Why are so few smallholder farmers in Cambodia using digital financial services?
This post was co-authored by Dr. Isaac Lyne, Dr. Spoann Vin, Dr. Thath Rido, Mr. San Vibol and Dr. Erin Taylor.
Between mid-January and mid-February 2024, researchers based at the University of Western Sydney and the Royal University of Phnom Penh teamed up to collect data in three villages in peri-urban areas in Kandal Province in Cambodia. We held 30 interviews and four focus group discussions, equally divided by male and female participants.
Last year, in the course of conducting research in Laos, we did not have a great deal of difficulty finding farmers using a digital financial service (DFS) on their own mobile phone. In Cambodia, however, we found this to be very different: only one in five farmers that we interviewed were using a mobile DFS. Moreover, unlike in Laos, in Cambodia there was only ongoing use of a DFS for farming activities in particular in one instance.
When designing the research, we decided to do interviews in villages with low, medium and high access to telecommunications infrastructure, assuming that people living in villages with high access would be more likely to use DFS. However, the differences were not significant enough to explain why so few farmers in Cambodia are using DFS.
Instead, it seems that a combination of economic factors and the nature of the financial ecosystem in Cambodia make DFS less useful to farmers than in Laos. These factors include the nature of farming, smallholder farmer demographics, and their satisfaction with pre-existing over-the-counter money transfer services provided by agents registered with companies including Wing (the dominant operator), True Money, and E-Money.
A smallholder horticulture farmer attends to cucumbers. Photo by Vibol San, 2024.
Village 1
Village 1 lies 25 kilometres north of Phnom Penh. It is close to a well-maintained national highway and an expansive housing development which was built in 2017-18 but remains under-unoccupied. Here, villagers overwhelmingly farm horticulture including cucumber, tomato, lettuce, cabbage, watermelon, bitter gourd and winter melon. A small proportion of those we spoke to grow rice.
Horticulture is suited to the good connectivity to local markets, and it yields better, more regular incomes than rice. Moreover, smallholders are mostly (but by no means always) farming small plots of less than 2,000 square metres (0.2 hectares) in size in size, not large enough for commercially viable rice. Some just grow rice on small plots for subsistence.
We were optimistic when, in our first interview, we encountered a male in his fifties growing large scale winter melon on one hectare of rented land, and rice for subsistence on 0.3 hectares that he owns. He is an enthusiastic user of ACLEDA’s banking app, ever since his son (who works in Phnom Penh) asked him to install it on his smartphone to receive transfers: he likes this as there is no fee, and he has also taken to online shopping.
He would like the merchant store next door, where he buys fertilizer, to accept payment by QR code which would be convenient for him and also mean he does not worry about the condition of US dollar bills, which are still widely used in the Cambodian economy but are not accepted if they are damaged in any way. However, the merchant does not accept digital payments–perhaps in the absence of local demand, or perhaps wishing to avoid digital records for tax purposes.
Following this interview onwards, however, our optimism was tempered as other smallholder farmers using a DFS proved hard to find. We did encounter here one female aged 34 who regularly uses her phone to buy agricultural products online as well as items for a small store, and she also goes online to check market prices. This was the only instance where we found the ongoing use of DFS for farming activities on a regular basis.
Another female aged 34, operating a seven-hectare lotus seed on rented land, used digital payments to acquire seeds on one occasion. She also currently pays $300 per month off loans to two banks, that were first taken out to develop her lotus farm, and second to develop her house. She pays all of the money in cash as she never has enough money in her account pay by transfer.
Essentially, even with a significant farming operation that also requires hired labour, the turnover of cash to pay farming expenses is so high for her that it is hard to build significant reserves: she says she does manage to store something in her transaction account, but not enough that would merit a savings account that pays interest.
Rice farmers pump water from a waterway adjacent to their village, trying to take advantage of the high current market price. Photo by Vibol San, 2024.
Village 2
Village 2 lies around 45km north of Phnom Penh. Here, smallholder farmers exclusively grow cash crops, mainly rice on plots ranging from 0.7 hectares to two hectares in size. They yield two or three crops a year by irrigating fields with water pumped from an adjacent waterway that runs off the Mekong River. They also grow some corn and sugar cane, although to a lesser extent.
In this village, just one of the 12 farmers we interviewed used DFS. A male aged 36, who grows rice on 0.7 hectares of land his family owns, uses the ACLEDA banking app for a business trading in construction materials because his customers in Phnom Penh wanted him to have it so that payments could be made electronically. The app has no relation to his farming activities, which he finances with a substantial loan from AMRET microfinance that is taken out and repaid each year in cash. Ultimately he aspires to open a shop selling construction materials, which is more lucrative than farming rice. He will continue using digital transfers and payments, and he sees rice as a peripheral income activity that is chiefly for subsistence except for when there is a higher market price.
A horticulture greenhouse was built with the assistance of a development project. Photo by Isaac Lyne, 2024.
