Many agri-processing firms in Africa are struggling to access financing to buy raw materials from farmers.
The reason for this is that many farmers don’t have bank accounts and require cash payments. Banks therefore are reluctant to lend money to buyers because they cannot tell if the funds extended are really purchasing raw materials.
This has created a problem of traceability that has slowed growth in the sector, starving it of much needed funding.
Borrowers have in the past channelled funds to unauthorised spending, which has brought huge losses to the banks.
A Ghanaian firm, AIMS Ltd has, however, developed a mobile banking solution that aims to address this problem. The service is currently being trialled in participation with Ecobank to source cashew nuts for processors.
The platform allows for the money lent to be tracked, ensuring that the funds borrowed are being used to purchase agricultural commodities.
“Instead of carrying cash in a box to purchase an agricultural commodity in a rural area, the answer is to set up a transparent system for the banker, buyer and supplier which permits traceability of the money movements,” said Judson Welsh, CEO of AIMS.
The new service will work as follows: The buyer, who is also the bank’s client, will identify the potential supplier, who is introduced to the bank. Once the names and identities of the suppliers and their bank accounts are known or established, together with their mobile phone numbers, a simple security code can be introduced for notifications of transfers. The bank then credits the supplier’s account directly, and notifies both parties by mobile phone.
“The negotiations between the buyer and the supplier take place as they would normally for quality and quantity, but instead of handing over cash, the buyer notifies the bank of the amount required for the supplier (prior identification established),” Welsh explained.
It is expected that mobile payments will also remove risks involved in carrying cash as buyers go to purchase the raw materials.