Crowdfarming: Platform-Enabled Investment in Nigerian Agriculture

Crowdfarming is fast becoming the easiest means of investing in agriculture in Nigeria. On one hand, we have smallholder farmers who have agricultural skills and farmland but lack sufficient finance.  On the other hand, there are individuals who have money to invest but lack agricultural skills and access to farmland. Intermediated by digital platforms (Figure 1), crowdfarming entails sourcing funds from several individuals (the crowd) to invest in smallholder agricultural enterprises. In some cases, investors receive returns in the form of agricultural produce, while in other cases returns are financial – that is, investors receive their initial investments plus profits [1].

Figure 1: Snapshot of a Nigerian digital platform-enabled crowdfarming webpage (source: Thrive Agric, 2018)

There are currently at least seven active (indigenous) digital platform-enabled crowdfarming agribusinesses in Nigeria. These are: Thrive Agric, Farmcrowdy, Growcropsonline, Growsel, Farmkart, eFarms and Agropartnerships. Drawing from research carried out with Thrive Agric, it is understood that investors (also called ‘farm subscribers’) are considered part-owners of farms they invest in. The contractual agreement between the crowdfarming platforms and farm subscribers provides details on the returns on investment per farm enterprise, length of the production/investment cycle (e.g. see Figure 1), insurance cover on funds invested, and secure online payments. Farm subscribers also receive regular information on the farm’s progress through email alerts and notification of final payments at the end of the production cycle. Subscribers can also apply to visit the farms they invest in.

In Nigeria, crowdfarming platforms are tapping into a large pool of financial investors who are mostly educated individuals, located in urban areas in Nigeria or in the diaspora. Thrive Agric’s model has attracted over 3500 investors, located in 10 countries (Figure 2), who have invested in nine agricultural value chains, directly supporting the livelihoods of over 12,000 farmers (Figure 3), since its inception in 2017.

Figure 2: Geographic spread of Thrive Agric’s crowdfarming subscribers investing in smallholder agricultural production across Nigeria (source: author’s field research, 2018)

Figure 3: Geographic spread of Nigerian states where crowdsourced funds are invested by Thrive Agric (source: author’s field research, 2018)

Despite its growing recognition as a means of investing in agriculture, some factors still constrain the scaling-out of the crowdfarming model beyond its current scope. These factors include:

• Low level of awareness and trust issues: according to the Chief Technical Officer of Thrive Agric, not many people are aware of crowdfarming and its benefits to both investors and farmers in Nigeria. As such, there is still the potential for more people to invest but getting the word out there, cost effectively, remains a challenge.
• Currency and bank transaction issues: currently, investing in Nigeria’s agriculture through crowdfarming can only be carried out in Nigeria’s currency (the Naira) due to fluctuations in foreign exchange rates. As a result, investors are required to have a Naira account to participate in this space.

Looking ahead: what does the future hold for Nigeria’s agricultural growth through crowdfarming?

Investing in Nigerian agriculture has been described as key to driving the growth of the sector and Nigeria’s economy in general [2][3]. However, the growth of Nigeria’s agricultural sector has been constrained by a myriad of factors especially those relating to low financial investments in infrastructure, agricultural research, high yielding inputs and information delivery [4]. As agricultural production in Nigeria is still largely rain-fed, the issue of timely access to finance, ahead of the rainy season, remains a reoccurring constraint to the socio-economic growth of farmers (ibid). Figure 2 shows that digital platforms are breaking down barriers to agricultural investments in Nigeria by bridging the gap between investors (both home- and diaspora-based) and smallholder farmers.

However, there is still a lot to understand in terms of the long-term impact of investing in agriculture through digital platform-enabled models like crowdfarming. Research is also needed to ascertain the nature of interaction between these platform models and the existing institutional forms that govern agricultural value chains. This will help broaden our understanding and the broader implications for the distribution of value among stakeholders along agricultural value chains that are platform-enabled.

References

[1] Flynn, P. (2015) What is Crowdfarming, Hazel Blog http://blog.hazeltechnologies.com/article-27-what-is-crowdfarming

[2] Izuchukwu, O. (2011) Analysis of the contribution of agricultural sector on the Nigerian economic development, World Review of Business Research, 1(1): 91-200

[3] Udoh, E. (2011) An examination of public expenditure, private investment and agricultural sector growth in Nigeria: bounds testing approach, International Journal of Business and Social Science, 2(13): 285-292

[4] Phillip, D., Nkonya, E., Pender, J. and Oni, O.A (2009) Constraints to Increasing Agricultural Productivity in Nigeria: A Review (Vol. 6). International Food Policy Research Institute, Washington, DC

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The Puzzle of Digital Financial Inclusion: A Generation Game?

