Value chain finance is an emerging approach that is well-suited to meet the current needs of agriculture. It links farmers more directly to buyers and markets through the value chain, mitigating risks for financiers. There are various forms, including warehouse receipt finance, processor-centered finance, and trader financing. For value chain finance to succeed, supportive policies and capacity building are needed from governments, central banks, and development partners. Risk management tools and learning from historical models can help overcome challenges and make value chain finance a viable solution.
This document summarizes BASIX's experience with agri value chain finance in India. BASIX has provided over $230 million in financing to over 1.05 million customers for agriculture. It uses a "collaborative polygon" model bringing together financial services, technical assistance, input suppliers, output markets, and farmer groups/cooperatives. Some examples discussed are BASIX partnering with Reliance Dairy to finance and provide services to dairy farmers, working with Frito Lays to finance potato farmers, and organizing cotton farmers and providing credit plus services for the cotton value chain. The document also notes some challenges including procurement and default risks, input and crop failures, and sustainability implications.
BASIX is a microfinance institution in India that aims to promote sustainable livelihoods for rural communities. It provides integrated financial services and technical assistance. Over time, BASIX transitioned from receiving soft loans and grants to raising commercial equity and debt. It focuses on agri value chains by identifying subsectors, addressing bottlenecks through collaboration, and scaling interventions. BASIX works with farmers, producer organizations, enterprises and markets. It delivers services like credit, training, inputs, and market linkages. Major constraints include access to quality seeds, production issues, post-harvest losses, lack of market information, and processing challenges. BASIX collaborates with partners across the value chain.
Presentation by Lamon Rutten : "Value chain finance and risk management" presented at the Regional forum on cassava in Central Africa, from 6 to 9 December, 2016, in Yaoundé, Cameroon. More information: http://www.cta.int/en/news/regional-forum-on-cassava-in-central-africa.html
This document discusses agricultural value chain finance. It defines an agricultural value chain and outlines factors that influence the competitiveness and success of value chain finance, including the end market, operating environment, cooperation among value chain partners, and support services like finance. It provides examples of different value chain business models and describes how to conduct an assessment of the value chain, participants, and points where financing is needed. Finally, it outlines various financial instruments that can be used and adapted for agricultural value chain finance.
This document provides a baseline report on partnerships between last mile firms and financial institutions to improve smallholder finance. It details four partnerships being studied between agribusinesses, technology providers, and financial institutions. The report finds that such partnerships have the potential to improve viability by sharing costs, reducing risk for financial institutions, and providing alternative data on farmers. However, significant challenges remain such as financial institutions' lack of understanding of agriculture and reluctance to use alternative data from last mile firms. The report outlines areas to assess in future evaluations of the partnerships.
This document provides an overview of how securities are traded. It discusses the primary and secondary markets, how firms issue securities through both private and public means, and the roles of underwriters. It also describes different trading venues like exchanges, over-the-counter markets, and electronic communication networks. Additionally, it covers order types, trading mechanisms, costs, and strategies like algorithmic trading and buying on margin.
This document summarizes BASIX's experience with agri value chain finance in India. BASIX has provided over $230 million in financing to over 1.05 million customers for agriculture. It uses a "collaborative polygon" model bringing together financial services, technical assistance, input suppliers, output markets, and farmer groups/cooperatives. Some examples discussed are BASIX partnering with Reliance Dairy to finance and provide services to dairy farmers, working with Frito Lays to finance potato farmers, and organizing cotton farmers and providing credit plus services for the cotton value chain. The document also notes some challenges including procurement and default risks, input and crop failures, and sustainability implications.
BASIX is a microfinance institution in India that aims to promote sustainable livelihoods for rural communities. It provides integrated financial services and technical assistance. Over time, BASIX transitioned from receiving soft loans and grants to raising commercial equity and debt. It focuses on agri value chains by identifying subsectors, addressing bottlenecks through collaboration, and scaling interventions. BASIX works with farmers, producer organizations, enterprises and markets. It delivers services like credit, training, inputs, and market linkages. Major constraints include access to quality seeds, production issues, post-harvest losses, lack of market information, and processing challenges. BASIX collaborates with partners across the value chain.
