Value Chain Finance Lessons 2010
Value Chain Finance, Beyond microfinance for rural entrepreneurs. KIT and IIRR, 2010
Royal Tropical Institute (KIT), PO Box 95001, 1090 HA, Amsterdam, The Netherlands
International Institute of Rural Reconstruction (IIRR), Africa Regional Centre, PO Box 66873, Nairobi, Kenya
In this book the link between chain actors and financial institutions is described as a means to deepen financial services for value chains. Value chain finance aims to address perceived constraints and risks by providing innovative ways of delivering financial services to rural producers and agribusinesses. Value chain finance means linking financial institutions to the value chain, offering financial services to support the product flow, and building on the established relationships in the chain. It means that the product flow in the value chain is used as a carrier to provide financial services. This way of financing can spread risk among the financial institutions and chain actors and provides alternatives to traditional collateral requirements. It provides tremendous potential for unleashing capital, scaling up and sustaining chain prospects, but it needs to be managed and organized well.
A variety of sizes and types of innovative financial products and services are needed which can be offered only through a combination of financial service providers. This requires building vertical linkages in the financial sector. For example, microfinance institutions can link with producer organizations to provide small input loans to producers, while banks simultaneously provide an investment loan to a processing company in the chain. The microfinance institutions and banks need to link up to align their services in this chain for potential overdraft facilities to small traders.
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