Value Chain Finance

(VCF)

Resource person:
Lisette van Benthum - FSAS
Value Chain Finance

– What is VCF?
– Which actors are involved in VCF?
– Priorities in VCF
– Specific Financial Products for VCF
– Role of ICCO
Value chain finance refers to:
- financial products and services
- that flow to or through any point in a value chain
- in order to increase returns on investment, growth and
competitiveness of that value chain.
Source definition: MicroLinks

Source image: KIT – Value Chain Finance – adapted by FSAS

 The Challenge: the Missing Middle
Commercial
Large Scale
Agriculture
Number of Farmers Value Chain Volume

Corporates International Banks Fully Commercial Value Chains

Local Mainstream Banks

Producer Emerging Value Chains
Organisations &
(start-up) SME’s Social
Social Lenders
Lenders

Smallholders Subsistence
Microfinance

Family Capacity Building

Farming &
VC Development
Reasons for existence of the Missing Middle
& Challenges in Rural Micro Finance

- Perceived risk (agriculture – start-ups)

- No collateral
- No solid equity base
- Lack of (long term) trade relationships
- High transaction costs
- Product characteristics do not meet demand
characteristics
- Subsidized financial services
 Priorities in VCF
1. Stimulate mainstream financial institutions to provide
financial services to value chain actors.

(matchmaking, risk-rating, product development, temporarily reduce risk through partial guarantees, etc.)

2. Securing market linkages & risk mitigation

(Value Chain Development, cap building in handling price, production & marketing risks & development of
insurance products).

3. Temporary provision of debt financing to value chain

actors by social lenders and/or donors.
(Oikocredit, Triodos STF, ICCO, etc. – equity, loans, participations)
 Financial Product
development for VC-lending
• Type of financial need
• Period of financial need
• Possibilities for repayment in line with
business character
• Securities demanded
• Processing speed of loan application
• Speed of loan release
• Complexity of loan documentation
 Type of Fin For which activity
Instrument Financial Needs ?

Assets

Harvest buying
Trade Loan – Short term
Loan for Exp Loan Portfolio

Guarantee

Capacity building

Inputs and/or land

preparation

Household costs
(f.i. education/
health) in pre-
Short-term loan harvest season
Examples of Specific Adapted
VCF Products

Trade Finance (Purchase Order loan)

 Examples of Specific Adapted
VCF Products

Warehouse
Receipt
Systems &
Leasing
 Examples of Specific Adapted
VCF Products

Coop as inter-
mediate for MFI
lending to
individual
farmers
 Challenge for donors in
Value Chain Finance

Determine ways to support value chain

finance without undermining private-
sector solutions.

– Interventions should be geared toward

facilitating private-sector solutions,
– Addressing market failures and
– Ensuring a functioning enabling environment
– Not becoming a player within the value chain
itself.
 Role of donors & facilitators in
Value Chain Finance

1. Facilitate information flow from the value

chain to financial markets and vice versa.

2. Introduce and link Value Chain Actors to

financial institutions

3. Identify risk reduction methods or products

4. Enable training and technical assistance to

value chain facilitators

5. Stimulate suitable & affordable financial

product development
 ICCO’s Role – Missing Middle

Stimulate Financial Services Providers

- Stimulate local FS providers to service ICCO FED-
partners (match making, risk rating, risk mitigation,
information flow, product development)
- Stimulate social FS providers like Oikocredit, Triodos
Sustainable Trade Fund and Annona to service ICCO
FED-partners.
- Loans, Guarantees, Participations

Enabling environment for Value Chain Finance

- Stimulate development of risk rating, risk mitigation
methods, measures and products
- Facilitate capacity building and tools for sound
business economic management by the value chain
actors
- Stimulate information flow about opportunities in
specific agricultural sectors to the local financial sector.
 ICCO’s Role - Micro Finance

- Train staff of MFI’s on VC analysis and

VC Finance
- Support product development/testing
for lower part of VC
- Engage MFI’s in stakeholder
collaboration for value chain with clear
role description
- Engage with network on lobby for
proper enabling environment for rural
loans, leasing products
 Chain
Responsibility
Commercial
Large Scale
Agriculture
Value Chain Volume

Corporates International Banks Fully Commercial Value Chains

Local Banks
Local Mainstream Banks
Producer Emerging Value Chains
Organisations &
(start-up) SME’s Social Lenders

Smallholders Subsistence
Microfinance

Family Capacity Building

Farming &
VC Development
ICCO’s Financial Instruments
Guarantees to loans (# 106
active guar = 10,5 million €)

Loans (# 13 loans = 2.5 million €)

Participations (#10 part = 2.1 million €)

Seed Capital Grants

Grants
 Target Entities

• Entities which, through their core-activities, generate

revenue.

• Those entities which aim to and are likely to become

financially self sustainable through their own economic
activities in a reasonable time-frame.

• Those entities that through their core-business have

large developmental impact
 Challenge for donors in
Value Chain Finance

Determine ways to support value chain

finance without undermining private-
sector solutions.

– Interventions should be geared toward

facilitating private-sector solutions,
– Addressing market failures and
– Ensuring a functioning enabling environment
– Not becoming a player within the value chain
itself.
 PARTNER OF
ENTERPRISING PEOPLE