In this section, you may find new materials that have been published on the topic of ‘Finance for agri-value chains’, since the date of the event. We continually select major new publications and articles that add up to the policy points discussed in this briefing.
Breaking the Pattern: Getting Digital Financial Services Entrepreneurs to Scale in East Africa and India
VillageCapital, June 29, 2017
More than 60 million people in East Africa still do not have accounts at formal financial institutions, and around half of small businesses lack access to formal credit. We know the enormous potential of digital financial services – Kenya’s mobile-money platform, M-Pesa, has already begun to help millions connect with the formal economy. And payments are just the tip of the iceberg. Companies across India and East Africa are developing innovative solutions to meet the needs of the financially excluded. Yet despite the enormous market opportunity and the number of high-potential DFS companies in these markets, very few are scaling. Why? The obvious answer most startups will give is capital. Companies aren’t raising the money they need to get to scale: 72% of startup funding in East Africa has gone to just three companies in the past two years, and the other companies have struggled to fulfill a full round.
Digitizing Value Chain Finance for Smallholder Farmers
M. Mattern, R.M. Ramírez | CGAP | 30.04.2017
This Focus Note aims to identify, analyze, and formulate potential development paths of efforts to digitize agricultural value chain finance. The authors begin with an overview of value chain finance and the role of digital tools. They present three broad use cases for digital financial services (DFS) along value chains: overcoming barriers to providing financial services, improving the efficiency of financial transactions, and improving market opportunities. The paper also highlights the types of financial products and services that digital solutions enable and cites examples of models currently being implemented. It also analyzes the costs, benefits, and opportunities of various approaches to digitization, in an effort to help readers identify situations where digital tools can help solve key pain points along the value chain.
Value chain financing: evidence from Zambia on smallholder access to finance for mechanization
Enterprise Development and Microfinance , March 2017
Smallholder farmers in Zambia comprise 85 per cent of the farmers’ population. Such farmers are regarded as not creditworthy and furthermore their agricultural productivity could be improved. The aim of this paper is to present recent evidence on value chain financing (VCF) as a framework to increase access to agricultural finance for Zambian smallholder farmers. Such financing will act as an enabler to mechanize and, in turn, might improve productivity. Qualitative data collection techniques were followed to provide the results as presented in three illustrative case studies. Each case study highlights the benefits of financing, using the value chain framework, but also emphasizes certain challenges and risks associated with the approach. The Zambian case is not perfect, but provides recent evidence of how various roleplayers in Zambia’s agricultural sector have applied the VCF framework to coordinate the actions of various chain actors, and by doing so allow smallholders access to finance within the local and country-specific context. Although two of the three VCF programmes have been discontinued, they still provide useful learning points: for instance, commercial banks should assign more resources to manage the VCF products; and the risk should be shared between all the VCF participants.
Value chain financing in agriculture: the case of Zambia
Chartered Institute of Management Accountants, October 2016
Smallholder farmers in Zambia comprise 85% of the farming community. Such farmers are not regarded as creditworthy and their agricultural activity is characterised by low yields in production. The aim of this study is to investigate whether VCF could offer increased access to agricultural finance for Zambian smallholder farmers. Such financing will act as an enabler to mechanisation of the farming operation and in turn improve productivity. This study investigated and documented three independent case studies representing practical examples of VCF applied within the Zambian smallholder agricultural sector. Each case study highlights the benefits of a value chain approach for providing finance but also emphasise certain challenges and risks associated with the approach. It was found that the VCF approach will improve the access to agricultural finance for Zambian smallholder farmers. It is recommended that investors, financiers and policymakers consider both the benefits and challenges with offering finance solutions following a VCF approach.
– Agricultural Value Chain Finance: a Guide For Bankers
The perceptions of serious lending risks and high costs of service delivery, among other limitations, are well-known barriers to the financing of smallholders. These barriers make it difficult and sometimes impossible for farmers to get a loan, therefore denying them a chance to grow their businesses and incomes. Clearly, traditional banking does not meet the needs of the smallholder. Experience suggests that value chain finance is arguably one of the most sustainable and effective ways of reaching smallholder farmers with the potential to benefit a significantly greater proportion of the 450 million smallholders worldwide.
