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 The changing agricultural scene
Using strategic alliances
Value chains as a business approach finance
Innovations
Addressing risk
Lessons and policies

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

5. 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
La fuerte entrada de los supermercados

6. Stages of Agricultural Finance
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
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

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.
Many banks, finance companies and MFIs are adapting their credit methodologies and adopting technologies to help them configure products that are adequate, efficient and profitable. Other organizations are seeing their traditional agricultural portfolios become standardized, and have diversified their portfolio risk across crops and products. This workshop will explore new trends in agricultural credit methodologies and risk diversification strategies that MFIs are applying and how this is shaping their overall growth strategies.

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?
How to increase economic opportunities for the rural poor?
How to build management capacity – of rural entrepreneurs to use finance effectively?
How to mitigate risk – production and price risk in agriculture?
How to cost-effectively introduce more flexible and longer term loan products?
How to lower costs and promote effective management – of diverse rural Financial Institutions?
How to mobilise support – for sound interventions in financial markets and not ones based on political expediency?

9. Multiple Services; Multiple Providers
MFIs
Commercial Banks
Overdrafts/
Credit Lines
Transfer Payments
Marketing Companies
Credit Unions & SACCOS
Savings
Loans
Insurance
Insurance Companies
Different institutions and businesses provide differing but overlapping services and products – each is competitive in some areas and less so in others; Hence, stategic alliance linkages offer increased efficiency and competitiveness.
Inputs
Suppliers and Traders
Leasing
Family / Friends
Equipment Companies

10. Non-bank financial institutions Farmers / Rural Clients
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
Medium and Large
Exporters and Wholesalers
Processors
Collector/Traders
Farmers & Producer Groups
Strategic engagement for common benefit
Input Suppliers

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

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

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

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
Estabilidad
• Capacidad empresarial
• Conducta de repago
• Reputación en la comunidad
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
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
Helping farmers & agribusinesses achieve their goals
Business and Loan Counsel
Loans and Services
Consultation
Loan Analysis

19. Reality: New Mitigants are Required
Measures
Methodology
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
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
Producer capacity building – Farmer field schools
Organization and business capacity building
Support contract farming – contract compliance; negotiation; client protection

21. Key Factors for Consideration
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
Understanding
Administration
Risk
Service
El negocio financiero es un negocio de la información y conocimiento
La estructura y plazos deberá ser reflejo de la cadena; el análisis y evaluación en función de la eficiencia y competitividad de la cadena y los actores
Se debe tener formatos adecuados de analizar la información del cliente en forma completa y rápida y tener analistas que entiendan la problemática del agricultor
El banco puede ser banca como asesor de información y hasta eslabones de contactos para los clientes, como por ejemplo con eslabones con proveedores, empresas compradores y fuentes de información de riesgos e oportunidades. Además, se requiere servicios eficientes, a tiempo y en condiciones adecuados

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