Value Chain Finance Vreideselanden Gerda Heyde 091202


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Value Chain Finance Vreideselanden Gerda Heyde 091202

  1. 1. Vredeseilanden Facilitating Access to Finance for Sustainable Agricultural Chain Development Workgroup Social Economy ATOL December 2, 2009
  2. 2. Content <ul><li>a) Value Chain Financing </li></ul><ul><li>Financing needs </li></ul><ul><li>Different actors </li></ul><ul><li>Modes of interventions </li></ul><ul><li>b) VE’s policy </li></ul><ul><li>- Principles + Objectives of VE’s policy </li></ul><ul><li>Strategies: 7 axes </li></ul><ul><li>- Grants Vs Credit </li></ul><ul><li>Conclusions </li></ul><ul><li>Case: APROVAG - Senegal </li></ul>
  3. 3. Value Chain - Bananes APROVAG GIE de producteurs Consommateurs APROVAG 3 grossistes - Dakar, Touba, Kaolack Demi-grossistes Détaillants Intermédiaires Coxeurs Transformatrices urbaines Transformatrices rurales
  4. 4. Financing Needs Chain Phase Activity Type of credit Input provision Purchase of inputs Equipment Short term (< 1yr) revolving fund Medium term Production Growing/ maintenance Short term (<1yr) revolving fund Gathering and storage Cash purchases Infrastructure Short term (1yr) revolving fund Medium and long term Processing Infrastructure Medium and long term Equipment Processing costs Short term (1yr) revolving fund Marketing/ trading Working capital Short term (1yr) revolving fund Export Export costs Short term (1yr) revolving fund Retailing Working capital Short term (1yr) revolving fund Investments MT and LT loans
  5. 5. <ul><li>Interdependency of the different stages – see terms of payment at different stages </li></ul><ul><li>Several short term financing needs </li></ul><ul><li>Medium and long term financing needs for investments </li></ul>
  6. 6. Two type of actors finance the chain: <ul><li>Finance institutions </li></ul><ul><ul><li>- Microfinance institutions </li></ul></ul><ul><ul><li>- Commercial banks </li></ul></ul><ul><ul><li>Agri-development agencies </li></ul></ul><ul><ul><li>Specialised investment funds </li></ul></ul><ul><li>Private sector chain operators = embedded finance </li></ul>
  7. 7. Rural finance history <ul><li>60s & 70s – agricultural financing parastatals </li></ul><ul><li>80s & 90s – SAPs and collapse </li></ul><ul><li>Funds Re-directed to micro-finance institutions </li></ul>
  8. 8. Microfinance <ul><li>Increasingly reaching poorer populations </li></ul><ul><li>Including a broader range of services – loans, insurance, remittances,… </li></ul><ul><li>Gradually moving from donor funding to private capital </li></ul><ul><li>BUT : </li></ul><ul><li>Quasi only small amounts + short term !!! </li></ul><ul><li>Hardly available for agriculture (6%) </li></ul>
  9. 9. Commercial banks <ul><li>Increased liquidity </li></ul><ul><li>Renewed interest of the political world for agriculture </li></ul><ul><li>Donor interest to involve commercial banks in agrifinancing (e.g. USAID, Action-Aid,..) </li></ul><ul><li>BUT </li></ul><ul><li>reluctance to finance agricultural production due to : </li></ul><ul><ul><li>High transaction costs </li></ul></ul><ul><ul><li>Seasonality </li></ul></ul><ul><ul><li>Vagaries of weather </li></ul></ul><ul><ul><li>Pests & disease,… </li></ul></ul>
  10. 10. Value Chain Financing <ul><li>A bridge between financial and product/market orientation </li></ul><ul><li>Considers all chain actors and their services, constraints, opportunities, demand etc. </li></ul><ul><li>Considers Financial Institutions(FIs) and the range of products, constraints & opportunities </li></ul>
  11. 11. VCF – financial sector actors Chain Phase Type of credit Chain actor Credit Provider Input provision ST(< 1yr) revolving fund Farmers MFIs , SACCOs Middlemen, Money lenders Production ST (<1yr) revolving fund Farmers MFIs, SACCOs,Middlemen Money lenders Gathering and storage ST (1yr) revolving fund Farmers' organisations SACCOs Local FI Higher level FIs e.o. through warrantage Processing MT and LT FO Local FI (Few International FI) Local FI (Few International FI) ST(1yr) RV Local FI Marketing/ trading ST(1yr) RV FO Local FI, SACCOs Export ST(1yr) RV FO Local FI, International FI Retailing ST (1yr) RV FO Local FI MT and LT loans FO Local FI
