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Digital Financial Services for Smallholder
Coffee Farmers in Uganda
Lara Chhatwal
Strategic Alliance “Farmers as
Entrepreneurs”, GIZ Competence
Center Financial Systems
Development and Insurance

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Background
• 500,000 smallholder coffee farmers in Uganda
• Most sell coffee to “middlemen”, many of them “pre-sell”:
 close, fast and convenient to cover immediate cash
needs
 far below the market price of mature coffee
 equivalent to monthly interest rates of up to 139%
 damage to trees, cheating, theft, pressure and
control, delayed payments
• Identified possible solutions:
 Access to formal financial services for productive
purposes
 Financial Literacy to raise awareness

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Challenges in Financing Coffee Smallholders
Demand-side:
• Lack of collateral and securities
• Interest rates perceived as high
• Financial literacy and missing perception of farming as
business among many farmers
Supply-side:
• Smallholders perceived as risky clients
• Lack of adequate financial products and knowledge on
agricultural lending among staff of financial institutions
• Traditional paper-based lending approaches are too
costly in the field

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Exporter
Bulking Station
Producer
Organization
Producer
Organization
Farmer
Farmer
Farmer
Farmer
Producer
Organization
Bulking Station
Bulking Station
Step 1: DPP to develop and introduce a supply-chain
management tool in cooperation with SAP
mobile payments and sms receipts

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Step 2: Cooperation with financial institutions to use transaction
data as proof of income
Farmer opens account & applies for loan1
Financial Institution does loan appraisal
(based on digital transaction data)
2
Loans are disbursed via mobile money / inputs for input-loans
are supplied
3
Farmer delivers coffee to bulking station at harvest time4
Money is transferred from bulking station to farmers’ account
and loans are automatically recovered
5

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Successes:
• 24,000 smallholder farmers digitally registered
• 400 lead farmers trained as community trainers in financial literacy
• 19,500 farmers trained
• 950 bank accounts opened and 800 loans disbursed (2014 – 2016)
• Financial institution partners continue to provide their service
Limitations:
• Technical issues (network, power, usability, standardization)
• Limited understanding of the value-chain among FIs (e.g. late disbursements
for fertilizer loans)
• Mobile banking not introduced by FIs
• Hesitance to fully rely on digital track records for loan assessments
 costly traditional processes were maintained and led to limited outreach

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Main Lessons Learnt
1. Building up a profitable model takes time and only works
through scale
2. Financial institution needs in-depth knowledge on value-
chain and buy-in at all hierarchy levels
3. Farmers benefit from strong farmer groups for linkages
4. Smallholders need knowledge on agriculture and
financial literacy, based on seasonal refreshers
5. Challenges in Agricultural Finance are interdependent,
so are possible solutions:
- ICT is key to reduce costs of outreach and to improve
access to finance “at the farmgate”
- Financial services and trainings need to be integrated
into the agricultural context of a smallholder

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Strategic Alliance
“Farmers as Entrepreneurs – Improving Livelihoods of 33,000
Smallholder Farmers in Uganda” (2017-2019)
 Comprehensive approach:
 Working with 5 partners from the agriculture, financial and technology
sector
 Working with independent farmer groups in different value chains
(coffee, cotton, banana)
 Smart Farming: integrated GAP/finance training approach with seasonal
refreshers, including aspects of data protection
 Testing different approaches to (digital) agricultural finance
Digital Services
Agriculture
Access to Finance

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Strategic Alliance: 5 Sub-Projects
Set up a fertilizer and cash finance system for 15,000 smallholder
coffee farmers in Central Uganda, using digital solutions
Set up of a digital asset finance system for 5,000 smallholder
cotton farmers in Northern Uganda
Develop adequate financial services for 2,500 smallholder
matooke farmers in Western Uganda, using digital banking
Adapt SAP’s Rural Sourcing Management (RSM) to MSMEs &
farmer associations to increase transparency in smallholder value
chains
To train and organize 10,500 smallholder coffee farmers in Eastern
Uganda, increasing their access to input finance

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Testing Approaches to (Digital) Agricultural Finance
1. Traditional financial service providers
 Value chain specific product development
 Integrated training of bank staff
 Using digital delivery mechanisms (mobile banking, mobile money)
2. Asset and Input Finance by off-takers
 Based on digital delivery records and/or digital loan monitoring
 Adapted to harvest cycle, in-time delivery of quality assets and inputs
 Mobile repayment or through produce deliveries (no contract farming)
3. Village saving groups
 Strengthen farmer group dynamics
 Encourage savings as preferred option to loans, especially for household needs
 Cross-cutting: “Smart Farming” Trainings for Smallholders

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Thank you for your attention.
lara.chhatwal@giz.de