Digital Payments For Agriculture Financing

In Uganda, statistics show that more than 70% of adult Ugandans work in Agriculture. Mainly practicing subsistence farming which means they grow food for home use. This is common in other parts of sub-Saharan Africa at large. For most of these small-holder farmers, attaining agricultural financing to transform themselves from subsistence to commercial farming is still a challenge.

Financial institutions such as banks and microfinance institutions find it difficult to finance small-holder farmers because of the risks involved; They can not guarantee a return on their investments.  One of the biggest problem small-holder farmers have therefore is the lack of capital. Our last post, Farm smarter not harder gives more insights on this.

It’s important to note that governments and development organizations maintain big subsidy budgets for programs focusing on agriculture. The challenge is, there no better ways of handling subsidy pay-outs that guarantee an effective return on investment. The two main ways in which subsidies are handled include;

  • Cash payouts: Here, development organizations distribute cash to beneficiaries using their staff.  There many problems with this model. Without real-time tracking and proper reporting mechanisms in place, it is hard to ascertain that the beneficiaries get exactly what they were meant to get.  Another problem is, when farmers receive cash subsidies, most of them divert some of this money to cater for more pressing needs such as taking their children to school, handling a medical emergency etc.
  • Paper-based vouchers: Paper vouchers eliminate the problem of mismanaging funds but also have their shortcomings. First; Because they are manual, it becomes hard to track each voucher in the field to ensure it was delivered to the right beneficiary. Second; agro-input dealers supplying seed have to wait for a certain period of time to redeem the vouchers and be paid by development agencies. Third; the process of reconciliation of vouchers and pay-outs is hectic and time-consuming.

A model that addresses these issues:

What is key is a system that allows for transparency and measures the rightful data to build confidence that the loan or subsidy is being used for its intended cause.

e-Voucher system for agricultural subsidy pay-outs

One such model is the electronic voucher system that combines a couple of ICT tools to address the agricultural subsidy pay-outs problem.

How would it work?

An electronic voucher system generates and bundles subsidies for each beneficiary.  Beneficiaries are provided with a smart card that has information of their voucher hidden under a code that can only be decoded by an agro-dealer who has a phone and access to the USSD menu to carry out the transaction.

The model also incorporates an integration with mobile network operators to allow for mobile payments to be sent directly to agro-dealers as soon as they redeem each voucher.

Data is a big component of this model. Banks need smart data on farmers, development agencies need to know who they are supporting and where beneficiaries are located. By using simple tools such as USSD – (Unstructured Supplementary Service Data) agro-dealers are empowered to collect essential data when redeeming vouchers from beneficiaries.

This data collected using a simple basic phone is then stored in a database and is accessed in real-time by development agencies and governments. This real-time data is useful in making quick decisions about the project as it’s implemented instead of waiting until a project is closed.

This model addresses a lot of pain-points faced by all stakeholders.


Increased produce at harvest; The value of receiving seed directly increases chances of higher yields. Better relationships with agro-dealers & suppliers; Farmers form better relationships with agro-dealers who constantly inform them of availability of seed and other supplies. Elimination of middlemen; The voucher model eliminates the middlemen who in most cases exploit farmers.


Instant payments; The payments integration allow dealers to receive instant payments for products sold.

Digital financial inclusion; Dealers start using other digital financial services such as paying utility bills using mobile payments, as well as transferring mobile payments to their bank accounts as a result of accumulating mobile payments.

Acquiring more business; Most Mobile Network Operators (MNOs) leverage these agro-dealers and use them as super dealers for their regions because of their daily mobile transactions.

Seed suppliers:

The value for seed suppliers is that they receive instant payments for produce advanced to agro-dealers and this allows them to stock up more produce and distribute more to agro-dealers in a timely basis.

Development agencies:

Disbursements & monitoring of payments; Access to quick and timely reports and payment statements for each of the vouchers redeemed.

Dashboard showing real-time data; Real-time data is used for making quick decisions such as which crops to continue investing in, which districts need more help.

Monitoring and Evaluation; The MIS provides a great starting point for better monitoring and evaluation of project performances.

More funding opportunities; Donors are more attracted to funding projects that demonstrate real impact and have systems in place to help communicate this impact.

New customers: A system like this after a long while is able to capture a lot of data that can be used by banks and financial institutions for credit scoring and understanding which farmers are worth investing in.

Potential Obstacles:

For such a system to be successfully implemented, users need to have access to a basic mobile phone as well as a fair connection to mobile network operators to allow them to access the tools for use via USSD. Another consideration is to have a reliable mobile network operator(s) that reaches even the remote areas in order to allow quick and efficient mobile payments to go out.

There a few organizations that have implemented e-voucher systems in sub-Saharan Africa for the agricultural sector, one such example is a startup called UgInnovate whose flagship product M-Voucher is using data analytics, mobile payments as well as simple ICT tools to handle the subsidy pay-outs for development agencies.

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