Village 3
Village 3 lies 25km to the northeast of Phnom Penh, next to a highway where extensive road works are ongoing. Smallholder farmers here grow horticulture in a similar fashion to those in Village 1. Two people we interviewed also grow rice. Here, a donor funded project has enabled a small number of beneficiaries to develop greenhouses up to sixty square metres in size.
The locality also, like Village 1, is close to markets and there are opportunities to sell vegetables outside local garment factories to employees leaving work.A 34-year-old female, who is a former garment worker, now earns money through boutique horticulture and acts as a very small-scale trader, buying villagers’ produce that she does not grow herself in order to have more produce on her stall outside a factory md make it more attractive to the workers. She does not have a bank account but uses the ACELEDA banking app on her husband’s phone, who is a salaried civil servant, to repay a large loan to ACLEDA they took out to build their house, and also do some online shopping. She does not use the app for any agricultural purpose.
Another interviewee–a younger male aged 27 who also only grows vegetables–has the ABA banking app on his phone. He also does construction work besides farming, and it has been this work that led him to open an account in the first place, and he does not use the ABA app in relation to any farming activities.
A Wing agent and an e-Money agent are next to one another, close to a market near one of the villages. that we visited. Photo by Isaac Lyne, 2024.
Insights from smallholder farmers who are using DFS
Among the six smallholder farmers that we spoke to who do use DFS, we have observed two main trends.
First, those who use a DFS mostly stand apart from most of the smallholder farmers we interviewed. In all but one case, they are younger than farming demographic on the whole, which, more so in Cambodia than Laos seemingly, tends to be older, as young people have more opportunities for off-farm employment.
In one exceptional case of a 53-year-old male using the ACLEDA app, he farms a whole hectare of winter melon, unlike the other older farmers in this village farming vegetable plots less than 0.2 hectares in size.
A 34-year-old woman who uses a DFS also stands out by farming seven hectares of lotus seed and employing farm labour, while in Village 2, where farmers predominantly farm rice alone, the only user encountered is an entrepreneur dealing in construction materials.
Second, we also find the use of a DFS is usually (but by no means universally) externally driven, whether it be for off-farm business or employment where payment by DFS is requested by customers or an employer, or if it is installed on the request of a salaried son or daughter living elsewhere, as a means to send remittance.
This tendency was reflected in a village adjacent to Village 2, where we met a seafood seller with a stall beside the market there. She displays two QR codes for digital payment, after customers from outside of the area driving through from Phnom Penh to Kampong Cham requested to pay her in this way.
A village where residents grow mostly horticulture in Kandal Province. Photo by Vibol San, 2024.
Why aren’t most smallholder farmers using a DFS in Kandal province?
We were surprised that so few smallholder farmers in Kandal Province are using DFS, unlike the peri-urban areas we visited near to Vientiane in Laos where, paradoxically, the financial service industry is less advanced. Moreover, only one of those we spoke to, a female in her thirties, has been consistently using this in relation to farming activities.
In just one instance did we find a smallholder farmer–a 34-year-old female–who does not use DFS on her own phone,but rather on another person’s phone. In contrast, in Laos we found this often, either through a friends phone or the phone of a child of working age still living with their parents. In other words, not only were more people in Laos using DFS on their own phone, but there were also more people using them on someone else's phone exhibiting therefore a quite high incentive for use. In Cambodia, people seemed to have little incentive to use DFS at all.
The difference might be explained in some part, by the smaller number of households we encountered in Cambodia where a son or daughter of young working age lives at home (again, due to the greater opportunity for waged labour elsewhere), since young people are more likely to have DFS installed on their phones.
However, even where we did households where a child of working age living with parents, the parents displayed little interest in the child’s use of DFS. A male in his fifties who, besides growing cabbage, works as an Achar (a spiritual intermediary between the people and the Buddhist monkhood) said his son, who commutes to University in Phnom Penh each day, may have a bank account and app on his phone, but he knows nothing about it and they never discuss it.
In another instance in Village 2, we asked a woman aged 53 who, in addition to farming rice with her husband, has run a village store selling toiletries and groceries for 20 years, if she has thought about using a QR code to receive payments for her store. It became clear she didn’t know what a QR code is, despite her daughter returning from teaching at an English language school in the adjacent village during the interview, and telling us she gets paid by electronic transfer and has the ACLEDA app on her phone.
We found in Kandal that smallholder farmers tend on the whole to be older, mostly over the age of 40, and that on the whole, as some of the evidence above shows, they are not interested in DFS. Compellingly, we found that the costs of farming, rising costs of living, and levels of indebtedness in Kandal Province deter smallholder farmers from either having a bank account or making meaningful use of it when they do have one (normally because they have taken out a loan).
We found that microfinance institution loans are normally taken out in cash and that no form of a transaction or deposit account is linked to this. This reflects the cash nature of transactions in which smallholder farming is embedded, in everything from paying for paying for a tractor to plough fields, to inputs from the merchant who resides within the village or in an adjacent one, to receiving payment from traders.
