Calvin Miller has over 25 years of experience in agricultural economics and rural finance. He has worked extensively in value chain development, finance, and institutional development in Bolivia and over 40 other countries. In this presentation, he discusses the changing agricultural landscape driven by dynamic markets. He outlines the stages of agricultural finance from directed credit to value chain finance. Value chain finance links all participants in agricultural markets through strategic alliances and financial products. New technologies, risk management tools, and a focus on clients' business needs are shaping innovative approaches to rural finance. Governments can support value chain finance through policies that build capacity and market integration.

1. Calvin Miller - Senior Officer, Rural Finance
 Holder of M.S in Agricultural
Economics, currently Senior Officer
for Rural Finance in FAO, has over
twenty-five years of worldwide
experience in economic development,
in the design, implementation and
evaluation of financial services
programs and institutions, production
and marketing, and institutional
development.
 Has extensive experience in agricultural
value chain development and finance
for both national and international
markets.
 Has worked as the Country Manager
of MEDA in Bolivia and carried out
many international consultancies
 Mr. Miller provided leadership and
technical support for over 200 CARE
micro and small enterprise, and
agriculture and natural resource
projects in over 40 countries.
 He also founded and developed,
MicroVest

2. Perspectives of Value
Chain Finance in Africa
Agri Forum: Value Chain Finance Conference
Nairobi, Kenya 16 – 18 October, 2007
Calvin Miller
FAO Rural Finance Senior Officer
Rome, Italy

3. Presentation Profile
1. The changing agricultural
scene
2. Using strategic alliances
3. Value chains as a business
approach finance
4. Innovations
5. Addressing risk
6. Lessons and policies

4. New Agriculture Driven by Dynamic
Markets
World Dev. Report: DeJanvry

5. 1. An Evolving Agriculture:
Supermarket vs Subsistence Farming
with Open Markets and Cell Phones
 Market integration and specification
 Conglomeration of market leaders
 Open trade with international y regional
competition
 Segmented demand with stringent standards and
conditions
 Instant access to information
But also,
 Subsistence agriculture, food aid and HIV-AIDS

6. Stages of Agricultural Finance
Agricultural Credit Era
(1950 a 1985)
 Directed production credit
 Subsidized credit
 High transaction costs of
lending
 High loan losses
 Government and donor
refinanced lines of credit
through agricultural banks
and others
 Informal family and trader
finance for small farmers
Donor Microfinance Era
(1980 a 2000)
 Rapid, small working capital
loans
 Group lending approaches
 Focus on non-agricultural
activities
 Forces groups savings
 Separation of financial
services and business support
services.
 High cost of microfinance

7. Stages of Agricultural Finance (cont.)
Commercialization of
MFIs
(2000 to present)
 Formal MFIs
 Little subsidy
 Multiple Products
 Expansion and competition
 New technologies
 Interest by capital market
investors and lenders
Value Chain Finance (2005 to present)
 Strategic focus on market potential
of businesses
 Linkages among suppliers,
producers & marketing companies
 Growing importance of standards
 Greater use of risk mitigating tools
 Growing integration between banks
and business
 Growing use of new technologies.

8. Some underlying challenges affecting
rural finance
Demand
 How to increase economic opportunities?
 How to build farm management capacity?
 How to mitigate risk?
Supply
 How to cost-effectively introduce flexible and longer term
loan products?
 How to promote effective management?
 How to mobilise support for sound financial markets?

