icco desk-study on linking rural financial services to producers in the context of a value chain...

ICCO desk-studyICCO desk-studyon linking Rural Financial on linking Rural Financial Services to producers in Services to producers in the context of a value the context of a value

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Roadmap Value Chain Roadmap Value Chain DevelopmentDevelopment

19 November 200919 November 2009

11 Cases - Rich diversity of 11 Cases - Rich diversity of VCFVCF

5 main finance 5 main finance arrangements:arrangements:

Fully embeddedFully embedded MFI financeMFI finance

Bank financeBank finance MFI –> actor –> MFI –> actor –>

producersproducers [Bank -> actor -> [Bank -> actor ->

producer]producer]

Source of finance

Type chain actors

Service Providers

Facilitators

Chain actors Banks MFIs SACCOs Producer

organization

Producer Organizations

Marketing org. Processors Traders

Production services

BDS Information

services Group mobilizers Quality &

certification

Donors NGOs Consultants Government

3 Institutional 3 Institutional modalities/dynamicsmodalities/dynamics

Finance by value chain operators: Finance by value chain operators: ‘All-in-one’: Actor/promoter/financier ‘All-in-one’: Actor/promoter/financier

Finance by specialised finance Finance by specialised finance providers (MFIs) that evolved out of a providers (MFIs) that evolved out of a value chain actorvalue chain actor

Finance by a FSP (MFI/Bank) that was Finance by a FSP (MFI/Bank) that was linked up to the value chain actorslinked up to the value chain actors

Levels of maturity & Frontier Levels of maturity & Frontier areas in VCFareas in VCF

Value Chain Volume

Maturevalue chains

DevelopingVCs

Number of farmers

Commercial large scaleagriculture

Family agriculture

Embryonic and emergingvalue chains

Bank finance barrier

DevelopingValue Chains

Inclusion barrier

VCF = chemistry between VCF = chemistry between VCD and financeVCD and finance

A complicated A complicated

Chemistry.Chemistry.

Bottom line: Bottom line:

risk mitigationrisk mitigation

Chain Governance

Chain Intelligence

Horizontal linkages(producer

organization)

VCF management & control

Forging vertical linkages

(producer - market)

Lessons learned (1)Lessons learned (1)

Identification:Identification: Strong lead partnerStrong lead partner Orchestration of promising Orchestration of promising

VCF strategy (South)VCF strategy (South) Orchestration of VCD/VCF Orchestration of VCD/VCF

departments / officers departments / officers (North)(North)

DesignDesign Lead chain actor = designerLead chain actor = designer Based on VC analysis & Based on VC analysis &

feasibility studyfeasibility study Assess institutional Assess institutional

modalities in local contextmodalities in local context

DesignDesign Separate facilitator and Separate facilitator and

provider rolesprovider roles Identify sources of risk Identify sources of risk

reductionreduction Perspective for growth to Perspective for growth to

maturity in VCFmaturity in VCF Embedded finance: limits Embedded finance: limits

& benefits& benefits Assess need CB and Assess need CB and

design programdesign program Change of mind set chain Change of mind set chain

actors (double loop actors (double loop learning)learning)

Lessons learned 2)Lessons learned 2)

Engaging FSPsEngaging FSPs Identify finance potential and potential Identify finance potential and potential

financiersfinanciers How to facilitate the link?How to facilitate the link? Facilitate (gradually) increasing exposureFacilitate (gradually) increasing exposure

Choice of instrumentsChoice of instruments Avoid crowding out with grantsAvoid crowding out with grants Choose appropriate financial instrumentChoose appropriate financial instrument

Thank YouThank You