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Presentation Fin4Ag S37 by Harm Haverkort
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Ethiopia:Capacity Building in
Value Chain financing
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Introduction
Terrafina Microfinance aims to contribute to rural development and poverty alleviation through improved access to microfinance and the facilitation of expanded rural outreach by sustainable microfinance providers for rural producers and entrepreneurs in selected African countries.
Terrafina Microfinance was founded in January 2005 as a joint microfinance programme of ICCO, Oikocredit International, and Rabobank Foundation.
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Value Chain Finance
DefinitionValue chain finance (VCF) can be used when relationships
in the chain are used for liberating financial services to the chain. Financial services can be provided to one or more actors in a Value Chain, and the release and risk mitigation of these finances are - to a large extent- based on the relationships in the Chain”.
Terrafina Microfinance supports 5 chains in Ethiopie:
(Soy Bean, Malt Barley, Honey, Coffee, Improved seeds)
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CHAIN ACTORS
CHAIN SUPPORTERS (SERVICE PROVIDERS - FACILITATORS)
CHAIN CONTEXT
Source: SNV-LA
The Value Chain concept
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Financial services in chains:
Commercial banks
Banks, MFI’s, Companies, Unions
Commercial bank,Companies
MFI’s, Sacco’sCompanies, Associations
Long term loans, Guarantees or equity
Medium term loan, Leasing,
Short and medium termLoans, leasing
Short term loans, Savings, group loans
Industrial processorsexporters
Local processors,wholesalers
Local traders,Producer associations
Small producers and Micro entrepreneurs
Active Scope of MFIs
Active Scope of Banks
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Products and channels for VC-actors
Non-commercial smallholders (Subsistence farmers)
VSLA’s
Micro leasing
Indiv. Agri prod.
Warehouse receipt
Sacco’s
Group LoansRSF’s
FactoringVC leasing
Missing Middle (10,000-50,000US)
Commercial smallholders in loose value chains
Commercial smallholders in tight value chains
PRODUCTS CHANNELS
MFIs
Banks
Model is created developed by TMF based on CGAP segmentation framework for smallholder households and Rabobank Development Segmentation matrix
Emerging Farmers
Corporate &Commercial Farms
Guarrantees
Retail approach + TA
Relationship approach
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Emerging guidelines
1.
2.
Tailored and flexible capacity building plan:• Training• Coaching & follow-up• Monitoring & performance assessment Instuments used:• Class room training• Field and follow up visits• Home work assignments
Tailored mix of financial instruments:- Grants- Loans & Guarantees- EquityThe financial services are demand driven, responding to identified weakness or challenges within the partners
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Emerging guidelines---con’t
3.
4.
• Market research• Product design• Development• Testing• Evaluation • Scaling up. Preferably in peer group learning sessions to allow for mutual learning is also core to the approach of TMF
Clear design of roles and responsibilities of FS and NFS actors
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Emerging guidelines---con’t
5.
6.
Chain orchestration has to be secured. Often this is the role of TMF, but this should be taken over by NFS-actors
Dedication and realistic that a streight forwarded approach will not work; willingness to adjust strategy during the process
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Recurrent issues and challenges
1. Capacity building of farmers organizations is a challenge. MFI’s risk undertaking this on their own account.
2. MFIs should not engage in BDS services; chain analysis and facilitation. Mismatch in the past between FS and NFS
- Plan for both NFS and FS to ensure profitable business ready for appropriate finance
3. What to subsidize and where to use investment finance?
- Install a business mentality towards farmers also for NGO’s. eg. Farmers to pay for trainings.
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Steps of CB in VCF
Awareness Creation (solve
mismatch)
Agreement (on funds/joint action/VC
analys)
Identify financial
challenges
Develop and test innovative
financial products
1 2 3 4
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Potential CB activities in VCF
Terrafina Microfinance
With MicrofinanceInstitutions
With Other Stakeholders
Actor Identification
Lobby and Contracts
Linking with Heineken
Develop Contract Farming
TA to MFI Staff
Stakeholder Workshops
Smart Financing
Linkage to Banks
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Orchestration CB activities in VCF
Companies
Farmers / FMO
BDS providers
MFIs
Commercial Banks
TMF
RIAS
Int NGOs
Rabobank (guarantee) Rabobank (loans)
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Time allocation (TMF)
VC financing and development is time consuming (p.a.)• VC facilitation 10 days• Product design 15 days• Actor orchestration 15 days• Contracting 10 days• Monitoring and steering 15 days
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Lessons learned
• MFIs are often the chain puller• Poor communication and alignment of objectives between the
Financial CB providers and Non-financial CB providers in VCD• CB at all levels is essential if the objective is to include small holder
farmers in (tight) VCs• CB providers are depending on each other, but there is a lack of
accountability• Who is paying for NFS• Lack of vertical linkage of financial institutions
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CONTACT
P.O. Box 8190
3503 RD Utrecht
The Netherlands
T +31 (0)30 880 18 96
www.terrafina.nl
