Small-scale enterprises receive several forms of aid, but many are denied access to formal loans. This article presents findings of a study which considers the demand for and supply of funds, and the factors lenders use to ration credit in special microenterprise programmes. The article discusses ways to help imrove microentrepreneurs' access to finance. By helping entrepreneurs to collect, assemble and prepare the type of data needed to evaluate loans, microenterprise programmes will not only improve their own information problem and their loan screening process, but will also assist their clients to learn what will be required if they ever hope to become clients of commercial lenders.
While financial institutions have had relatively little success in overcoming the risks and costs of lending to agriculture, rising food prices and shortages have made it imperative to find better ways of increasing financial flows in support of increased agricultural production and marketing. Direct value chain finance transactions operate with the same logic as any other financial transaction. The lender must engage in some form of client screening, client monitoring and contract enforcement. To successfully accomplish these tasks, direct value chain lenders can use information gained through their value chain relationships about their clients and their clients’ businesses. The value chain governance structure influences how easily and successfully a value chain lender can accomplish these tasks. Value chain governance structures can be defined with a typology along a continuum of four types of relationships described generically as market based, balanced, directed and hierarchical. A market-based value chain provides little opportunity for a lender to screen or monitor clients or the conditions needed to enforce contracts. A balanced value chain has incentives for firms to share information, jointly ensure product targets are met and respect contracts that reflect interdependencies. A directed value chain provides the lead firm with access to information, control over supplier production and the power to enforce contracts. Therefore, we expect to see more examples of successful direct value chain financing in value chains with a directed governance structure, but fewer examples in value chains with a market governance structure.