value chain techguide

8/8/2019 Value Chain Techguide

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Technical Guide

Integrated Financing for Value ChainsCredit unions fill the agricultural lending gap and create market linkages

This technical guide provides an overview of WOCCUs recent initiatives to help credit unions financeagricultural production in Peru and Kenya. It highlights best practices in providing value chain finance toincrease income among small farmers, promote economic growth and ensure food security.


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What is a Credit Union?

Credit unions, called by various namesaround the world, are nancial coop-eratives that provide savings, credit andother nancial services to their members.

Credit union membership is based on acommon bond, a linkage shared by saversand borrowers who belong to a speciccommunity, organization, religion or placeof employment.

Credit unions worldwide offer membersfrom all walks of life much more thannancial services. They provide membersthe chance to own their own nancialinstitution and help them createopportunities such as starting smallbusinesses, growing farms, building family

homes and educating their children. Insome countries, members encounter theirrst taste of democratic decision makingthrough their credit unions.

Who is WOCCU?

World Council of Credit Unions (WOCCU)is the global trade association anddevelopment agency for credit unions.

WOCCU promotes the sustainabledevelopment of credit unions and othernancial cooperatives around the world toempower people through access to highquality and affordable nancial services.

WOCCU introduces new tools andtechnologies to strengthen creditunions nancial performance, improvegovernance and increase their outreach.It also advocates on behalf of the globalcredit union system before internationalorganizations and works with nationalgovernments to improve legislation,regulation and supervision. In 2008,WOCCUs technical assistance programsreached 8 million people in 16 countries.

Learn more about WOCCUsimpact around the world atwww.woccu.org/micronance.

What is a value chain?Value chains encompass the full range of activities and servicesrequired to bring a product or service from its conception to sale inits nal marketswhether local, national, regional or global. Valuechains include input suppliers, producers, processors and buyers.

They are supported by a range of technical, business and nancialservice providers.(USAID)

Agricultural Finance: Fullling an Unmet Need

Small farmers play a critical and often undervalued role in ensuringglobal food security. When food supply is threatened and globalcommodity prices rise, the work of small farmers becomes moreimportant than ever. Their crops feed not only their own localcommunities, but also the millions of people migrating to crowdedtowns and cities.

Without affordable nancial services, reliable information on marketdemand or direct market linkages, many small farmers remain inthe unprotable trap of low-investment and low-return productioncycles. They also need improved inputs to break into more protablecommercial production. But many of them do not have capital toinvest at the outset, own traditional forms of collateral or even havesafe places to save their money.

Small farmers who do have access to bank loans frequently nd theterms to be too rigid, the amounts too small or fees too high to permitthe kinds of investments that can signicantly increase production. Asa result, they often borrow from family, friends or moneylenders who

typically charge high interest rates and have limited potential to expand

In some cases, small farmers borrow their working capital from othernon-nancial participants within the value chain (whether formal orinformal), such as input suppliers, associations, buyers or traders. Whileborrowing from these sources may be appropriate in some situations, itoffers little transparency and can put signicant constraints on nancingdue to the lenders limited liquidity and lending knowledge.

Many nancial institutions have been hesitant to work with valuechains because of the complexity of relationships and the risks, costsand partnerships associated with nancing them. Credit unions,

however, make promising partners in value chain nance due to theirdeep community ties, presence in rural areas and lending experiencewith low-income individuals and small rms. And they are nding newways to manage the risk of lending to these important producers.

World Council of Credit Unions (WOCCU) is working with creditunions in Peru and Kenya to develop sustainable models foragricultural nance that benet both the credit unions and the valuechain participants they serve. As the small farmers move into more

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protable small-scale commercial production, WOCCUs methodol-ogy ensures they will have access to the nancial services they needto continue growing long after the WOCCU program has closed.

The right nance at the right time can meangreater efciency, improved product quality

and increased incomes. (USAID)

PeruFinancing Increases Value Chain Productivity

In partnership with Perus National Credit UnionFederation (FENACREP) and with funding fromthe Ofce of Microenterprise Development atthe U.S. Agency for International Development(USAID), WOCCU and six credit unions in Peru

are collaborating with local producer groupsand other value chain participants to develop amarket-driven model for value chain nance.