9. Loans
Multiple Services; Multiple Providers
Insurance
Transfer
Payments
Savings
Credit
Unions &
SACCOS
MFIs
Commercial
Banks
Marketing
Companies
Insurance
Companies
Leasing
Family /
Friends
Suppliers and
Traders
Equipment
Companies
Inputs
Overdrafts/
Credit Lines

10. 2. Financial Linkages
Private Banks
State Banks
Postal Banks
Insurance Cos.
Non-bank financial
institutions
Investment funds
MFIs
NGOs
Credit Unions
Village Banks
Agro-processors
Input Suppliers
Marketing Companies
Leasing Companies
Warehouse Operators
Supermarket Chains
Farmers /
Rural Clients
Farmer
Associations
Partnering for better access, services and efficiency

11. 3. Agricultural Value Chain Finance
 Linking finance with
agriculture and agribusiness
 Aligning and structuring
finance with the chain
Processors
Input Suppliers
Farmers & Producer
Groups
Medium and Large
Exporters and Wholesalers
Collector/Traders
Strategic
engagement for
common benefit

12. Trader Credit
Large Scale Trader
Inputs Importer/
Wholesaler
Input shopkeeper/ Small Scale Trader/
Farmer Organization
Bank
Farmers
Trade credit Trade / seasonal credit
Key
Product
sales
Input
sales
Exporter/ Wholesaler
or Processor

13. Processing
Financial and Information flows
Physical flows
Inputs
Enabling business & financial environment
Production Distribution
Finance and supporting services
Value Chain Finance Flows
Consumption

14. 4. Technology Innovation
The Economist, 15/02/07
• Communication Technology --
M-PESA–Kenya; G-Cash--Philippines
• Purchases & sales
• Commodity prices
• Money transfers
• Payments
• Point of Sale Access
•ATM & Smart Cards

15. Product and System Innovation
 Risk management tools; futures, hedging
 Warehouse receipts finance
 Factoring y securitization
 Contact farming and outgrower schemes
 Facilitation Models (Ej. DrumNet)
 Integrated Models (Ej. LA-FISE)

16. 5. Risk Analysis – Incorporating New
Elements
 Client /business capacity
 Repayment capacity
 Security coverage
 Cash flow
 Market growth and risk
 Competitiveness
From supply-driven “how we lend” to
client driven “how can we structure finance
to address client needs and risks”

17. Tools to Mitigate Market Risks
 Use of futures and options
 Warehouse receipts as well as warehouse
storage capacity
 Market information services
 Contract farming
 Insurance
 Access to technical assistance
Some risk management tools are more practical for agro-
industries and wholesalers, but can stabilize prices and
reduce risks for all producers and bankers.

18. 6. Banks: New Perspective toward Agriculture
Consultation
Loans and
Services
Loan
Analysis
Business
and Loan
Counsel
Helping farmers & agribusinesses achieve their goals
 Banks should invest money & knowledge in the
agribusiness
 market trend knowledge
 understanding of key risks
 alliance and linkage opportunities
But
 Bankers are not technical advisors

19. Reality: New Mitigants are Required
Price Risk
• Use of market based
price instruments • Couple with Loan
• Hedge own portfolio or Loan
• Use microfinance institutions
• Use international Banks and
brokerage houses as partners
Measures Methodology
Crop/Weather Risk
• Index based weather
insurance
• Rely objectively on specific
weather events
• Compares yield to measurable,
objective, correlated risk
• Need conducive policy and
regulatory environment
• Use innovative
structures
• Capture cash flows
• Use “organized” intermediate
agencies
Collateral Risk
TA providers play a key role in ‘importing’ innovative successful practices

20. Government: Policies to Support Value
Chain Finance
 Business capacity building and market integration
 Contract farming and out grower schemes
 Technical capacity in market norms and standards
 Commodity exchanges and active futures markets
 Insurance innovation, data collection and initiation
 Market information and access
 Infrastructural investment
 Product and service innovation and diversity
 Technology adaptation and access

21. Key Factors for Consideration
 Understanding
 Administration
 Risk
 Service
 market and industry
 client and strategic partners
 fund the chain at most strategic points
 insure effective and transparent
partnerships
 innovate with new technologies and
products
 take advantage of the value chain
 analyze and structure loans properly
 offer timely, multiple and flexible
financial services
 focus on the client and business

22. »FAO, Agricultural Department
www.fao.org/ag
»Rural Finance Learning Centre
www.ruralfinance.org