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Enhancing Agricultural Value Chain with Microfinance: Bridging the Gap

Explore the intersection of agricultural production and microfinance, identifying challenges and solutions in the value chain. Analyze sources of agricultural credit, value chain flows, and development support needed for smallholder farmers.

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Enhancing Agricultural Value Chain with Microfinance: Bridging the Gap

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  1. Agricultural Value Chain and Micro Finance European Microfinance Week, 30th November - 1st December LUXEMBURG. • www.alterfin.be

  2. Thesis: There is no or little link between agricultural smallholder production and (micro-)finance

  3. Agricultural Value Chain and Microfinance: Is there a link ? Source of Agricultural Credit in Kenya, 2000 and 2004 Source of credit 2000 2004 Commodity Based Credit Providers 53.5% 62.7% Cooperative/ Saccos 26% 20.6% Informal money lenders 12.1% 9.9% Local trader/input stockists 6.8% 3.9% AFC 0.4% 1.3% Commercial bank 0.6% 1.0% MFI 0.6% 0.5% 100% 100% Source: Tegemeo household survey (Kenya), 2000 and 2004

  4. Value Chain Flows Enabling environment Financial flows Physical flows Inputs Production Processing Distribution Consumption Information flows Supporting services

  5. Maize Value Chain Kenya Source: LilianKirilmi et al, TegemeoInsititute Conference, Nairobi 27 October 2010

  6. Cocoa Value Chain Ivory Coast Source: LilianKirilmi et al, TegemeoInsititute Conference, Nairobi 27 October 2010

  7. Production cash flow

  8. Need for financing

  9. Availability and need for financing

  10. There is no or little link between agricultural smallholder production and micro-finance

  11. Problems on the level of the farm • Production risk (weather, environmental, …) • Price risk (volatility) • Market risk (market price does not cover production costs) • Lack of collateral

  12. Problems on the level of the chain • Fragmented chains • Few sources of price and market information • Distorted agricultural policies • Fragmented financial markets • Few financial intermediaries in rural areas

  13. Development Support • Organisation of chain actors: horizontal integration • Develop partnerships: within the chain: vertical integration (e.g. between producers and processors, …) • Develop partnerships: between the chain and service providers (e.g. with FI: financial intermediation)

  14. Facilitating Financial Intermediation • Risk management • Information management • Minimizing transaction costs • Financial products design • Contract support

  15. Financial products • Savings • Overdrafts/Credit Lines/revolving credit • Working capital loans • Factoring • Contract-farming • Leasing • Warehouse-receipts / Warantage • Trader credit • Investment credits • Harvest insurance

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