By Shari Berenbach, Director of USAID’s Microenterprise Development Office
Some 600 million agricultural smallholders presently earn less than $2 per day – and the press is on to develop effective service methods that both lead to increased food production and food security. Yet, we know a lot more about what doesn’t work to reach these households than what does. Last Tuesday and Wednesday, leaders in the field of rural and agricultural development and finance met in Washington for the Cracking the Nut conference to address this challenge. The conference, partially sponsored by USAID and coordinated by Anita Campion of AZMJ, aimed to accelerate the impact of the world’s leading rural and agricultural development and finance leaders, uniting them in a collaborative pursuit of learning, leverage, and large-scale change.
The name of the conference references the obstacles in this field – rural and agricultural finance has long been a tough nut to crack. However, as speakers at the conference emphasized, it doesn’t have to remain that way. The innovative application of new technology and ideas to finance has already opened up many opportunities for rural populations. One of the conference highlights was the discussion of different options for increasing banking services in rural areas.
In Kenya, mobile financial services are one means of reducing the cost of outreach to rural populations. Dr. William Jack of Georgetown University discussed this through the example of Safaricom’s M-Pesa service – M stands for mobile and Pesa means cash – which principally offers payments and money transfers through SMS technology. This method has the advantage of being able to increase coverage to a geographically widespread area at a more rapid pace than microfinance institutions (MFIs). Mobile financial services rely upon a network of agents with broad geographic dispersion, and can usually reach people more quickly. They can also team up with MFI institutions to bring a more complete range of mobile banking services. M-Pesa also has lower costs than other payment methods, making it an appealing choice for those with limited income.
With a focus on Latin America, Paul Davis of Pragma and Jorge Daly of Deloitte discussed how to increase bank outreach to individuals in rural areas. Davis discussed one method currently being used in Colombia: the expansion of branchless banking services. In 2010, 360 million transactions per month were conducted in Colombia using branchless banking. This underscores a shift in the attitudes of bank executives towards potential rural customers – once ignored, they are now seen as a profitable investment.
There is also the bottom-up approach of “nano-credit unions.” In Mali, isolated and rural populations, often dependent on rainfall agriculture and lands of diminishing productivity, have little or no access to financial services. Savings groups can act as credit unions to reach these people, according to Dr. John Ambler and Dr. Jeffrey Ashe of Oxfam. NGOs are a crucial partner in this process, because they can introduce savings groups without the larger capital requirements or the regulatory challenges of the formal financial sector. An added benefit to this method is that it also fosters social capital, especially for women, as it creates space for financial conversations and increased solidarity.
The ideas, connections, and impetus for improvement spurred by this conference will continue to develop, as donors, development practitioners, and financiers work to bring services to greater numbers of people and tap into potential markets. Cracking the Nut was one important step in that direction.
