Digital financial services must open up to farm enterprises

Most agri-entrepreneurs and small ventures remain outside the purview of digital financial services because of the lack of a proper database and high transaction costs of digital payments, speakers said.

The key challenges to digital financial inclusion of agri-entrepreneurs and small enterprises are high transaction costs, high lending risk, underdeveloped digital infrastructure and a lack of credit information and financial literacy, said Bijon Islam, chief executive officer of LightCastle Partners, at a webinar organised on Thursday on the impact of and the opportunities for such inclusion.

In association with LightCastle Partners, a2i - Aspire to Innovate, organised the event. The Business Standard was the media partner of the programme. 

Bijon Islam in the keynote paper said, "The agriculture sector contributes more than 13% to Bangladesh's gross domestic product (GDP) and employs around 40% of the labour force. But only 37.2% of the people in farming are connected to formal banking channels."

For micro, small and medium enterprises, formal banking is only 28.4%, he said.

The LightCastle Partners CEO emphasised the need for including farming entrepreneurs and small enterprises in mainstream financial activities by reducing the cost of digital financial services.

Digital financial services include a broad range of services accessed and delivered through digital channels. Those services include payments, credit, savings, and insurance, while digital channels refer to the Internet, mobile phones, and ATMs.

The speakers said farming entrepreneurs and small ventures needed money, but they could not be digitally accommodated for credit for the lack of adequate and proper databases.

Lenders do not have enough information about borrowers as there is no means or scope for assessing the role of entrepreneurs in the supply chain. Therefore,  creditors are less likely to take up any lending risk, speakers said.    

Also, if a small entrepreneur gets a loan, he has to spend a substantial amount simply to draw it, which is one of the major obstacles to digital financial inclusion, they said.

Subrata Kumar, co-founder and CEO of Bhalo Social Enterprise, said that if a farmer borrowed Tk20,000-Tk30,000 using mobile financial services, he would have to pay 1.5% of the loan to collect the money.

" A policy to address such issues is urgently needed," he added.

Yasir Arafat, manager at Swisscontact Bangladesh, said that since banks do not go to char areas (riverine areas), loan sharks lend to farmers at 25%-30% interest having themselves borrowed the money from banks at a far lower rate.

"Digital financial services, in this case, can play a crucial role since the char people usually do not miss their payments on loans," he said. 

The speakers underscored capacity building and strengthening the financing ability of formal lenders, and said that stepping up credit facilities to agriculture would ultimately increase the country's GDP.

They also advocated for introducing insurance to the farming sector so that it can act as a credit guarantee means to minimise lending risk.