerful catalyst for agricultural transformation in Africa, offering a lifeline to smallholder farmers and rural communities. By expanding financial inclusion, enhancing payment efficiency, and facilitating access to credit and savings, mobile money is driving economic development and empowering farmers. As mobile money continues to evolve, lowering transaction fees on the transactions, expanding the coverage of rural areas and increasing the network of mobile money agents would ensure continuous increase in its transformative impact on African agriculture.