Value chain finance
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Transcript of Value chain finance
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 image: KIT – Value Chain Finance – adapted by FSAS
Source definition: MicroLinks
The Challenge: the Missing MiddleCommercial
Large Scale
Agriculture
Family
Farming
Value Chain VolumeNumber of Farmers
Fully Commercial Value Chains
Emerging Value Chains
SubsistenceMicrofinance
International Banks
Social Lenders
Local Mainstream Banks
Capacity Building&
VC Development
Producer
Organisations &
(start-up) SME’s
Smallholders
Corporates
Rural MF
Social Lenders
Missing Middle
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 VCF1. 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
For which activity Financial Needs ?
Assets
Harvest buying
Capacity building
Inputs and/or land preparation
Household costs (f.i. education/health) in pre-
harvest season
Equity Investment
Short-term Loan on-lended
through cooperative
Trade Loan – Short term
Grant
Long term loan
Short-term loan
Short-term loan
Loan
for
Exp
Loa
n P
ortfo
lio
Gua
rant
ee
Type of Fin Instrument
Examples of Specific Adapted VCF Products
Trade Finance (Purchase Order loan)
Examples of Specific Adapted VCF Products
WarehouseReceiptSystems & Leasing
Examples of Specific Adapted VCF Products
Coop as inter-mediate for
MFI lending toindividualfarmers
Challenge for donors inValue 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
Commercial
Large Scale
Agriculture
Family
Farming
Value Chain Volume
Fully Commercial Value Chains
Emerging Value Chains
SubsistenceMicrofinance
International Banks
Social Lenders
Local Mainstream Banks
Capacity Building&
VC Development
Producer
Organisations &
(start-up) SME’s
Smallholders
Corporates
Chain Responsibility
Local Banks
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
• 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
Target Entities
Challenge for donors inValue 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.
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