WOCCU provides technical assistance to thecredit unions in Peru, and they assume full riskof the loans they make. They do not receive anygrants, external funding, subsidies or guarantees.

The four-phase value chain nance methodology in Peru is designedto assess and mitigate the specic risks associated with nancingexisting rural value chains and to determine at which point in the

processfrom production to commercializationnancing addsvalue to the participants. Credit unions can use the methodology todesign a variety of products with characteristics that meet the variousnancing needs along the value chain. Most credit unions have or hirestaff with a background in agriculture to manage the process.

Value Chains are Market-DrivenPhase I: Identify and evaluate potential value chains

The credit union rst ensures that market demand exists for aparticular product and that the producers have the ability to meetthe demand. Without adequate product demand, both the nancial

institution and the producers are at risk of signicant loss.

Next, the credit union analyzes the strengths, weaknesses, opportuni-ties and threats of each value chain. It then identies points along thevalue chain where providing access to nance could bring the greatestvalue to small producers and would represent a good investmentfor the institution. At the end of this phase, it uses a scorecard tool(see p. 5) to evaluate and rank each value chain and create a map ofpotential nancing options.

Value Chains Financed byCredit Unions in Peru

October 2007 December 2008

WOCCU has trained six credit unions inthe value chain nance methodology. Moof the credit unions have already begunto apply the lending methodology to newvalue chains with limited monitoring andsupport from WOCCU.

18 distinct value chains: alpaca ber,cacao, coffee, guinea pigs, industrial oakiwicha (amaranth), milk, palm hearts,peas, potatoes, purple corn, rice, tropic

owers, and trout

41 cycles of nancing

1,026 loans disbursed to small producerand associations

US$1.58 million in total loans disbursed

3,668 producers served

2.65% delinquency on value chain loans

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Receive product and payproducers through the

credit unions

Producers

Input Suppliers

Processors

Other Participants

Buyers

ProducerAssociations

Value Chain

Credit Unions

Identify and evaluate

potential value chains

Facilitate and leverage

market linkages

Design the nancial

products and evaluate

capacity to pay

Grant, monitor and

collect loans

TechnicalAssistance

FINANCING

WOCCUs value chain nance methodology provides credit unions with the technical and operational capacity to put resources intoagricultural nance while maintaining an adequate margin and mitigating the risk of loan default. The methodology includes tools forevaluating opportunities, designing products and administering loansall crucial for institutions interested in nancing value chains toreduce the risk of doing so when they do not have access to subsidies, grants or guarantees. The model is adaptable to any type

of nancial institution and may be applied to non-agricultural value chains.

Direct Relationships are KeyPhase II: Facilitate and leverage market linkages

To help improve efciency and reduce dependency onintermediaries, the credit union brings together all of thevalue chain participants to identify problems, review theirneeds based on the evaluation in phase I and commit tonding solutions. The credit union gathers production andnancial data at the meeting to design appropriate loan

products, and the participants identify and contractuallyagree on quality standards, minimum purchase prices forthe producers goods and non-nancial activities that wouldimprove the value chains efciency. The direct connectionsprovide reliable market information to solidify the smallproducers business relationships and secure market accessfor years to come. The commitment participants make inthis phase is an integral part of mitigating the nancialrisk of lending.

Financial Products Meet Specic NeedsPhase III: Design the products and evaluate capacity to pay

In the third phase, the credit union analyzes potentialcash ows based on information gathered during theworkshop. It then designs a product that directly reectsthe nancing needs of the borrowers and the speciccharacteristics of each commodity and value chain. Thecredit union bases disbursement and repayment schedules

on production cycles and sets competitive interest rates tocover costs and provide a prot margin.

The credit union also establishes the policies and proce-dures needed to address the risks associated with valuechain loans, especially those made directly to producers.It then determines the best combination of collateral andsigned contracts to cover the loan.

Value Chain Finance MethodologyAs developed by WOCCU in Peru

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Phase III reduces the nancial risk of granting loans withunrealistic terms and/or inadequate amounts. By basingloans on both the participants real needs and capacity topay, the credit union is more likely to increase productivityand guarantee repayment.

