Transcript Slide 1

Opportunities through Value Chain Financing
Product-based Value Chain Finance
Using Grain Warehouse Receipts
Calvin Miller
Senior Officer,
Agribusiness and Finance Group
AGS Division, FAO
What is a Value Chain?
• The full range of activities required to bring a
product or service from conception through the
various stages of production and delivery to final
consumer.
• A value chain includes all actors including producers,
processors, suppliers, wholesalers and retailers and
consumers.
• A value chain is defined by its particular consumer
segment.
Defining Value Chain Finance
Value chain finance – financial products and services flowing to
and/or through a VC to address the needs of those involved in
that chain, be it a need for finance, a need to secure sales,
procure products, reduce risk and/or improve efficiency within
the chain.
VCF Approach – to understand the value chain and its
participant needs and structure finance and services to best
address them.
Objectives:
•Align and structure financial products to fit the chain
•Reduce costs and risks of finance
Using the Value Chain for Financing Agriculture
Financial Service
Institutions
Value Chain Actors
Banks
Exporters / Wholesalers
Support
Services
Technical Training
Non -bank
Financial Institutions
Processors
Business Training
Private Investors
& Funds
Cooperatives /
Associations
Local Traders & Processors
Producer Groups
Specialized
Services
Farmers
Local MFIs /
Community Orgs
Governmental
Certification/Grades
Input Suppliers
Product Flows
Financial Flows
Value Chain Business Models
For value chains and value chain financing, a
business model refers to the drivers, processes and
resources for the chain.
Four types of business models:
•
•
•
•
Producer-driven
Buyer-driven
Facilitator-driven
Integrated
Value Chain Finance Tools/Products
1. Product Financing
2. Receivable Financing
3. Physical Asset Collateralization
4. Risk Mitigation Products
5. Financial Enhancements
Physical Asset Collateralization
Concept
• The borrower uses an asset as a negotiable collateral (whether
physical or financial)
• The assets can be pledged, or physically transferred
• The borrower reserves the rights to the proceeds of the assets
• The creditor may dispose of the property when the borrower
defaults on its payment obligations
Financial instruments
• Warehouse receipts (inventory-backed financing)
• Leasing finance
• Buy-back agreements (Re-purchase agreements, “repos”)
VCF Lessons Financial Service Providers
Understanding:
• the value chain
• the market
• the value chain client and partners
Assessing:
• risks
• competitiveness
• relationships and processes
• rationale and needs for financing by those in the chain
Structuring financial services:
• according to the business model and strengths of VC participants
• adapting and applying appropriate financial products and services
• combining products and payments to reduce cost and risk
•linking with complementary support services, e.g.
warehouse managers