2. Value Chain Finance Beyond microfinance for rural entrepreneurs Value Chain Finance Workshop Addis Ababa 24 June 2010

3. Amsterdam, The Netherlands www.kit.nl The issue at stake Rural SMEs in developing countries: entrepreneurial, resilient, but not bankable…?

4. Amsterdam, The Netherlands www.kit.nl Problems in financing rural SMEs Lenders: few assets, informal management High transaction costs in countryside Lack of market information High risks in agriculture Distortion government and donor programs Poor repayment culture “ Too large for microfinance, too small for banks” “The missing middle in finance”

5. CHAIN ACTORS CHAIN SUPPORTERS CHAIN CONTEXT The value chain Source: SNV LA

6. Financing the value chain

7. Chain liquidity MFI Agricultural finance Bank Value chain finance Bank Financing the value chain

8. Value Chain Finance Triangle Finan cer Suppl ier Product Services Informat ion Finance Buyer Reducing costs:  Due diligence  Monitoring  Enforcement  Cash management  Administration Reducing risks:  Production  Price  Market  Default  Currency

9. Three situations of value chain finance 1.Crafting new value chains 2.Expanding chain liquidity 3.Unleashing investments

10. 1. Crafting new chains Market and produce available, yet no chain. Finance linked to capacity building to develop the chain

11. 2. Expanding chain liquidity Financial agents link with chain actors providing working capital to finance product flow – enabling the scaling up of business 1. Lead firm strategy Use a solid lead firm as a way to reach non- bankable suppliers e.g. contract farming (“classic” Value Chain Finance) 2. Capacity building strategy Build capacities of suppliers and build their credit history so they become bankable

12. 3. Unleashing investments Financial agents link with chain actors to provide investment capital enabling the upgrading of business Medium-term syndicate loans Micro leasing Temporary equity

13. Soybean Ethiopia

14. Remodeling risk management Bringing the business into the picture: Solidity of business rather than standard financial ratios Future rather than the past Cash flows rather than balance sheet The value chain as soft collateral: Sales contracts Technical assistance Group formation Product claim Savings and insurance Information flows

15. The chain of value chain finance Risk sharing Finance for the entire chain Reaching out to producers

16. Involving local banks Key role due to proximity: Develop sector knowledge to show the opportunity Set-up pilots to build track record Formalize the chain actors and develop collateral Schemes for co-financing and risk-sharing

17. Key issues in Value Chain Finance Risk sharing is key: need for cross-organizational collaboration and innovation Added value of VCF is in reorganizing and upgrading the chain VCF reaches beyond micro-finance Paradox of chain integration versus creation of monopolies and exclusion Finance versus other critical chain issues: market, knowledge, skills, collaboration, trust, policies etc.

18. The Value Chain Finance Book

19. Produced through a “Writeshop” The “writeshop” approach is specifically designed to assist people to get the information out of their heads and onto paper Practioners, farmers, traders, extensionists, NGO people, civil servants etc. are not necessarily good writers however they have an interesting story to tell A writeshop is an intensive, participatory workshop where people jointly produce a practical book in easy-to-understand language

20. The Value Chain Finance book Provides practical knowledge for organizations working on market development, value chains, financial services Structure of the book: Background Framework Cases Synthesis Resources www.kit.nl Cases crafting new chains: Milk India Potato Peru Milk Bolivia Chilli Kenya Cases chain liquidity: Cotton Tanzania Sal leaf India Tea Kenya Rice Rwanda Cases unleashing investments: Honey Kenya Coffee Nicaragua Fish India Soybean Ethiopia Quinoa Bolivia

21. A special word of gratitude Authors, resource people, editors, support staff and all donors-partners:

22. Amsterdam, The Netherlands www.kit.nl Thank you very much for your attention