Presentation by Lamon Rutten : "Value chain finance and risk management" presented at the Regional forum on cassava in Central Africa, from 6 to 9 December, 2016, in Yaoundé, Cameroon. More information: http://www.cta.int/en/news/regional-forum-on-cassava-in-central-africa.html
This document discusses agricultural value chain finance. It defines an agricultural value chain and outlines factors that influence the competitiveness and success of value chain finance, including the end market, operating environment, cooperation among value chain partners, and support services like finance. It provides examples of different value chain business models and describes how to conduct an assessment of the value chain, participants, and points where financing is needed. Finally, it outlines various financial instruments that can be used and adapted for agricultural value chain finance.
This document provides a baseline report on partnerships between last mile firms and financial institutions to improve smallholder finance. It details four partnerships being studied between agribusinesses, technology providers, and financial institutions. The report finds that such partnerships have the potential to improve viability by sharing costs, reducing risk for financial institutions, and providing alternative data on farmers. However, significant challenges remain such as financial institutions' lack of understanding of agriculture and reluctance to use alternative data from last mile firms. The report outlines areas to assess in future evaluations of the partnerships.
This document provides an overview of how securities are traded. It discusses the primary and secondary markets, how firms issue securities through both private and public means, and the roles of underwriters. It also describes different trading venues like exchanges, over-the-counter markets, and electronic communication networks. Additionally, it covers order types, trading mechanisms, costs, and strategies like algorithmic trading and buying on margin.
Value Chain Finance Vreideselanden Gerda Heyde 091202atol
The document discusses value chain financing for sustainable agricultural development. It analyzes the financing needs at different stages of agricultural chains and the actors typically involved. Value chain financing is presented as a way to bridge financial institutions and product markets by considering the needs, constraints and opportunities of all chain actors. The document also outlines Vredeseilanden's policy to facilitate access to finance through capacity building, partnerships with financial institutions, risk mitigation mechanisms, and advocacy efforts.
The document discusses value chain finance and the government's role in it. It defines value chain finance as financial services and products flowing within and through a value chain. Value chain finance can be internal, between chain participants, or external from outside institutions. The government can help by identifying financing needs, tailoring financial products, reducing costs, and mitigating risks. The document lists various financial instruments used in agricultural value chains like trader credit, input supplier credit, and marketing company credit. It concludes that successful value chain financing requires strong financial institutions, organized producer groups, infrastructure, enforceable contracts, and engaged buyers.
This document discusses opportunities for Islamic securitization of microfinance assets. It begins by noting the achievements and shortcomings of current Islamic finance, particularly the lack of investment opportunities for small savers and financing of micro-enterprises. Microfinance objectives are well-aligned with Islamic finance goals. The document then outlines characteristics of microfinance lending that make the assets suitable for securitization through sukuk structures. Several examples of conventional microfinance securitization are provided. The document concludes by arguing Islamic securitization could better serve microfinance and promote grassroots economic development in Muslim communities.
Supply Chain Finance Support Facility Project Briefing NoteABC Bank Kenya
Purpose of this briefing note
Inclusive Growth is one of FSD Kenya’s four theme areas. The objective of the Inclusive Growth programme is to enhance financial inclusion of SMEs in Kenya.
One of its first projects was the Supply Chain Trade Finance (SCTF) Facility, which started in 2009 and will soon be merged into the new GrowthCap Programme.
This briefing note is based on experiences gained in the Supply Chain Trade Finance project. Its aim is to communicate how to successfully introduce Supply Chain Finance.
The project report provides an overview of trade finance. It defines trade finance and discusses various tools used in trade finance like letters of credit, bonds and guarantees, invoice discounting and factoring, and supply chain finance. It also outlines some common risks in international trade like counterparty risk, country risk, and FX risk. Finally, it discusses some key trade finance products available in India such as term loans, working capital limits, letters of credit, invoice discounting/factoring and export credit.
The document discusses providing financial support to businesses dealing with Brexit uncertainty. It notes that UK banks are well-capitalized and want to lend to support viable firms. A campaign called "Let's Talk Business" aims to highlight financial support available and encourage businesses to discuss changing needs early with lenders. The finance industry is ready to help businesses through Brexit over coming months and longer term opportunities.
Traders or Commodity Finance Banks Part VIII-GE 94
Recent developments have prompted commodity trading companies to re-evaluate their borrowing arrangements and take on more of a financing role. As banks pull back financing from commodity traders, the traders are having to step in as financiers themselves. While this relies on continued funding from banks, without it commodity companies could face serious liquidity challenges.
This document discusses crop financing in Brazil, which requires significant capital investment. It presents SL Tech's concept of providing crop financing by analyzing farm situations, structuring guarantees, and managing operations from fertilizer financing to crop monitoring and export. The proposal aims to enable financing for farmers, cooperatives, and other players in Brazil's agricultural industry.
