The potential for branchless banking services in smallholder farmer value chains : a case of the Zimbabwean smallholder cotton value chain

Abstract

Smallholder farmers across the developing world are continuously faced with a challenge of failing to access financial services from formal financial institutions mainly due to the high levels of transaction costs associated with small farmer financing. Against this background, this study set out to investigate the potential for incorporating branchless banking services into smallholder farmer value chains as a means to reduce transaction costs along smallholder farmer value chains and to enhance access to finance for smallholder farmers. While this study acknowledges that assessing the potential for successful development of branchless banking services requires an analysis of demand and supply side factors, this study was however limited to the demand side of branchless banking development. The study’s main focus was on investigating whether key demand factors that are requisite for branchless banking services deployment in smallholder farmer value chains are in currently in place. The general arguments were that there is a strong potential for introducing branchless banking services in the smallholder farmer value chain if firstly, there are transaction points along the value chain where branchless banking services can be used to drive financial transactions. Secondly, there should be a ready-to-adopt smallholder farmer market with a willingness and existing physical and technical capacity to adopt branchless banking services. Thirdly, the business environment existing in terms of the branchless banking regulatory framework and rural retail infrastructure should be supportive of branchless banking development. The study was carried out in the Gokwe farming district of Zimbabwe where a total of 80 randomly sampled smallholder cotton farmers drawn from a relatively homogenous population group, comprising of both contracted and non-contracted farmers, were selected and interviewed as units of the study. Data collection made use of both primary and secondary techniques. Structured interviews with smallholder farmers and semi structured interviews with various value chain stakeholders in the cotton industry contributed towards the primary data. Various government, as well as private company documents and academic publications provided secondary information that was used in the study. The analytical framework of the study made use of three techniques namely the value chain analysis framework, the transaction costs economics framework and descriptive analysis. The results provided by the analysis indicated that there is a strong potential for branchless banking services within the smallholder cotton value chain. The results showed that there are various transaction points along the smallholder cotton chain where branchless banking services can be used to drive financial transactions particularly where transactions are currently conducted on a cash basis. Smallholder farmers from the study were found to have a positive willingness to adopt branchless banking services as well as the technical and physical capacity to adopt branchless banking services. The regulatory environment and rural retail infrastructure was also found to be supportive in creating an enabling environment for branchless banking development.