Value Chain Financing Value Chain Financing OverviewOverview
Prof. Ronald T. ChuaProf. Ronald T. Chua
Asian Institute of Asian Institute of ManagementManagement
Value Chain Financing OverviewValue Chain Financing Overview
Review of the Value Chain Review of the Value Chain FrameworkFramework
Value Chain Development and Value Chain Development and Value Chain FinancingValue Chain Financing
Why a Value Chain Perspective?Why a Value Chain Perspective?
Microenterprises/rural agricultural Microenterprises/rural agricultural households part of a bigger economic households part of a bigger economic systemsystem
Increasing microenterprise/rural agri Increasing microenterprise/rural agri household incomes may require household incomes may require interventions beyond the interventions beyond the enterprise/household levelenterprise/household level
Value Chain Approach ObjectivesValue Chain Approach Objectives
A tool/approach for identifying A tool/approach for identifying opportunities and constraints for:opportunities and constraints for:• improving chain growth and improving chain growth and
competitiveness competitiveness • benefit more marginalized participantsbenefit more marginalized participants
Takes on a systems perspective (the Takes on a systems perspective (the value chain)value chain)
Analytical PerspectivesAnalytical Perspectives
The Value Chain Framework*The Value Chain Framework*
““Value chains encompass the full range of Value chains encompass the full range of activities and services required to bring a activities and services required to bring a product or service from its conception to product or service from its conception to sale in its final markets – whether local, sale in its final markets – whether local, national, regional, or global. Value chains national, regional, or global. Value chains include input suppliers, producers, include input suppliers, producers, processors, and buyers. They are processors, and buyers. They are supported by a range of technical, supported by a range of technical, business and financial service providers”business and financial service providers”
*Taken from: The Value Chain Framework: USAID Briefing Paper
Value Chain Structure ElementsValue Chain Structure Elements End MarketsEnd Markets Business and Enabling EnvironmentBusiness and Enabling Environment Vertical LinkagesVertical Linkages Horizontal LinkagesHorizontal Linkages Supporting Markets Supporting Markets
8
*Taken from: The Value Chain Framework: USAID Briefing Paper
Value Chain DynamicsValue Chain Dynamics
UpgradingUpgrading Value-Chain GovernanceValue-Chain Governance Power exercised by firms in their Power exercised by firms in their
relationships with each otherrelationships with each other Inter-firm cooperation and Inter-firm cooperation and
competitioncompetition Transfer of information and learning Transfer of information and learning
between firmsbetween firms
*Taken from: The Value Chain Framework: USAID Briefing Paper
Value Chain OutcomesValue Chain Outcomes
Value Chain competitivenessValue Chain competitiveness Micro and Small Enterprise BenefitsMicro and Small Enterprise Benefits
*Taken from: The Value Chain Framework: USAID Briefing Paper
Value Chain ApproachValue Chain Approach
Main objectives – increased Main objectives – increased competitiveness and benefits to competitiveness and benefits to marginal participants/poormarginal participants/poor
Define/Understand Value ChainDefine/Understand Value Chain Change StructureChange Structure Change Dynamics/RelationshipsChange Dynamics/Relationships
Value Chain FinancingValue Chain Financing
“ “financing provided to or by a value financing provided to or by a value chain actor in order to increase chain actor in order to increase value-chain growth and value-chain growth and competitiveness”competitiveness”
Source: Finance in the Value Chain Framework. USAID Briefing Paper
Value Chain FinancingValue Chain Financing
Identify areas in value chain where Identify areas in value chain where financing may be a constraintfinancing may be a constraint
Understand the nature of the financing Understand the nature of the financing neededneeded
Identify opportunities and constraints in Identify opportunities and constraints in increasing value chain financingincreasing value chain financing• Policy issuesPolicy issues• OtherOther
Matching financier profile to nature of Matching financier profile to nature of financing neededfinancing needed
Matching Financier to ProjectsMatching Financier to Projects
FinanciersFinanciers DonorsDonors GovernmentsGovernments Multilaterals/BilateralsMultilaterals/Bilaterals Equity InvestorsEquity Investors Value-chain Value-chain
participants (traders, participants (traders, manufacturers)manufacturers)
Informal LendersInformal Lenders Financial InstitutionsFinancial Institutions
Project TypesProject Types
Infrastructure (roads, Infrastructure (roads, bridges)bridges)
Farm productionFarm production
Processing PlantsProcessing Plants
TransportationTransportation
WarehousingWarehousing
Cooperative FormationCooperative Formation
TradingTrading
Research and Research and Development Development
Financier AttributeFinancier Attribute
Risk AppetiteRisk Appetite LowLow HighHigh
Return Return ExpectationsExpectations
FinancialFinancial SocialSocial
Payback Payback Period Period
ExpectationExpectation
ShortShort LongLong
Financing Financing CapacityCapacity
LimitedLimited Deep Deep PocketsPockets
Project CharacteristicsProject Characteristics
RiskRisk LowLow HighHigh
Return Return ExpectationsExpectations
FinanciaFinanciall
SocialSocial
Payback Payback Period Period
ExpectationExpectation
ShortShort LongLong
Financing Financing CapacityCapacity
LimitedLimited Deep Deep PocketsPockets
ProjectProject Farm Level Farm Level Production Production (small holder (small holder cash crops)cash crops)
ProcessingProcessing TradingTrading
RiskRisk HighHigh MediumMedium LowLow
Return Return ExpectationsExpectations
Financial,Financial,
LowLowFinancial,MFinancial,M
ediumediumFinancial, Financial,
HighHigh
Payback Payback Period Period
ExpectationExpectation
Short TermShort Term MediumMedium ShortShort
Financing Financing RequiredRequired
SmallSmall MediumMedium LargeLarge
ProjectProject Roads/Roads/
InfrastructureInfrastructureSocial Social
MobilizationMobilizationTechnology Technology
Research and Research and DevelopmentDevelopment
RiskRisk MediumMedium HighHigh HighHigh
Return Return ExpectationsExpectations
Financial and Financial and SocialSocial
LowLow
SocialSocial
LowLowFinancialFinancial
HighHigh
Payback Payback Period Period
ExpectationExpectation
Long TermLong Term SocialSocial
Long Long TermTerm
Financial, Financial, Long TermLong Term
Financing Financing RequiredRequired
LargeLarge MediumMedium LargeLarge
Value Chain FinancingValue Chain Financing Identify areas in value chain where Identify areas in value chain where
financing may be a constraintfinancing may be a constraint Understand the nature of the financing Understand the nature of the financing
neededneeded Identify opportunities and constraints in Identify opportunities and constraints in
increasing value chain financingincreasing value chain financing• RisksRisks• Policies that affect risksPolicies that affect risks• OtherOther
Matching financier profile to nature of Matching financier profile to nature of financing neededfinancing needed
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