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OPINION: CGAP Smallholder Data Hub Will Spur Innovation in Rural Finance in Uganda

By Nathan Were

The Consultative Group to Assist the Poor (CGAP), a World Bank agency recently launched the Smallholder data hub – a research tool to help financial service providers learn quickly and easily about the demand among smallholder families for financial services.

Small, family-run farms are home to the majority of people living in absolute poverty around the world and without access to the resources they need to improve their lives.

This tool will help providers identify new opportunities to serve this large and diverse market in Uganda whose financial lives are often little understood.

Smallholder families make up one of the largest potential markets for financial services in many developing countries, but reliable data on their financial and agricultural lives are scarce.

Through simple, interactive data visualizations, the CGAP Smallholder Families Data Hub puts at providers’ fingertips more than 300,000 data points from CGAP’s nationally representative demand-side smallholder research, enabling them to look for promising business opportunities to develop products and serve these families.

For Uganda specifically, the CGAP smallholder national survey conducted in 2016 from which the data hub has been created indicates that 30% of smallholders have been inside a banking hall but only 10% of these have ended up opening a bank account.

The trust in banks is very high and many farmers are aware of the benefits of having a bank account. Infact 69% of the farmers when asked why a bank account is important, they state that ‘it helps to keep your money safe and secure’.

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The disconnect, though, is that many financial service providers have not designed tailored financial products and services that address the unique needs of smallholder farmers.

This point towards a huge opportunity for Banks and deposit taking MFIs to think creatively about developing compelling value propositions coupled with education for farmers and bring in the 90% locked out of the formal financial service system.

This will however require that banks use the data to understand preferences, behaviours and segments that exist among the smallholders as a basis for designing offerings that bring them closer to achieving their aspirations.

The data further shows that 69% of smallholders in Uganda own a mobile phone and 73% of these have used a mobile money service.

As providers think about innovations to reach smallholders families, the mobile channel offers the greatest promise to reaching this diverse community.

Lack of identification also stands in the way as one the main barriers to opening an account at the bank or on mobile money.

The data indicates that only 61% of smallholder families in Uganda have a national identification card with the rest carrying other forms of ID such as those issued by the local councils – forms of identification that are not generally accepted by financial service providers.

The government will have to double efforts in national ID registration.

When it comes to payments for the various crops that Ugandan farmers produce, 95% is done in cash.

Only 5% receive some form of electronic payment. Cash leaves no trace which and has for many years made it difficult to gain visibility into the cashflow of farmers especially when they would like to take a credit facility.

There have been attempts to digitize payments for farmers in a few value chains, but these efforts have met with some resistance mostly because the eco-system for mobile payments is still nascent with few merchants accepting mobile money as a form of payment.

The farmers are then left with no choice but to cashout, attracting high fees. This has pushed many to decline mobile money as a form of payment.

With new proposed mobile money taxes, this will further push the digitization of payments journey further away.

The CGAP data hub offers a lot of insights to providers looking to target smallholder families and we hope it will help drive innovation in the smallholder finance space.

Mr. Were is the CGAP Smallholder Finance Lead – Uganda

Email: nwere@worldbank.org

 

 

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