Time to incorporate digital payment system for Nigeria’s agribusiness

Nigeria’s economic revolution maybe at its very pick as a result of the diversification goal of the federal government and there has never been a better time local consumption of Nigerian products are encouraged, especially agricultural produce. Farming in Nigeria is booming, a recent report by National Bureau of Statistics indicates that export earnings from crude oil export fell to 83.2 per cent in 4^th quarter of 2017 up from 95 percent of total export earnings recorded in 4^th quarter of 2016, this shows that farming in Nigeria is gradually tapping into its potential.

A lot of factors contributed to the improvement in Nigeria’s agribusiness including improved ease of doing business, fertilizer subsidies as well as the anchor borrowers program of the central bank of Nigeria. While the giant strides in the sector is gaining momentum, one grey area that needs urgent attention is bringing digital payment system to farmers in Nigeria to receive payment for farm products.

A closer look at current payment system suggests almost every smallholder farmer receiving agricultural payments in Nigeria is paid in cash. While cash may seemingly provide instant gratification for crop sales, cash-based transactions ultimately prove to be costly and dangerous. Cash can easily be misplaced or stolen, leaving the carrier with no recourse. When cash changes hands there is little record of the transaction, this could make accountability difficult.

The yam farming sector is the country’s economic strongholds, Nigeria is by far the world’s largest producer of yams, accounting for over 70–76 percent of the world production. According to the Food and Agricultural Organization report, in 1985, Nigeria produced 18.3 million tonnes of yam from 1.5 million hectares, representing 73.8 percent of total yam production in Africa. Yam are very surplus around August to October in the western part of the country while north central States like Benue, Nasarawa and Niger have yams in abundance September to November.

In Nigeria, apart from the yam export trade which earn foreign exchange, almost every other domestic trade is cash based with little or no attention paid to digital payment system, this is because most of our rural farmers are unbanked. This is not only true for yam farmers, but also applies to every other farmer in Nigeria.

The current cash-based transactional system poses serious security threats to local farmers and buyers. Buyers of agri-products are frequently robbed at gunpoint as they are known to carry huge sums of cash on them to buy farm produce.

On top of the security risks associated with cash-based transactions, buyers are unable to efficiently track and ensure payment of farm produce as cash ends up in the hands of the smallholder farmer who deserve it. Cash-based transactions are nearly impossible to track effectively and efficiently. It is a slow and out-dated process. As a physical commodity that can move no faster than the humans transporting it, farmers usually have to wait 2-3 weeks before receiving payments for their produces.

Considering all the inefficiencies and risks associated with cash-based transactions, it is shocking however those stakeholders in Nigeria have not made significant efforts to speed adoption of digital payments in their operations. Government and payment service providers struggle to invest in rural digital payment systems and infrastructure, because they see smallholders as too far, too small and too poor to serve them.

Perhaps there aren’t enough scalable digital payment innovations focusing on the agricultural sector in Nigeria or there is a lack of conscious education and capacity building on the benefits and need for digital payments. Other barriers include high transactional charges on mobile money enabled digital payment systems, especially in rural areas where local mobile money agents can double transactional charges, and lack of incentives to push providers to promote digital payment system in Nigeria.

The only attempt made to simplify payment by farmers was when agricultural ministry launched the 2012 Growth Enhancement Support scheme, which used mobile technology to transfer fertilizer subsidies directly to farmers. The switch meant that the government was no longer in the business of procuring and distributing fertilizer. With government bowing out of the supply chain and instead transferring cash directly to smallholder farmers, these producers could shop for their own fertilizer through a newly created market of private-sector agribusinesses.

What could be the game changer?

Mobile money. Unfortunately the low mobile money penetration in Nigeria has become a source of concern, the Central Bank of Nigeria (CBN), six years ago, introduced the cashless economy, designed to drive financial inclusion. Although adoption rate of cashless economy in Nigeria through various channels like Automated Teller Machine (ATM), Point of Sales (PoS) machine and other electronic transfers via internet banking, has been tremendous and commended, but the adoption rate of mobile money transfer, via mobile phones, has been very slow, and it is currently put at 1 per cent penetration, compared to Kenya’s mobile money penetration that is currently over 60 per cent.

This could be the game changer if stakeholders in the industry like commercial banks, telecoms, and even the government can design mobile wallet specifically for the unbanked smallholder farmer.

What Can be Done To Promote Digital Payments in the Agriculture Sector

Agribusiness: Agribusinesses such as cocoa buying companies must demonstrate the commitment to the security and welfare of their local purchasing agents and their farmers. They must build strong partnerships with digital payment system providers to offer these solutions to their farmers. NGOs and developmental organizations could use their existing agent network to advance mobile money access in the rural communities.

Governments: The federal government of through the Ministry of Agriculture and rural development must lead and encourage adoption of digital payment systems by building capacities of extension officers to incorporate training on advantages and use of digital payments into existing channels for agricultural education. Additionally, government can give good incentives packages to Mobile Money Operators focusing on digital payment systems in the agricultural sector to expand access to rural communities. Improved mobile connectivity in rural communities is key, governments must facilitate this.

Payment and Mobile Money Service Providers: Digital payment systems offer many benefits to smallholders and organizations working with them in ways such as security, cost-savings, increased efficiency and transparency, but cash is still widely seen by smallholders and agribusinesses as a “cost-free” option. In order to facilitate the adoption of mobile money payments in agriculture, it is crucial that payment and mobile money service providers begin to address the single most challenging barrier to adoption – the cost to the end user (transaction and cash withdrawal fees).

Research and Piloting: Agribusiness and stakeholders must conduct needs assessment research to fully understand farmers’ financial needs and services in order to provide good services to farmers. Farmers adopt and regularly use services that meet a broader range of their needs, digital financial services must, therefore, consider this. Digital payment has a huge opportunity to improve Nigeria’s agribusiness , given market conditions, boldness and implementation are the next key steps required.