Lay-away for agricultural inputs–A digital solution from Tanzania
The expansion of mobile payments in sub-Saharan Africa has been at the forefront of the global increase in mobile account ownership. However, account usage remains a challenge in the region as elsewhere. This learning paper documents the Grameen Foundation (US) and Positive International Ltd’s value proposition for the use of digital savings tools for smallholders in Tanzania.
The project provided the opportunity to test how far agriculture households are willing to save for short term goals such as input purchases, and whether or not flexible layaway schemes can substitute conventional savings or credit products to meet financial needs in a timely and cost-effective manner.
Credit constrained farmers often choose not to buy inputs such as seeds and fertilizers or purchase poor quality inputs. While suppliers such as agrodealers are willing to provide inputs on credit, they have limited cash flows at their level and formal financial access is sometimes as difficult for suppliers as it is for smallholders. Another issue is the value proposition of inputs themselves – these need to be of good quality and applied at the right time and quantity for producers to see the kinds of productivity gain that would justify an ongoing investment on their part.
In this context a range of agribusiness are currently testing digital tools that can help build awareness on the appropriate use of inputs as also test savings models for input purchases. These agribusiness like Positive see digital tools as an important driver for input sales. The digital tool for input financing (DIFT) tested by Positive International and Grameen has four key focus areas: a crop investment plan to guide farmers on the best quality inputs, time and quantity of application in relation to their crops and land sizes/ condition; a flexible layaway program suited to farmer needs that allowed them to save up any amount, at any frequency for inputs; the timely purchase and delivery of the inputs to the smallholder farmers and agronomic training through the platform.
One key innovation in this project which was valued by farmers is the utilization of a savings-based approach with flexibility of payment size and frequency. However, following the launch of the pilot toolkit a significant amount of work and time was needed to build trust in the savings service, ensure market coordination between the distributor and agro-dealers and adapt the technology to the variety of crops and inputs needed by different farmers.
A general lesson learned is the need for building longer periods into the project timelines and ramp-up of agriculture and digital finance pilots because of the amount of time taken before customers recognize and trust a digital savings service. Additionally, because the layaway was intrinsically linked to the inputs delivery system – the timeliness and selection of inputs on offer made a significant different to customer use and retention.