SCF presentation (Introduction) Generic v0.6Maarten Susan
This document discusses supply chain finance and reverse factoring. It provides definitions of supply chain finance, invoice discounting, and factoring. Reverse factoring is described as a model where the buyer agrees to make early payments to approved suppliers, with the repayment obligation on the buyer rather than the supplier. All parties in a reverse factoring arrangement can benefit - suppliers gain access to early payments and working capital, buyers can negotiate better payment terms with suppliers, and banks can build new relationships and earn interest and fees. The document promotes a supply chain finance platform that can be used by banks to offer these services without high upfront investment costs.
The Subprime Crisis & Implications for Microfinance (SVMN, 05/18/08)Dave McClure
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Accelerating economic prosperity in nigeria through agribusiness value chain ...Prince Ogbonna
synopsis
This is short summary of a solution that identifies opportunities to finance operations along the Agribusiness value chain in Nigeria.It is presented to the Nigerian government,African Development Bank and the Nigerian financial private sector.It
provides actionable recommendations for improving productivity, income and growth in the key value chains through financing which in turn will lead to massive productive employments and job creation while diversifying to the non-oil export economy of the nation.
This document discusses international short term finance. It defines short term finance as budgets and financial plans for periods of one year or less, which are used by businesses for day-to-day operations like paying wages and ordering inventory. It also discusses the importance of short term finance for marketing, accounting, and management decisions. Key aspects of short term financial management are minimizing working capital needs and raising/deploying short term funds at minimum cost while meeting liquidity needs. Common short term borrowing instruments include commercial papers, banker's acceptances, certificates of deposit, and bank deposits.
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This document discusses financial challenges facing small and medium enterprises (SMEs) in obtaining funding from traditional sources like banks. It introduces fintech platforms like Velotrade that use innovative methods to connect SMEs needing funding with investors online, providing more efficient, flexible funding options. Major hurdles for trade finance include fraud prevention and lack of standardized products, but emerging technologies like blockchain may help address these issues if widely adopted. Collaboration between banks and fintech is also emphasized as a way forward.
An overview of int'l trade finance latestAbdus Salam
This document provides an overview of international trade finance. It discusses key concepts like letters of credit, documentary collections, and export financing. The document outlines the typical process for a foreign trade transaction and examines various international payment methods and their relative risks for exporters and importers. It also reviews guidelines and regulations for international trade and explores tools available for trade finance through organizations like the SBA and Export-Import Bank.
Why MSMEs need extra support for Trade FinanceIsaac Tudu
Micro, Small and Medium Enterprises (MSME) are the backbone of the Indian economy.. MSMEs are badly affected by Covid-19 lockdown and are facing liquidity issue, delay in payments, risking high default, supply chain disruption and shortage of labour etc. Post pandemic, they need to scale up their sales and business. Therefore, providing the supply of trade finance to MSMEs must be a high priority for all the stakeholder working to stem the economic damage. Export can spur the growth of MSMEs.
This document summarizes a study on warehousing and collateral management services in Africa. It identifies three main types of agricultural financing models using warehousing - private warehouses with collateral management (Type A), public warehouses (Type B), and community inventory credit (Type C). Type C has seen success in countries like Madagascar but all models face challenges around scale, costs, and flexibility. The document recommends building capacity for banks, collateral managers, and farmers' organizations and developing public-private partnerships to fund warehouse construction to help these services grow in a sustainable way.
The document discusses various topics related to financial services including bill discounting, asset liability management, factoring, forfaiting, Basel accords, and the SARFAESI Act. It defines each topic and provides key details about them in 1-3 paragraphs. Bill discounting involves trading bills of exchange prior to maturity for a discounted value. Asset liability management matches a company's assets and cash flows with its obligations. Factoring involves a business selling its accounts receivables to a third party for cash. Forfaiting enables exporters to receive immediate cash by selling medium-long term receivables. The Basel accords provide international banking regulations on capital adequacy. The SARFAESI Act allows banks to
This document provides an overview of basic banking concepts and operations. It discusses key terms like bank accounts, checks, deposits, and reconciliations. It also covers customer due diligence processes like Know Your Customer (KYC) guidelines and anti-money laundering procedures. Finally, it outlines banker responsibilities around lending, credit monitoring, priority sector lending, and non-performing asset management.
