State of Digital Financial Services (DFS) among Farmers in Bangladesh

Author: Dr. Md. Akhtaruzzaman Khan Professor and Head Department of Agricultural Finance and Banking Bangladesh Agricultural University, Mymensingh

As the agriculture sector ensures food and nutrition security, on the one hand, it also plays an important role in keeping the economy healthy for any country.

To boost this sector further, the role of technology can be immense, particularly through modern services like Mobile Banking which can make access to finance and transactions much simpler for farmers particularly in developing countries like Bangladesh. Digital Financial Services (DFS) presents unprecedented opportunities for financial inclusion in agriculture by overcoming the barriers of cost, distance, transparency, and by providing financial services tailored to their needs.

Through the proper use of DFS with access to financial products and services, such as micro credit, savings, insurance, and payments, practicing smart agriculture (i.e., making farming more efficient, productive, and sustainable) can provide a major breakthrough in building a smart Bangladesh. DFS can enable farmers to invest in their farms, purchase inputs, and manage risks, ultimately leading to increased productivity, higher incomes, and improved livelihoods.

In line with this, a field survey was conducted to see the state of DFS use among rice, vegetables, poultry, and fish farmers in Rangpur and Mymensingh districts.

It was found that almost all of the farmers are aware about DFS and 88% of farmers surveyed said they have been using DFS for four (4) years. 13% of the farmers use DFS on a daily basis, 44% on a weekly basis, while others do so once a month (31%). Survey results indicate that bKash (82%) is the most popular among DFS products, followed by Nagad (30%) and Rocket (23%).

Generally, the farmers use cash, DFS, and cheques for their farm and household transactions.  The use of direct cash is still the most preferred mechanism and dominates purchase of inputs (e.g. feed, fingerling, chick/egg, seed, fertilizers, labor, and so on) and sales of output (e.g. farm products and by-products). For farm activities, DFS is mostly used in the case of utility bill payments (e.g. electricity, water, gas) as the utility bill of their farms is a small amount and incurs minimal transaction charges. Farmers prefer cash to avoid risk when transacting large sums of money.

Some farmers who are more receptive to technology and has the necessary digital literacy are also using DFS to purchase inputs on a small scale. Poultry and fish farmers, for example, use DFS to purchase feed, chick/egg/fingerlings, and medicine/insecticide. Furthermore, they use DFS on a small scale to receive payment for selling farm products. Bank payments were also lower in farm transactions, primarily for poultry and fish farmers.

The results show that use of DFS is gaining some traction in household transactions which holds some promise. Majority household use cases of DFS are mostly for payment of online shopping (88%), data bundles (71%), receiving domestic remittances (70%), getting school stipends (63%), receiving social protection program funds (62%), utility bills (56%), and mobile bills (54%) respectively.

It was also found that majority of crop and vegetable farmers use DFS in receiving social protection program funds, while fish and poultry farmers use it for receiving domestic remittances. Bank-to-bank transactions are more prominent in receiving international remittances and in deposit savings.

The study attempts to investigate the perceived usefulness of DFS to farmers which may motivate their usage intention. One of the primary benefits of DFS is that it enables farmers to access financial services from remote areas without the need to travel long distances. The ease of using DFS also have a significant impact on its adoption and effectiveness in agriculture.

However, about 24% of farmers noted that they dealt with several issues such as transaction failures, scams and password mismatches. Fish farmers, who used DFS most, were faced more problems during the transaction process than others while more than two third of the vegetable farmers surveyed were subject to scams at some point of their DFS journey. Scams are a major hindrance particularly for people who had less access to education, which leads to massive distrust in the system.

Significant portion of the farmers who faced issue complained to the agent, majority of which were crop farmers that made up a large number of the sample. Some vegetable farmers and fish farmers were found to have called customer care to solve their problems. Few farmers resorted to legal action, such as filing a general diary at the nearest police station, to solve their issues. Unfortunately, in such situations, most of the time, the authorities failed to provide the farmers with adequate solutions.

It is due to such bad experiences, farmers do not trust DFS adequately and feel more comfortable with cash transactions, considering the additional costs and security.

Of the farmers who do not use DFS, among them 75% farmers thought DFS was not a necessity for them, while 25% did not know how to use the services. Lack of proper infrastructure (acess to smartphones), financial and digital literacy, technical skills, and perceived complexity were some other major reasons they were not interested in pursuing digital solutions.

The potential of DFS is undeniable as it can play a mojor role in boosting financial inclusion, improve access to loans and other financial products, and enhance financial management in broader agriculture.

With focused effort, greater prioritization and coordination among public and private stakeholders, the agricultural sector can get a major lift in DFS adoption which can make way for deeper technological integration and efficiency gain in the future. The government may consider  specific incentives such as subsidized cost of transaction for farmers, providing access to internet connection at a reduced/ subsidized rate to farmers and imrovements in local IT infrastructure and skills development.

The private sector and service providers can also contribute in the form of greater knowledge and awareness building initiatives such as regional trainings focused on digital and financial literacy of young to medium-aged farmers, enhancing the number and expertise of DFS agents so that they can share knowledge with the local farmers and solve their issues, reducing the complexity of DFS applications further so that it can be readily adopted by the farmers, provide more agricultural-focused services that might enhance the utility of such apps, improvements in security and rate of resoving issues, and communicating the developments at regional levels so that the trust placed on them is lifted. They can also work closely with GoB in establishing an equitable rate for farmers in using such services to further incentivize them.


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