If we thought that financial inclusion and its digital variant are tightly correlated, we may be in for a surprise, judging from the Global Findex 2017 microdata released by the World Bank last month. Owning a bank account (financial inclusion) and owning a mobile money account (its digital variant) throw a puzzling pattern. I plot the averages of bank account ownership and mobile money account ownership in 144 countries across groups of low to high incomes economies, showing a clear separating trend. The thought is borne by 25 low income countries with the two measures of financial inclusion strongly correlated at 0.7. But as income level steps up (to middle and high incomes level) bank account shares increase while mobile money shares decrease. The final panel is flat at the bottom right: most of the 44 high income countries have more than 80% bank account shares with less than 20% mobile money account shares. The correlation? –0.2. One explanation for this negative correlation can be discounted. The digital variant is not yet a substitute for a bank account: savers cannot yet use their mobile money account on its own or as a substitute to secure property or business investment. As countries move up the economic ladder, the puzzle of separation insists on an explanation.

 

Figure 1. The puzzle of bank account ownership vs mobile money account ownership (number of countries in parentheses) Source: calculated from Global Findex 2017 microdata

I explore an alternative here. In high income economies financial inclusion is nearly universal among adults. Not so in low and middle income economies; on the demand side lower average incomes as well as lack of trust in banks coupled with, on the supply side, weak financial infrastructures combine to leave many adults financially excluded. But the costs of financial services, such as sending and receiving money, have been pared down thanks to mobile technology, especially in low income economies. In Uganda, transfers can be made cheaply and directly from the south west to the north east without recourse to Kampala in the centre.

First in this exploration I show a map of the uneven financial inclusion around the world (https://globalfindex.worldbank.org/ accessed 31 October 2018). Map 1 shows that financial inclusion varies along levels of development. The high income economies of North America, Europe, Australia and New Zealand, are homes to adults with the majority of them having a bank account. Moreover a financial inclusion gradient is discernible with economies around the equator, where many lower and middle income economies are located, reporting lower percentages of account ownership. In particular, available data from African economies in the Global Findex and on the map show how financial inclusion is still a minority story on the continent.

 

Map 1 Financial inclusion around the world 2017, source: Global Findex 2017 report

But has mobile technology made any difference to financial inclusion? It is increasingly so. A map of ownership of mobile money accounts (those who own an account and use a mobile phone to access it) tells how things have improved (Map 2). Over the last three years, some economies in East Africa such as Uganda or Kenya have accumulated owners of mobile money accounts; West African economies are treading the same path. Although it remains the case that the majority of African economies are home to the majority of adults without a mobile money account (60% or more without one).

 

Map 2 Digital financial inclusion in Sub-Saharan Africa, source: Global Findex 2017 report

To explore further I build a non-linear multilevel model of accounts for each type of financial inclusion: in one the model explains owning a bank account, in the other owning a mobile money account. The model is non-linear because ownership is an indicator, as well as multilevel because 154,472 adults reside in 144 countries. The models account for country income groups, average national incomes, population, age, gender, education, employment, and personal incomes (quintiles). The most interesting findings relate to the associations with age and gender. I show marginal predictions of age and gender for financial inclusion below.

 

Figure 2. Marginal predictions of financial inclusion (own a bank account), calculated from the Global Findex 2017 microdata

Figure 2 shows the age gradient of financial inclusion that is consistent with the life cycle effects of incomes and wealth. With age comes accumulation of wealth from earnings that needs to be stored for investment and consumption. So for both genders higher age groups have higher odds of owning a bank account (compared to the youngest age group) in a step-wise manner. The youngest (hollow point ○) and the oldest (solid point ●) form bookends to the predictions; both for men (left) and for women (right). There is also a clear gender inequality, although by age 25 women (diamond ◊, right) already have higher odds than the youngest male group. Thus financial inclusion reflects the life cycle effects of earning and saving.

 

Figure 3. Marginal predictions of digital financial inclusion (own a mobile money account), calculated from the Global Findex 2017

 

 

But the marginal predictions for digital financial inclusion do not conform at all to the life cycle effect (figure 3). Digital financial inclusion does not move lock-step with age. In contrast with traditional financial inclusion, the two oldest age groups have lower odds of owning a mobile money account; instead the highest predicted marginals are attained by the mid-30s. The solid point (● oldest group) for instance is furthest below the hollow point (○ youngest group). Here the two oldest–youngest groups do not form bookends. The gender digital divide is also sharper. For similar levels of other characteristics, no female groups have higher odds of owning a mobile money account than the youngest male group.

The strong age reversion effect (inclusion does not move in lock-step with age but reverts after age 40) suggests a generation effect. This is also consistent with the fact that many of the low income economies are still young while many of the high income economies are already ageing.

The puzzle that digital financial inclusion parts ways with financial inclusion may be driven by the generation effect. But there is no reason to expect that the life cycle effect should disappear soon. Thus the need for financial accounts around the world is likely to grow as adults age, leading to some reconciliation in paths of financial inclusion.

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