Tanzania stands to create livelihoods, offer unique financial linkage for rural people

MILLIONS of smallholders and their families in Tanzania stand to become financially absorbed and their livelihoods improved in the respective value chain as a result of a strategy of the Financial Sector Deepening Trust (FSDT) led intervention.

The intervention, explores the strengths of agricultural cooperatives, as potentially the strongest financial linkage agents in rural Tanzania, and how it could be harnessed to develop innovative financial solutions for farmers, like health insurance, investment products, and mobile payments.

This is after realization that delivering financial services to rural people remains a global challenge, despite the progress made in technology and microfinance.

Here an estimated 2 billion adults in the world, mostly smallholder farmers, have no access to the types of financial services delivered by regulated financial institutions (IFAD and World Bank 2015). In Tanzania, rural adults make up 79 percent of those who do not receive any services from regulated financial institutions. Innovative approaches and financial products are therefore deemed vital for financial institutions to affordably reach and serve rural people.

The solutions need to be able to effectively address the financial needs of rural people in order to have value and to potentially be a tool that empowers them.

It is with this challenge in mind that FSDT designed an intervention that would innovate how financial services reach rural people and how innovative financial products made for rural people can help them to improve their livelihoods.

Linkages are collaborative approaches for financial and non-financial institutions to work together to service otherwise difficult target markets, particularly rural people. To tackle the challenges, the FSDT intervention aims to design and leverage an innovative rural linkage model with key stakeholders.

Central to the linkage model are two key institutions, namely the warehouse receipt system and the agricultural marketing cooperative society (AMCOS). Almost all farmers in Tanzania are smallholders (96 percent) and AMCOS are a significant and rapidly growing aggregator of farmers.

The AMCOS are estimated to currently have five million farmer members and service up to 30 million farmers across the country. They also play a major role in helping farmers with their marketing and selling through the warehouse receipt system (WRS) which serviced 700,000 farmers in 2016.

FSDT held the hypothesis that together these two institutions can facilitate to unlock financial inclusion for millions of rural people in Tanzania.

As a start to the intervention and to innovatively and systematically realize the linkage potential, FSDT established an alliance with select stakeholders including the Tanzania Cooperative Development Commission (TCDC), the Bank of Tanzania (BoT), and the Warehouse Receipts Regulatory Board (WRRB). Supporting institutions included Cashewnut Board of Tanzania (CBT), the Office of Regional Commissioner in Mtwara, and the Office of the Regional Commissioner in Lindi.

These stakeholders were effective partners of the intervention. From August 2017 to March 2018, the FSDT intervention--which targeted cashew nut farmers in Mtwara and Lindi–worked with financial service providers and designed three solutions: worked with NHIF to develop a health insurance solution for farmers and their households; worked with GEPF to develop an alternative savings and investment solution with a pension company and worked with Tigo to develop a payment solution for farmers.

The solutions are being rolled out to cashew farmers and are being expanded to other farmers. “The initial outcomes of this intervention hold enormous potential to effectively and profitably reach and service rural communities, positively impacting community welfare and economic development,” said Mwombeki Baregu, the Head of Agriculture and Rural Finance at FSDT and who is also the creator and the project leader for the intervention to enable the unique rural financial linkage model. In particular, the rural health solution, called Ushirika Afya, stands to transform rural healthcare in Tanzania and can be the bridge to over 50 percent coverage for healthcare in Tanzania.

It is being rolled out by AMCOS in 2018. With health expenses assured for rural households, various forms of long term savings, including one that is developed by this intervention, can be developed and delivered and offer multiple investment opportunities for rural economies.

Another highlight of this intervention was the overwhelming success of the Tigo Korosho project piloted in Mtwara, which saw massive demand from farmers. During the relatively short period, Tigo Korosho distributed about TZS 1.9 billion to thousands of farmers.

Tigo Korosho is projected to reach over 200,000 farmers in 2018 and similar models stand to reach millions of farmers in the coming years.

For Mwombeki through this intervention, the unique Tanzania linkage model developed can be a game changer in rural financial inclusion and offer pathway for livelihoods improvement to millions of Tanzania.

The linkage approach is one of its kind in the world and can potentially be one for other countries to learn from. Here Tanzania potentially stands to be a model country in rural financial inclusion and even rural transformation. It is truly exciting.