Transcript IBM Presentations: Blue Pearl DeLuxe template

THE VALUE CHAIN FRAMEWORK,
RURAL FINANCE,
AND LESSONS FOR
TA PROVIDERS AND DONORS
Bob Fries – ACDI/VOCA
3/15/07
Key Messages
1. The Value Chain Framework is useful for expanding
financial services, not just for enterprise
development.
2. A value chain perspective helps donors and TA
providers to focus on financial services that offer
significant economic opportunity.
3. Financial institutions can learn from and engage
more with value chain actors in order to develop new
products and reach new markets.
First some useful definitions
Value Chain = the set of actors (private, public, and including
service providers) and activities needed to bring a product from
production to the final consumer.
Value Chain Analysis an assessment of the actors, and factors
influencing the performance of an industry, and relationships
among participants to identify the driving constraints to increased
efficiency, productivity and competitiveness of an industry and
how these constraints can be overcome.
Value Chain Finance = financial services and products flowing to or
through value chain participants to address and alleviate driving
constraints to growth.
VALUE CHAIN FRAMEWORK AND FINANCE
Financial Services
Global
Retailers
• Overdrafts/ lines of
credit
• Investments, loans or
savings to fund
upgrading
National
Retailers
Exporters
Processors/Traders
• Working capital to
purchase inputs or
products
• Seasonal production
loans
Producers
Input Suppliers
Product and Financial Flows within the Value Chain
Financial Institution Suppliers Value Chain Suppliers
Product flow
Finance flow
Commercial Banks
Non-Bank Financial Institutions

Exporters/
Wholesalers

Processors

Local Traders &
Processors

Grass-Roots MFIs, NGOs, Coops


Producer Groups
Farmers
Input Suppliers
VALUE CHAIN FINANCE - THREE EXAMPLES
Trader Credit
Contract Farming/
Outgrower Schemes
Warehouse
Receipts
• Loan between
• Loans linked to
purchase
agreements
• Loans backed by
receipts issued by
safe, secure
warehouse
buyer and seller
• Grains and high value
• High value
VALUE CHAIN FINANCE - OUTGROWER SCHEMES
Benefits
Global
Retailers
 More secure product and market
 Higher yields and quality
National
Retailers
Exporters
Wholesalers
 Bulk input purchases & product sales
 Contracts for collateral, loan and sales
terms, and product specs
Learning
Processors/Traders
Producers
Input Suppliers
 Business relations screen,
train and monitor customers
Lessons for Financial Sector
• Loan terms and structure reflect
economic activity
• Financial Sector can increase trader
credit through loans to larger VC actors
VALUE CHAIN FINANCE
LIMITS & POWER RELATIONSHIPS
LIMITS
Monopoly/ Unfair
Pricing
Trader
Credit
Checked by market
info and trader
competition
Side-Selling
Frequent, creating
high default risk
Enabling
Environment
Trust
Contract
Farming
Warehouse
Receipts
Checked by need for Without warehouse
reliable product
standards and
inspection
Less options due to
closer monitoring
No. Product already
deposited
Enforceable
contracts
Significant
legislative/
regulatory changes
 Exploitative pricing – Cotton in Ghana
 Market information – Tea in Kenya
 Trader competition – Traders in Zimbabwe
VALUE CHAIN ACTORS & FINANCIAL INSTITUTIONS
COMPLEMENTARY ROLES
Rural Finance Through….
Value Chain Actors
Financial Institutions
•
•
•
•
•
•
•
•
Vertical transactions
Make money on VC products
Presence and depth of outreach
Terms, conditions and risk/cost
management fit economic activity
• Working capital to smaller players
• Embedded financial services –
lower marginal costs, production
and marketing benefits
Horizontal transactions
Financial products
Outreach Potential
Sound financial
practices and
technology
• Working capital to
larger players,
investment capital
• Efficiency of unbundled
services
IN CONCLUSION:
To expand rural finance and enterprise growth …..
Think outside between the boxes
Investment Loans
Upgrading
Financial Market Assessment
Financial Intermediation
Financial Institutions
Costand
recovery
& risk management
Banks
Producers
Financial Sustainability
Value Chain Analysis
Embedded Services
Buyers
and Processors
Competitiveness
Banks and Processors
Economic Growth
Clients
x
Thank You
Value Chains and Rural Finance Paper
URL:
http://www.microlinks.org/ev_en.php?ID=70
98_201&ID2=DO_TOPIC