- As of September 2021, more than 53% of Kenyans owned a smartphone
- Online banking has become increasingly accessible to coffee farmers
- It has helped improve access to loans, payments, and lower costs of production
COFFEE PRODUCTION can be time-consuming and provide a relatively lower income compared to other cash crops. But as Kenyan coffee farmers strive to improve their profit margins, they often encounter financial handicaps, such as a lack of access to loans and advances.
For decades, a chaotic banking system has held back the country’s 800,000 coffee farmers. Now, the widespread penetration of smartphones and the ensuing financial technology (or FinTech) innovations are helping chip away at deep-rooted inefficiencies.
The rise of online banking in particular has had a transformative effect. Available to coffee farmers located in the most remote growing regions, it has helped reduce queues in banking halls, while allowing farmers to access their finances from the comfort of their homes, learn more about the available financing channels, and even get hold of advances and loans on considerably friendlier terms than before.
Smartphones have become a common appliance available to Kenya’s coffee farmers irrespective of location. According to the Communications Authority of Kenya, more than 53% of the population possessed a smartphone in 2021, with 97% of all internet users in the country reportedly accessing it via their mobile phones.
This has helped accelerate the growth of online and mobile banking systems. Indeed, almost all farmers now have access to mobile money banking systems, such as Airtel Money, T-Kash, and M-Pesa, the latter of which offers a full suite of banking services on mobile devices.
Thanks to these systems, they have been able to focus more on the production side rather than journeys to and from the banking halls. Acquiring equipment and agricultural fertilisers from suppliers has also been made easier with banks forging agreements between suppliers and farming communities.
Replacing antiquated banking systems
Kenya’s coffee producing sector has been in disarray for some time.
Rising costs of production and a disillusioned younger generation has affected not only the size, but also the quality of yields. One of the biggest problems has been the high cost of doing business. For example, commercial financing rates for Kenyan coffee producers are often higher than 20%, effectively making them agricultural payday loans, according to one source.
David Maguta is a coffee producer from Kenya. He says that online banking has been making things considerably easier.
“I don’t have to go to the bank, especially at a time like now during harvesting. Harvesting is very engaging and busy and we need all the time we can get. I can access my money from here and am able to pay my workers immediately without having to travel to the bank. The whole process has now become seamless.
“The transaction costs between the banks and M-Pesa were abolished and this has even eased things further. So, we are able to make more transactions which will definitely give us growth in the production sector.”
Online banking for those that have embraced it has been instrumental to assisting access to loans and advances with considerably lower interest rates. This has enabled these farmers to purchase better, more modern equipment, which has helped improve production, while lowering costs.
Joseph Waita has been using online banking and mobile banking for his coffee estate for almost ten years. He says that the benefits vis-à-vis the old system of pen and paper are glaring. “I can do so much more now without worrying about my finances. I can just open a website and check on my money and concentrate on production.”
Access to better education and training through apps targeted at them has been a direct result of interactions with financial institutions that offer these services. This has ultimately made the farmers more competitive in their activities and helped them fetch more money for their produce.
“Imagine,” Joseph says. “I can get a loan from the comfort of my farm. It’s unbelievable how easy everything has now become. I don’t have to worry about farm inputs or paying my workers on time anymore.”
Access to finances and loans by the farmers has far-reaching consequences for farmers who have been able to raise their living standards as a result. For example, getting hold of better equipment, such as irrigation systems, has led to some farmers sinking boreholes to provide enough water for both coffee plants and livestock.
Through online banking, farmers can also obtain pre-financing for the coming harvest. This has eased fears about financing the upcoming season. Instead, they can concentrate on the quantity and quality of their coffee.
Banks ‘not particularly kind to farmers’
In spite of the obvious advantages that technology brings to the production sector, some producers are still hesitant to adopt it as their preferred method of making financial transactions.
In particular, David highlights the gulf that exists between Kenya’s older and younger generations of farmers.
“Most of the elderly people, who make up the majority of farmers, still do not trust technology,” he says. “They prefer talking directly to bank tellers and managers. But technology is always a plus to anything we do. If we all embrace it in coffee, it will spark growth in the industry.”
David explains that they have a system that logs all the coffee cherry weight delivered to them and immediately the farmer is notified through their mobile phone. This system is linked to the bank and, after delivery and confirmation, the farmer automatically receives the equivalent amount of money for the delivered cherries.
Yet despite the efficiency that technology of this kind offers, farmers have reason to be sceptical of being so closely tied to their banks.
“Coffee farming is very risky and banks are not particularly kind to farmers,” David says. “For example, this season there has been insufficient rainfall meaning lower production. If I had a loan of KES 100,000, and was expecting my harvest to give my KES 200,000, but because of the insufficient rains I only make KES 50,000, I might end up on the wrong books of the bank.”
Nevertheless, most agree that the rise of online banking brings greater benefits than sticking to traditional systems. “All stakeholders should encourage their respective producers to accept technology as it is a friend to the farmer,” Joseph says. “I know our parents are a little hesitant – but the benefits are there for everyone to see.”