In 2017, UNCDF partnered with Prabhu Management to digitalize the dairy value chain in Nepal which helped bring previously unbanked farmers into the financial ecosystem.
The pilot project that started with four dairy cooperatives in two districts (Kavre and Bhaktapur) digitalized over 20 cooperatives by 2020 with nearly 5,000 dairy farmers registered on the mobile wallet, and more than 1500 farmers receiving their earnings digitally. This work has been further scaled up with the support from ILO to digitize five more dairy cooperatives with additional 1500 dairy farmers registered on the mobile wallet.
The digitalization of the dairy cooperatives ended the manual process of tracking information and improved efficiency which in turn helped farmers in more ways than one. For one thing it brought farmers into the financial ecosystem and for another it saved farmers time and money on travel as the closest bank in rural Nepal can be miles away. It made payment secure for both the farmers and the cooperatives. Above all, it significantly minimized payment delays which was beneficial to farmers in reducing financial distress particularly in the wake of COVID- 19.
In March 2020, Nepal enforced strict preemptive lockdown for three months to prevent the transmission of COVID-19. This measure severely impacted businesses across industries including agriculture. The restrictions in mobility and social distancing paved the way for rapid adoption of digital technologies worldwide. To understand the impact of dairy digitalization during the pandemic and the future outlook for the agriculture sector, UNCDF analyzed the data of the farmers and their cooperatives. The data provided insight on how digitalization has helped smallholder farmers cope with the many challenges imposed by the pandemic and the ensuing lockdown. The analysis also shows that the pandemic was a trigger in the adoption of digital technologies by the farmers.
Digital wallet proved invaluable to farmers during COVID-19
The data from Prabhu Management shows a spike of nearly 600 percent in the usage of digital financial services (DFS) during the COVID-19 lockdown period. The average number of transactions in this period increased from 357 per month to 2,434 transactions, while the average number of users per month also increased by 300 percent. Furthermore, nearly 56 percent of the farmers used for the first time DFS services during the lockdown period.
This analysis indicates the latent demand and acceptability of financial services in rural areas. Additionally, it confirms that grassroot organizations such as cooperatives were a vital lifeline for farmers throughout the pandemic.
Usage of bank channels increased seven times at the start of the lockdown
Many countries have reported an increase in the usage of formal financial channels during the lockdown period. The data from the cooperatives revealed a similar pattern for farmers too, showing a seven-time increase in the usage of banking channels for deposits and withdrawals during the lockdown period. Most of the users preferred banking channels to cash out their wallet balance during the initial months of lockdown. This shows that users generally prefer using bank channels to transfer the received amount to their bank accounts.
Agents played a critical role in onboarding farmers
DFS agents such as cooperatives and other community-based organizations have been key in bridging the gap between farmers and formal financial channels. Users’ data show that nearly 58 percent of the cash coming into the wallet is through DFS agent channels such as onboarded cooperatives, merchants, and agents via the Prabhu platform. Also, nearly 42 percent of cash coming into the wallet is from other digital sources such as bank transfers (16 percent), mobile banking (16 percent) and remittances (10 percent). This indicates that due to the financial services offered by these grassroots organizations, farmers were able to use other digital channels as per their need, hence, broadening their financial access.
Farmers are using the digital wallet for additional services
The analysis shows that farmers have started to use digital payments for additional services such as agriculture inputs, insurance payments, etc. This demonstrates that there is a possibility and need for broadening the ecosystem with relevant merchants and new services. Farmers are ready for the expansion of the services provided at the tip of their fingers on their phones, it is now a matter of building their awareness.
The surge in the use of digital wallet has proven that the digitalization of dairy cooperatives has helped many smallholder farmers weather the pandemic. While COVID-19 is still running its course, the analysis underscores the importance of digital literacy and digital financial services, especially in rural Nepal.