Rabo takes particular interest in this last group to link them to finance through contract farming with financial arrangements that limit the risk of default or side-selling.<sup>12</sup> Similarly, the DrumNet Project in Kenya uses a supply-chain approach to promote agricultural lending. It has piloted the approach in the horticultural and oilseed sectors, with over 3,000 farmers participating. Risks of default are reduced through cashless direct payment to the input supplier via a bank transfer once the product is delivered to the buyer.<sup>13</sup> _E-transfers and payments._ The use of technology to bring banking services to rural areas is spreading quickly where the regulatory environment supports it. For example, Kenya’s M- PESA service has transformed rural banking in that country. This cell phone-based service allows users to transfer money safely without a bank account. Initially intended to enable wage earners to send money home to families in rural areas, M-PESA now allows customers to pay bills (including utilities, school fees, etc.) and repay loans and insurance and micro-insurance premiums. A new business feature allows companies to pay salaries to employees via M-PESA. Equity Bank in Kenya recently offered all M-PESA users the option to open a savings account, using M-PESA to deposit and withdraw funds.<sup>14</sup> Young people are especially quick to adopt innovations based on mobile phones when they have access.

The use of biometrics is being explored in the context of credit markets in countries where unique identification systems do not exist (and where, therefore, banks have more difficulty identifying repeat defaulters). Biometric identification allows lenders to withhold new loans from past defaulters and to grant loans to known responsible borrowers. An experiment in Malawi linked higher repayment rates with the use of fingerprint scanning of paprika farmers.<sup>15</sup> Biometric tools that reduce costs of identifying borrowers and lower default rates can enhance outreach to hard-to-serve clients. Introduction of such measures is not likely to be undertaken solely to address issues of employment of young people, but this is yet another example of measures to facilitate agricultural growth generally that will have significant benefits for the young.

_Insurance._ Innovations in micro-insurance are also under way. The International Labour Organization estimates that micro-insurance in Africa almost doubled between 2006 and 2009 from a very small base. Micro-insurance differs from traditional insurance with its low premiums, products with simple designs, flexible payments for premiums, prompt settlement of claims, and its issuance through well-trusted yet innovative channels. For example, more than 11,000 Kenyan maize farmers, some with as little as one acre, have obtained insurance policies that cover significant losses in the event of a drought or excess rain that destroys their harvest. Similarly, BASIX and a commercial insurer in India provide weather insurance based on a rainfall index to small farmers to improve their access to credit, with payments triggered when

> 12 IFPRI and World Bank (2010) Brief 4, and

<u>http://www.rabobank.com/content/products_services/business_clients/professionalproducts/raboagrifund/index.jsp.</u> 13 IFPRI and World Bank (2010) Brief 14.

> 14 IFPRI and World Bank (2010) Brief 8.

> 15 IFPRI and World Bank (2010) Brief 9.

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