Transforming Nigeria's agric, rural dev via mobile technology

Rural dweller charging phone with gen set

PART 1:

Prominent among the various factors responsible for the backwardness of agriculture in Nigeria is the fact that the farmers, majority of which are rural-based, are poor and dependent on old-fashioned tools. Their poverty, which has been pervasive, has generally been attributed to their remoteness from financial centres in the urban environment and from government policy makers and implementors, poor access roads that waste much time and increase transaction costs, leading also to increase, although sometimes arbitrarily, in prices of agricultural produce.

The farmers have, for the most part, been operating at the mercies of weather, at the whims of middlemen and creditors, under the ruthless influence of pests and diseases and, have been operating mostly at deficits, but kept doing the farming business for lack of alternatives. Those who could not cope further, or decided to take risks outside agriculture, have ventured into towns and cities, looking for other means of livelihoods, no matter how unsure.

Add all of these to the ageing population of the farmers, and you will be able to predict what the future portends for agriculture, food security and the economy of Nigeria. Although an integral part of the real sector of the economy, agriculture in Nigeria has, for decades not been reckoned with as a strong pillar of the economy and so has remained in the informal sector. While this lasted, the planners, policy makers, researchers, development organisations and NGOs had been churning out conflicting and mostly estimated figures on the state of rural infrastructure, agricultural employment, volumes of food produced and the sector’s contribution to national Gross Domestic Product (GDP).

The farmers remained backward, isolated, remote, poor, disenchanted and disconnected from the national economic radar. Yet, Nigeria’s food import profile rose on annual basis and billions of naira frittered away on food importation. Nigerians, over time, developed tastes for imported products that could very well be produced at home, to generate huge volume of employment for Nigerians and reduce capital flight. Under the Agricultural Transformation Agenda (ATA) of the Jonathan’s administration, it is time to do things differently, as the president has once put it.

The financial institutions have huge roles to play, especially in guaranteeing money movement, to boost rural and urban economies. Nigerian banks have been declaring profits running into billions of naira annually from narrow areas of business, particularly those they considered less risk-prone, notwithstanding the fact that they are not necessarily sustainable. For the country, the unbanked and under-banked represent a large and potentially profitable untapped market. Traditionally, commercial banks have concentrated overly on risks in agriculture as reasons for not lending to the sector, and are overlooking very huge business opportunities while they give disproportionate attention and services to the urban centres and other volatile investment options. Their activities betray a clear absence of research-based corporate business decisions and an absence of needs assessment studies as basis for developing their operational plans.

 The robust economic growth of the past decade, and even before it, has not trickled down to the people, and banks’ outlook played a significant part:  only large corporate and guaranteed wage earners in the public and private sector in the urban centres have been having access to credit.  Majority of the populace are rural dwellers that do not have access to basic financial services and are poor. This class of people is made up of peasant farmers and petty traders.

According to a report by Enhancing Financial Innovation & Access (EFInA), 63.5 per cent of Nigerian adult males and 76.8 per cent of adult females are unbanked, while 78.8 per cent of the country’s rural populations are largely unbanked. About 59.3 million adults are unbanked due to irregular income, unemployment and distance to the bank branches. Currently, in Nigeria, 23.8 million adults choose to save money at home, 12.9 million adults use informal societies and 6.7 million adults use village associations.

Nigeria is not alone in this trend as a recent research by Deloitte Consulting LLP shows that financial institutions around the world compete against one another trying to attract and retain the same middle- to upper-income retail customers year after year. Yet a common finding is that there is an enormous market that most banks are ignoring — and that nonbank competitors have begun to cultivate effectively: the world’s 2.5 billion adults who are either unbanked or under-banked.

Differentiating the categories, experts at Deloitte identified the unbanked customers as having no checking, savings, credit, or insurance account with a traditional, regulated depository institution. Under-banked customers, on the other hand,  have one or more of these accounts, but conduct many of their financial transactions with alternative service providers, such as cheque-cashing services, payday lenders, and even pawn shops — and still use cash for many transactions.

Nigeria is a big country, with many far-flung towns, villages and even hamlets. Sending or receiving money for buying and selling agricultural inputs and farm products, payment of salaries or school fees, settlement of business transactions, or family support is common among businesses and individuals. It requires efficient, reliable and affordable money transfer services in which money can be deposited in one location and withdrawn in another in both urban and rural areas.

The informal systems of money transfer such as individual traders carrying money on themselves or sending commercial drivers or their conductors are susceptible to highway robberies and thefts. Money sent through letters and parcels of the courier companies may be stolen. Other challenges include delays and long queues, network limitations, insolvency of branches, unreliable communication and misdirected parcels. Structural weaknesses in the formal financial industry, however, limit the access to money transfer services, especially in rural areas and for low-income people. Banks are concentrated mainly in urban centers, operating under conditions that constitute barriers to the use of their services.

Mobile money solutions will play a major role in integrating Nigeria’s hugely informal economy, which is driven by small-scale farmers, traders, craftsmen and other types of small and medium-sized businesses, into the formal economy. The desire to spur progress in smallholder agriculture has historically led to search for new models of agricultural financing that address the constraints faced by farmers. Among these models are interventions that provide agricultural finance to farmers in groups and attempts to use the Grameen lending model. The beneficiaries, which are mainly rural and remote, still face daunting hurdles in accessing such supports. Other efforts include establishment of credit and microfinance platforms based on collateralised lending.

Indeed, the emergence of rural micro-finance organisations and Savings and Credit Cooperative Societies (SACCOs) has been based on the premise that smallholder farmers need unique services that are close to them. These models have had limited success due to factors such as high transaction costs of delivering the services to small and widely dispersed farmers, high covariate risks, missing markets for managing weather and market risks and the lack of suitable collateral. These factors limit the ability of smallholder farmers to save, borrow as well as access remittances.

Encouraging banks and other financial institutions to embrace alternative transaction channels (internet, POS, mobile phones etc) is timely now. These channels are a convergence of banking and telecommunication sectors, designed to ensure ease and convenience for the users. Mobile money merges the regulatory environments of both telecommunications and banking into a new paradigm that ultimately demands a collaborative dialogue among providers to balance intervention for risk mitigation with market innovation.

 The widespread diffusion of ICT, particularly mobile phones is known to have the potential of bridging the digital divide as well as alleviating poverty through the direct and indirect job creation. Mobile money has now become an imperative factor for financial inclusion and the key driver of funds from the informal sector to the formal/banking sector. Mobile money campaign in Nigeria, as done presently, tends to concentrate largely at the urban cities and the banked segment.  

Western Union and MoneyGram, which operate through commercial banks, are used almost exclusively to receive money rather than send it. Despite the network of these formal providers throughout the country, rural areas and client segments such as low-income earners tend to be excluded. The availability of financial services in the rural areas has suffered a setback since the mid-nineties when there was a massive failure of banks and commercial banks closed down less-profitable branches especially in rural areas.

Such gaps left by formal providers have typically been bridged by informal means and services. These include transporting the money by oneself or sending it by a friend or through an unlicensed service. Most financial organisations tend to be located in commercial centres where there is enough clientele to make their operations profitable. Such centres, however, tend to be inaccessible to the remotely located smallholder farmers.

To be continued

Contributed by Dr Oyeleye, Special Adviser to Minister of Agriculture and Rural Development.

... Making SENSE of digital revolution!