Conference Preview Interview with Judson Welsh, CEO of AIMS, whose is delivering a keynote presentation at AITEC Banking & Mobile Money West Africa in Accra over 8-9 June on “Achieving traceability and security in West Africa’s commodity market through mobile banking”
Q: Traceability is not so new to those in the commodity market but somehow not so familiar term altogether for many.
A: Traceability is not a new term but its spreading use is a relatively new phenomenon because the need to assure that Fair Trade, Child Labour considerations and origin of product is verified. From the banker’s perspective the need is to be sure the funds lent to a borrower are used for the stated purpose. Traceability simply means “where does the stuff come from or go to”.
Q: In the context of your presentation does it refer to ability and ease of tracking down the source of the commodity to validate its source or is it more than that or does it have different meaning altogether?
A: The focus is on assuring that monies lent are used for the stated purpose. In the case of the commodities the borrower generally takes cash to the supplier (farmer, market, or cooperative), negotiates a deal on quantity and quality and pays out the agreed upon amount. BUT for a banker it means cash (say $100,000+) has been disbursed and is subject to theft (by the borrower or a third party), fire and damage (rats). Would it not be better to provide the borrower with a line of credit that he could access using his mobile phone?
Q: Which commodity do you exactly have in mind that you want to ensure its traceability and security? Is it physical commodity such as agricultural and mining commodity? Or does the services, such as government services and other services which sometimes are regarded as commodities, included?
A: My only focus is on agricultural commodities and more specifically value-added enterprises such as food processors. Nonetheless, the concept is transferable to all sectors. The example I will use is cashew processing because I am familiar with it through my association with the African Cashew Alliance. Other commodities such as palm oil, cassava, shea, gari, and spices, etc have similar production and seasonality patterns. These products are now referred to as “non-traditional” exports. Curiously they are very traditional products on the West African Scene. Traditional exports are coffee, cocoa, rubber etc which are usually financed by the buyers’ overseas banks…. Nonetheless, the use of agents to purchase these commodities with cash is the same risk.
Q: What exactly the threat or security issues that exist in commodity market in West Africa? What exactly is this security issues?
a. Is it issues on the marketing of the commodities?
b. Does it involve the stability of price of commodities demand and supply?
c. Which threat is commodity market facing now that mobile banking will solve?
A: All commodities face agricultural risks, of price, availability, flood, pests, fire, drought, poor delivery systems etc. Market demand also fluctuates. So all the normal commercial and production risks which may be covered by insurance, guarantees, agricultural program subsidies do not change but may also be mitigated. … Nothing new here.
Q: Briefly, tell me how the mobile banking can be used to achieve traceability and security of commodity market in West Africa?
A: The key is to identify the buyers and the suppliers, make them known to the bankers who need to satisfy KYC Regulations (Know Your Customer). Once KYC is satisfied, the next task is to simplify the task of transferring monies and reduce the risk of same. Instead of carry cash in a box to purchase an agricultural commodity in a rural area, my question is why not setup a transparent system for the banker, buyer and supplier which permits traceability of the money movements.
Working to together with at known buyer (the bank’s client), the suppliers can be introduced to the bank. Once the names and identities of the suppliers and their bank accounts are known or established, together with their cell phone numbers a simple security code can be introduced for notifications of transfers. The ingredients are: (1) a known buyer with a line of credit, (2) known suppliers with mobile capacity and bank accounts, and (3) demand for the commodity. The mobile phone is pretty much universally accessible in West Africa and most persons even rural are familiar with simple payments for electricity or small transfers of phone units.
Negotiations between the buyer and the supplier take place as they would normally for quality and quantity, but instead of handing over cash, the buyer notifies the bank of the amount required for the supplier (prior identification established). The bank in turn then notifies the supplier thru the cell phone that his account has been credited. Likewise, the bank notifies buyer that his account has been debited. No cash = less risk because the transaction is traceable and transparent.
A potential problem will be in getting the supplier to accept the validity of the electronic transaction. That probably means for the first season the buyer will have to accompany the supplier to the bank so the supplier can see his account is credited. Advantages to the supplier is that he does not carry cash for everyone in the village to see and only needs to withdrawal monies as and when needed.
A major advantage for the banking system is that the number of banked persons (financial inclusion) should increase. This will accompanied by the need for the banks to be more rigorous in assuring that their services are rendered very efficiently. Ie. in order to meet the customer demand of speedy transfers .
This theme is carried forward in the conference with the interoperability of the various switches in the sub-region. These platforms do not create a level playing field on a regional basis due to variations in the regulatory environment between the countries primarily Ghana, Nigeria and UEMOA. Nonetheless, getting the system to work on a national basis sets the ground work for regulatory environmental change.