In Village 1, the 53-year old male farmer who uses ACLEDA banking app enthusiastically also asked the trader that he deals with to pay him for his winter melon crops by electronic transfer so he can save the money in his account, in the same way that some smallholder farmers in Laos are doing. However, the trader, who buys up to five tonnes of vegetables from villagers, spending up to ten million riels each time that he visits by the farmers account, will only deal in cash partly because he is not young, not confident with the technology, and fears the severe consequences of making a mistake, such as typing too many zeros (especially dealing with Khmer riels where lots of zeros are involved in each transaction).
This, again, is unlike the situation in Loas, where we did find a few farmers were receiving a proportion of their payments by electronically, sometimes by transfer in advance of a harvest and sometimes with a QR code upon payment, enabling smallholder farmers there to save a portion of their money in a bank account.
Smallholder rice farmers in Kandal have transitioned from transplanting rice seedlings to broadcasting seeds instead to save time and also because they no can longer hire labour as it has become too expensive (mainly on account of off-farm employment opportunities but also rising living costs). Harvesting is also mechanised using a combine harvester, which is called in by a trader that the villagers deal with. Moreover, their plots tend to be half the size of those farmed by the rice farmers that we spoke to in Laos and are more these plots are rented.
Money from harvests is thus diminishing in proportion to the rising costs of farming rice, and this is often by exacerbated by the fact that many farmers have high levels of debts to pay (which was not the case in Laos). Meanwhile, among all of the smallholder farmers that we spoke to, time and time again, they expressed that after a harvest, they have no money left to save, and that what they get from farming is needed right away, so there is no point having a bank account. They need their money to pay back their bank or microfinance loans, or a merchant who provides farming inputs on credit. Sometimes, also,traders finance their activity and take payment back from the eventual produce.
Seeing no practical reason for a bank account, almost inevitably, in turn deters them from making use of a financial service on their mobile phone even though some mobile wallet services may not require a bank account per se.
A common denominator in Kandal Province: over the counter, agent-based cash transfer and payment services
One of the big contextual differences between Cambodia and Laos is the extensive presence of an over-the-counter money agent network in Cambodia. In Laos, U-Money and M-Money mobile money wallets were introduced in2020 and there is an emerging agent network, but we found that most farmers knew little or nothing about them and the few who had used U-Money were using it for mobile phone top ups only.
In contrast, in Cambodia WING mobile money was introduced in 2009 as a mobile money service by the Cambodian conglomerate Royal Group. However, this was not successful as a wallet-to-wallet product. WING was transferred to a company providing Point of Sales technology to airtime top-up vendors across Cambodia, who were subsequently enlisted as agents in an over the counter (OTC) service network.
This overcame the inability of ordinary handsets to process Khmer language and customers’ fear of errors during transactions from their handsets. Through the popularity of the OTC agent network, where customers simply take cash to or receive cash from an agent, WING company revenues subsequently soared.1 Since then, other mobile money products, including True Money and E-Money, have also become more widely known as an agent OTC service and AMK microfinance have more recently harnessed their extensive agent network to begin providing the same service.
Among the farmers we spoke to in Kandal, pretty much all of them use OTC agents to receive remittances and/or pay utility bills. In Village 2, almost everyone we interviewed uses one of the four OTC service agents in the adjacent village to pay utility bills as there is no water or electricity company office locally. One exception was a male in his sixties, who travels to the nearest town to pay bills at AMRET microfinance institution, because he likes to speak to the staff and meet friends for coffee there.
We also found that farmers repaying bank loans sometimes choose not to go to the bank to make payments, but instead to go to an over-the-counter money transfer agent located inside or close to the village where they live.
In Village 3 for instance, a female aged 42, who works in a garment factory and manages to farm vegetables in her spare time, is heavily indebted to HATHA bank since taking a loan when her son fell ill, and to a leasing company for a moto bike used exclusively by her husband. She pays out $375 per month in total. She values the local WING agent heavily, not for anything related to her agriculture, but rather as a way to send her payments to HATHA, where she says, she feels traumatised entering the building, in her own words: “I am shaking to go there” and more than anything, she wishes “for a life without debt”.
In all three villages, we also importantly found that remittances sent through WING mostly, and also True Money on some occasions, were an important lifeline that helped to keep children in school. Moreover, these payments were also a means of financing agricultural activities when not too much money is required, for small plots in need of fertilizer or pesticide.
In other instances, people take ‘loans’ from relatives through this agent network where possible to finance their farming activities. These informal loans are not only interest free, but also repaid over less specified time frames than the monthly repayments to a bank or an MFI.
With this network readily available to farmers in Kandal, who seem very happy with it and perhaps therefore not in need of using DFS, we might speculate that DFS would not have achieved uptake in Laos if a well-functioning OTC agent network existed prior to the emergence of the BCEL One mobile wallet, which is a central means by which farmers are now receiving remittances there.