Factoring is an ongoing arrangement where a company assigns its accounts receivable invoices to a factor in exchange for cash. The factor then pursues collection from customers and assumes the risk of default. There are different types of factoring arrangements like domestic, international, recourse and non-recourse. Factoring provides various benefits like immediate access to cash, improved cash flows, credit protection and credit management services. However, it may not be suitable for businesses with a lot of cash sales, speculative ventures or those offering long credit terms. Factoring is widely used across many industries globally.
This two-day event in Vanuatu aims to strengthen coordination and innovation in priority food value chains in the Pacific to improve nutrition and food systems. Day one will include presentations on a study of key value chains in several Pacific countries, lessons from value chain training, and a launch of an online platform to connect actors. Participants will discuss constraints, opportunities, and how to operationalize the platform. Day two focuses on assessing capacity needs and pilot testing the online platform through working groups, with the goal of finalizing how to implement the platform and a training program to support value chain development in the region.
Value Chain Finance Vreideselanden Gerda Heyde 091202atol
The document discusses value chain financing for sustainable agricultural development. It analyzes the financing needs at different stages of agricultural chains and the actors typically involved. Value chain financing is presented as a way to bridge financial institutions and product markets by considering the needs, constraints and opportunities of all chain actors. The document also outlines Vredeseilanden's policy to facilitate access to finance through capacity building, partnerships with financial institutions, risk mitigation mechanisms, and advocacy efforts.
The document discusses value chain finance and the government's role in it. It defines value chain finance as financial services and products flowing within and through a value chain. Value chain finance can be internal, between chain participants, or external from outside institutions. The government can help by identifying financing needs, tailoring financial products, reducing costs, and mitigating risks. The document lists various financial instruments used in agricultural value chains like trader credit, input supplier credit, and marketing company credit. It concludes that successful value chain financing requires strong financial institutions, organized producer groups, infrastructure, enforceable contracts, and engaged buyers.
This document discusses opportunities for Islamic securitization of microfinance assets. It begins by noting the achievements and shortcomings of current Islamic finance, particularly the lack of investment opportunities for small savers and financing of micro-enterprises. Microfinance objectives are well-aligned with Islamic finance goals. The document then outlines characteristics of microfinance lending that make the assets suitable for securitization through sukuk structures. Several examples of conventional microfinance securitization are provided. The document concludes by arguing Islamic securitization could better serve microfinance and promote grassroots economic development in Muslim communities.
Supply Chain Finance Support Facility Project Briefing NoteABC Bank Kenya
Purpose of this briefing note
Inclusive Growth is one of FSD Kenya’s four theme areas. The objective of the Inclusive Growth programme is to enhance financial inclusion of SMEs in Kenya.
One of its first projects was the Supply Chain Trade Finance (SCTF) Facility, which started in 2009 and will soon be merged into the new GrowthCap Programme.
This briefing note is based on experiences gained in the Supply Chain Trade Finance project. Its aim is to communicate how to successfully introduce Supply Chain Finance.
The project report provides an overview of trade finance. It defines trade finance and discusses various tools used in trade finance like letters of credit, bonds and guarantees, invoice discounting and factoring, and supply chain finance. It also outlines some common risks in international trade like counterparty risk, country risk, and FX risk. Finally, it discusses some key trade finance products available in India such as term loans, working capital limits, letters of credit, invoice discounting/factoring and export credit.
The document discusses providing financial support to businesses dealing with Brexit uncertainty. It notes that UK banks are well-capitalized and want to lend to support viable firms. A campaign called "Let's Talk Business" aims to highlight financial support available and encourage businesses to discuss changing needs early with lenders. The finance industry is ready to help businesses through Brexit over coming months and longer term opportunities.
Traders or Commodity Finance Banks Part VIII-GE 94
Recent developments have prompted commodity trading companies to re-evaluate their borrowing arrangements and take on more of a financing role. As banks pull back financing from commodity traders, the traders are having to step in as financiers themselves. While this relies on continued funding from banks, without it commodity companies could face serious liquidity challenges.
This document discusses crop financing in Brazil, which requires significant capital investment. It presents SL Tech's concept of providing crop financing by analyzing farm situations, structuring guarantees, and managing operations from fertilizer financing to crop monitoring and export. The proposal aims to enable financing for farmers, cooperatives, and other players in Brazil's agricultural industry.
SCF presentation (Introduction) Generic v0.6Maarten Susan
This document discusses supply chain finance and reverse factoring. It provides definitions of supply chain finance, invoice discounting, and factoring. Reverse factoring is described as a model where the buyer agrees to make early payments to approved suppliers, with the repayment obligation on the buyer rather than the supplier. All parties in a reverse factoring arrangement can benefit - suppliers gain access to early payments and working capital, buyers can negotiate better payment terms with suppliers, and banks can build new relationships and earn interest and fees. The document promotes a supply chain finance platform that can be used by banks to offer these services without high upfront investment costs.
