The future of ... development finance

How to harvest the power of clean energy for off-grid African farmers

January 18, 2024 | By Sophie Hares

The vast majority of Kenya’s 7.5 million smallholder farmers live on less than $6 a day, just half the country’s living-income threshold.

Farmers are struggling to feed their families, educate their children and pay for their healthcare, let alone invest in the tools and clean energy technology — such as biodigesters  and solar-powered irrigation pumps, cold storage and milk chillers — that could make their acreage more productive and reduce post-harvest loss. A lack of affordable credit and access to markets also prevents farmers from maximizing their yields and earning a living income, keeping them stuck in a poverty loop.

An innovative new program gives smallholder farmers access to a digital infrastructure that can enable affordable credit to buy income-generating energy assets. It also provides greater access to markets and other resources that could break the poverty loop , and transforms the complex, paper-based agricultural value chain into one that enables a more efficient and transparent exchange of goods, services and information. Mastercard, U.K. charity Shell Foundation and the Co-operative Bank of Kenya are collaborating to launch the pilot, in which up to 100,000 farmers will be able to borrow money at below-market rates to finance clean-energy technology.

Too often, organizations work in silos when trying to improve the livelihoods of those in marginalized communities. By combining resources and unique expertise across public and private partners, this collaboration is intended to demonstrate the viability of market-based solutions and promote widespread replication of these efforts and greater collective impact.

Co-op Bank, founded by farmers in 1968, has launched Co-op Bank Soko, a digital agricultural platform for smallholder farmers powered by Mastercard Community Pass technology. Community Pass is a digital infrastructure platform that connects people in underserved, remote and frequently offline communities to critical services in the sectors of  agriculture , health care and micro-commerce. The platform provides farmers with digital identities that enable them to create transactional history that can unlock access to credit.  The increased transparency provided by the platform helps farmers better understand the current market value of their crops.  And the digitization of the agricultural value chain enables farmers to move away from the use of manual, cash-based value chains that are often vulnerable to fraud, waste and inefficiencies.

“We’re finding ways to narrow the growing financing and digital infrastructure gap across the continent,” says Mastercard’s Tara Nathan, the founder of Community Pass. It’s a key part of the pilot, which she calls “a vital step toward increasing incomes for farmers and helping make their communities more resilient.”

Harnessing energy access to empower farmers

Shell Foundation propels clean-energy innovation and unlocks inclusive investments in Africa and India. Since its inception in 2000, it has supported a portfolio of innovative energy-access solutions that empower millions of underserved customers to earn a living income. Shell Foundation’s involvement includes co-funding from the U.K.’s Foreign, Commonwealth & Development Office through its Catalysing Agriculture by Scaling Energy Ecosystems partnership, which extends access to products and services for smallholder farmers across Africa and South Asia.

“Clean-energy technologies have the potential to increase farmers’ yields by up to 40%,” says Meera Shah, head of the smallholder farmers portfolio at Shell Foundation. “Scaling these technologies, however, has been limited due to high up-front costs and the farmers being unable to access credit at affordable rates, if at all.”

The potential increase in a farmer's yields by deploying clean-energy technology, according to Shell Foundation

This partnership is intended to provide potato, maize and dairy farmers with access to credit for six innovative clean energy technologies from selected asset providers: biodigesters and solar-powered irrigation pumps, milk chillers, maize millers, cold storage and lanterns. Shell Foundation is providing a grant subsidy to the program to reduce interest rates by six percentage points for smallholder farmers who would typically be deemed risky borrowers by traditional lending schemes. It also aims to prove that these energy assets can make farms more productive, which, combined with greater market access, enables more farmers to repay their loans. A sufficiently high repayment rate will enable Co-operative Bank of Kenya to offer affordable financing to more farmers without donor support after the pilot.

“With access to solar irrigation, for example, farmers improve their yield, allowing them to sell a 100-kilogram [220-pound] bag of potatoes at 6,000 Kenyan shillings [about $38] when there is low supply, versus at KES 1,500 [$10] when there is an oversupply. With access to a functioning cold storage solution, farmers would be able to control timing of their sales and also sell at the prices they want to, versus being price-takers,” Shah says.

“The income uplift from productive clean-energy assets is only possible if smallholder farmers also have access to markets to be able to realize their income, access to credit to be able to afford the asset, and access to quality seeds and fertilizers to meet buyers’ quality standards.”

Weaving inclusivity into the program

The pilot also aims to solve some of the challenges specific to women in farming. “Portable solar lanterns can make it safer for women to milk their cattle in the early hours,” says Esther Kariuki, head of agribusiness at Co-op Bank. “Biodigesters generate fuel and fertilizers from organic waste, which is cheaper and safer for families than burning expensive, smoky charcoal.”

In addition, the pilot requires digital field agents to work directly with the farmers, and 70% of those will be women, creating an additional source of income across the value chain, Kariuki says.

Access to off-grid solutions is just part of the equation. Despite improvements, digital financial inclusion in Africa continues to lag behind the global average, and that’s affecting regional economic activity and development, according to the African Inter-Regional Payments Integration Task Force. The pilot program will bring smallholder farmers into the digital fold, increasing their market access and making their fragile incomes more sustainable.

For Mastercard, digital inclusion is a precursor to financial inclusion. Community Pass enables a scalable digital solution via functional digital identity, a shared digital wallet, a digital acceptance device and a safe, secure data platform. This makes farmers visible to the formal financial sector with a transparent transaction history.  

By matching farmer cooperatives directly with buyers, Community Pass helps eliminate costly middlemen and gives farmers more control over the prices they accept for their produce. The technology also lets farmers switch to digital payments and build the financial transactional histories they need to apply for loans. And with the ability to work offline as well as online, Community Pass has reached more than 5 million people across six countries.

"We are trying the change the development model,” Nathan says." By combining affordable finance with access to modern farming equipment and marketplaces, the program is a fantastic example of private and philanthropic organizations partnering to create a scalable tailored solution." 

Banner photo courtesy of Shell Foundation.

Sophie Hares, Contributor