Why financial inclusion is key to boosting agriculture

Dar es Salaam. Just a day after farmers in Tanzania marked Farmers Day, famous as Nanenane, the need for increased financial inclusion has been highlighted as one of the urgent measures that can help take agriculture to the next level.

For years, people in rural Tanzania, most of who are the major players in the sector, have remained financially excluded in the sense that most financial institutions don’t have products tailored to cover the farming communities.

According to a Finscope 2017 survey report, there have been no significant changes in the level of financial exclusion from 2013 to 2017--with 28 per cent of the adult population being financially excluded.

Lack of literacy and financial incapability were together reported to be among the main challenges undermining financial inclusion--with most of the respondents who are financially excluded being rural folk who largely depend on agriculture for their livelihoods.

The introduction of mobile banking by banks in association with telecommunication companies has started having some impact, whereby farmers can somehow access the services via their phones. But, even then, most farmers still lack awareness on mobile banking.

Speaking to The Citizen in an exclusive interview recently, a cotton grower in Geita District, Ms Zainabu Shabani, admitted that the concept of mobile banking is new to her; but, she said, if she were to be assured of benefiting from it, then she would resort to using it, as it would also save her from having to carry cash around with her.

“Usually, when we sell our produce, we end up carrying lots of cash with us – doing so at great risk of being robbed of it or simply losing it,” she said.

According to her, most farmers don’t use mobile banking because they lack awareness of its benefits – and, as such, awareness would enable to avoid the dangers of carrying large sums of cash around, especially during harvest time.

“Crime rate – especially theft, robbery and conning – normally goes up during crop harvest season when farmers normally have lots of cash with us from selling our produce,” she stressed.

Increased awareness of farmers regarding mobile banking would make it easier for them to access financial products and services whenever they are – thus making it unnecessary for them to risk carrying cash either when going to bank or from withdrawing cash.

Ms Zainabu also stressed the importance of cooperatives in assisting farmers to obtain loans through the warehouse receipt system (WRS) under which warehoused crops are used by banks as collateral.

“The financial institutions should not only enable farmers after the harvest period, but should also provide assistance during farm preparation to enable farmers produce more crops of a good quality,” she said.

Speaking on mobile banking, Warehouse Receipt Regulatory Board (WRRB) managing director Augustino Mbulumi said it was important to educate farmers on the use and benefits of the system as “the safest means of ‘keeping’ money, and enabling farmers to save – unlike when they have to hold cash.”

As regards the question of accessing loans, Mr Mbulumi said the warehouse receipt system has made it easier for farmers to access loans through their cooperative movements as they wait for their produce in the warehouse to be sold.

“Banks normally provide loans to farmers to the tune of 60-to-80 per cent of the value of their goods in the warehouse,” he said, adding that, once the goods are sold, the amount loaned is deducted from the sale proceeds,”

According to the WRS Board chief, this is where the importance of holding an account and using mobile banking become crucial -- if only because the transactions are done by the banks and cooperatives without involving hard cash.

Speaking on the issue of cooperatives, Mr Mbulumi stated that “it is hard for farmers to obtain funding without working together in cooperatives. Also, the agriculture sector can largely be boosted by buying and selling through cooperatives”.

He further noted that “cooperatives provide farmers with bargaining power in the market – besides giving them the status of a union which strengthens them even more.

Mr Mbulumi took the opportunity to call upon the financial sector as a whole to partner with cooperatives in supporting farmers. One way of doing this is to assist them with financial products and services that directly boost the agriculture sector in the country.

“Financial sector operators need to increase awareness that would enable farmers to be financially included, and also provide them with the means with which to sustain themselves during the period when their crops are warehoused,” he explained.

Commenting on the matter, the assistant registrar of Cooperative Societies in Iringa Region, Mr Robert George, also highlighted the importance of cooperatives in farming generally, arguing that it is hard for a ‘stand-alone’ farmer to readily access a loan.

“There is still the need for smallholder farmers to be educated on the importance of the warehouse receipt system, as well as cooperatives. Indeed, it is through these arrangements that the storage and other costs are shared – even as the system prevents loss of crops resulting from poor handling and storage,” Mr George said.

Also important is educating farmers on good agricultural practices which would enable them to increase productivity – and, therefore, production, thus boosting agricultural development in the country.

For his part, the chief executive director of Tanzania Mercantile Exchange Plc, Mr Godfrey Malekano, revealed that the cooperative movement has opened doors for farmers to access profitable markets directly.

“Before that, middlemen used to benefit a lot because they would sell farm produce at higher prices than what they actually paid to the farmers. But, introduction of cooperatives opened the door to more market opportunities for farmers – with fair prices,” said Mr Malekano.