The Subprime Crisis & Implications for Microfinance (SVMN, 05/18/08)Dave McClure
Presentation on the US Subprime Crisis & Impact / Implications on Microfinance, by Katherine McKee, CGAP, to the Silicon Valley Microfinance Network (SVMN.net).
Accelerating economic prosperity in nigeria through agribusiness value chain ...Prince Ogbonna
synopsis
This is short summary of a solution that identifies opportunities to finance operations along the Agribusiness value chain in Nigeria.It is presented to the Nigerian government,African Development Bank and the Nigerian financial private sector.It
provides actionable recommendations for improving productivity, income and growth in the key value chains through financing which in turn will lead to massive productive employments and job creation while diversifying to the non-oil export economy of the nation.
This document discusses international short term finance. It defines short term finance as budgets and financial plans for periods of one year or less, which are used by businesses for day-to-day operations like paying wages and ordering inventory. It also discusses the importance of short term finance for marketing, accounting, and management decisions. Key aspects of short term financial management are minimizing working capital needs and raising/deploying short term funds at minimum cost while meeting liquidity needs. Common short term borrowing instruments include commercial papers, banker's acceptances, certificates of deposit, and bank deposits.
Solving Financial Constraints with Innovative Funding SolutionGilbert Tam 譚耀宗
This document discusses financial challenges facing small and medium enterprises (SMEs) in obtaining funding from traditional sources like banks. It introduces fintech platforms like Velotrade that use innovative methods to connect SMEs needing funding with investors online, providing more efficient, flexible funding options. Major hurdles for trade finance include fraud prevention and lack of standardized products, but emerging technologies like blockchain may help address these issues if widely adopted. Collaboration between banks and fintech is also emphasized as a way forward.
An overview of int'l trade finance latestAbdus Salam
This document provides an overview of international trade finance. It discusses key concepts like letters of credit, documentary collections, and export financing. The document outlines the typical process for a foreign trade transaction and examines various international payment methods and their relative risks for exporters and importers. It also reviews guidelines and regulations for international trade and explores tools available for trade finance through organizations like the SBA and Export-Import Bank.
Why MSMEs need extra support for Trade FinanceIsaac Tudu
Micro, Small and Medium Enterprises (MSME) are the backbone of the Indian economy.. MSMEs are badly affected by Covid-19 lockdown and are facing liquidity issue, delay in payments, risking high default, supply chain disruption and shortage of labour etc. Post pandemic, they need to scale up their sales and business. Therefore, providing the supply of trade finance to MSMEs must be a high priority for all the stakeholder working to stem the economic damage. Export can spur the growth of MSMEs.
This document summarizes a study on warehousing and collateral management services in Africa. It identifies three main types of agricultural financing models using warehousing - private warehouses with collateral management (Type A), public warehouses (Type B), and community inventory credit (Type C). Type C has seen success in countries like Madagascar but all models face challenges around scale, costs, and flexibility. The document recommends building capacity for banks, collateral managers, and farmers' organizations and developing public-private partnerships to fund warehouse construction to help these services grow in a sustainable way.
The document discusses various topics related to financial services including bill discounting, asset liability management, factoring, forfaiting, Basel accords, and the SARFAESI Act. It defines each topic and provides key details about them in 1-3 paragraphs. Bill discounting involves trading bills of exchange prior to maturity for a discounted value. Asset liability management matches a company's assets and cash flows with its obligations. Factoring involves a business selling its accounts receivables to a third party for cash. Forfaiting enables exporters to receive immediate cash by selling medium-long term receivables. The Basel accords provide international banking regulations on capital adequacy. The SARFAESI Act allows banks to
This document provides an overview of basic banking concepts and operations. It discusses key terms like bank accounts, checks, deposits, and reconciliations. It also covers customer due diligence processes like Know Your Customer (KYC) guidelines and anti-money laundering procedures. Finally, it outlines banker responsibilities around lending, credit monitoring, priority sector lending, and non-performing asset management.
Factoring is an ongoing arrangement where a company assigns its accounts receivable invoices to a factor in exchange for cash. The factor then pursues collection from customers and assumes the risk of default. There are different types of factoring arrangements like domestic, international, recourse and non-recourse. Factoring provides various benefits like immediate access to cash, improved cash flows, credit protection and credit management services. However, it may not be suitable for businesses with a lot of cash sales, speculative ventures or those offering long credit terms. Factoring is widely used across many industries globally.
