Basis of analysis: Micro-lending platform

Micro-lending platforms could connect smallholders in developing countries with individuals elsewhere willing to provide finance to help the farmers to buy much-needed agricultural inputs. Mobile access to micro-lending platforms provides a free and secure way for rural and isolated borrowers to be matched to potential investors and gives existing microfinance providers access to those who need loans the most. Mobile payment records can be used as proof of credit history.

Boosting agricultural productivity in developing countries requires investment in tools, machinery, seeds and fertiliser. Smallholders often lack the necessary savings or access to capital. Their small, unreliable incomes make it difficult to get loans, despite studies indicating that this group tends to have a low-risk profile. Borrowers on low incomes make repayments higher than those of conventional borrowers and the repayment rate can be as high as 97% in some regions.33 Farm yields suffer from the lack of funds. In hard times farmers may even have to harvest their crops prematurely to provide food or cash, leading to a lower crop yield and poor-quality produce that is difficult to sell. A mobile micro-lending platform could give farmers the chance to advertise their capital needs to a global audience online. Farmers could use their mobiles to communicate the amount they need, the intended use of the money and the expected return on investment. Investors could browse profiles of borrowers, selecting a value and risk profile that suits them. Once a loan is agreed the funds could be transferred directly to the farmer via a mobile payment system.

Such a platform could help to secure a flow of small investments to farmers and boost agricultural productivity. This would benefit farmers by helping them to buy better agriculture products, such as more resilient seeds, plant larger areas and avoid having to harvest crops too early. Our analysis estimates that a total of 56 million farmers could be connected to this service in 2020 but we were not able to complete further quantification of benefits from this opportunity due to lack of appropriate data.

Potential barriers and recommendations: Investors’ perception of risk: micro-finance providers can advertise their borrowers’ repayment rate and screen individual loan requests for factors likely to lead to default on loans. Lack of clarity over who is responsible for arbitration in the case of a dispute: mobile lending platforms would need to have clear rules on dealing with disputes among users. Governments have a role in regulating emerging technology to protect users.

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