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

*Taken from: The Value Chain Framework: USAID Briefing Paper

*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

Source: Value Chain Finance: Understanding and Increasing Access. USAID Concept 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

THANK YOU!THANK YOU!

Email: rontchua@gmail.comEmail: rontchua@gmail.com