Disbursement and Collection TechniquesReduce RiskPhase IV: Grant, monitor and collect loans

The credit union disburses loans in cash or in vouchersthat permit the borrowers to obtain discounted inputssuch as quality seeds, fertilizers, pesticides, tools, laborand equipment from other value chain participants.Producer associations and technical assistance providershelp monitor production, which reduces the credit unionsoperational costs and allows them to reduce interest rateson loans.

Once the buyers receive the products, they channelpayments to the producers or associations via the creditunion. The credit union deducts the full loan payment ofprincipal plus interest from the sale amount and depositsthe remainder into the individuals or producer associa-tions savings accounts.

After nancing a value chain once, the credit union onlyneeds to apply phases III and IV to grant subsequentloans unless there have been signicant changes to thevalue chain structure. It should, however, reafrm market

demand for each cycle of nancing.

In the case of Peru, credit unions provided nancing toparticipants in pre-existing value chains. Many of the valuechains were already involved in some type of commercialproduction but lacked the nancing and direct marketlinkages they needed to grow.

Financing is available to all value chain participants, such asinput suppliers, producers, producer associations, proces-

sors and buyers. The bulk of credit union loans have beenmade to the small producers and producer associationswho are often the most vulnerable links in the chain.As these producers and other value chain participantsbecome credit union members, they gain access to addi-tional nancial services including savings and insurance.

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WOCCUs Value Chain Finance ScorecardA tool for value chain nance analysis

Core purpose: Loan ofcers use the scorecard tool

at the end of phase I in the value chain methodology.

The evaluation provides credit unions a framework fordeciding whether or not to work with a particular

value chain.

Analysis: Loan ofcers use a weighted scoring system to

evaluate each indicator based on pre-set criteria. They

use the total score in combination with the qualitative

information gathered during phase I to determine the

viability of nancing the value chain.

Indicators

Market Demand

- Is the value chain connected to a viable market?- Is there sufcient demand to incentivize production?

- Can the producers compete with their peer group to

successfully meet demand?

Producers Technical Ability

- Do the producers have the appropriate level of

technical ability to understand and meet demand?

- Will the producers receive technical assistance from

strategic partners who can ensure product volume

and compliance?

- How will technical assistance services be nanced?

Producers Organization

- Are the producers organized?

- Do the producers need training to strengthen

the association?

Market Access

- Does the local infrastructure allow basic market

access, e.g., public transportation for goods and

people, modes of communication, etc.?

Environmental Factors

- Does supporting the value chain encourage the

employment of underage workers or interfere with

the completion of their schooling?

- Does supporting the value chain encourage environ-mentally friendly practices?

- Does supporting the value chain encourage practices

that violate local or national laws?

The scorecard is designed to be a decision making tool,

not a formulaic means to arrive at an exact answer. The

qualitative analysis in the value chain diagnostic is of

equal importance.


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In recent years, small coffee growers in Perus Amazonregion of Alto Mayo have received technical assistanceand certication to grow high value organic coffee, but

they have not been able to increase their incomes as muchas expected. On one hand, the growers lacked access toaffordable nancing, and on the other, they had few prot-able opportunities to market their coffee.

As with many other nancial institutions in the region,Santo Cristo de Bagazn credit union considered smallproducers to be very risky clients. The credit union hadtried agricultural lending in the past but had failed, and bythe time WOCCU began working with the credit union in2007, its bylaws prohibited agricultural lending.

WOCCU encouraged the credit union to use its value chainnance tools to evaluate the risks and market opportuni-ties associated with nancing the coffee producers. Asa result, the credit union identied and worked with theparticipants in the coffee value chain to determine waysthat nancing could boost competitiveness and protabil-ity, as well as increase the producers prot share.

The evaluation revealed that intermediaries provided theonly source of nancing for the coffee growers, and theyrequired the growers to sell to them at well below marketprices. Loans from intermediaries were not sufcient tocover the costs of production and maintenance, so cropquality and yields suffered.

The assessment also revealed that coffee growers couldearn more by selling to a producers association that

had a direct relationship with the commercial buyer, butthe credit union discovered that the association lackedsufcient capital to pay the growers immediately upon

delivery. Needing immediate cash to support their familiesgrowers had to sell to intermediaries or the local marketfor signicantly lower prices. And without adequatenancing to purchase additional coffee from the growers,the association had no room to increase its bargainingpower on their behalf.

