Banks and microfinance institutions have long struggled to reach rural clients with traditional methods. Heather Joffe Reyes explores an approach that blends agricultural value chain financing with digital services to ensure rural communities in Colombia can access the financial services that they need.
Back in 2015 while designing our approach for USAID’s Colombia Rural Finance Initiative (RFI), a Colombian colleague and I visited a sugar smallholder who had settled in the Meta department, fleeing the civil war. On his adobe walls hung a photograph of the farmer smiling proudly next to Colombia’s President Santos, who had visited their cooperative to inaugurate a sugar mill — which more than a year later stood idle and without electricity. His village lacked running water while his cooperative lacked capital. The farmer told us the only time he banks is when he takes an expensive, three-hour bus ride to the state capital, to pay cooperative taxes — even though they’re not turning a profit. We came away humbled and wondering, “How are we going to link farmers with financial services when they’re not even connected with electricity or markets?” We knew the answer lay with reducing transaction cost and risk for bank and farmer — but how?
Three years into implementation, RFI has worked with more than a dozen banks and microfinance institutions to link 250,623 rural Colombians, half of them women, to more than $227 million in financial services (largely rural and agricultural credit, savings, and insurance). However, the question remains, “How can we scale up financial services further, to reach millions more rural Colombians like our Meta sugar farmer?” This is a question that practitioners ask worldwide, and one that’s particularly pressing in Colombia with the 2016 peace accords’ promises of rural economic inclusion after decades of violence and neglect.
The Challenge to Reach Rural Clients
It’s no secret that research points towards digital services as a major financial inclusion driver, since digital services reduce transaction cost by reducing use of cash — as cited by the Consultative Group to Assist the Poor (CGAP) and the World Bank’s Better than Cash Alliance (BCA). Digital channels are especially attractive where security is an issue; for example, in parts of Meta, cash must be helicoptered in at high cost for bank and customer. However, while Colombia boasts an increasingly sophisticated financial system, it has historically failed to reach rural clients — and digital services are no exception.
For example, RFI partner bank and Colombian multinational Davivienda boast the fast-growing “Daviplata” mobile app with some 4 million users, 5,600 businesses paying salaries, and $235 million in transactions — mostly in urban areas. Daviplata allows customers to manage savings and checking accounts and to make and receive payments, like a banking app combined with Venmo. Given promising urban uptake, RFI and Davivienda asked, “How can we reach rural customers?” Rural customers are traditionally more expensive and risky to reach, given geographic dispersion, informality, and ag cycle vulnerabilities. While small microfinance institutions may visit individual smallholders for loan origination, it’s prohibitively expensive for Davivienda’s business model.