The Food Reserve Agency (FRA) in Zambia has announced that payments for this season's crops will be made into farmers' bank accounts. The FRA is probably the biggest buyer of crops produced by smallholder farmers and, for many, the major source of income during the year. Many of these smallholder farmers do not have bank accounts.They're part of the great unbanked masses that make up most of Africa.
This move may just force them to get bank accounts. The FRA is threatening not to pay anyone who doesn't provide personal banking details. Bank accounts have advantages. They do enable farmers to access their money from anywhere in the country and to make withdrawals at will. Money kept in a bank is also safe from natural disasters and theft (assuming, of course, that the bank doesn't collapse or steal the money). I've even wondered if having money in a bank, instead of needing to convert it immediately to assets before it gets stolen, might contribute positively to smoothing out cash flow for smallholder farmers. I'd love to see research that might answer this question either way.
Banks, however, can be a problem. For a lot of smallholder farmers, the cost and inconvenience of travelling to the nearest bank branch, or even ATM, is prohibitive. Can Zambia's banking system really service people who live in the middle of nowhere? And what about the cost and the complications when a bank offers a farmer credit because he is a customer but doesn't bother to explain the rules?
I've seen "village banks" in Kenya started by dairy cooperatives, where savings and lending are balanced and both built into payments for milk production. They're member-only, member-owned set-ups, so there is limited risk from outside. They were started because the commercial banks were too far away and too expensive for the farmers. I can see the value of having financial services available to smallholder farmers, particularly when you have so many smallholder farmers, but can Zambia's commercial banking sector support the low-level mass demand this move will create?
Would love to hear other thoughts on this.