With nancing needs clearly dened, participants of thecoffee value chain gathered information about productioncycles, costs, yields and prices so that the credit union coulddesign appropriate products that t their real needs. Afterall participants signed contractual agreements, the credit

union agreed to lend the growers up to 70% of their produc-tion costs and to make a short-term loan to the associationso that they could pay the coffee producers upon delivery.The buyer agreed to purchase the coffee at a set price andto repay the loan through the credit union.

The credit union disbursed its rst loans to 97 coffeegrowers in Rioja in January 2008, followed by a loan to theassociation in March 2008. All loans were repaid on time,and the growers earnings increased by 53%.

In the next production cycle, the credit union continuedto provide nancing to the Rioja coffee value chain andexpanded access to small producers in coffee value chainsin Moyobamba and Nueva Cajamarca. More than 445 smallcoffee growers have increased production having gainedaccess to nance through the credit union.

Integrating Credit Union Financing into the Coffee Value Chain

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KenyaMarket Linkages Mitigate Lending Risk

Credit unions are establishing new value chains inKenya, where nearly 80% of the population relies

on agriculture to make a living, and where manysmall farmers are trapped in subsistence-levelfarming without access to affordable nancingand reliable markets. In Kenyas western region, thechallenge of farming is compounded by politicalstrife, the countrys highest rate of HIV/AIDSinfection and unpredictable climate change thatthreatens food supply.

As in Peru, credit unions in Kenya have struggled for years to nd anagricultural loan product that both responds to farmers needs andbenets the institution. With funding from the U.S. Department of

Agricultures Food for Progress program, WOCCU is adapting bestpractices from its Peru experience to create an integrated approachthat helps farmersmany of them womenovercome the nancialand market access barriers to growth. Through the program, subsis-tence-level farmers are not only producing more food for theirfamilies, but they are gaining a greater stake in securing their nationsfood supply as well.

The value chain nance methodology for agricultural lending in Kenyamanages risk at all levels. Credit unions employing the methodol-ogy provide farmers voucher-based nancing for inputs and facilitatereliable market linkages. At the same time, farmers learn improved

agricultural practices, and people affected by HIV/AIDS are introducedto low-labor crops.

Institutional Capacity Drives Success

With WOCCUs assistance, credit unions are building their institutionalcapacity to take on agricultural lending. Credit unions in the programhave committed to opening their bonds of membership beyondemployer-based groups, adopting new products and hiring loanofcers with agricultural expertise.

The agricultural loan ofcer, nanced by earnings on the loan

portfolio, oversees lending and crop management. The loan ofceris also responsible for identifying marketable crops and working withexisting technical assistance providers, including buyers and represen-tatives from the Ministry of Agriculture, to provide technical assis-tance to farmers before and during the growing season.

Diversication is critical to the success of the program. WOCCUrecommends that the credit unions invest no more than 30% of theirloan portfolios in agriculture, and that they nance a variety of crops.Farmers should also diversify production so they do not rely on asingle crop for their food and income.

Alex Omino is an enterprising young

farmer in the Bondo district of westernKenya. Responsible for supporting his twchildren and extended family, he couldnot produce enough corn on his plotto feed them all. With a small loan fromhis local credit union, technical assis-tance from WOCCU and a contractedbuyer, Alex planted New Rice for Africa(NERICA) in addition to his traditional corcrop. NERICA is upland rain-fed rice thatdoes not require irrigation, matures in90 days and produces four to ve times

the yield of other varieties. NERICA notonly provides Alex and his family withmore food, but it also gives him a greatercash income and puts more ricethebulk of which Kenya importson thelocal market. With the right nancing andmarket arrangements, new cash crops likeNERICA offer real promise for combatingthe pervasive hunger in Kenya.

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Market Relationships Provide Sustainability

With few established value chains in the region, creating new marketlinkages is critical to the success of agricultural lending. To ensuresustainability, the value chains established must be benecial to allparticipants and structured in a way to minimize risk. WOCCU has

identied local farmer groups, input suppliers, buyers and credit unionsto establish and maintain new value chains in western Kenya. The rela-tionships are formalized through contracts or memorandums of under-standing that dene each participants obligations.