  12. 12. VCF - Embedded finance - private Chain Phase Type of credit Chain actor Credit Provider Input provision Short term (< 1yr) RV Farmers + FO SME + larger companies SME + larger companies Traders’ credit Production ST(<1yr) RV Farmers Contract farming Gathering and storage ST(<1yr) RV Group of interest; Farmers' organisations * Warehouse certificates /Warrantage Processing Medium and Long term FO SME + larger companies Local FI Few Intern. FI Commercial banks Leasing ST(<1yr) RV Local FI
  13. 13. VC + private sector Chain Phase Type of credit Chain actor Credit Provider Marketing/ trading ST(1yr) RV FO + SME + larger companies Trader credit – via commercial bank financing Export ST(1yr) RV FO SME + larger companies Trader credit – via Commercial bank financing Retailing ST(1yr) RV FO SME + larger companies Local FI Commercial banks MT and LT loans FO SME + larger companies Local FI Commercial banks
  14. 14. Case of APROVAG <ul><li>Farmers obtain loans from the APROVAG mutuelle </li></ul><ul><li>GIE, members of APROVAG obtain credit from CNCAS for purchase of pumps + irrigation equipment </li></ul><ul><li>APROVAG has introduced files with 2 commercial banks for the following, with support of the clients/wholesalers : </li></ul><ul><ul><li>Refrigerated truck </li></ul></ul><ul><ul><li>Cold storage facility </li></ul></ul><ul><li>Wholesalers/ semi-wholesalers access commercial ST credit and pay cash </li></ul><ul><li>Retailers obtain MFI credit </li></ul>
  15. 15. Conclusions (1) <ul><li>Diversified range of partners (broader than the MFI sector) </li></ul><ul><li>Interdependence between the different stages </li></ul><ul><li>Important role for private sector chain actors (direct financing, collateral and moral guarantee, go-between) </li></ul><ul><li>Issue of indirect targeting </li></ul>
  16. 16. Conclusions (2) <ul><li>Short term credit: </li></ul><ul><li>Access to short term production credit for farmers = often available from MFI (especially if CFOs act as go-between) </li></ul><ul><li>Access to short term credit for the CFO – SACD activities is only partly secured by MFIs ; commercial banks are also intervening, but need good track record + business plans + guarantee or collateral </li></ul>
  17. 17. Conclusions <ul><li>Medium Term Credit </li></ul><ul><li>Difficulties to access financing for medium term investments (processing equipment, construction,...) </li></ul><ul><ul><li>Amounts too big amounts for MFIs </li></ul></ul><ul><ul><li>Amounts too small for institutional investors e.g. BIO </li></ul></ul><ul><ul><li>Projets are too poorly designed to interest commercial banks (business plans, collateral, management capacities,...) </li></ul></ul><ul><ul><li>Not in the core mandate of social investors such as Incofin, Alterfin </li></ul></ul><ul><li>Financing + guarantees are available for Fair trade (with guarantee from importer), almost not available for local trade </li></ul><ul><li>Situation is particularly difficult in Africa </li></ul>
  18. 18. VE ‘s Policy <ul><li>Facilitating Access to Finance for Sustainable Agricultural Chain Development </li></ul>
  19. 19. The Principles <ul><li>Link between rural finance and sustainable agricultural chain development – mutually re-enforcing </li></ul><ul><li>Search for new partnerships and opportunities for financing – pioneering, experimenting </li></ul><ul><li>Rural finance administration is a specialization. VE will only facilitate access to credit or create linkages </li></ul><ul><li>Gender mainstreaming – beware of weak position of women, how credit/SACD may re-enforce </li></ul>
  20. 20. The Objectives of VE <ul><li>Organized family farmers have access to appropriate financial services </li></ul><ul><li>Are consequently strongly positioned in sustainable agricultural value chains. </li></ul>
  21. 21. The Strategies (7) <ul><li>Capacity development of OFFs </li></ul><ul><li>Promote the strengthening of capital endowment of OFFs. </li></ul><ul><li>Optimize existing financing mechanisms within the chain development. </li></ul><ul><li>Stimulate partnerships with FIs (MFIs, banks) </li></ul><ul><li>Develop risk mitigation mechanisms for financial operations within the SACD. </li></ul><ul><li>Promote and advocate for the scaling up </li></ul><ul><li>Lobby & advocate on issues related to rural finance and SACD </li></ul>
  22. 22. Mode of Intervention Grant Vs Loans <ul><li>3 Modes of intervention: </li></ul><ul><li>Grants </li></ul><ul><li>Grant +Loans </li></ul><ul><li>Loans </li></ul><ul><li>+ Grey Zone </li></ul>
  23. 23. <ul><li>Thank you for your attention ! </li></ul>