Similar to Why is the time ripe for a revolution in agri value chain finance (20)
This two-day event in Vanuatu aims to strengthen coordination and innovation in priority food value chains in the Pacific to improve nutrition and food systems. Day one will include presentations on a study of key value chains in several Pacific countries, lessons from value chain training, and a launch of an online platform to connect actors. Participants will discuss constraints, opportunities, and how to operationalize the platform. Day two focuses on assessing capacity needs and pilot testing the online platform through working groups, with the goal of finalizing how to implement the platform and a training program to support value chain development in the region.
The document discusses the Technical Centre for Agricultural and Rural Cooperation (CTA) and its work in supporting agricultural and rural development in Africa. CTA is an EU-ACP institution focused on strengthening partnerships between Europe and Africa. The document outlines CTA's vision of a vibrant, modern, sustainable and inclusive agriculture in Africa. It also discusses the African Union's Agenda 2063 goals of transforming African economies and empowering women and youth through increased investment in agriculture, value addition, employment, science, technology and innovation. The role of African women scientists and innovators in achieving these development goals is highlighted.
Pendant les deux derniers jours du Forum, le Ministère a eu l'occasion d'écouter les recommandations faites par les dirigeants des coopératives et par les experts du développement des coopératives. Voici la présentation synthétisant les réponses fournies par le MIDSP au Forum. Pour plus d'info http://bit.ly/2mMLoo2
Le Dr. Nicola Francesconi, conseiller technique sénior au CTA, a coordiné l'organisation du Forum des coopératives malgaches, qui s'est tenu du 13 au 17 février 2017. Plus d'infos : http://bit.ly/2mMLoo2
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This document outlines some of the key action points discussed at the workshop held in February 2017. More information about the workshop: http://bit.ly/2lt7Vbf More information about the impact of open data for agriculture and nutrition: http://bit.ly/2lyjJqW
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Jennifer Schaus and Associates hosts a complimentary webinar series on The FAR in 2024. Join the webinars on Wednesdays and Fridays at noon, eastern.
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Presentation by Rebecca Sachs and Joshua Varcie, analysts in CBO’s Health Analysis Division, at the 13th Annual Conference of the American Society of Health Economists.
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Why is the time ripe for a revolution in agri value chain finance
1. Why is the time ripe for a revolution
in agri-value chain finance?
Lamon Rutten
CTA
2. Overview
• Value chain finance – why now?
• Chain-linking farmers to finance
• Forms of value chain finance
• What is needed to make it happen?
3. Value chain finance – why now?
Push ……….. and pull
•The need to secure
supply (in terms of
quality and quantity) of
the commodities that a
fast growing and
increasingly competitive
market requires.
• Declining risk capacity
• Consumers demand
proper value chains
• ICT makes VC finance
easier
• Traditional financial
sector barriers are
disappearing
4. The push…
0
10
20
30
40
50
60
70
80
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
SSA EastAfrica CentralAfrica SouthernAfrica WestAfrica
African urbanisation rates as % of total population
Source: AFRACA/CTA/Ecobank, Opportunities for value chain
finance in Africa’s intra-regional food trade - forthcoming
5. The pull...
Exchange
Investor
Farmer
Chicken
processing
plant
2. Forward contract
1. Due diligence
3. Cession of the rights to payment
under the forward contract
4. Confirmation of
assignment of payment
5. Repo: sale of the
forward contract,
with obligation to
buy back after 90
days
6. Purchase of
the repo
(through a
broker)
Broker
7. Funds
8. Funds
9. Funds
Capital market investors are looking for
new ways to invest their funds. And
they are growing in size and
sophistication, including in many ACP
countries.
6. But push and pull factors only create
potential
SME financing requirement in Sub-Saharan
Africa, 2012 – appr. US$ 80-100 billion/year
23%
77%
Available financing Financing gap
Source: IFC.
Finance for agriculture has to
increase by at least half.
Currently, 90% of finance going
into agriculture comes from the
farmers themselves.
So, either farming should
become much more profitable,
or external financing for
agriculture has to increase
radically.
7. But risk perception has to
change
A bank tends to make
only small margins on
loans. One deal that
goes bad can wipe out
the profits of dozens of
deals that went well.
Thus, banks tend to stay
away from deals that
they perceive as risky.