Farmer groups organized by the credit unions, WOCCU or the UnitedNations Food and Agriculture Organization in its Farmer Field Schoolsform the foundation of the value chains. The groups consist of 20to 40 subsistence-level farmers who meet regularly to learn aboutnew crops and farming techniques. Financing from the credit unionmeans they no longer have to rely on expensive intermediaries, andthey now have access to market information, new crops, techniques

and technical assistance designed to help them break into small-scalecommercial production.

Suppliers in the area sign contracts with the credit union in whichthey agree to charge farmers fair prices for inputs and receivepayment in the form of credit union vouchers. The agreement guar-antees the suppliers payment through the credit union and improvestheir competitive position in local markets by introducing a largenumber of new clients.

Buyers and processors in the region work with the credit union,WOCCU and the farmers to identify appropriate crops and agree on

a fair price and schedule (see p. 9). In some cases, the buyers provideseeds and direct technical assistance during the growing cycle. Theyalso arrange transportation for the crop. By ensuring better and stableprices, buyers help the farmers minimize the risk of their investment.Buyers help reduce the lending risk by channeling their paymentsthrough the credit union. Value chain nancing from the credit unionmeans buyers no longer have to provide direct lending to the farmersand are guaranteed a quality product at harvest time.

Credit unions manage the value chain linkages and relationships and,where appropriate and necessary, provide nancing and other servicesThe credit unions offer voucher-based loans and a range of savings

products to the small farmers. The agricultural loan ofcers alsomonitor the farmers production. The value chain nance methodol-ogy helps credit unions attract new members and penetrate the ruralmarket in a sustainable manner that minimizes risk.

Farmers Manage Risk from the Start

The lending methodology relies in part on the existing bonds of thefarmer groups. Agricultural loan ofcers meet the groups in their

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Low-Labor Crops Provide Options forHIV/AIDS-Affected Families

Virtually no one is left unaffected byHIV/AIDS in western Kenya. And in ruralareas, AIDS has not only weakenedthe work force, but it has left behindthousands of orphans. As a result, widowshave formed caregiver groups to lookafter children whose family membershave perished. The women are strugglingto survive themselves, but in many waysthey are visionaries, as they work togetherto create a more solid foundation for the

orphans in their care. WOCCU and localcredit unions are working with the groupsto introduce and nance the productionof low-labor crops, such as green grams (alentil-type legume), that have high nutri-tional value and local market demand. Theoutput is shared among the women andsold in local markets to generate incomefor the groups.


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communities to sign up new credit union members and introducethem to value chain nance.

Individuals without traditional forms of collateral can borrow witha group guarantee on the loan. If one farmer fails to pay, the otherfarmers in the group are responsible for repaying the loan. As a result,

group members monitor and help each other with farming activities.Some farmers prefer to grow commercial crops collectively, so grouploans are available in addition to individual loans. Each group member isrequired to join the credit union before the group may apply for a loan.

Loan ofcers conduct pre-loan surveys with individual farmers toassess their land, the cost of inputs and the expected yield. Loan sizesare based on the information collected in the survey.

For crops with contracted buyers, the credit union disburses agricul-tural loans in the form of vouchers. Borrowers receive vouchers atdifferent phases of the production cycle to pay approved suppliers forseeds, fertilizer and tools. Suppliers then cash in their vouchers at thecredit union. A small amount of cash may be available to farmers whoemploy eld laborers.

Payment Goes Straight to Savings

Buyers arrange transportation of the crop at harvest time. Upondelivery, farmers receive a receipt that indicates the volume andgrade of their crops.

Immediately after receiving the goods, the buyers make paymentto the farmers through the credit union. The credit union uses thepayment to cancel the farmers loans and contribute a small amount

to the group risk management pool on behalf of the farmers. Thefund is a simple form of agricultural risk management that could helpcontrol production risk in the event of drought or hail.

Remaining proceeds go into the farmers savings accounts, and thefarmers withdraw funds as needed. One percent of the return on eachharvest must remain in each farmers savings account to build collat-eral for future growing seasons.

