How to use digital financial services for smallholder households?

What is it and how can it help? 

Smallholder farmers need sufficient savings to meet household needs between harvests and to invest in their farms’ productivity. Financial services could help smallholders fill these financial gaps, but financial service providers (FSPs) are not very present in rural communities. FSPs find it difficult to establish a business case for serving smallholder farmers because of the low levels of economic activity and poor infrastructure in rural areas. Recent advances in technology and telecommunications have the potential to make financial services more accessible and affordable for smallholder households in rural areas. With digital platforms such as mobile phones, smallholders can now use financial services without having to visit a bank branch. 

When does it work best? 

The toolkit provides strategic recommendations that should be considered for a successful DFS. For example, it’s important to explore the financial needs of smallholder households more extensively by understanding their financial inflows and outflows and how digital platforms can make financial products more accessible and usable for different sectors of this group. Building the business case for serving smallholder farmers by convening exchanges between private actors (such as mobile network operators (MNOs), FSPs and agricultural buyers) and public entities (such as regulators and ministries of agriculture) to explore business and financial opportunities for serving rural areas is equally important.

How do I use it? 

The toolkit is framed around a step-by-step progression from planning to field implementation. The design of smallholder-specific DFS should consider the following key characteristics: Smallholder households are diverse, ranging from subsistence to commercial. Smallholder families are economic units and have a variety of household and agricultural production needs. Smallholder farmers have seasonal income and thus require financial products to be tailored accordingly.


Where has it been used? 

DFS have been used in IFAD-funded projects.  The toolkit provides examples from Latin America, Africa and Asia, specifically from Bangladesh, Burkina Faso, Indonesia, Ivory Coast, Kenya, Mali, Papua New Guinea, Rwanda, Senegal, Tanzania, Uganda and Zimbabwe.

What are its limitations? 

The number of DFS is increasing, including smallholder-specific ones, as well as the number of countries in which services are available. However, there are still many barriers to uptake and use of DFS by smallholder households in most parts of the world, such as smallholders’ lack of trust in digital products, limited uses for digital money, limited network coverage in rural communities, and limited regulatory frameworks. In many countries, regulators have not yet determined what DFS will be allowed or what entities can provide the services. In several countries, regulators have taken a cautious approach to DFS, prohibiting non-banks, such as MNOs, from offering mobile money services, thereby limiting services to partnerships between MNOs and FSPs.

Where can I go to learn more? 

More information, including the Teaser and Lessons Learned, can be found on this page, under “Digital financial services for smallholder households”