There is increasing recognition of the role a Commodity Exchange can play in the agriculture business sector. Not only will a commodity exchange bring specific benefits to the farmer:

A. Encourage group purchase of inputs and selling of outputs
B. Better extension = higher yield
C. Higher farmgate prices and “guaranteed” market
A+B+C = D Farmer has a stronger and “more profitable” business

But the stakeholders needed for the “foundations” of a commodity exchange, are similar to those for the “creation” of a Mobile Money Transfer (MMT) ecosystem.

  1. Information – input and output prices
  2. Infrastructure – rural markets, warehousing, roads, communication
  3. Supply chain – inputs, farmers, processors, retailers, consumer
  4. Credit and saving – linkages with financial sector
  5. Money transfer – secure, affordable, transparent, traceable way of financial transactions between stakeholders

The MFI is critical to the functioning of the MMT ecosystem, as the loans they disburse are often for agriculture inputs i.e. the “start” of the MMT ecosystem. Thus if the MFI disburses loans using MMT and builds partnerships within agri value chains, they can help to directly and indirectly, develop an agri business ecosystem i.e. by putting mobile money into the ecosystem in the first place. This will be advantageous (to the MFI) as their clients will benefit from the agriculture value chain ecosystem and partnerships, and so will be more able to repay their loan (and get bigger future loans) which in turn increase the sustainability of the MFI – a multiple win proposition for all – specifically MFI benefits are :

  1. Reduce cash handling costs, risk and fraud
  2. Transparent and traceable audit trail
  3. Reduce capital expenditure through branchless banking
  4. Increase outreach and loan officer efficiencies
  5. New revenue opportunities (product development)
  6. Back end / admin savings
  7. Quicker and more accurate management reports

Implementation (for the MFI) however can be difficult, as all parts of the MFI will be affected – marketing, operations, IT, accounts, training, HR etc. There need to appropriate changes to ensure that the security of the loan portfolio remains the number one priority i.e. that loans are repaid and that the MFI remains financially viable. To achieve successful implementation, it is likely the MFI will do a MMT feasibility study, followed by a pilot then full roll out – this will take time! However, during this period of MFIs “putting their toes in the waters of MMT” the MFI can start to build the strategic partnerships with the agriculture business value chain stakeholders.

There are many challenges to partner with value chain stakeholders, the number one being cash flow, both in the business sense i.e. having cash on hand to purchase goods (rather than on credit), but also literally the flow of cash from one stakeholder to another, due to relative low levels of financial inclusion. Through increasing financial inclusion of the farmer (into formal or informal sector ) and educating them on the benefits of MMT, whilst building strategic partnerships with organisational partners i.e. MFIs, farmer associations, input supplies, processors etc then it is possible to develop the agri business value chain into a fully functioning ecosystem, with benefits for all, and start to put in place the foundations for a commodity exchange.

The agriculture value chain MMT ecosystem model

  1. Farmers gets finance for agri business
  2. Farmer sends emoney to agri stockists for inputs (stockist now doesn’t have credit problems)
  3. Stockists makes deliver to farmer(s) or keep margin and pass order onto distributors – farmer doesn’t have time and transport costs, can benefit from economies of scale by bulk purchasing (with other farmers)
  4. Farmer gives outputs to association (for aggregation) then onto processor / buyer
  5. Processor makes 1st payment to farmer, (association may need a percentage)
  6. Processor sells to retailers / customers through their distribution channels
  7. Retailers pay processor for goods in emoney
  8. Processor pays commission to distribution channel (reduces cash handling , fraud and theft opportunities)
  9. Processor makes 2nd payment to farmer (association may need a percentage)
  10. Farmer repays loan to financial institution.
  11. Farmer may then…….

A) Send emoney into formal financial institution – savings mobilisation
B) Cash out net payment
C) Start ecosystem cycle again in new season