This article provides a framework, with supporting examples, for addressing finance for smallholder investment for innovation. Smallholder households function in interconnected ‘systems’ radiating outwards from the household unit: livelihoods, agricultural market systems, community and society, and infrastructure and policy. An inclusive livelihoods model analyses what would need to be true for uptake of innovations by women, men, and youth, and what financial and non-financial products are needed. ‘Customer centric’ integrated value chain financing solutions are tailored to smallholder market segments along eight pathways for growth. A roadmap for facilitating innovation and change using priority pathways, yet grounded in proven financial and development principles, is recommended. Tools and approaches include: value chain facilitation and capacity development – aggregation, market linkages, and private–public partnerships; financial tools – transaction-based financing, flexible products, and risk mitigators; and innovations in service delivery – digital and ICT applications.
This paper provides an overview of value chain financing concepts and applications. It highlights issues and directions in the commercialization of agriculture, value chain development, agricultural and agribusiness finance and discusses the potential benefits and cautionary pitfalls associated with value chain financing. It is argued that value chain development supported by appropriate policies, institutions and services that constitute an enabling business environment can be instrumental in leveraging access to financial services in agriculture in developing countries. In this regard, ideas for promoting value chain financing are proposed and questions on its future are offered for reflection.
Value chain finance in agriculture is an approach to financing that uses an understanding of the production, value added and marketing processes in a chain to best determine financial needs and how to best provide financing to those involved. Many diverse and innovation financial instruments may be applied or adapted to fit the specific financial needs of chain actors. Commodity flows and cash flow projections can be used to secure financing and reduce risk. This article looks at this approach and at the application of financial instruments and innovations, drawing lessons for widespread application. The 13 lessons are drawn from 90 cases presented in four regional conferences on value chain finance organized by the Food and Agricultural Organization of the United Nations (FAO) and on a study on structured finance for agriculture. These lessons show the high potential of this approach for successfully increasing finance to agriculture and agribusiness, with less risk and lower transaction costs.