Value chain financing: How agro-enterprises can serve as alternate aggregation points for delivering financial services to smallholder farmers

The tenth briefing note in a series from the Initiative for Smallholder Finance explores three channels through which value chain financing models can be delivered and identifies how these models can group “enablers” to best serve smallholders.

Agro-enterprises within the agricultural value chain can play a crucial role as aggregation points for the delivery of financial services to smallholder farmers. But effective value chain financing models are hard to get right; they require agro-enterprises and financial institutions to work together and balance their respective capabilities.

To help value chain financing unlock credit for smallholders in difficult market environments, this research recommends the following roles for key actors in the international community:

Donors:

• Fund the design and project management of collaborative value chain financing models
• Provide start-up capital for specialized financial intermediaries (e.g., dedicated asset financing or leasing companies)
• Support public good resources such as data aggregation platforms
• Support emerging models that are experimenting with useful enablers (e.g., digital platforms)

Investors:

• Participate in the design stage of collaborative value chain financing models to jointly develop appropriate financial solutions
• Provide capital to grow or scale specialized financial services intermediary models

Agro-enterprises:

• Involve financial institutions early to jointly develop value chain financing solutions with agro-enterprises; identify roles and responsibilities for each partner across the financial services value chain and incorporate enablers to reduce risk and maximize success
• Establish pre-competitive alliances with other agro-enterprises in the industry to better develop joint solutions