Credit union loan ofcers meet with farmer groups in their villagesand elds throughout the process, so the farmers save on the cost oftransportation and time it would take them to travel to the branch

ofces. The farmers only need to visit the credit union branch tocollect small cash loans to pay eld laborers or to withdraw fundsfrom their savings accounts once their loan has been paid off. Withthe voucher-based system, loan ofcers do not need to carry cashwith them on the visits.

The WOCCU program is working with three credit unions to disbursemore than 2,000 loans in the rst growing season of 2009.

Community Groups Educate YouthThrough Junior Farmer Field Schools

Education is highly valued in Kenya, andprimary school is free. But resources areseverely lacking. In places like the village oOdhuro, many school-age children survivon one meal a day in good times and lessin bad ones. Agricultural agents and groupmembers are working with primary schoochildren and a local orphanage to helpthe youth plant seeds, use farm imple-ments and improve the quality of theirschool gardens. Harvests from the schoogardens provide nutritious school luncheand sometimes a small amount of cashto help add protein to the childrens dietsand purchase basic school supplies. Asthe children learn agricultural skills to feed

their families and generate income, theprogram not only provides food for todaybut it also creates a safer foundation for afuture in which young adults have a viablealternative to life on the streets.

Selecting an Appropriate Cro

The farmer, buyer and credit union shoulall be involved in deciding which crop isbest suited for the value chain.

Some factors to consider include: Crop value Market demand Availability of inputs Ease of transport Climate and growing conditions Farmers experience and ability to

perform labor

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Managing Risk at Every Step in Agricultural Lending

Ensure Market Demand for CropsLoans are made only for crops with reliable buyers that

have already been contracted. Crops to be nanced areselected according to local conditions as well as thefarmers technical experience and ability to perform labor.

Create Proper Policies and ProceduresThe credit union addresses the following risks whenestablishing the policies and procedures for value chainnancing: geographic distance from the borrower, weather,crop failure and the use of balloon payments at the end ofthe production cycle.

Assess Real Financing NeedsLoan ofcers use WOCCU tools to conduct pre-loansurveys that evaluate the total cost of production basedon available land, expected yield, pricing of inputs andlabor. They base the loan amount on the evaluation.

Establish Appropriate Guarantees onIndividual LoansCredit unions are able to lend to small farmers withoutrequiring traditional forms of collateral. In Peru, loansare guaranteed by a combination of collateral and signedcontracts with other value chain participants. In Kenya,

individual loans have group guarantees. If one farmer failsto pay, the other farmers in the group are responsible forrepaying the loan. As a result, group members monitor andhelp each other with farming activities. Credit unions inKenya may also use crops as collateral.

Diversify the Loan PortfolioWOCCU recommends credit unions invest no morethan 30% of their total loan portfolios in agricultural

production. They should further diversify the agricul-tural portfolio by nancing a variety of crops in different

geographic regions.

Adapt Loan Terms According to Crop SeasonsLoan terms are structured around the production cycle odifferent crops. Repayment occurs after harvest, once thpurchase contract is fullled.

Distribute Loans in VouchersWhen possible, borrowers receive the loan in the form ovouchers to purchase inputs from pre-approved supplierduring different phases of the production cycle. Thefarmers are also able to borrow small amounts of cash to

pay eld laborers if necessary.

Encourage Farmers to Diversify CropsCrop diversication helps ensure that small farmers willnot become dependent on a single crop. It also encour-ages commercial production beyond the traditional cropthey grow to feed their families.

Monitor Crop PerformanceAgricultural loan ofcers and other technical assistanceproviders visit the farmers throughout the growing seaso

to provide technical support and monitor production.

Receive Payment through the Credit UnionBuyers pay the credit union directly for crops they receivfrom the farmers. The credit union deposits the remaininprots into the farmers savings accounts after deductingthe loan amount, thus promoting savings while recoverinthe loan.

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Adapting the Methodology

The value chain nance methodology developed in Peru has arelatively low implementation cost and can be adapted to diversecontexts, products and environments. However, it requires thepresence of an individual who is able to bring together, facilitate and

monitor business relationships that will lead to a more productivevalue chain that meets all participants individual goals.