This study examined the financing needs of farmers and off-farm agribusiness enterprises, the role of different actors in catalyzing sustainable and inclusive agribusiness finance, and the mix of financial products and services offered. It used multiple analytic methods, including targeted surveys of value chain actors, interviews with businesses, and desk research to get an in-depth look at the demand for and sources of agribusiness finance, and to identify constraints, challenges, and gaps based on both demand and supply constraints. On the demand side, the study team interviewed actors in farming and off-farm agribusiness operating in four value chains: cashew in Côte d’Ivoire, maize in Ghana, cassava in Nigeria, and rice in Sierra Leone. Data on the supply of agribusiness financing was obtained from a literature review of agriculture and agribusiness finance; a desk review of annual reports and other relevant documents from 34 commercial banks in four countries, 21 agricultural investment funds, and 21 multinational agribusiness firms with operations in Africa and direct interviews with staff from a subsample of these organizations. A review of World Bank and International Finance Corporation (IFC) projects with agribusiness finance components and interviews with past and current Task Team Leaders provided insights on World Bank Group activities.
– REPORT: Finance for Smallholders – 2015
NpM platform for inclusive finance, 2015
Via one of NpM’s working groups, a research has been carried out titled: “Finance for Smallholders – Opportunities for risk management by linking financial institutions and producer organisations”. The NpM Rural Finance working group focuses on improving its members’ activities to increase access to financial services in rural areas. In this light, the group decided in February 2014 to research which bottlenecks exist to finance smallholders, thereby identifying opportunities for risk management through linking financial institutions and producer organisations, in the countries Ethiopia, Mali, Rwanda and Uganda. The research has been carried out in cooperation with AgriProFocus (APF) and the Wageningen University and Research centre (Wageningen UR), and is funded by the Food & Business Knowledge Platform (F&BKP). The NpM Rural Finance working group consists of the following NpM members: Cordaid, FMO, Hivos, ICCO, ICCO Terrafina Microfinance (formerly: Terrafina Microfinance), Rabobank Foundation and Oxfam Novib. ICCO Terrafina Microfinance coordinates the working group. The report has been realised in coordination with other stakeholders who are active in this field on an international level: Agriterra, the European Microfinance Platform (e-MFP) and the Consultative Group to Assist the Poor (CGAP).
– Revolutionising Agricultural Finance: A post Fin4Ag Conference Special report
cta.int, February 2015
The Fin4Ag conference held in Nairobi, Kenya, July 2014, was the largest and most extensive event ever staged focusing specifically on agri-financing. This text provides a valuable overview of the unique event, which covered new thinking around the three broad themes of innovative tools, a new legal and regulatory framework, and cross-cutting issues in agri-value chain finance. Specific issues covered include warehouse receipt financing, the progress of African commodity exchanges and alternative sources of finance. You can download a copy of the Conference Special report here.
– Phone-packed Africa leads way in take-up of mobile banking
Mobile banking and payment operations services are booming in sub-Saharan Africa (SSA). The region is even taking a global lead in using mobile devices for such billing services, especailly as traditional bank accounts are less common on the continent, while most now own a mobile phone. Swedish telecom company Ericsson reported that mobile subscriptions in SSA weredue to surpass 635 million by the end of 2014 – a figure “predicted to rise to around 930 million by the end of 2019”. World Bank figures for 2014 also showed that while less than 29% of people aged 15 and over in SSA had a traditional bank account, around 10% of these same people had access to a mobile phone. Overall, the World Bank found 16% of sub-Saharan mobile users have used their phones for banking purposes – a figure larger than any other global region, and ripe for far wider use still.
– CTA Newsletter: Revolutionising agricultural value chain finance: a digital perspective
CTA, July 2014
For many developing countries, agriculture plays a major role in the economy with numerous cash transactions taking place throughout the farm-to-fork agriculture value chain. This paper proposes a three-step approach for replacing the cash payments made by large buyers (e.g. lead firms, cooperatives) to smallholder farmers with digital payments. By helping to transition these aggregated cash payments to digital payments, agriculture developers are well positioned to leverage digital finance on behalf of the
agricultural base of the pyramid.