8. Is subsidizing agri-loans a solution?
No. Schemes to provide agricultural loans at subsidized
interest rates were prevalent in the 1960s and 1970s, but
they largely failed (but they still exist, in countries like the
USA or Nigeria, and politicians continue asking for them).
The common position now is that subsidies for agri-finance
should be indirect:
- To help financiers manage risks: weather risk insurance,
credit guarantee schemes
- To develop supportive institutional, regulatory and policy
frameworks (eg, for warehouse receipt finance, investment
funds)
- To build capacity and improve KM.
9. Is more micro-finance a solution?
Not in its traditional form:
- group-lending and heavy monitoring is too expensive
(paying 1% interest on a 5 day loan permitting a small-
scale processing operation with a 10% profit margin looks
OK; paying 40% on a 180 day loan doesn’t)
- small loans and regular repayment don’t fit with the
agricultural season.
So, MFIs need to adapt their methods to engage in agri-
finance. Eg, micro-leasing, VC finance.
10. Bank
Borrower
Will the borrower
earn enough, and
reimburse?
Bank
Borrower
Will the borrower
be able to
perform
Risk
mitigation
mechanism
H
o
w
?
From credit risk to performance risk
Value chain finance permits financiers
to shift their risks
11. Value chains require a structuring of the link of producers to
consumer demand. Producers need to be enabled to meet
changing consumer demand. A proper value chain approach
therefore cannot focus exclusively on farmers.
Linked to a number of global developments (sustainability,
food safety, etc.), many companies have an interest in acting
as enablers. In many cases, NGOs, government bodies and
development agencies can be facilitators. This should give
rise to a new kind of development project, including
farmer-business-NGO partnerships, and PPPs.
Seller Buyer Seller Buyer
From supply chain….. to ….. value chain
Value chain supply chain
14. Chain-linking farmers to finance
1
2
3
Farmer produces for a
specific offtaker
Off-
taker
Farmer produces to a set
standard and sells in such
a way that his market is
secure, but competitive
1
2
E.g., warehouse receipts,
auctions, commodity exchanges
E.g., contract farming
15. Chain-linking farmers to finance
1
2
3
Farmer produces for a
specific offtaker
Off-
taker
Farmer produces to a set
standard and sells in such
a way that his market is
secure, but competitive
1
2
E.g., warehouse receipts,
auctions, commodity exchanges
E.g., contract farming
16. VC finance directly counters the two
main risks of agri finance
Inability to reimburse.
Agriculture is risky.
Dependency on weather,
prices, availability of
markets, condition of
roads, rural insecurity…
Unwillingness to
reimburse. Past practices
often discouraged farmers
from honouring their
obligations.
Make sure loan is used to
improve farmer’s revenue.
Build risk management
tools into the loan.
Ensure that the
reimbursement is not by the
farmer, but is made through
a stronger link in the value
chain.
17. Forms of VC finance
• Warehouse receipt finance (at
different parts of the chain)
• Processor-centered finance
• Financing traders through the
monitoring of their value chain
operations
• Final buyer-centered finance (eg.,
factoring)
• Pushing pre-export finance up-
country
• Full supply chain financing (from
inputs to final buyers)
18. Warehouse receipt finance
The concept: turn commodities into gold
Vault
Bank
Borrower
Deposit gold
in bank vault
… and get
an ‘easy’
loan
Showing your wealth isn’t
enough – the bank prefers to
take it under its own control
(to take possession).
19. Warehouse receipt finance
The concept: turn commodities into gold
Vault
Bank
Borrower
Deposit gold
in bank vault
… and get
an ‘easy’
loan
“Vault”
Bank
Borrower
Deposit
commodities
in bank
“vault”…
… and get
an ‘easy’
loan
20. Four possible relationships between the
bank and its “vault”
The Latin/
Turkish model
1
Banks can set up
arms-length collateral
management
subsidiaries. Still
prevalent in Latin
America and Turkey;
was once quite
important in the US.