In both Peru and Kenya, the credit unions are building their agricul-tural portfolios over time. They needed to see that the methodologyworked before assuming the increased risk of agricultural lending. Asthey continue to see the positive results, they become more willing totake on the additional risk and to look for new value chain nancingopportunities. In all cases, the nancing arrangements need to bemutually benecial for all value chain participants in order to achievethe sustainability that results from market-driven relationships.

Looking Forward

Gaining access to affordable nance, reliable market information anddirect market linkages is enabling small farmers to increase their produc-tion. By becoming credit union members in the process, small farmersnot only obtain affordable credit, but they also gain access to savingsaccounts, insurance and money transfer services for years to come.

The agricultural lending methodology outlined here is building thecapacity of local credit unions and producer groups to work togetherand to help subsistence-level farmers move into more protablesmall-scale commercial production. The methodology not only

provides higher income for the producers and their families, but itlays the foundation for increased food security into the future.

While WOCCU continues to build on lessons learned through servingsmall farmers, it is also testing new technology solutions, such aspoint-of-service devices and cell phones, and building the back-endinfrastructure that will support them so that credit unions can reachmore people more efciently.

By providing members with affordable nancing and increasedaccess to markets, credit unions will continue to open new windowsof opportunity for small farmers long after the WOCCU technical

assistance programs close. And by supporting increased productioncapacity in developing countries, credit unions are once again demon-strating the critical role they play in the ght against poverty.

References

ACDI/VOCA. Value Chain Finance, USAID Brieng Paper, 2009.USAID. Value Chain Finance, RAFI Notes, 2005.WOCCU. Innovations in Financing Value Chains, USAID award submission, 2008.WOCCU-USDA Project: Kenya. Internal reports, 2008.WOCCU-USAID-FENACREP Project: Peru. Internal reports, 2008.

1

Successful

Value Chain

Financing

Preconditions

Solid nancial institutions that haveofces near the producers and arecommitted to the rural sector

Organized producer groups withmarket potential

Basic infrastructure including roads,electricity and telephone networks

Legal systems that enforce contracts anprovide some type of land ownershipdocumentation (not necessarily a title)

End buyers who are willing to activelyparticipate in the value chain

Staff members who meet a basic prolto manage the process

Projects or private providers oftechnical assistance

Access to basic, reliable market dataeither through public sources or othervalue chain participants

Critical Elements

Credibility. The market determines thesuccess or failure of value chain nancingCredit unions should work withestablished farmer/producer groups andselect buyers who have experience andgood business reputations.

Commitment. Open conversation abouteach participants objectives ensures amarket-driven arrangement. All partici-pants sign contracts that include penaltiefor not fullling responsibilities. While thi

is not a 100% guarantee, it reduces the risof abuse by any one participant.

Diligence. The risk dramatically increasesif the credit union skips any of the phaseof the value chain assessment process.Loan ofcers and their managers should btrained to understand the importance offollowing through with each phase.


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In 2009, USAID awarded its first Innovations in Financing Value Chains competition award for pioneering/groundbreaking to the Credit Union Market Integration Program in Peru, co-funded by WOCCU, FENACREPand USAID. The award recognized the top programs in providing financial and increased market access tovalue chain participants.

Download WOCCUs publications at www.woccu.org/publicationsLearn about WOCCUs technical assistance programs at www.woccu.org/microfinance

Authors: Jennifer Bernhardt, Stephanie Grell Azar, Janette Klaehn

Contributors: Brian Branch, Sam Dunlap, Oscar Guzman, Luis Jimnez, Barry Lennon

Photos: William Campbell, Glicerio Felices Prado, Erin Ruedt, San Cristobal de Huamanga credit union

Design: Erin Ruedt

2009 World Council of Credit Unions. All rights reserved.

WOCCU Offices

5710 Mineral Point RoadMadison, WI 53705 USAPhone (608) 395-2000

601 Pennsylvania Avenue, NWSouth Building, Suite 600Washington, DC 20004 USA

Phone (202) 638-0205

Alpaca farmers involved with WOCCUs program in Peru sort and weigh alpaca ber on a scale they purchased with a credit union loan.Newfound access to nance has reduced the producers dependency on intermediaries and increased their bargaining power with buyers.

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