Value Chain Finance

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Powerpoint at the occasion of Terrafina heidagen April 5-6, 2011

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Value Chain Finance

  1. 2. Value Chain Finance workshop April 2011
  2. 3. A joint initiative
  3. 4. Questions for VCF discussion <ul><li>What role do MFIs play in VCF? In relation to this In what way should TMF be concerned with VCF? Should it be concerned at all? </li></ul><ul><li>How should the link be with value chain development (VCD)? How can non-financial services (NFS) best be facilitated and by whom?? </li></ul><ul><li>What is the role of banks and other financial institutions to finance in the Chain?? </li></ul><ul><li>How can synergy be achieved between donors of VCD and funders of VCF? </li></ul><ul><li>What are the implications for TMF policy and action for the TMF consortium? </li></ul>
  4. 5. CHAIN ACTORS CHAIN SUPPORTERS (SERVICE PROVIDERS - FACILITATORS) CHAIN CONTEXT Source: SNV-LA 05/17/11 The Value Chain concept
  5. 6. Value chain finance
  6. 7. The challenging VCD-VCF link <ul><li>How to help create more value added for primary producers (link to attractive markets) ? </li></ul><ul><li>Chain organisation: How to ensure sufficiently strong horizontal linkages (producer organisation) and vertical linkages (farmer-processor-trader etc) ? </li></ul><ul><li>How to mitigate risks in the chain ? </li></ul><ul><li>How to ensure the necessary non-financial services in the chain without threatening the viability of the operation? </li></ul>
  7. 8. Donor – Investor dilemma's <ul><li>Mismatch in the past between FS and NFS </li></ul><ul><li>Lenders often faced with relatively high PAR on agricultural portfolios: risk mitigation is crucial </li></ul><ul><li>New VCF approach for agricultural lending: </li></ul><ul><ul><li>Joint Action Agendas donor & investor </li></ul></ul><ul><ul><li>Thorough VC analysis & CB needs assessment </li></ul></ul><ul><ul><li>Plan for both NFS and FS to ensure profitable business ready for appropriate finance </li></ul></ul>
  8. 9. Good practice in VCF (1) <ul><li>Chain & partner identification </li></ul><ul><li>Select partners with VCD/VCF point of view </li></ul><ul><li>Safeguard both the connection and the distinction with value chain development </li></ul><ul><li>Identify an effective lead partner in the chain </li></ul><ul><li>Facilitate the ‘orchestration’ of a promising VCF strategy </li></ul><ul><li>Create conditions for synergy between grant and debt finance </li></ul><ul><li>Core issues: </li></ul><ul><li>VCD: How to turn a supply chain into a value chain? </li></ul><ul><li>How to ensure proper role division? </li></ul><ul><li>Need to coordinate / harmonise interventions of donors and DFIs </li></ul><ul><li>VCF: How to create synergy between grant aid and debt finance </li></ul>
  9. 10. Good practice in VCF (2) <ul><li>Design & Assessment </li></ul><ul><li>Support a chain actor driven design </li></ul><ul><li>Acquire knowledge on the value chain </li></ul><ul><li>Work towards clear separation of roles (PO, marketing, NFS, FS) </li></ul><ul><li>Exploit chain opportunities for risk mitigating measures. </li></ul><ul><li>Base interventions on a solid assessment of needs for capacity building / NFS. </li></ul><ul><li>Maintain the perspective for growth towards maturity in the value chain ( graduation ). </li></ul><ul><li>Core issues: </li></ul><ul><li>Facilitator driven chain development  Chain actor driven. </li></ul><ul><li>Who should do the coordination? </li></ul><ul><li>How to ensure “Return on Investment” for donors </li></ul><ul><li>Graduation perspective </li></ul>
  10. 11. Good practice in VCF (3) <ul><li>Engaging Financial Service Providers </li></ul><ul><li>Establish links with financial institutions right from the start of VCD </li></ul><ul><li>Focus VCD and VCF on the full array of risk mitigating measures </li></ul><ul><ul><ul><li>Production risks </li></ul></ul></ul><ul><ul><ul><li>Supply risks </li></ul></ul></ul><ul><ul><ul><li>Finance risk </li></ul></ul></ul><ul><ul><ul><li>Marketing risk </li></ul></ul></ul><ul><ul><ul><li>Price risks </li></ul></ul></ul><ul><li>Issues: </li></ul><ul><li>What role have MFIs to play in VCF? </li></ul><ul><li>What is the scope of risk mitigation measures in VCF? </li></ul>Good practice in VCF
  11. 12. Good practice in VCF (4) <ul><li>Choice of aid instruments - implementation </li></ul><ul><ul><li>Avoid crowding out with grants </li></ul></ul><ul><ul><li>Before considering financial interventions, consider non-financial alternatives </li></ul></ul><ul><ul><li>Facilitate the use of appropriate financial instruments </li></ul></ul><ul><li>Core issues: </li></ul><ul><li>What to subsidize on VCD? How long? </li></ul><ul><li>What to subsidize in VCF? </li></ul>
  12. 13. <ul><li>Smart aid? Monitoring and evaluation </li></ul><ul><li>Consider the parallel with ‘good donor practice’ in microfinance </li></ul><ul><li>Agree on key performance indicators and targets. </li></ul><ul><li>Expect (target) and monitor return on investment </li></ul><ul><li>Plan your own exit </li></ul>
  13. 14. Questions for discussion on groups <ul><li>How can Value Chain Finance contribute to risk mitigation in rural lending? </li></ul><ul><li>How to separate VCD from VCF while at the same time ensuring synergy?? </li></ul><ul><li>How to ensure sustainable access to finance in a Value Chain context, especially grant and debt financing considerations? </li></ul>
  14. 15. Questions for plenary discussions <ul><li>What role do MFIs play in VCF? In relation to this In what way should TMF be concerned with VCF? Should it be concerned at all? </li></ul><ul><li>How should the link be with value chain development (VCD)? How can non-financial services (NFS) best be facilitated and by whom?? </li></ul><ul><li>What is the role of banks and other financial institutions to finance in the Chain?? </li></ul><ul><li>How can synergy be achieved between donors of VCD and funders of VCF? </li></ul><ul><li>What are the implications for TMF policy and action for the TMF consortium? </li></ul>
  15. 16. CONTACT P.O. Box 8190 3503 RD Utrecht The Netherlands T +31 (0)30 880 18 96 [email_address] www.terrafina.nl

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