Input on Value Chain Finance during the VCD in FED: Conversations on Framework ++ workshop in Bacolod City, Philippines March 6-9, 2012

1. Value Chain Finance
(VCF)
Resource person:
Lisette van Benthum - FSAS

2. Value Chain Finance
– What is VCF?
– Which actors are involved in VCF?
– Priorities in VCF
– Specific Financial Products for VCF
– Role of ICCO

3. 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

4. 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 Lenders
Social Lenders
Smallholders Subsistence
Microfinance
Family Capacity Building
Farming &
VC Development

5. 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

6. 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)

7. 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

8. 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

9. Examples of Specific Adapted
VCF Products
Trade Finance (Purchase Order loan)

10. Examples of Specific Adapted
VCF Products
Warehouse
Receipt
Systems &
Leasing

11. Examples of Specific Adapted
VCF Products
Coop as inter-
mediate for MFI
lending to
individual
farmers

12. 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.

13. 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

14. 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.

15. 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

16. 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

17. 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

18. 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

19. 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.

20. PARTNER OF
ENTERPRISING PEOPLE