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What is a Value Chain?

Learn about the link between value chains and microfinance, the importance of value chain finance, different business models, financing tools, and lessons for microfinance institutions. Understand the client, market, and partners in the value chain to structure financial services effectively.

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What is a Value Chain?

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  1. Value chains and microfinance:what is the link? Calvin Miller – FAO, ModeratorHugo Couderé – AlterfinMichael de Groot – Rabobank FoundationTom Rausch – Pride Africa/DrumNetMiriam Cherogony – IFAD Kenya

  2. What is a Value Chain? The full range of activities required to bring a product or service from conception through the various stages of production and delivery to final consumer. A value chain includes all actors including producers, processors, suppliers, wholesalers and retailers and consumers. A value chain is defined by its particular consumer segment.

  3. Value chain finance – financial products and services flowing to and/or through a VC to address the needs of those involved in that chain, be it a need for finance, a need to secure sales, procure products, reduce risk and/or improve efficiency within the chain. Defining Value Chain Finance VCF Approach – to understand the value chain and its participant needs and structure finance and services to best address them. • Objectives: • Align and structure financial products to fit the chain • Reduce costs and risks of finance

  4. Producer-driven Buyer-driven Facilitator-driven Integrated Value Chain Business Models For value chains and value chain financing, a business model refers to the drivers, processes and resources for the chain. Four types of business models:

  5. Value Chain Finance Tools/Products 1. Product Financing 2. Receivable Financing 3. Physical Asset Collateralization 4. Risk Mitigation Products 5. Financial Enhancements

  6. VC Lessons and Links for Microfinance • Understanding: • the client • the market • the value chain partners • Assessing: • risks • competitiveness • relationships and processes • rationale and needs for financing by those in the chain • Structuring financial services: • according to the business model and strengths of VC participants • adapting and applying appropriate financial products and services • combining products and payments to reduce cost and risk • linking with complementary support services

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