This document discusses value chain finance (VCF) and related topics. It poses questions about the roles of microfinance institutions, donors, and other organizations in VCF. It also addresses how to link value chain development with VCF, facilitate non-financial services, and achieve synergy between donors and funders. Best practices are outlined around chain and partner identification, needs assessment, engaging financial service providers, and using appropriate aid instruments while planning for exit.

2. Value Chain Finance workshop April 2011

3. A joint initiative

4. Questions for VCF discussion 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? How should the link be with value chain development (VCD)? How can non-financial services (NFS) best be facilitated and by whom?? What is the role of banks and other financial institutions to finance in the Chain?? How can synergy be achieved between donors of VCD and funders of VCF? What are the implications for TMF policy and action for the TMF consortium?

5. CHAIN ACTORS CHAIN SUPPORTERS (SERVICE PROVIDERS - FACILITATORS) CHAIN CONTEXT Source: SNV-LA 05/17/11 The Value Chain concept

6. Value chain finance

7. The challenging VCD-VCF link How to help create more value added for primary producers (link to attractive markets) ? Chain organisation: How to ensure sufficiently strong horizontal linkages (producer organisation) and vertical linkages (farmer-processor-trader etc) ? How to mitigate risks in the chain ? How to ensure the necessary non-financial services in the chain without threatening the viability of the operation?

8. Donor – Investor dilemma's Mismatch in the past between FS and NFS Lenders often faced with relatively high PAR on agricultural portfolios: risk mitigation is crucial New VCF approach for agricultural lending: Joint Action Agendas donor & investor Thorough VC analysis & CB needs assessment Plan for both NFS and FS to ensure profitable business ready for appropriate finance

9. Good practice in VCF (1) Chain & partner identification Select partners with VCD/VCF point of view Safeguard both the connection and the distinction with value chain development Identify an effective lead partner in the chain Facilitate the ‘orchestration’ of a promising VCF strategy Create conditions for synergy between grant and debt finance Core issues: VCD: How to turn a supply chain into a value chain? How to ensure proper role division? Need to coordinate / harmonise interventions of donors and DFIs VCF: How to create synergy between grant aid and debt finance

10. Good practice in VCF (2) Design & Assessment Support a chain actor driven design Acquire knowledge on the value chain Work towards clear separation of roles (PO, marketing, NFS, FS) Exploit chain opportunities for risk mitigating measures. Base interventions on a solid assessment of needs for capacity building / NFS. Maintain the perspective for growth towards maturity in the value chain ( graduation ). Core issues: Facilitator driven chain development  Chain actor driven. Who should do the coordination? How to ensure “Return on Investment” for donors Graduation perspective

11. Good practice in VCF (3) Engaging Financial Service Providers Establish links with financial institutions right from the start of VCD Focus VCD and VCF on the full array of risk mitigating measures Production risks Supply risks Finance risk Marketing risk Price risks Issues: What role have MFIs to play in VCF? What is the scope of risk mitigation measures in VCF? Good practice in VCF

12. Good practice in VCF (4) Choice of aid instruments - implementation Avoid crowding out with grants Before considering financial interventions, consider non-financial alternatives Facilitate the use of appropriate financial instruments Core issues: What to subsidize on VCD? How long? What to subsidize in VCF?

13. Smart aid? Monitoring and evaluation Consider the parallel with ‘good donor practice’ in microfinance Agree on key performance indicators and targets. Expect (target) and monitor return on investment Plan your own exit

14. Questions for discussion on groups How can Value Chain Finance contribute to risk mitigation in rural lending? How to separate VCD from VCF while at the same time ensuring synergy?? How to ensure sustainable access to finance in a Value Chain context, especially grant and debt financing considerations?

15. Questions for plenary discussions 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? How should the link be with value chain development (VCD)? How can non-financial services (NFS) best be facilitated and by whom?? What is the role of banks and other financial institutions to finance in the Chain?? How can synergy be achieved between donors of VCD and funders of VCF? What are the implications for TMF policy and action for the TMF consortium?

16. CONTACT P.O. Box 8190 3503 RD Utrecht The Netherlands T +31 (0)30 880 18 96 [email_address] www.terrafina.nl