21. Four possible relationships between the
bank and its “vault”
The Latin/
Turkish model
1
2 Collateral
management
22. Four possible relationships between the
bank and its “vault”
The Latin/
Turkish model
1
2 Collateral
management
Public
warehousing
3
23. Four possible relationships between the
bank and its “vault”
The Latin/
Turkish model
1
2 Collateral
management
Public
warehousing
3
The Indian
model: collateral
manager takes
over warehouses
for use as public
warehouses
4
24. Warehouse receipt finance – an
example of SME financing
Warehouse
Printer
Financier
Sale at
beginning of
school year
Continuous
printing of books
during the year
Schools
Paper
supplier
Collateral
manager
Working
capital
finance
Payment of
invoices
Reporting
Control
Delivery of paper
(imported)
Weekly
releases of
paper
25. Port of loading (Black Sea)
Bulky fertilizer (Beira, Dar)
Bagging
Central distribution warehouses
Distribution
warehouses,
Zambia
Distribution
warehouses,
Malawi
Buyers
trucktruck
truck
train
train
trucktruck
vessel
truck
Financing of an import operation, e.g.
fertilizers – the bank starts with
control over the goods as they are
being loaded, and then retains control
as they move down nearer to the
buyers. Goods are only released
from the warehouses once the bank
has received an appropriate payment
or guarantee.
The advantages of this are two-fold.
International finance (at low cost) can
be brought to the buyer’s factory gate;
and large, cost-efficient volumes can
be combined with low working capital
needs for the buyers.
An import financing using collateral
management
27. Processor-centered value chain
finance
Smallholders
Finance the offtaker, who will take full
responsibility for the production
process…
Off-
taker
Contract
Bank
Young animals;
veterinary services
Mature animals;
milk
For example, contract
farming…
28. Farmers Off-
taker
Contract
Bank
Young animals
Mature animals;
milk
Veterinary
services
Assignment of
receivables, and
payment
Contract
Insurance ContractDue diligence
Processor-centered value chain
finance (a more complex form)
Funding
29. Off-
taker
Bank
Trader
Animals are moved to offtaker
Monitoring
agency Check the number and
weight of animals sold
Check the number and
weight of animals bought
Assignment of
receivables, and
payment
Loan
Spot
checks
Financing traders by monitoring
their value chain operations
30. Agent
Exporter
International
Buyers
(Supermarket
chains and
Auctions)
4- Pay within 15 days
2- Issue notes for
payment in 30 days
1- Export merchandise
3 (a)- Issue new notes with payment in 90 days INNOFIN
3 (b)- Pay immediate cash at a discount
5- Pay back after 90 days
Afreximbank
FinanceAgreement
Leveraging on the buyers…
starting with factoring
32. Agent
bank
International
offtakers 5. Instruction to
release funds to
farmers
1.
Tripartite
agree-
ment
7. Settlement of invoice
values
ITFC
Transit
depots
6. Release of funds to farmers’ cooperatives
4. Verify and submit
documents received
8. Final
reimbursement
Facility
manager
1*
3d#
* Sales contracts, letters of assignment of export proceeds,
letter of guarantee by Gambia government.
# Copies of invoices.
3b. Transportation
to final depot
3f. Shipping and
shipping documents
Export
depot
GGC
3e. Monitoring
(quality, quantity)
3c. Warehouse
receipts
3a. Warehouse receipts
2. Delivery
Groundnut
farmers’
cooperatives
Pushing pre-export
finance up the chain
34. VC finance is safe and easy
Value chains generally continue
functioning over many years. Thus,
financiers can construct
standardized financing
mechanisms, where the “entry” of
the commodity into one particular
phase of the chain is sufficient to
trigger the financing.
35. What is needed to make it happen ?
• Learn from best practices
• pro-active governments and Central Banks
• supportive development partners
36. VC finance is not just a private
sector matter
Supportive legal/regulatory
environment
Central
Bank
support/
discount
facilities
Support
institutions
that mitigate
risks
Central Banks played a
central role in developing
agricultural finance in 19th
and early 20th century
Europe and USA…
providing good models for
today’s developing
country Central Banks and
Ministries of Finance.
37. Learn from history !
Collateral
manager
Bank
Commodity
owner
Central
Bank
Loan of X $
Documentation
Submission of the loan of X
$, with documentary proof
that it is a proper warehouse
receipt loan, for discounting
Loan of X $, at the official
discount rate
In 1848, the Bank of France created 49 "bonded warehouses",
which started to provide companies with warehouse warrants
for various; sub-discount banks also set up by the Central Bank
accepted these warrants as collateral, and their loans constituted
discountable paper for the Bank of France.
39. In conclusion...
• Value chain finance is a need of the day – a key
tool to get agriculture to meet current challenges –
but also, a great opportunity for banks.
• But mindsets have to change and skillsets need to
improve.
• Governments should take their responsibilities…
but not fall back in the failed 1960/70s model in
state-driven subsidized credit.
• Development partners can provide support in
several ways, from capacity- and institution-building
to the provision of risk capacity.